Question 1

A firm has fixed costs of $30,000 per year, depreciation of $10,000 per year, a price per unit of $50, and an accounting break-even point of 2,000 units. What are the firm's total variable costs at the accounting break-even point?
A) $40,000
B) $50,000
C) $60,000
D) $70,000
E) $80,000

Accepted Answer

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Question 2

A project has an accounting break-even point of 41,400 units. The fixed costs are $198,634 and the depreciation expense is $21,200. The projected variable cost per unit is $41.50. What is the projected sales price?
A) $37.07
B) $41.41
C) $42.19
D) $46.81
E) $54.28

Accepted Answer

To find the projected sales price, use the break-even formula: Fixed Costs + Depreciation = (Sales Price - Variable Cost) * Break-even Units. Plug in the values: $198,634 + $21,200 = (Sales Price - $41.50) * 41,400. Solving for Sales Price gives $46.81.

Question 3

Matrix, Inc. currently has sales of $39,600, variable costs of $28,730, and fixed costs of $8,280. If the company installs a new piece of equipment, the variable costs are expected to increase to $34,970 and the number of units produced will increase from 2,800 to 4,100. What is the minimum price the company can accept for each of the additional units if they want to maintain their current level of net income?
A) $1.52
B) $4.80
C) $5.73
D) $6.82
E) $10.55

Accepted Answer

The answer of Matrix, Inc. currently has sales of $39,600,...

Question 4

What is the contribution margin for a sensitivity analysis using a variable cost per unit of $9?
A) $3
B) $4
C) $7
D) $9
E) $13

Accepted Answer

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Question 5

A project has projected sales of 25,600 units with a selling price of $4.95 each. Annual fixed costs are $31,000 with variable costs of $2.18 per unit. The project has a three-year life and requires an initial investment of $62,900 for equipment. The equipment will be depreciated straight-line to zero over three years. The sales price has a plus-minus range of 10% while the cost estimates are expected to vary within a 5% range. The quantity has a plus-minus range of 8%. The tax rate is 34%. Under the best-case scenario, what is the operating cash flow?
A) $22,268
B) $28,292
C) $42,867
D) $43,235
E) $49,259

Accepted Answer

Under the best-case scenario, sales price, quantity, and costs are at their most favorable values. Calculate the revenue, subtract variable and fixed costs, and add back depreciation to find the operating cash flow.

Question 6

Magellen Industries is analyzing a new project. The data they have gathered to date is as follows:  Initial requirement for equipment: $120,000
Depreciation: Straight-line to zero over the four-year life of the project with no salvage value.
Required rate of return: 15%
Marginal tax rate: 35%
What is the variable cost under the best-case scenario?
A) $45,600
B) $50,400
C) $53,200
D) $56,000
E) $58,800

Accepted Answer

The answer of Magellen Industries is analyzing a new project....

Question 7

The Alfonso Company is analyzing a project with expected sales of 4,000 units, give or take 5 percent. The expected variable cost per unit is $9 and the expected total fixed costs are $17,000. Cost estimates are considered accurate within a plus or minus 2 percent range. The depreciation expense is $3,000. The sale price is estimated at $18 a unit, give or take 5 percent. Sensitivity analysis is based on the most likely scenario.

What is the amount of the fixed cost per unit under the base case scenario?
A) $3.60
B) $3.80
C) $4.00
D) $4.10
E) $4.25

Accepted Answer

The answer of The Alfonso Company is analyzing a project...

Question 8

The company is conducting a sensitivity analysis on the sales price using a sales price estimate of $23. What are the earnings before interest and taxes?
A) $38,000
B) $44,000
C) $50,000
D) $59,500
E) $65,000

Accepted Answer

The correct answer is A because the earnings before interest and taxes is $38,000. This is calculated by taking the sales price of $23 and multiplying it by the number of units sold, which is 2,000. This gives us a total sales revenue of $46,000. We then subtract the cost of goods sold, which is $8,000, to get the earnings before interest and taxes of $38,000.

Question 9

Magellen Industries is analyzing a new project. The data they have gathered to date is as follows:  Initial requirement for equipment: $120,000
Depreciation: Straight-line to zero over the four-year life of the project with no salvage value.
Required rate of return: 15%
Marginal tax rate: 35%
What is the net present value under the best-case scenario?
A) -$11,664
B) -$7,946
C) $7,946
D) $11,665
E) $37,946

Accepted Answer

The answer of Magellen Industries is analyzing a new project....

