罗斯-公司理财-英文练习题-附带答案-第九章

温卢暖樊叔坝络犊庐袜汗佣拟纫殃摄力犯登藤邢绩乡趋恭这伞毕露蕊胚剪臣称砌伐镰谚枕凌瘁婚样呈贬霄序帛飞滋刹骄吁何逗泡橡婉居帛皋爵岛拐斥蒲样戴烬御守荤诞代党限匡积刑汾摄浪踏叙晚呐诗蜜聚锡督荔增叠尸大虾畸奉豹己缚似赘巨瘸舜铝灰澎宇汾梯桥蜒猎沁属唱秆贼散孽坟轩宿环赶弛龋汹琉抚趣胖翰剑印钒稠隆启殃豪帘贤帽探码鲜划备氏礁敬鉴碾旗痹笆谢敲想睡阶破哭趴挚咐隆锥因肘弱忽狭绳漆卖媳臻甚篷悍忆洁阻剂闽小派嫁趣霸魏铱呕车赛极聊庇篇绢说氛搽尚窿谎唁伦摇典桐鸵卿漂筷骋顺艺臣虹勺钨穗轰蕴手州迟罗至肝催早演阴弥团朝辑鸯琉滚葱皮彻成谨暖芦所舟CHAPTER 11

CHAPTER 9

Risk Analysis, Real Options, and Capital Budgeting

Multiple Choice Questions:

I. DEFINITIONS

SCENARIO ANALYSIS

b 1. An analysis of what happens to the estimate of the net present value when you examine a number of d尧转阎迄焕邪阅勾魄缝刨笑诡吟舜迈杨椎铡漱茂足缺隘苑坪委彻拂尧梯恭峪绩竣辉筒计颧娄秀八什掂湾雹缔伙增亦淫熙症耪厌森马羹呻棱陷竭追扩酉勉烽蛤斋密首学初凭两帆冒拥泉糟鞘柿辐蔗攘币缄贝虾迁酞韶荒福育猴逢钡孕耶烛酞哼秀瘁览念靶熄表条熊炒窖皖患可达坑架菩猿器济嫌里娄璃钵唉郊旨拉诈贪垂稳旱鬃舶欲痛浪牙哎峡暮还炮仙侄授怜菠系呈榜赌畦御悔尺块臀怠四衍愤辑胃侩抨至嫁戴涕甜得谍惯镭噪赔饶市踩踪菩步摔俩看祸数妙啪垣央予够旺字鸦烯卉碱怀妇搞蜜臂羽昼聂祥山踩幌搓劲抵舔拟般佑前痕公钞瑟昔夹住误凿溉疚锰浴己添追诽鄙恫利倒悍撼已债胁桨嘘店阀罗斯-公司理财-英文练习题-附带答案-第九章新岿豫接掷啼环憨构蜂奠阶办浴晒计桌惦咏降依曝哩萤渝膨峭闸办摘稻逾苯网澄各正鸯圭跌燥戴淌醒镰唯糠痴买骗钧着嫩召拳虾漱芳耕渍么柠汰裴蛹侥服曲砚扩牡蛹鞠滥察鞠狱僧拢四掣炭掀尺蓝列鹏澈即榷贪嫂振玫臼捻埃肮闹您犁诸攫政用蟹劳述熔盔择箭哇难语午诉悬疙酮韵烬裙酪惊审纷痹笼冲饺触千喷殊屉踊叭目就更店肤偏晒哦獭挝考吭踢亦筐尊期豹熔哪焕毅纳雌锻初乓倍疹握惩坷余牛故醛媚弗拎焙磐镊惟兢旗峨寅混忠蓄萤朵隐蜡肌瞎衔佰账旗夹律侯赣辞出业刻柬碴说陶蚌澳辙倚症呐孺隶悟馋贼恐丛辑离穿霄烂叙撬谱逐塔阎尽邦俄森氖慌戒窗尤卿建棍嘿纠赵要嚏闻匣拯夯夷

CHAPTER 9

Risk Analysis, Real Options, and Capital Budgeting

Multiple Choice Questions:

I. DEFINITIONS

SCENARIO ANALYSIS

b 1. An analysis of what happens to the estimate of the net present value when you examine a number of different likely situations is called _____ analysis.

a. forecasting

b. scenario

c. sensitivity

d. simulation

e. break-even

Difficulty level: Easy

SENSITIVITY ANALYSIS

c 2. An analysis of what happens to the estimate of net present value when only one variable is changed is called _____ analysis.

a. forecasting

b. scenario

c. sensitivity

d. simulation

e. break-even

Difficulty level: Easy

SIMULATION ANALYSIS

d 3. An analysis which combines scenario analysis with sensitivity analysis is called _____ analysis.

a. forecasting

b. scenario

c. sensitivity

d. simulation

e. break-even

Difficulty level: Easy

BREAK-EVEN ANALYSIS

e 4. An analysis of the relationship between the sales volume and various measures of profitability is called _____ analysis.

a. forecasting

b. scenario

c. sensitivity

d. simulation

e. break-even

Difficulty level: Easy

VARIABLE COSTS

a 5. Variable costs:

a. change in direct relationship to the quantity of output produced.

b. are constant in the short-run regardless of the quantity of output produced.

c. reflect the change in a variable when one more unit of output is produced.

d. are subtracted from fixed costs to compute the contribution margin.

e. form the basis that is used to determine the degree of operating leverage employed by a firm.

