Question 1

Calculate the break-even level of sales, assuming: $1.4 million fixed costs, $400,000 depreciation expense, and variable costs-to-sales ratio of 65 percent.
A)$2,769,231
B)$2,857,143
C)$4,000,000
D)$5,142,857 Break-even sales =

Accepted Answer

The break-even sales level is calculated by dividing the total fixed costs (including depreciation) by the contribution margin ratio (1 - variable cost ratio). Here, the total fixed costs are $1.4 million + $400,000 = $1.8 million, and the contribution margin ratio is 1 - 0.65 = 0.35. Thus, break-even sales = $1.8 million / 0.35 = $5,142,857.

Question 2

Market demand allowed Acme Corp.to raise its price by 20 percent to $60.What is the new level of break-even revenues if fixed charges including depreciation are $1 million and variable costs were 70 percent of the old price?
A)$2,000,000
B)$2,400,000
C)$2,857,143
D)$3,333,333 old price =

Accepted Answer

The answer of Market demand allowed Acme Corp.to raise its...

Question 3

What is the maximum percentage of variable costs in relation to sales that a firm could experience and still break even with $5 million revenue, $1 million fixed costs, and $500,000 depreciation?
A)30 percent
B)70 percent
C)80 percent
D)90 percent

Accepted Answer

To break even, the total costs of the firm must be equal to its total revenue. 
Total costs = Fixed costs + Variable costs + Depreciation 
Let's express the variable costs as a percentage of sales: 
Total costs = Fixed costs + (Variable costs as % of sales)*Sales + Depreciation 
$5 million = $1 million + (% of sales)*$5 million + $500,000 
$3.5 million = (% of sales)*$5 million 
% of sales = 70% 
Therefore, the maximum percentage of variable costs in relation to sales that a firm could experience and still break even with $5 million revenue, $1 million fixed costs, and $500,000 depreciation is 70%.

Question 4

What is the break-even level of revenues for a firm with $6 million in sales, variable costs of $3.9 million, fixed costs of $1.2 million, and depreciation of $1 million?
A)$3,428,571
B)$6,100,000
C)$6,285,700
D)$6,557,377 Variable costs =

Accepted Answer

Total costs = Variable costs + Fixed costs + Depreciation
Total costs = $3.9 million + $1.2 million + $1 million
Total costs = $6.1 million

Break-even level of revenues = Total costs / Contribution margin ratio
Contribution margin ratio = (Sales - Variable costs) / Sales
Contribution margin ratio = ($6 million - $3.9 million) / $6 million
Contribution margin ratio = 0.35

Break-even level of revenues = $6.1 million / 0.35
Break-even level of revenues = $17.428.571

Therefore, the break-even level of revenues for the firm is $6,285,700. So, the correct answer is (C).

Question 5

How much does each additional sales dollar contribute toward profit for a firm with $5 million break-even level of revenues and $1.5 million in fixed costs including depreciation?
A)$0.30
B)$0.33
C)$0.50
D)$0.67 Break-even level of revenues =

Accepted Answer

The answer of How much does each additional sales dollar...

Question 6

Which of the following is not subtracted from sales revenues to determine pretax profit?
A)Depreciation
B)Fixed costs
C)Interest expense
D)Variable costs

Accepted Answer

Interest expense is not subtracted from sales revenues to determine pretax profit; it is subtracted after calculating operating profit to determine taxable income.

Question 7

Which of the following changes, if of a sufficient magnitude, could turn a negative NPV project into a positive NPV project?
A)A decrease in the estimated annual sales
B)An increase in the discount rate
C)An increase in the initial investment
D)A decrease in the fixed costs

Accepted Answer

Decreasing fixed costs would reduce overall expenses and improve the potential for revenue to exceed costs, resulting in a higher net present value. A decrease in the estimated annual sales or an increase in the discount rate would likely have the opposite effect, reducing revenues and increasing costs. An increase in the initial investment would also likely decrease the net present value, as it would increase the overall project cost without increasing the potential for revenues.

Question 8

A firm with 60 percent of sales going to variable costs, $1.5 million fixed costs, and $500,000 depreciation would show what accounting profit with sales of $3 million? Ignore taxes.
A)Zero loss
B)$370,000 loss
C)$666,667 Loss
D)$800,000 loss

Accepted Answer

The answer of A firm with 60 percent of sales...

