## Quiz 9 :

Risk Analysis, Real Options, and Capital Budgeting

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The sales level that results in a project's net income exactly equaling zero is called the _____ break-even.

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C

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The Adept Co. is analyzing a proposed project. The company expects to sell 2,500 units, give or take 10%. The expected variable cost per unit is $8 and the expected fixed costs are $12,500 (including depreciation). Cost estimates are considered accurate within a plus or minus 5% range. The depreciation expense is $4,000. The sale price is estimated at $16 a unit, give or take 2%. The company bases its sensitivity analysis on the expected case scenario What is the amount of the fixed cost per unit under the pessimistic case scenario?

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Answer:

C

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An investigation of the degree to which NPV depends on assumptions made about critical variables is called a(n)

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Answer:

B

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The Adept Co. is analyzing a proposed project. The company expects to sell 2,500 units, give or take 10%. The expected variable cost per unit is $8 and the expected fixed costs are $12,500. Cost estimates are considered accurate within a plus or minus 5% range. The depreciation expense is $4,000. The sale price is estimated at $16 a unit, give or take 2%. The company bases its sensitivity analysis on the expected case scenario What is the sales revenue under the optimistic case scenario?

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The Adept Co. is analyzing a proposed project. The company expects to sell 2,500 units, give or take 10%. The expected variable cost per unit is $8 and the expected fixed costs are $12,500. Cost estimates are considered accurate within a plus or minus 5% range. The depreciation expense is $4,000. The sale price is estimated at $16 a unit, give or take 2%. The company bases its sensitivity analysis on the expected case scenario. The company is conducting a sensitivity analysis on the sales price using a sales price estimate of $17. Using this value, the earnings before interest and taxes will be:

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The Mini-Max Company has the following cost information on their new prospective project. Fixed costs are $200/year. (Initial investment is $700).
Variable costs: $3/unit.
Depreciation: $140/year.
Price: $8/unit.
Discount rate: 12%.
Project life: 3 years.
Tax rate: 34%.
Calculate the present value break-even point.

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At stage 2 of the decision tree it shows that if a project is successful the payoff will be $53,000 with a 2/3 chance of occurrence. There is also the 1/3 chance of a -$24,000 payoff. The cost of getting to stage 2 (1 year out) is $44,000. The cost of capital is 15%. What is the NPV of the project at stage 1?

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As the degree of sensitivity of a project to a single variable rises, the:

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The Adept Co. is analyzing a proposed project. The company expects to sell 2,500 units, give or take 10%. The expected variable cost per unit is $8 and the expected fixed costs are $12,500. Cost estimates are considered accurate within a plus or minus 5% range. The depreciation expense is $4,000. The sale price is estimated at $16 a unit, give or take 2%. The company bases its sensitivity analysis on the expected case scenario What is the contribution margin under the expected case scenario?

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The Mini-Max Company has the following cost information on their new prospective project. Fixed costs are $200/year. (Initial investment is $700).
Variable costs: $3/unit.
Depreciation: $140/year.
Price: $8/unit.
Discount rate: 12%.
Project life: 5 years.
Tax rate: 34%.
Calculate the accounting break-even point.

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In a decision tree, the NPV to make the yes/no decision is dependent on:

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The present value break-even point is superior to the accounting break-even point because:

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The sales level that results in a project's net present value exactly equaling zero is called the _____ break-even.

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