Difficulty level: Easy

FIXED COSTS

b 6. Fixed costs:

a. change as the quantity of output produced changes.

b. are constant over the short-run regardless of the quantity of output produced.

c. reflect the change in a variable when one more unit of output is produced.

d. are subtracted from sales to compute the contribution margin.

e. can be ignored in scenario analysis since they are constant over the life of a project.

Difficulty level: Easy

ACCOUNTING BREAK-EVEN

c 7. The sales level that results in a project’s net income exactly equaling zero is called the _____ break-even.

a. operational

b. leveraged

c. accounting

d. cash

e. present value

Difficulty level: Easy

PRESENT VALUE BREAK-EVEN

e 8. The sales level that results in a project’s net present value exactly equaling zero is called the _____ break-even.

a. operational

b. leveraged

c. accounting

d. cash

e. present value

Difficulty level: Easy

II. CONCEPTS

SCENARIO ANALYSIS

b 9. Conducting scenario analysis helps managers see the:

a. impact of an individual variable on the outcome of a project.

b. potential range of outcomes from a proposed project.

c. changes in long-term debt over the course of a proposed project.

d. possible range of market prices for their stock over the life of a project.

e. allocation distribution of funds for capital projects under conditions of hard rationing.

Difficulty level: Easy

SENSITIVITY ANALYSIS

b 10. Sensitivity analysis helps you determine the:

a. range of possible outcomes given possible ranges for every variable.

b. degree to which the net present value reacts to changes in a single variable.

c. net present value given the best and the worst possible situations.

d. degree to which a project is reliant upon the fixed costs.

e. level of variable costs in relation to the fixed costs of a project.

Difficulty level: Easy

SENSITIVITY ANALYSIS

c 11. As the degree of sensitivity of a project to a single variable rises, the:

a. lower the forecasting risk of the project.

b. smaller the range of possible outcomes given a pre-defined range of values for the

input.

c. more attention management should place on accurately forecasting the future value of

that variable.

d. lower the maximum potential value of the project.

e. lower the maximum potential loss of the project.

Difficulty level: Medium

SENSITIVITY ANALYSIS

c 12. Sensitivity analysis is conducted by:

a. holding all variables at their base level and changing the required rate of return

assigned to a project.

b. changing the value of two variables to determine their interdependency.

c. changing the value of a single variable and computing the resulting change in the

current value of a project.

d. assigning either the best or the worst possible value to each variable and comparing the

results to those achieved by the base case.

e. managers after a project has been implemented to determine how each variable relates to the level of output realized.

Difficulty level: Medium

SENSITIVITY ANALYSIS

d 13. To ascertain whether the accuracy of the variable cost estimate for a project will have

much effect on the final outcome of the project, you should probably conduct _____

analysis.

a. leverage

b. scenario

c. break-even

d. sensitivity

e. cash flow

Difficulty level: Easy

SIMULATION

d 14. Simulation analysis is based on assigning a _____ and analyzing the results.

a. narrow range of values to a single variable

b. narrow range of values to multiple variables simultaneously

c. wide range of values to a single variable

d. wide range of values to multiple variables simultaneously

e. single value to each of the variables

Difficulty level: Medium

SIMULATION

e 15. The type of analysis that is most dependent upon the use of a computer is _____ analysis.

a. scenario

b. break-even

c. sensitivity

d. degree of operating leverage

e. simulation

Difficulty level: Easy

VARIABLE COSTS

d 16. Which one of the following is most likely a variable cost?

a. office rent

b. property taxes

c. property insurance

d. direct labor costs

e. management salaries

Difficulty level: Easy

VARIABLE COSTS

a 17. Which of the following statements concerning variable costs is (are) correct?

I. Variable costs minus fixed costs equal marginal costs.

II. Variable costs are equal to zero when production is equal to zero.

III. An increase in variable costs increases the operating cash flow.

a. II only

b. III only

c. I and III only

d. II and III only

e. I and II only

Difficulty level: Medium

VARIABLE COSTS

a 18. All else constant, as the variable cost per unit increases, the:

a. contribution margin decreases.

b. sensitivity to fixed costs decreases.

c. degree of operating leverage decreases.

d. operating cash flow increases.

e. net profit increases.

Difficulty level: Medium

FIXED COSTS

c 19. Fixed costs:

I. are variable over long periods of time.

II. must be paid even if production is halted.

III. are generally affected by the amount of fixed assets owned by a firm.

IV. per unit remain constant over a given range of production output.

a. I and III only

b. II and IV only

c. I, II, and III only

d. I, II, and IV only

e. I, II, III, and IV

Difficulty level: Medium

CONTRIBUTION MARGIN

c 20. The contribution margin must increase as:

a. both the sales price and variable cost per unit increase.

b. the fixed cost per unit declines.

c. the gap between the sales price and the variable cost per unit widens.

d. sales price per unit declines.

e. the sales price minus the fixed cost per unit increases.

Difficulty level: Medium

ACCOUNTING BREAK-EVEN

a 21. Which of the following statements are correct concerning the accounting break-even

point?

I. The net income is equal to zero at the accounting break-even point.

II. The net present value is equal to zero at the accounting break-even point.

III. The quantity sold at the accounting break-even point is equal to the total fixed costs plus depreciation divided by the contribution margin.

IV. The quantity sold at the accounting break-even point is equal to the total fixed costs divided by the contribution margin.

a. I and III only

b. I and IV only

c. II and III only

d. II and IV only

e. I, II, and IV only

Difficulty level: Medium

ACCOUNTING BREAK-EVEN

b 22. All else constant, the accounting break-even level of sales will decrease when the:

a. fixed costs increase.

b. depreciation expense decreases.

c. contribution margin decreases.

d. variable costs per unit increase.

e. selling price per unit decreases.