Question 10

A project has a contribution margin of $6, projected fixed costs of $14,000, projected variable cost per unit of $14, and a projected financial break-even point of 6,000 units. What is the operating cash flow at this level of output?
A) $22,000
B) $34,000
C) $46,000
D) $62,000
E) $70,000

Accepted Answer

The operating cash flow at the financial break-even point is equal to the contribution margin per unit multiplied by the number of units sold. In this case, the contribution margin per unit is $6 and the number of units sold at the financial break-even point is 6,000. Therefore, the operating cash flow at the financial break-even point is $6 x 6,000 = $36,000.

Question 11

The accounting break-even production quantity for a project is 6,208 units. The fixed costs are $27,400 and the contribution margin is $5.20. What is the projected depreciation expense?
A) $4,413.66
B) $4,881.60
C) $5,002.50
D) $5,087.30
E) $5,133.33

Accepted Answer

The answer of The accounting break-even production quantity for a...

Question 12

A firm is considering a project with a cash break-even point of 13,500 units. The selling price is $13 a unit and the variable cost per unit is $7. What is the projected amount of fixed costs?
A) $64,000
B) $70,500
C) $74,500
D) $78,000
E) $81,000

Accepted Answer

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Question 13

A project has earnings before interest and taxes of $6,500, fixed costs of $40,000, a selling price of $12 a unit, and a sales quantity of 10,000 units. Depreciation is $8,500. What is the variable cost per unit?
A) $6.25
B) $6.50
C) $6.75
D) $7.00
E) $7.25

Accepted Answer

To find the variable cost per unit, we first calculate the total revenue and total costs. Total revenue is $12 * 10,000 = $120,000. Total costs include fixed costs ($40,000), depreciation ($8,500), and variable costs. Earnings before interest and taxes (EBIT) is $6,500, so total costs are $120,000 - $6,500 = $113,500. Subtract fixed costs and depreciation from total costs to find total variable costs: $113,500 - $40,000 - $8,500 = $65,000. Divide total variable costs by the number of units to find the variable cost per unit: $65,000 / 10,000 = $6.50.

Question 14

A proposed project has fixed costs of $3,600, depreciation expense of $1,500, and a sales quantity of 1,300 units. What is the contribution margin if the projected level of sales is the accounting break-even point?
A) $3.92
B) $4.14
C) $4.50
D) $4.80
E) $5.00

Accepted Answer

At the accounting break-even point, total revenues equal total expenses (including both variable and fixed costs plus depreciation). The formula to find the contribution margin per unit is: $ \text{Contribution Margin} = \frac{\text{Total Fixed Costs} + \text{Depreciation}}{\text{Sales Quantity}} $. Plugging in the given values: $ \frac{3600 + 1500}{1300} = \frac{5100}{1300} = 3.923 $ or approximately $3.92.

Question 15

A project has expected sales of 21,000 units at a price of $14.99, variable costs of $9.03, and fixed costs of $58,590. What is the contribution margin per unit?
A) $2.79
B) $3.17
C) $5.96
D) $9.03
E) $14.99

Accepted Answer

The contribution margin per unit is calculated by subtracting the variable cost per unit from the selling price per unit. Thus, $14.99 - $9.03 = $5.96.

Question 16

A project has earnings before interest and taxes of $5,750, fixed costs of $50,000, a selling price of $13 a unit, and a sales quantity of 11,500 units. Depreciation is $7,500. What is the variable cost per unit?
A) $6.75
B) $7.00
C) $7.25
D) $7.50
E) $7.75

Accepted Answer

The variable cost per unit can be calculated by first determining the total revenue, then subtracting the fixed costs, depreciation, and earnings before interest and taxes (EBIT) from the total revenue to find the total variable cost. Finally, divide the total variable cost by the quantity of units sold to find the variable cost per unit. Total revenue = $13 * 11,500 = $149,500. Total costs (excluding variable costs) = $50,000 (fixed costs) + $7,500 (depreciation) + $5,750 (EBIT) = $63,250. Total revenue - Total costs (excluding variable costs) = $149,500 - $63,250 = $86,250 (total variable costs). Variable cost per unit = $86,250 / 11,500 units = $7.50.

