FIN 300 EXAMS 1 QUESTIONS AND ANSWERS
SURE A+
✔✔A synonym for pretax operating cash flow is EBIT - ✔✔False
✔✔EBITDA is more sensitive to changes in revenue than EBIT - ✔✔False
✔✔Depreciation and amortization can be considered a fixed cost of the firm, for
accounting break-even purposes - ✔✔True
✔✔Operating leverage is a measure of the sensitivity of net income to changes in
revenue - ✔✔False
✔✔If a project fails to break even from a pretax operating cash flow perspective, then
the firm is going to put more cash into the project to keep it going - ✔✔True
✔✔The crossover level of unit sales is the level at which one fixed/variable cost
combination of production will begin to generate higher levels of operating cash flows
than another fixed/variable cost combination of production - ✔✔True
✔✔The crossover level of unit sales can be calculated for any two alternatives that have
the same level of operating leverage - ✔✔False
✔✔Revenue minus variable and fixed costs best describes
A) EBITDA
B) NOPAT
C) EBIT
D) EAT - ✔✔A) EBITDA
✔✔Depreciation and amortization are treated like fixed costs
A) for computing dividend
, B) for cash flow purposes
C) in the calculation of the degree of pretax cash flow operating leverage
D) in the calculation of the degree of accounting operating leverage - ✔✔D) in the
calculation of the degree of accounting operating leverage
✔✔The difference between revenue and variable cost is called
A) EBIT
B) net profit
C) total contribution
D) EAT - ✔✔C) total contribution
✔✔If a firm were interested in knowing the effect of a single input change on the net
present value of a project, then the firm would most likely want to perform
A) a sensitivity analysis
B) a a break-even analysis
C) a Monte Carlo simulation
D) a scenario analysis - ✔✔A) a sensitivity analysis
✔✔At times, when a firm is considering an alternative such that a set of variables
affecting a project are interrelated, then analysis that considers this interrelation could
be performed. This is called:
A) a Monte Carlo simulation
B) a scenario analysis
C) a sensitivity analysis
D) a horizontal analysis - ✔✔B) a scenario analysis
✔✔If a firm is interested in the distribution of the NPV for a project that it is considering,
then the firm should be most interested in
A) a sensitivity analysis
B) a scenario analysis
C) a simulation analysis
D) a horizontal analysis - ✔✔C) a simulation analysis
✔✔Which of the following mathematical expressions is used to calculate the degree of
pretax cash flow operating leverage?
A) 1+[(FC+Depreciation and Amortization)/EBITDA]
B) 1+(FC/EBITDA)
C) 1+[(FC+Depreciation and Amortization)/EBIT]
D) 1+(FC/EBIT) - ✔✔B)1+(FC/EBITDA)
✔✔Which of the following project risk analyses is best able to analyze the effect of a
single input, uncorrelated with other inputs, on the NPV of a project?
A) Horizontal analysis
B) Sensitivity analysis
C) Scenario analysis
SURE A+
✔✔A synonym for pretax operating cash flow is EBIT - ✔✔False
✔✔EBITDA is more sensitive to changes in revenue than EBIT - ✔✔False
✔✔Depreciation and amortization can be considered a fixed cost of the firm, for
accounting break-even purposes - ✔✔True
✔✔Operating leverage is a measure of the sensitivity of net income to changes in
revenue - ✔✔False
✔✔If a project fails to break even from a pretax operating cash flow perspective, then
the firm is going to put more cash into the project to keep it going - ✔✔True
✔✔The crossover level of unit sales is the level at which one fixed/variable cost
combination of production will begin to generate higher levels of operating cash flows
than another fixed/variable cost combination of production - ✔✔True
✔✔The crossover level of unit sales can be calculated for any two alternatives that have
the same level of operating leverage - ✔✔False
✔✔Revenue minus variable and fixed costs best describes
A) EBITDA
B) NOPAT
C) EBIT
D) EAT - ✔✔A) EBITDA
✔✔Depreciation and amortization are treated like fixed costs
A) for computing dividend
, B) for cash flow purposes
C) in the calculation of the degree of pretax cash flow operating leverage
D) in the calculation of the degree of accounting operating leverage - ✔✔D) in the
calculation of the degree of accounting operating leverage
✔✔The difference between revenue and variable cost is called
A) EBIT
B) net profit
C) total contribution
D) EAT - ✔✔C) total contribution
✔✔If a firm were interested in knowing the effect of a single input change on the net
present value of a project, then the firm would most likely want to perform
A) a sensitivity analysis
B) a a break-even analysis
C) a Monte Carlo simulation
D) a scenario analysis - ✔✔A) a sensitivity analysis
✔✔At times, when a firm is considering an alternative such that a set of variables
affecting a project are interrelated, then analysis that considers this interrelation could
be performed. This is called:
A) a Monte Carlo simulation
B) a scenario analysis
C) a sensitivity analysis
D) a horizontal analysis - ✔✔B) a scenario analysis
✔✔If a firm is interested in the distribution of the NPV for a project that it is considering,
then the firm should be most interested in
A) a sensitivity analysis
B) a scenario analysis
C) a simulation analysis
D) a horizontal analysis - ✔✔C) a simulation analysis
✔✔Which of the following mathematical expressions is used to calculate the degree of
pretax cash flow operating leverage?
A) 1+[(FC+Depreciation and Amortization)/EBITDA]
B) 1+(FC/EBITDA)
C) 1+[(FC+Depreciation and Amortization)/EBIT]
D) 1+(FC/EBIT) - ✔✔B)1+(FC/EBITDA)
✔✔Which of the following project risk analyses is best able to analyze the effect of a
single input, uncorrelated with other inputs, on the NPV of a project?
A) Horizontal analysis
B) Sensitivity analysis
C) Scenario analysis