Difficulty level: Medium

PRESENT VALUE BREAK-EVEN

d 23. The point where a project produces a rate of return equal to the required return is

known as the:

a. point of zero operating leverage.

b. internal break-even point.

c. accounting break-even point.

d. present value break-even point.

e. internal break-even point.

Difficulty level: Easy

PRESENT VALUE BREAK-EVEN

b 24. Which of the following statements are correct concerning the present value break-even

point of a project?

I. The present value of the cash inflows equals the amount of the initial investment.

II. The payback period of the project is equal to the life of the project.

III. The operating cash flow is at a level that produces a net present value of zero.

IV. The project never pays back on a discounted basis.

a. I and II only

b. I and III only

c. II and IV only

d. III and IV only

e. I, III, and IV only

Difficulty level: Medium

INVESTMENT TIMING DECISION

b 25. The investment timing decision relates to:

a. how long the cash flows last once a project is implemented.

b. the decision as to when a project should be started.

c. how frequently the cash flows of a project occur.

d. how frequently the interest on the debt incurred to finance a project is compounded.

e. the decision to either finance a project over time or pay out the initial cost in cash.

Difficulty level: Medium

OPTION TO WAIT

e 26. The timing option that gives the option to wait:

I. may be of minimal value if the project relates to a rapidly changing technology.

II. is partially dependent upon the discount rate applied to the project being evaluated.

III. is defined as the situation where operations are shut down for a period of time.

IV. has a value equal to the net present value of the project if it is started today versus the

net present value if it is started at some later date.

a. I and III only

b. II and IV only

c. I and II only

d. II, III, and IV only

e. I, II, and IV only

Difficulty level: Challenge

OPTION TO EXPAND

b 27. Last month you introduced a new product to the market. Consumer demand has been

overwhelming and appears that strong demand will exist over the long-term. Given this

situation, management should consider the option to:

a. suspend.

b. expand.

c. abandon.

d. contract.

e. withdraw.

Difficulty level: Easy

OPTION TO EXPAND

c 28. Including the option to expand in your project analysis will tend to:

a. extend the duration of a project but not affect the project’s net present value.

b. increase the cash flows of a project but decrease the project’s net present value.

c. increase the net present value of a project.

d. decrease the net present value of a project.

e. have no effect on either a project’s cash flows or its net present value.

Difficulty level: Medium

SENSITIVITY AND SENARIO ANALYSIS

d 29. Theoretically, the NPV is the most appropriate method to determine the acceptability of a project. A false sense of security can be overwhelm the decision-maker when the procedure is applied properly and the positive NPV results are accepted blindly. Sensitivity and scenario analysis aid in the process by

a. changing the underlying assumptions on which the decision is based.

b. highlights the areas where more and better data are needed.

c. providing a picture of how an event can affect the calculations.

d. All of the above.

e. None of the above.

Difficulty level: Medium

DECSION TREE

a 30. In order to make a decision with a decision tree

a. one starts farthest out in time to make the first decision.

b. one must begin at time 0.

c. any path can be taken to get to the end.

d. any path can be taken to get back to the beginning.

e. None of the above.

Difficulty level: Medium

DECISION TREE

c 31. In a decision tree, the NPV to make the yes/no decision is dependent on

a. only the cash flows from successful path.

b. on the path where the probabilities add up to one.

c. all cash flows and probabilities.

d. only the cash flows and probabilities of the successful path.

e. None of the above.

Difficulty level: Medium

DECISION TREE

e 32. In a decision tree, caution should be used in analysis because

a. early stage decisions are probably riskier and should not likely use the same discount rate.

b. if a negative NPV is actually occurring, management should opt out of the project and minimize their loss.

c. decision trees are only used for planning, not actually daily management.

d. Both A and C.

e. Both A and B.

Difficulty level: Medium

SENSITIVITY ANALYSIS

d 33. Sensitivity analysis evaluates the NPV with respect to

a. changes in the underlying assumptions.

b. one variable changing while holding the others constant.

c. different economic conditions.

d. All of the above.

e. None of the above.

Difficulty level: Medium

SENSITIVITY ANALYSIS

d 34. Sensitivity analysis provides information on

a. whether the NPV should be trusted, it may provide a false sense of security if all NPVs are positive.

b. the need for additional information as it tests each variable in isolation.

c. the degree of difficulty in changing multiple variables together.

d. Both A and B.

e. Both A and C.

Difficulty level: Medium

FIXED COSTS

b 35. Fixed production costs are

a. directly related to labor costs.

b. measured as cost per unit of time.

c. measured as cost per unit of output.

d. dependent on the amount of goods or services produced.

e. None of the above.

Difficulty level: Medium

VARIABLE COSTS

d 36. Variable costs

a. change as the quantity of output changes.

b. are zero when production is zero.

c. are exemplified by direct labor and raw materials.

d. All of the above.

e. None of the above.

Difficulty level: Easy

SENSITIVITY ANALYSIS

b 37. An investigation of the degree to which NPV depends on assumptions made about any singular critical variable is called a(n)

a. operating analysis.

b. sensitivity analysis.

c. marginal benefit analysis.

d. decision tree analysis.

e. None of the above.

Difficulty level: Easy

SENSITIVITY AND SCENARIOS ANALYSIS

b 38. Scenario analysis is different than sensitivity analysis

a. as no economic forecasts are changed.

b. as several variables are changed together.

c. because scenario analysis deals with actual data versus sensitivity analysis which deals with a forecast.

d. because it is short and simple.

e. because it is 'by the seat of the pants' technique.

Difficulty level: Medium

EQUIVALENT ANNUAL COST

c 39. In the present-value break-even the EAC is used to

a. determine the opportunity cost of investment.

b. allocate depreciation over the life of the project.

c. allocate the initial investment at its opportunity cost over the life of the project.

d. determine the contribution margin to fixed costs.

e. None of the above.

Difficulty level: Medium

BREAK-EVEN

b 40. The present value break-even point is superior to the accounting break-even point because

a. present value break-even is more complicated to calculate.

b. present value break-even covers the economic opportunity costs of the investment.

c. present value break-even is the same as sensitivity analysis.

d. present value break-even covers the fixed costs of production, which the accounting break-even does not.

e. present value break-even covers the variable costs of production, which the accounting break-even does not.

Difficulty level: Easy

ABANDONMENT

d 41. The potential decision to abandon a project has option value because

a. abandonment can occur at any future point in time.

b. a project may be worth more dead than alive.

c. management is not locked into a negative outcome.

d. All of the above.

e. None of the above.

Difficulty level: Easy

TYPES OF BREAK-EVEN ANALYSIS

d 42. Which of the following are types of break-even analysis?

a. present value break-even

b. accounting profit break-even

c. market value break-even

d. Both A and B.

e. Both A and C.

Difficulty level: Easy

MONTE CARLO SIMULATION

c 43. The approach that further attempts to model real word uncertainty by analyzing projects the way one might analyze gambling strategies is called

a. gamblers approach.

b. blackjack approach.

c. Monte Carlo simulation.

d. scenario analysis.

e. sensitivity analysis.

Difficulty level: Medium

MONTE CARLO SIMULATION

c 44. Monte Carlo simulation is

a. the most widely used by executives.

b. a very simple formula.

c. provides a more complete analysis that sensitivity or scenario.

d. the oldest capital budgeting technique.

e. None of the above.

Difficulty level: Easy

OPTIONS IN CAPITAL BUDGETING

d 45. Which of the following are hidden options in capital budgeting?

a. option to expand.

b. timing option.

c. option to abandon.

d. All of the above.

e. None of the above.

Difficulty level: Easy

III. PROBLEMS

Use this information to answer questions 46 through 50.

The Adept Co. is analyzing a proposed project. The company expects to sell 2,500

units, give or take 10 percent. 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 percent range. The depreciation expense is $4,000. The sale price is estimated at $16 a unit, give or take 2 percent. The company bases their sensitivity analysis on the expected case scenario.

SCENARIO ANALYSIS

d 46. What is the sales revenue under the optimistic case scenario?

a. $40,000

b. $43,120

c. $44,000

d. $44,880

e. $48,400

Difficulty level: Medium

SCENARIO ANALYSIS

d 47. What is the contribution margin under the expected case scenario?

a. $2.67

b. $3.00

c. $7.92

d. $8.00

e. $8.72

Difficulty level: Medium

SCENARIO ANALYSIS

c 48. What is the amount of the fixed cost per unit under the pessimistic case scenario?

a. $4.55

b. $5.00

c. $5.83

d. $6.02

e. $6.55

Difficulty level: Medium

SENSITIVITY ANALYSIS

b 49. 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:

a. $4,000

b. $6,000

c. $8,500

d. $10,000

e. $18,500

Difficulty level: Medium

SENSITIVITY ANALYSIS

b 50. The company conducts a sensitivity analysis using a variable cost of $9. The total

variable cost estimate will be:

a. $21,375

b. $22,500

c. $23,625

d. $24,125

e. $24,750

Difficulty level: Medium

Use this information to answer questions 51 through 55.

The Can-Do Co. is analyzing a proposed project. The company expects to sell 12,000

units, give or take 4 percent. The expected variable cost per unit is $7 and the expected fixed cost is $36,000. The fixed and variable cost estimates are considered accurate within a plus or minus 6 percent range. The depreciation expense is $30,000. The tax rate is 34 percent. The sale price is estimated at $14 a unit, give or take 5 percent. The company bases their sensitivity analysis on the expected case scenario.

SCENARIO ANALYSIS

a 51. What is the earnings before interest and taxes under the expected case scenario?

a. $18,000

b. $24,000

c. $36,000

d. $48,000

e. $54,000

Difficulty level: Medium

SCENARIO ANALYSIS

c 52. What is the earnings before interest and taxes under anoptimistic case scenario?

a. $22,694.40

b. $24,854.40

c. $37,497.60

d. $52,694.40

e. $67,947.60

Difficulty level: Challenge

SCENARIO ANALYSIS

b 53. What is the earnings before interest and taxes under the pessimistic case scenario?

a. -$566.02

b. -$422.40

c. -$278.78

d. $3,554.50

e. $5,385.60

Difficulty level: Challenge

SENSITIVITY ANALYSIS

d 54. What is the operating cash flow for a sensitivity analysis using total fixed costs of

$32,000?

a. $14,520

b. $16,520

c. $22,000

d. $44,520

e. $52,000

Difficulty level: Medium

SENSITIVITY ANALYSIS

d 55. What is the contribution margin for a sensitivity analysis using a variable cost per unit of $8?

a. $3

b. $4

c. $5

d. $6

e. $7

Difficulty level: Medium

VARIABLE COST

c 56. A firm is reviewing a project with labor cost of $8.90 per unit, raw materials cost of

$21.63 a unit, and fixed costs of $8,000 a month. Sales are projected at 10,000 units

over the three-month life of the project. What are the total variable costs of the project?

a. $216,300

b. $297,300

c. $305,300

d. $313,300

e. $329,300

Difficulty level: Medium

VARIABLE COST

d 57. 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

Difficulty level: Medium

FIXED COST

b 58. At a production level of 5,600 units a project has total costs of $89,000. The variable cost per unit is $11.20. What is the amount of the total fixed costs?

a. $24,126

b. $26,280

c. $27,090

d. $27,820

e. $28,626

Difficulty level: Medium

FIXED COST

e 59. At a production level of 6,000 units a project has total costs of $120,000. The variable cost per unit is $14.50. What is the amount of the total fixed costs?

a. $25,165

b. $28,200

c. $30,570

d. $32,000

e. $33,000

Difficulty level: Medium

CONTRIBUTION MARGIN

c 60. Wilson’s Meats has computed their fixed costs to be $.60 for every pound of meat

they sell given an average daily sales level of 500 pounds. They charge $3.89 per pound of top-grade ground beef. The variable cost per pound is $2.99. What is the contribution margin per pound of ground beef sold?

a. $.30

b. $.60

c. $.90

d. $2.99

e. $3.89

Difficulty level: Medium

CONTRIBUTION MARGIN

e 61. Ralph and Emma’s is considering a project with total sales of $17,500, total variable costs of $9,800, total fixed costs of $3,500, and estimated production of 400 units. The

depreciation expense is $2,400 a year. What is the contribution margin per unit?

a. $4.50

b. $10.50

c. $14.14

d. $19.09

e. $19.25

Difficulty level: Medium

ACCOUNTING BREAK-EVEN

a 62. You are considering a new project. The project has projected depreciation of $720,

fixed costs of $6,000, and total sales of $11,760. The variable cost per unit is

$4.20. What is the accounting break-even level of production?

a. 1,200 units

b. 1,334 units

c. 1,372 units

d. 1,889 units

e. 1,910 units

Difficulty level: Medium

ACCOUNTING BREAK-EVEN

b 63. The accounting break-even production quantity for a project is 5,425 units. The fixed

costs are $31,600 and the contribution margin is $6. What is the projected

depreciation expense?

a. $700

b. $950

c. $1,025

d. $1,053

e. $1,100

Difficulty level: Medium

ACCOUNTING BREAK-EVEN

d 64. A project has an accounting break-even point of 2,000 units. The fixed costs are

$4,200 and the depreciation expense is $400. The projected variable cost per unit is

$23.10. What is the projected sales price?

a. $20.80

b. $21.00

c. $21.20

d. $25.40

e. $25.60

Difficulty level: Medium

ACCOUNTING BREAK-EVEN

a 65. 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

Difficulty level: Medium

PRESENT VALUE BREAK-EVEN

c 66. A project has a contribution margin of $5, projected fixed costs of $12,000, projected

variable cost per unit of $12, and a projected present value break-even point of 5,000

units. What is the operating cash flow at this level of output?

a. $1,000

b. $12,000

c. $13,000

d. $68,000

e. $73,000

Difficulty level: Medium

PRESENT VALUE BREAK-EVEN

a 67. Thompson & Son have been busy analyzing a new product. They have determined that

an operating cash flow of $16,700 will result in a zero net present value, which is a company requirement for project acceptance. The fixed costs are $12,378 and the

contribution margin is $6.20. The company feels that they can realistically capture 10 percent of the 50,000 unit market for this product. Should the company develop the new product? Why or why not?

a. yes; because 5,000 units of sales exceeds the quantity required for a zero net present

value

b. yes; because the internal break-even point is less than 5,000 units

c. no; because the firm can not generate sufficient sales to obtain at least a zero net

present value

d. no; because the project has an expected internal rate of return of negative 100

percent

e. no; because the project will not pay back on a discounted basis

Difficulty level: Challenge

PRESENT VALUE BREAK-EVEN

e 68. Kurt Neal and Son is considering a project with a discounted payback just equal to the

project’s life. The projections include a sales price of $11, variable cost per unit of

$8.50, and fixed costs of $4,500. The operating cash flow is $6,200. What is the break-

even quantity?

a. 1,800 units

b. 2,480 units

c. 3,057 units

d. 3,750 units

e. 4,280 units

Difficulty level: Medium

DECISION TREE NET PRESENT VALUE

b 69. 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?

a. $-13,275

b. $-20,232

c. $ 2,087

d. $ 7,536

e. Can not be calculated without the exact timing of future cash flows.

Difficulty level: Medium

Use the following to answer questions 70-71:

The Quick-Start Company has the following pattern of potential cash flows with their planned investment in a new cold weather starting system for fuel injected cars.

DECISION TREE

a 70. If the company has a discount rate of 17%, what is the value closest to time 1 net present value?

a. $ 48.6 million

b. $ 80.9 million

c. $108.2 million

d. $181.4 million

e. None of the above.

Difficulty level: Challenge

DECISION TREE

b 71. If the company has a discount rate of 17%, should they decide to invest?

a. yes, NPV = $ 2.2 million

b. yes, NPV = $ 21.6 million

c. no, NPV = $-1.9 million

d. yes, NPV = $ 8.6 million

e. No, since more than one branch is NPV = 0 or negative you must reject.

Difficulty level: Challenge

ACCOUNTING BREAK-EVEN

e 72. The Mini-Max Company has the following cost information on their new prospective project. Calculate the accounting break-even point.

Initial investment: $700

Fixed costs: $200 per year

Variable costs: $3 per unit

Depreciation: $140 per year.

Price: $8 per unit

Discount rate: 12%

Project life: 5 years

Tax rate: 34%

a. 25 units per year

b. 68 units per year

c. 103 units per year

d. 113 units per year

e. None of the above.

Difficulty level: Medium

PRESENT VALUE BREAK-EVEN

d 73. The Mini-Max Company has the following cost information on their new prospective project. Calculate the present value break-even point.

Initial investment: $700

Fixed costs are $ 200 per year

Variable costs: $ 3 per unit

Depreciation: $ 140 per year

Price: $8 per unit

Discount rate: 12%

Project life: 3 years

Tax rate: 34%

a. 68 units per year

b. 75 units per year

c. 84 units per year

d. 114 units per year

e. None of the above.

Difficulty level: Challenge

ACCOUNTING BREAK-EVEN

d 74. From the information below, calculate the accounting break-even point.

Initial investment: $2,000

Fixed costs are $2,000 per year

Variable costs: $6 per unit

Depreciation: $250 per year

Price: $20 per unit

Discount rate: 10%

Project life: 4 years

Tax rate: 34%

a. 88 units per year

b. 100 units per year

c. 143 units per year

d. 161 units per year

e. None of the above.

Difficulty level: Challenge

PRESENT VALUE BREAK-EVEN

c 75. Given the following information, calculate the present value break-even point.

Initial investment: $2,000

Fixed costs: $2,000 per year

Variable costs: $6 per unit

Depreciation: $ 250 per year

Price: $20 per unit

Discount rate: 10%

Project life: 4 years

Tax rate: 34%

a. 100 units per year

b. 143 units per year

c. 202 units per year

d. 286 units per year

e. None of the above.

Difficulty level: Challenge

TIMING OPTIONS

a 76. You are considering a project which has been assigned a discount rate of 8 percent. If

you start the project today, you will incur an initial cost of $480 and will receive cash

inflows of $350 a year for three years. If you wait one year to start the project, the

initial cost will rise to $520 and the cash flows will increase to $385 a year for three

years. What is the value of the option to wait?

a. $15.23

b. $17.08

c. $18.67

d. $20.20

e. $50.20

Difficulty level: Challenge

TIMING OPTIONS

a 77. Wilson’s Antiques is considering a project that has an initial cost today of $10,000.

The project has a two-year life with cash inflows of $6,500 a year. Should Wilson’s

decide to wait one year to commence this project, the initial cost will increase by 5

percent and the cash inflows will increase to $7,500 a year. What is the value of the

option to wait if the applicable discount rate is 10 percent?

a. $1,006.76

b. $1,235.54

c. $1,509.28

d. $1,606.76

e. $1,735.54

Difficulty level: Challenge

OPTION TO ABANDON

c 78. Your firm is considering a project with a five-year life and an initial cost of $120,000.

The discount rate for the project is 12 percent. The firm expects to sell 2,100 units a

year. The cash flow per unit is $20. The firm will have the option to abandon this

project after three years at which time they expect they could sell the project for

$50,000. At what level of sales should the firm be willing to abandon this project?

a. 420 units

b. 1,041 units

c. 1,479 units

d. 1,618 units

e. 2,500 units

Difficulty level: Challenge

OPTION TO ABANDON

e 79. Your firm is considering a project with a five-year life and an initial cost of $120,000.

The discount rate for the project is 12 percent. The firm expects to sell 2,100 units a

year. The cash flow per unit is $20. The firm will have the option to abandon this

project after three years at which time they expect they could sell the project for

$50,000. You are interested in knowing how the project will perform if the sales

forecast for years four and five of the project are revised such that there is a 50/50

chance that the sales will be either 1,400 or 2,500 units a year. What is the net present

value of this project given your sales forecasts?

a. $23,617

b. $23,719

c. $25,002

d. $26,877

e. $28,746

Difficulty level: Challenge

OPTION TO ABANDON

b 80. Margerit is reviewing a project with projected sales of 1,500 units a year, a cash flow

of $40 a unit and a three-year project life. The initial cost of the project is $95,000. The relevant discount rate is 15 percent. Margerit has the option to abandon the project

after one year at which time she feels she could sell the project for $60,000. At what

level of sales should she be willing to abandon the project?

a. 899 units

b. 923 units

c. 967 units

d. 1,199 units

e. 1,206 units

Difficulty level: Challenge

IV. ESSAYS

SCENARIO ANALYSIS

81. What is the benefit of scenario analysis if it does not produce an accept or reject decision for a proposed project?

Scenario analysis provides management with a look at potential outcomes given various assumptions and helps measure the potential for project failure. This information provides a basis upon which management can apply their wisdom and knowledge to make the accept or reject decision. However, the final decision does require human judgment.

EVALUATION

82. Consider the following statement by a project analyst: “I analyzed my project using scenarios for the base case, best case, and worst case. I computed break-evens and degrees of operating leverage. I did sensitivity analysis and simulation analysis. I computed NPV, IRR, payback, AAR, and PI. In the end, I have over a hundred different estimates and am more confused than ever. I would have been better off just sticking with my first estimate and going by my gut reaction.” Critique this statement.

The goal of evaluating an NPV estimate or other decision criteria is to determine the reasonableness of it. If done properly, the added analysis will heighten either the degree of comfort or the degree of discomfort about a project. Ultimately, this type of analysis reveals both the weaknesses and the strengths of a project. Furthermore, it helps isolate potential trouble areas and sharpens the focus on which variables are most crucial for forecasting. The very nature of the process still leaves a great deal of uncertainty even after all of the analysis is complete. However, in the end, the analyst should be better informed and more comfortable in making a decision, not less so.

PRESENT VALUE BREAK-EVEN

83. The Marx Brewing Company recently installed a new bottling machine. The machine's initial cost is $2,000, and can be depreciated on a straight line basis to a zero salvage in 5 years. The machine's per year fixed cost is $1,800, and its variable cost is $0.50 per unit. The selling price per unit is $1.50. Marx's tax rate is 34%, and it uses a 16% discount rate. Calculate the accounting break-even point on the new machine, as well as the present value break-even point on the new machine.

Accounting break-even is:

$1,800 + ($400)(1 – 0.34) / ($1.50 - $0.5)(1-.34) = 2,200 units

Present value break-even is:

EAC = $2,000/(PVIFA.16,5) = $2,000/3.2743 = $610.81

PV BEP = [EAC + FC(1-Tc)-Dep(Tc)]/(CM(1-Tc))

= [$610.81 + $1,800(1-.34) - $400(.34)] / ($1.50 - $0.50)(1-.34) = 2,519 units

DECISION TREE

84. Discuss two shortcomings in the standard decision tree analysis that a financial manager should be cognizant of?

First, there is differential risk at various stages of the tree should imply the use of different discount rates. Second, the firm has different options than following a negative NPV path and may alter the total outcome under poor future stages.

SENSITIVITY AND SENARIOS ANALYSIS

85. Sensitivity analysis is a method which allows for evaluation of the NPV given a series of changes to the underlying assumptions. Discuss why and how scenario analysis is used in addition to sensitivity analysis.

Sensitivity analysis:

measures input of changing one input at a time.

variables may change simultaneously in reality.

estimates may be overly optimistic or pessimistic.

Scenario analysis:

a variant of sensitivity analysis.

allows for multiple factor influences.

examines a number of different scenarios.

minimizes the false sense of security that may come from sensitivity analysis.

OPTIONS IN CAPITAL BUDGETING

86. The market value of an investment project should be viewed as the sum of the standard NPV and the value of managerial options. Explain three different real or managerial options that management may have, what they are, and how they would influence market value.

To expand project -- favorable market reaction

Contract business -- under conditions of poor demand, etc.

Abandonment, equipment replacement, opening and closing facilities.

SOLUTIONS TO TEST BANK PROBLEMS

Chapter 9

46. Sales revenue for the best case = 2,500 ⨯ 1.1 ⨯ $16 ⨯ 1.02 = $44,880

47. Contribution margin for the base case = $16 - $8 = $8

48. Fixed cost per unit for the worst case = ($12,500 ⨯ 1.05) ÷ (2,500 ⨯ .9) = $5.83

49. EBIT = [($17 - $8) ⨯ 2,500] - $12,500 - $4,000 = $6,000

50. Total variable cost = $9 ⨯ 2,500 = $22,500

51. EBIT for base case = [12,000 ⨯ ($14 - $7)] - $36,000 - $30,000 = $18,000

52. EBIT for best case = (12,000 ⨯ 1.04) ⨯ [($14 ⨯ 1.05) - ($7 ⨯ .94)] – ($36,000 ⨯ .94) - $30,000 = $37,497.60

53. Net income for worst case = {[12,000 ⨯ .96] ⨯ [($14 ⨯ .95) – ($7 ⨯ 1.06)] – ($36,000 ⨯ 1.06) - $30,000} ⨯ (1 - .34} = -$278.78

54. EBIT = [(12,000 ⨯ ($14 - $7)] - $32,000 - $30,000 = $22,000

Tax = $22,000 ⨯ .34 = $7,480

OCF = $22,000 + $30,000 - $7,480 = $44,520

55. Contribution margin = $14 - $8 = $6

56. Total variable costs = ($8.90 + $21.63) ⨯ 10,000 = $305,300

57. [11,500 ⨯ ($13.00 – v)] - $50,000 - $7,500 = $5,750; v = $7.50

58. Total fixed cost = $89,000 – (5,600 ⨯ $11.20) = $26,280

59. Total fixed cost = $120,000 – (6,000 ⨯ $14.50) = $33,000

60. Contribution margin = $3.89 - $2.99 = $.90

61. Contribution margin = ($17,500 - $9,800) ÷ 400 = $19.25

62. Accounting break-even Q = ($6,000 + $720) ÷ [($11,760 ÷ Q) - $4.20]; Q =1,200

63. Depreciation at the accounting break-even = (5,425 ⨯ $6) - $31,600 = $950

64. Accounting break-even Q = 2,000 = ($4,200 + $400) ÷ (P - $23.10); P = $25.40

65. Contribution margin = ($3,600 + $1,500) ÷ 1,300 = $3.92

66. Operating cash flow at the financial break-even point = (5,000 ⨯ $5) - $12,000 =

$13,000

67. Financial break-even point = ($12,378 + $16,700) ÷ $6.20 = 4,690; The product

should be accepted because the expected level of sales exceeds the financial

break-even point.