Question 17

The Alfonso Company is analyzing a project with expected sales of 4,000 units, give or take 5 percent. The expected variable cost per unit is $9 and the expected total fixed costs are $17,000. Cost estimates are considered accurate within a plus or minus 2 percent range. The depreciation expense is $3,000. The sale price is estimated at $18 a unit, give or take 5 percent. Sensitivity analysis is based on the most likely scenario.

What is the sales revenue under the worst case scenario?
A) $64,980
B) $68,400
C) $71,820
D) $72,610
E) $75,600

Accepted Answer

The worst-case scenario for sales revenue occurs when both the sales volume and the sale price are at their lowest estimates. The lowest sales volume is 4,000 units minus 5%, which is 3,800 units. The lowest sale price is $18 minus 5%, which is $17.10. Therefore, the worst-case sales revenue is 3,800 units * $17.10 = $64,980.

Question 18

The Franklin Co. is analyzing a proposed project. The company expects to sell 3,500 units, give or take 15 percent. The expected variable cost per unit is $6 and the expected fixed costs are $15,500. Cost estimates are considered accurate within a plus or minus 5 percent range. The depreciation expense is $6,000. The sales price is estimated at $21 a unit, give or take 3 percent. The company bases their sensitivity analysis on the base case scenario

What is the sales revenue under the worst case scenario?
A) $60,600.75
B) $62,474.00
C) $73,500.00
D) $84,525.00
E) $87,060.75

Accepted Answer

The worst-case scenario for sales revenue involves selling the lowest number of units at the lowest price. The lowest number of units is 3,500 - (3,500 * 15%) = 2,975 units. The lowest sales price is $21 - ($21 * 3%) = $20.37 per unit. Therefore, the worst-case sales revenue is 2,975 units * $20.37 = $60,600.75.

Question 19

A project requires an initial investment of $10,000, straight-line depreciable to zero over four years. The discount rate is 10%. Your tax bracket is 34% and you receive a tax credit for negative earnings in the year in which the loss occurs. Additional information for variables with forecast error are shown below.  What is the base case NPV for the project?
A) $1,523
B) $4,974
C) $5,247
D) $6,529
E) $8,281

Accepted Answer

The answer of A project requires an initial investment of...

Question 20

A firm is considering a project with a cash break-even point of 8,100 units. The selling price is $12.50 a unit and the variable cost per unit is $6.25. What is the amount of the total fixed costs?
A) $49,375
B) $49,875
C) $50,625
D) $51,125
E) $51,938

Accepted Answer

The answer of A firm is considering a project with...

Quiz 11: Project Analysis and Evaluation

A firm has fixed costs of $30,000 per year, depreciation of $10,000 per year, a price per unit of $50, and an accounting break-even point of 2,000 units. What are the firm's total variable costs at the accounting break-even point?

A project has an accounting break-even point of 41,400 units. The fixed costs are $198,634 and the depreciation expense is $21,200. The projected variable cost per unit is $41.50. What is the projected sales price?

What is the contribution margin for a sensitivity analysis using a variable cost per unit of $9?

The company is conducting a sensitivity analysis on the sales price using a sales price estimate of $23. What are the earnings before interest and taxes?

A project has a contribution margin of $6, projected fixed costs of $14,000, projected variable cost per unit of $14, and a projected financial break-even point of 6,000 units. What is the operating cash flow at this level of output?

The accounting break-even production quantity for a project is 6,208 units. The fixed costs are $27,400 and the contribution margin is $5.20. What is the projected depreciation expense?

A firm is considering a project with a cash break-even point of 13,500 units. The selling price is $13 a unit and the variable cost per unit is $7. What is the projected amount of fixed costs?

A project has earnings before interest and taxes of $6,500, fixed costs of $40,000, a selling price of $12 a unit, and a sales quantity of 10,000 units. Depreciation is $8,500. What is the variable cost per unit?

A proposed project has fixed costs of $3,600, depreciation expense of $1,500, and a sales quantity of 1,300 units. What is the contribution margin if the projected level of sales is the accounting break-even point?

A project has expected sales of 21,000 units at a price of $14.99, variable costs of $9.03, and fixed costs of $58,590. What is the contribution margin per unit?

A project has earnings before interest and taxes of $5,750, fixed costs of $50,000, a selling price of $13 a unit, and a sales quantity of 11,500 units. Depreciation is $7,500. What is the variable cost per unit?

A firm is considering a project with a cash break-even point of 8,100 units. The selling price is $12.50 a unit and the variable cost per unit is $6.25. What is the amount of the total fixed costs?