Question 9

Fixed costs including depreciation have increased at Leverage, Inc.from $4 million to $6 million in an effort to reduce variable costs.What must the new variable-cost percentage be to leave break-even at $20 million?
A)60 percent
B)65 percent
C)70 percent
D)75 percent Old: = $20 million
$\rightarrow$ Variable costs = 80%
New: = $20 million
X = 30%

Accepted Answer

To maintain the break-even point at $20 million with increased fixed costs, the new variable-cost percentage must be 70%. This is calculated by adjusting the variable costs to account for the increased fixed costs while keeping the total costs at the break-even sales level.

Question 10

The difference between an NPV break-even level of sales and an accounting break-even level of sales is:
A)The consideration of opportunity cost
B)The consideration of depreciation expense
C)Allowing the sales level to vary in response to changes in demand
D)The inclusion of income taxes

Accepted Answer

The NPV break-even level of sales factors in the opportunity cost, which is the cost of the next-best alternative forgone, while the accounting break-even level of sales only considers the fixed and variable costs associated with the production of goods or services. The other options (B, C, and D) do not differentiate between the two types of break-even analyses.

Question 11

The break-even level of sales represents the point where:
A)Fixed costs are covered
B)Variable costs are covered
C)Fixed costs and variable costs are covered
D)Fixed costs, variable costs, and depreciation are covered

Accepted Answer

The answer of The break-even level of sales represents the...

Question 12

Approximately how much was paid to invest in a project that has an NPV break-even level of sales of $5 million, cash flows determined by: .1 
*sales - $300,000, a six-year life, and an 8 percent discount rate?
A)$416,667
B)$924,500
C)$1,016,678
D)$2,311,450 PV (cash flows) = investment

Accepted Answer

The answer of Approximately how much was paid to invest...

Question 13

What effect will a reduction in the cost of capital have on the accounting break-even level of revenues?
A)It raises the break-even level
B)It reduces the break-even level
C)It has no effect on the break-even level
D)This cannot be determined without knowing the length of the investment horizon

Accepted Answer

The answer of What effect will a reduction in the...

Question 14

Break-even revenues on an accounting basis typically indicate a:
A)Negative NPV for the firm
B)Positive NPV for the firm
C)High degree of operating leverage
D)Downturn in the business cycle

Accepted Answer

Break-even revenues on an accounting basis mean that total revenues equal total costs, resulting in zero profit. This implies that the net present value (NPV) is zero or negative, as there are no excess returns over costs.

Question 15

What is the effect on break-even level of revenues for each dollar of increase in fixed costs plus depreciation for a firm with 70 percent variable costs?
A)An increase of $0.30.
B)An increase of $1.00.
C)An increase of $1.43.
D)An increase of $3.33 Break-even level of revenue =

Accepted Answer

The break-even level of revenue increases by the reciprocal of the contribution margin ratio. With 70% variable costs, the contribution margin ratio is 30% (1 - 0.70). The reciprocal of 0.30 is approximately 3.33, so each dollar increase in fixed costs increases the break-even revenue by $3.33.

Question 16

The break-even level of revenues represents the point at which the firm has:
A)Zero pretax profit
B)Zero net present value
C)Covered all opportunity costs
D)covered all fixed and variable costs

Accepted Answer

The answer of The break-even level of revenues represents the...

Question 17

Calculate the NPV break-even level of sales for a project requiring an investment of $3,000,000 and providing as cash flows: .15 *sales less $250,000.Assume the project will generate these cash flows for 10 years and that the discount rate is 10 percent.
A)$3,254,890
B)$3,504,890
C)$4,921,549
D)$19,686,667 PV cash flows = investment
6)14457(.15 sales - 250,000) = $3,000,000
)92169 sales - 1,536,142.50 = $3,000,000
)92169 sales = $4,536,142.50

Accepted Answer

The answer of Calculate the NPV break-even level of sales...

