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Exam 11: Project Analysis and Evaluation

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Question 31

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A proposed project has fixed costs of $36,000 per year.The operating cash flow at 18,000 units is $58,000.What will be the new degree of operating leverage if the number of units sold rises to 18,500?

A) 1.46
B) 1.59
C) 1.67
D) 2.08
E) 2.14

F) D) and E)
G) None of the above

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Question 32

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At a production level of 4,500 units,a project has total costs of $107,000.The variable cost per unit is $12.50.Assume the firm can increase production by 1,000 units without increasing its fixed costs.What will the total costs be if 4,800 units are produced?

A) $102,780
B) $104,640
C) $106,400
D) $108,000
E) $110,750

F) C) and D)
G) B) and E)

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Question 33

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Operating leverage is the degree of dependence a firm places on its:

A proposed project has fixed costs of $9,800,depreciation expense of $2,550,and a sales quantity of 2,100 units.The total variable costs are $5,607.What is the contribution margin per unit if the projected level of sales is the accounting break-even point?

Consider a 6-year project with the following information: initial fixed asset investment = $460,000; straight-line depreciation to zero over the 6-year life; zero salvage value; price = $34; variable costs = $19; fixed costs = $188,600; quantity sold = 90,528 units; tax rate = 32 percent.What is the sensitivity of OCF to changes in quantity sold?

Which one of the following represents the level of output where a project produces a rate of return just equal to its requirement?

The accounting break-even production quantity for a project is 12,320 units.The fixed costs are $216,000 and the contribution margin per unit is $28.The fixed assets required for the project will be depreciated on straight-line basis to zero over the project's 5-year life.What is the amount of fixed assets required for this project?

Your company is reviewing a project with estimated labor costs of $21.20 per unit,estimated raw material costs of $37.18 a unit,and estimated fixed costs of $20,000 a month.Sales are projected at 42,000 units over the one-year life of the project.All estimates are accurate within a range of plus or minus 4 percent.What are the total variable costs for the worst-case scenario?

Steele Insulators is analyzing a new type of insulation for interior walls.Management has compiled the following information to determine whether or not this new insulation should be manufactured.The insulation project has an initial fixed asset requirement of $1.3 million,which would be depreciated straight-line to zero over the 12-year life of the project.Projected fixed costs are $769,000 and the anticipated annual operating cash flow is $241,000.What is the degree of operating leverage for this project?

Which one of the following will be used in the computation of the best-case analysis of a proposed project?

The change in variable costs that occurs when production is increased by one unit is referred to as the:

Which of the following statements are identified with financial break-even point? I.The present value of the cash inflows exactly offsets the initial cash outflow. II.The payback period is equal to the life of the project. III.The NPV is zero. IV.The discounted payback period equals the life of the project.

The change in revenue that occurs when one more unit of output is sold is referred to as:

Wexford Industrial Supply is considering a new project with estimated depreciation of $26,000,fixed costs of $79,000,and total sales of $187,000.The variable costs per unit are estimated at $11.80.What is the accounting break-even level of production?

Hybrid cars are touted as a "green" alternative; however,the financial aspects of hybrid ownership are not as clear.Consider a hybrid model that has a list price of $5,500 (including tax consequences) more than a comparable car with a traditional gasoline engine.Additionally,the annual ownership costs (other than fuel) for the hybrid were expected to be $420 more than the traditional model.The EPA mileage estimate is 23 mpg for the traditional model and 25 mpg for the hybrid model.Assume the appropriate interest rate is 10 percent,all cash flows occur at the end of the year,you drive 15,900 miles per year,and keep either car for 6 years.What price per gallon would make the decision to buy they hybrid worthwhile?

When you assign the lowest anticipated sales price and the highest anticipated costs to a project,you are analyzing the project under the condition known as:

A project has a unit price of $5,000,a variable cost per unit of $3,750,fixed costs of $17,000,000,and depreciation expense of $6,970,000.What is the accounting break-even quantity?

What are the key features of the accounting,cash,and financial break-even points?

An increase in which of the following will increase the accounting break-even quantity? Assume straight-line depreciation is used. I.annual salary for the firm's president II.contribution margin per unit III.cost of equipment required by a project IV.variable cost per unit

A project has earnings before interest and taxes of $14,600,fixed costs of $52,000,a selling price of $29 a unit,and a sales quantity of 16,000 units.All estimates are accurate within a plus/minus range of 3 percent.Depreciation is $12,000.What is the base case variable cost per unit?