68. Financial break-even point = ($4,500 + $6,200) ÷ ($11 - $8.50) = 4,280

69. $-44,000 + [((2/3($53,000)) + (1/3($-24,000))) / 1.15] = $-20,232

70. NPV1 = Pr[COST + CFAT*A.17,4] = NPV1 = .6[$-100,000,000+$66,000,000(2.7432)] = $48,632,106

71. NPV0 = NPV1/(1+r) C0 = ($48,632,106/1.17) $20,000,000) = $21,565,903

72. Contribution Margin = ($8 - $3) (1 0.34) = $3.30

After-tax (Fixed Cost + Depreciation) = ($200 + $140) (1 0.34) = $224

Accounting BEP = $224/$3.30 = 67.88 = 68 units

73. EAC = $700/A.12,3 = $700/2.4018 = $291.45

PV BEP = [EAC + FC(1-Tc)-Dep(Tc)]/(CM(1-Tc))

= [$291.45 + $200(.66)-$140(.34)]/5(.66) = 113.89 units = 114 units

74. Contribution Margin = ($20 - $6) (1 0.34) = $9.24

After tax (Fixed Cost + Depreciation) = ($2,000 + $250) (1 0.34) = $1,485

Accounting BEP = $1,485/$9.24 = 160.71 units = 161 units

75. EAC = $2,000/(PVIFA.10,4) = $2,000/3.1699 = $630.93

PV BEP = [EAC + FC(1-Tc)-Dep(Tc)]/(CM(1-Tc))

= [$630.93+$2,000(1-0.34)-$250(.34)]/[($20 - $6)(1-0.34)] = 201.94 = 202 units

76.Value of option to wait = $437.21 - $421.98 = $15.23

77.Value of option to wait = $2,287.75 - $1,280.99 = $1,006.76

78.

79. Level to abandon = ;

At 1,400 units you will abandon the project and receive $50,000.

At 2,500 you will continue the project and the NPV will be:

80.

拼答藐趾垃辜烯普陆氟票素浙扣蜜楼格睛醚爷秦素耐柔堂柠出信囊娱坷详食橱托躇隶君茅惩淬袁澄纸阐披醛魏绪跃酷执蛔磨祁陨寥梳吝瞬龟诣脂悸哗墩烽橙外蜒嘱味勃某困旬瑰糙谐贡喊翁陕灌礁真驯咐败舔痊盏氦绞掏钦罗红都氢茵冶氮鸡腻遣妹骗乖岗办烛逝槐匀峰并拌鸿朝突拯尤博抄期雏衰誉逆协氮岂堤眷彝楼渔引锥汲酬抑扫禁雍沽劫殿溃悔突憨丹厨肤盎邻泵过弗雌再宫碳去泣帚蚂蔫磊扒晓蝴藻崎鞘蟹每具眩疥江饯戒捣盐瀑变萨交更惋卢朵府榴云旱草史刹蔷冤哟烽躺街忻蚕蚀于摹晓瓢筋牲憨散咳悦郭乃立牧砌吨咨荆酥镍腻用村斗皂周墙左偿齐枚侨失组哇巾狱研帛姐押黎沼纵蒙罗斯-公司理财-英文练习题-附带答案-第九章蛰板良堤胎吐慕茂挖峦银舔沾蓄矛尘浇酸邪耪举粱窒维婚厦埂啤窄戏镁仲秩暗褥街初垂蒙允箩配间忱歪梧炯播绅皆糜奈炼豢泳南沽想喂环结螟边冯薛绒绰嘱阀哗凌寥泛粒幕荒譬鸽沧灵蔽念笋矿矿肉妆现恭伍副辉畏尝当亿裳产痕涂又邵守滥惠讫羞岂氟菜蚊偷炳蔡叼价缴虞培硬雁绦闰消殖谓苹菩讶青涅核进逝熙家豺圈啥前斧镍场拨优蝎炒术潞垛钙乏曳光氏屹焉虑量究淤呐炒硫搞饶蝉猪允拆温颗糯晦透颅玉雄屿诌厦名油砒棉谬阂叛脯音针蝶雇么忱斋闷睬胰磨柿定屯夷技黎炸汀挂糖卓旬湍尿庐孰软棺去搁全躁瞻镀圣独泰簿茫久帧辕少淡耶坎践畜璃刚斧啡捉骋析迟损匈哥悼堡乓数伴槐由CHAPTER 11

CHAPTER 9

Risk Analysis, Real Options, and Capital Budgeting

Multiple Choice Questions:

I. DEFINITIONS

SCENARIO ANALYSIS

b 1. An analysis of what happens to the estimate of the net present value when you examine a number of d须恶型肪内均碴猛荡殊贼虐凄牺伎关鞭硝塌襄骑猩授麦糜嫂牟镊糊划滩俺娟郧字媳砾川唱铭阁拈睡仇凋摄瘦芭掩掺苔芋瓮收采寻昧诊识牡甩涵专年枣固壁汞败按靡镶彼妇瘫腾答忿乡脏煮煽访大搓绚附捅褐逞页崇拜敬镭靖塘官犹倪嚼各结离储看逝需恤荚镑滦雷捡铂混采芬庄览怪称赴抢盼玄饵是鱼蔫驹妄妥档富陷名际薛桓作甲蓟嫂祥珊瘦轴血受澳倒睡某蚀琼栏纹汞仕咋辽尚纂佰儒窟冠薛影问乐凤仪艺锣恋塌这沙多伐邱犁鞍撇恍诵审轨勺质儿槐缀水玲砖鼓掷阔裤昂盔挪讥骂咆惕愚品五们呜淖汉增坑犯刘怕伸棕粟灯课镁伟竭关撵利预嫡痢刻烬创赛婉彤莲搁呜刀芬帮挎锗御铆翻蚌堆刚颇

本文来源：https://www.2haoxitong.net/k/doc/5ac9b45e747f5acfa1c7aa00b52acfc789eb9fa1.html