Student Centre | Instructor Centre | Information Centre | Home

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 2

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	Conventional capital budgeting analysis will tend to understate the true NPV of a project if any of the following are present EXCEPT:
		A)	Tax options.
		B)	The option to wait.
		C)	The option to expand.
		D)	The option to abandon.
		E)	The option to default.


2	You have put together a set of cash flow forecasts for a project and have found, on your first calculation, that the NPV is positive. You should: I. Accept the project because you are certain to increase shareholder wealth. II. Try to identify some source of value in the project. III. Use scenario or sensitivity analysis to investigate the project in greater detail. IV. Try to assess the degree of forecasting risk that exists with the project.
		A)	I and II only
		B)	II, III, and IV only
		C)	I, III, and IV only
		D)	I, II, and IV only
		E)	II and IV only


3	Which of the following describe(s) variable costs? I. Can be forecast with a high degree of certainty beforehand. II. Are equal to zero when production is zero. III. Change with the quantity of output produced.
		A)	II only
		B)	I and II only
		C)	II and III only
		D)	I and III only
		E)	I, II, and III only


4	If a firm's fixed costs are exactly equal to its depreciation expense, and both are greater than zero, then at its accounting break-even point the DOL
		A)	is equal to two
		B)	is equal to one
		C)	is greater than two
		D)	is undefined since you can't divide by zero
		E)	cannot be determined without more information


5	Soft rationing occurs when:
		A)	The firm cannot raise funds for a project under any circumstances.
		B)	All proposed projects have negative NPV.
		C)	All proposed projects have positive NPV
		D)	All proposed projects have zero NPV.
		E)	Various units in a firm are allocated a certain amount of funds for capital projects.


6	Find the accounting break-even point given the following information: Total costs = $135,000; variable cost = $10 per unit; sales = 10,000 units; price = $25; depreciation = $10,000.
		A)	1,750 units
		B)	1,667 units
		C)	1,886 units
		D)	3,000 units
		E)	2,333 units


7	A firm has a DOL = 2.5. If sales decrease by 20%, then OCF will:
		A)	decrease by 50%
		B)	increase by 20%
		C)	increase by 5%
		D)	decrease by 12.5%
		E)	decrease by 20%


8	What is the accounting break-even point? Price = $100 per unit; variable cost = $24 per unit, fixed cost = $40,000 per year; depreciation = $10,000 per year. Assume a discount rate of 10%, project initial outlay of $100,000, project life of 10 years, and ignore taxes.
		A)	1,330 units
		B)	658 units
		C)	624 units
		D)	741 units
		E)	527 units


9	What is the cash break-even point? Price = $100 per unit; variable cost = $24 per unit, fixed cost = $40,000 per year; depreciation = $10,000 per year. Assume a discount rate of 10%, project initial outlay of $100,000, project life of 10 years, and ignore taxes.
		A)	1,330 units
		B)	658 units
		C)	624 units
		D)	741 units
		E)	527 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 is the firm's marginal cost at the accounting break-even point?
		A)	$30
		B)	$25
		C)	$20
		D)	$15
		E)	$12

2002 McGraw-Hill Higher Education
Any use is subject to the Terms of Use and Privacy Policy.
McGraw-Hill Higher Education is one of the many fine businesses of The McGraw-Hill Companies.