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Fundamentals of Corporate Finance, 4/c/e

Fundamentals of Corporate Finance, 4/e

Stephen A. Ross, Massachusetts Institute of Technology
Randolph W. Westerfield, University of Southern California
Bradford D. Jordan, University of Kentucky
Gordon S. Roberts, York University

Project Analysis and Evaluation

Quick Quiz 1

After taking this quiz, click 'Submit Answers' for graded results. You'll also have the option of emailing the results to your instructor and/or yourself.


1	A financial manager reviewing a project is concerned about the level of forecasting risk in the project's estimated cash flows. The manager should use __________ to identify the variable that presents the highest degree of forecasting risk.
		A)	simulation analysis
		B)	scenario analysis
		C)	break-even analysis
		D)	sensitivity analysis
		E)	strategic options analysis


2	Which of the following statements regarding operating leverage is correct?
		A)	All else the same, operating leverage will rise as output increases.
		B)	It is generally easier to decrease operating leverage than it is to increase it.
		C)	All else the same, firms with high operating leverage have higher total fixed costs.
		D)	In order to calculate the degree of operating leverage all that is needed are variable costs and operating cash flows.
		E)	All else the same, the degree of operating leverage rises as the price per unit is increased.


3	Which of the following describe(s) fixed costs? I. Are constant for a given period of time. II. Are equal to zero when production is zero. III. Change with the quantity of output produced.
		A)	II only
		B)	I only
		C)	I and II only
		D)	I and III only
		E)	II and III only


4	A project with IRR = -100% is operating at the __________ break-even point.
		A)	leveraged
		B)	accounting
		C)	financial
		D)	sales
		E)	cash


5	The change in firm costs that occurs for the next unit of output is called:
		A)	Average cost.
		B)	Marginal cost.
		C)	Total cost.
		D)	Fixed cost.
		E)	Variable cost.


6	Investigating forecasting risk by changing a single variable is known as:
		A)	Sensitivity analysis.
		B)	Scenario analysis.
		C)	Simulation analysis.
		D)	NPV analysis.
		E)	Break even analysis.


7	Find the accounting break-even point given the following information: Price = $50 per unit; variable cost = $35 per unit; annual fixed costs = $50,000; depreciation = $10,000.
		A)	4,000 units
		B)	2,298 units
		C)	3,429 units
		D)	3,333 units
		E)	1,160 units


8	What is the degree of operating leverage? Sales = 100,000 units; price = $50; variable cost = $30; fixed costs = $950,000; depreciation = $250,000; tax rate = 34%.
		A)	1.06
		B)	1.22
		C)	1.37
		D)	1.63
		E)	2.22


9	Given the following information and ignoring taxes, what is the financial break-even point? Initial investment = $250,000; variable cost = $120; fixed cost = $65,000; price = $150; life = 6 years; required return = 10%; depreciation = $50,000; salvage value of assets = $25,000; initial net working capital investment = $10,000.
		A)	4,005 units
		B)	2,600 units
		C)	3,972 units
		D)	1,392 units
		E)	4,308 units


10	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

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