Question 18

Calculate the ratio of variable-costs-to-sales for a firm with: $3,000,000 accounting break-even revenues, $1.2 million fixed costs, and $450,000 depreciation.
A)40 percent
B)45 percent
C)55 percent
D)60 percent Break even =

Accepted Answer

The accounting break-even point can be calculated as:

Accounting Break-Even Point = Fixed Costs + Depreciation / Contribution Margin Ratio

Contribution Margin Ratio = 1 - Variable Costs-to-Sales Ratio

We know that the accounting break-even revenue is $3,000,000, fixed costs are $1.2 million, and depreciation is $450,000. Therefore,

$3,000,000 = $1,200,000 + $450,000 / (1 - Variable Costs-to-Sales Ratio)

Solving for the variable-costs-to-sales ratio, we get:

Variable Costs-to-Sales Ratio = 45%

Therefore, the ratio of variable-costs-to-sales for this firm is 45%. Thus, the correct answer is B.

Question 19

If the level of sales is less than that calculated as the NPV break-even level, then the:
A)Project will break even only in accounting terms
B)Project's NPV will be greater than zero but less than the opportunity cost of capital
C)Project will have a negative NPV
D)Discount rate should be reduced

Accepted Answer

If the level of sales is less than the NPV break-even level, it means that the project is not generating enough cash flows to cover its costs and achieve a positive net present value. Therefore, the project will have a negative NPV, which indicates that it is not economically viable and should not be pursued. A and B are incorrect because they suggest that the project is somehow profitable or beneficial, while D is not a relevant solution to this problem.

Question 20

If forecasted sales exceed the break-even level but are less than the NPV break-even level, the project has a:
A)Positive NPV but earns less than the discount rate
B)Negative NPV but earns more than the discount rate
C)Net loss on the income statement
D)Net profit on the income statement

Accepted Answer

The answer of If forecasted sales exceed the break-even level...

Quiz 10: Project Analysis

Calculate the break-even level of sales, assuming: $1.4 million fixed costs, $400,000 depreciation expense, and variable costs-to-sales ratio of 65 percent.

Market demand allowed Acme Corp.to raise its price by 20 percent to $60.What is the new level of break-even revenues if fixed charges including depreciation are $1 million and variable costs were 70 percent of the old price?

What is the maximum percentage of variable costs in relation to sales that a firm could experience and still break even with $5 million revenue, $1 million fixed costs, and $500,000 depreciation?

What is the break-even level of revenues for a firm with $6 million in sales, variable costs of $3.9 million, fixed costs of $1.2 million, and depreciation of $1 million?

How much does each additional sales dollar contribute toward profit for a firm with $5 million break-even level of revenues and $1.5 million in fixed costs including depreciation?

Which of the following is not subtracted from sales revenues to determine pretax profit?

Which of the following changes, if of a sufficient magnitude, could turn a negative NPV project into a positive NPV project?

A firm with 60 percent of sales going to variable costs, $1.5 million fixed costs, and $500,000 depreciation would show what accounting profit with sales of $3 million? Ignore taxes.

Fixed costs including depreciation have increased at Leverage, Inc.from $4 million to $6 million in an effort to reduce variable costs.What must the new variable-cost percentage be to leave break-even at $20 million?

The difference between an NPV break-even level of sales and an accounting break-even level of sales is:

The break-even level of sales represents the point where:

Approximately how much was paid to invest in a project that has an NPV break-even level of sales of $5 million, cash flows determined by: .1 *sales - $300,000, a six-year life, and an 8 percent discount rate?

What effect will a reduction in the cost of capital have on the accounting break-even level of revenues?

Break-even revenues on an accounting basis typically indicate a:

What is the effect on break-even level of revenues for each dollar of increase in fixed costs plus depreciation for a firm with 70 percent variable costs?

The break-even level of revenues represents the point at which the firm has:

Calculate the NPV break-even level of sales for a project requiring an investment of $3,000,000 and providing as cash flows: .15 *sales less $250,000.Assume the project will generate these cash flows for 10 years and that the discount rate is 10 percent.

Calculate the ratio of variable-costs-to-sales for a firm with: $3,000,000 accounting break-even revenues, $1.2 million fixed costs, and $450,000 depreciation.

If the level of sales is less than that calculated as the NPV break-even level, then the:

If forecasted sales exceed the break-even level but are less than the NPV break-even level, the project has a: