FIN Final 6406 (NO WRITEN - ONLY MULTIPLE
CHOICE) With 100% correct answers.
Forecasting risk is defined as the possibility that:
-some proposed projects will be rejected.
-some proposed projects will be temporarily delayed.
-incorrect decisions will be made due to erroneous cash flow projections.
-some projects will be mutually exclusive.
-tax rates could change over the life of a project. correct answers incorrect decisions will be
made due to erroneous cash flow projections.
The key means of defending against forecasting risk is to:
-rely primarily on the net present value method of analysis.
-increase the discount rate assigned to a project.
-shorten the life of a project.
-identify sources of value within a project.
-ignore any potential salvage value that might be realized. correct answers identify sources of
value within a project.
Mon Mothma is fairly cautious when analyzing a new project and thus she projects the most
optimistic, the most realistic, and the most pessimistic outcome that can reasonably be
expected. Which type of analysis is she using?
-Simulation testing
-Sensitivity analysis
-Break-even analysis
-Rationing analysis
-Scenario analysis correct answers Scenario analysis
Scenario analysis is best suited to accomplishing which one of the following when analyzing
a project?
-Determining how fixed costs affect NPV
-Estimating the residual value of fixed assets
-Identifying the potential range of reasonable outcomes
-Determining the minimal level of sales required to break-even on an accounting basis
-Determining the minimal level of sales required to break-even on a financial basis correct
answers Identifying the potential range of reasonable outcomes
Which one of the following will be used in the computation of the best-case analysis of a
proposed project?
-Minimal number of units that are expected to be produced and sold
-The lowest expected salvage value that can be obtained for a project's fixed assets
-The most anticipated sales price per unit
-The lowest variable cost per unit that can reasonably be expected
,-The highest level of fixed costs that is actually anticipated correct answers The lowest
variable cost per unit that can reasonably be expected
The base case values used in scenario analysis are the values considered to be the most:
-optimistic.
-desired by management.
-pessimistic.
-likely to create a positive net present value.
-likely to occur. correct answers likely to occur.
Which of the following variables will be forecast at their highest expected level under a best-
case scenario?
-Fixed costs and units value
-Variable costs and sales price
-Fixed costs and sales price
-Salvage value and units sold
-Initial cost and variable costs correct answers Salvage value and units sold
Which one of the following statements concerning scenario analysis is correct?
-The pessimistic case scenario determines the maximum loss, in current dollars, that a firm
could possibly incur from a given project.
-Scenario analysis defines the entire range of results that could be realized from a proposed
investment project.
-Scenario analysis determines which variable has the greatest impact on a project's final
outcome.
-Scenario analysis helps managers analyze various outcomes that are possible given
reasonable ranges for each of the assumptions.
-Management is guaranteed a positive outcome for a project when the worst-case scenario
produces a positive NPV. correct answers Scenario analysis helps managers analyze various
outcomes that are possible given reasonable ranges for each of the assumptions.
Sensitivity analysis determines the:
-range of possible outcomes given that most variables are reliable only within a stated range.
-degree to which the net present value reacts to changes in a single variable.
-net present value range that can be realized from a proposed project.
-degree to which a project relies on its initial costs.
-ideal ratio of variable costs to fixed costs for profit maximization. correct answers degree to
which the net present value reacts to changes in a single variable.
As the degree of sensitivity of a project to a single variable rises, the:
-less important the variable is to the final outcome of the project.
-less volatile the project's net present value is to that variable.
-greater is the importance of accurately predicting the value of that variable.
-greater is the sensitivity of the project to the other variable inputs.
,-less volatile is the project's outcome. correct answers greater is the importance of accurately
predicting the value of that variable.
A firm's managers realize they cannot monitor all aspects of their projects but do want to
maintain a constant focus on the key aspect of each project in an attempt to maximize their
firm's value. Given this specific desire, which type of analysis should they require for each
project and why?
-Sensitivity analysis; to identify the key variable that affects a project's profitability
-Scenario analysis; to guarantee each project will be profitable
-Cash breakeven; to ensure the firm recoups its initial investment
-Accounting breakeven; to ensure each project earns its required rate of return
-Financial breakeven; to ensure each project has a positive NPV correct answers Sensitivity
analysis; to identify the key variable that affects a project's profitability
Simulation analysis is based on assigning a ________ and analyzing the results.
-a narrow range of values to a single variable
-narrow range of values to multiple -variables simultaneously
-wide range of values to a single variable
-wide range of values to multiple variables simultaneously
-single value to each of the variables correct answers wide range of values to multiple
variables simultaneously
An analysis of the change in a project's NPV when a single variable is changed is called
________ analysis.
-forecasting
-scenario
-sensitivity
-simulation
-break-even correct answers sensitivity
Variable costs can be defined as the costs that:
-remain constant for all time periods.
-remain constant over the short run.
-vary directly with sales.
-are classified as noncash expenses.
-are inversely related to the number of units sold. correct answers vary directly with sales.
Fixed costs:
-change as a small quantity of output produced changes.
-are constant over the short run regardless of the quantity of output produced.
-are defined as the change in total costs when one more unit of output is produced.
-are subtracted from sales to compute the contribution margin.
-can be ignored in scenario analysis since they are constant over the life of a project. correct
answers are constant over the short-run regardless of the quantity of output produced.
, By definition, which one of the following must equal zero at the accounting break-even
point?
-Net present value
-Depreciation
-Contribution margin
-Net income
-Operating cash flow correct answers Net income
Which one of these combinations must increase the contribution margin?
-Increasing both the sales price and the variable cost per unit
-Increasing the sales quantity and increasing the variable cost per unit
-Decreasing the sales price and increasing the sales quantity
-Decreasing both fixed costs and depreciation expense
-Increasing the sales price and decreasing the variable cost per unit correct answers
Increasing the sales price and decreasing the variable cost per unit
Qui-Gon Jinn, the sales manager for Obi One Light Sabers, wants to sponsor a one-week
"Customer Appreciation Sale" where the firm offers to sell additional units of a product at the
lowest price possible without negatively affecting the firm's profits. Which one of the
following represents the price that should be charged for the additional units during this sale?
-Average variable cost
-Average total cost
-Average total revenue
-Marginal revenue
-Marginal cost correct answers Marginal cost
The contribution margin per unit is equal to the:
-sales price per unit minus the total costs per unit.
-variable cost per unit minus the fixed cost per unit.
-sales price per unit minus the variable cost per unit.
-pretax profit per unit.
-aftertax profit per unit. correct answers sales price per unit minus the variable cost per unit.
Poe Dameron Leather Wear started a new project last year. As it turns out, the project has
been operating at its accounting break-even level of output and is now expected to continue at
that level over its lifetime. Given this, you know that the project:
-will never pay back.
-has a zero net present value.
-is operating at a higher level than if it were operating at its cash break-even level.
-is operating at a higher level than if it were operating at its financial break-even level.
-is lowering the total net income of the firm. correct answers is operating at a higher level
than if it were operating at its cash break-even level.
A project that has a payback period exactly equal to the project's life is operating at:
CHOICE) With 100% correct answers.
Forecasting risk is defined as the possibility that:
-some proposed projects will be rejected.
-some proposed projects will be temporarily delayed.
-incorrect decisions will be made due to erroneous cash flow projections.
-some projects will be mutually exclusive.
-tax rates could change over the life of a project. correct answers incorrect decisions will be
made due to erroneous cash flow projections.
The key means of defending against forecasting risk is to:
-rely primarily on the net present value method of analysis.
-increase the discount rate assigned to a project.
-shorten the life of a project.
-identify sources of value within a project.
-ignore any potential salvage value that might be realized. correct answers identify sources of
value within a project.
Mon Mothma is fairly cautious when analyzing a new project and thus she projects the most
optimistic, the most realistic, and the most pessimistic outcome that can reasonably be
expected. Which type of analysis is she using?
-Simulation testing
-Sensitivity analysis
-Break-even analysis
-Rationing analysis
-Scenario analysis correct answers Scenario analysis
Scenario analysis is best suited to accomplishing which one of the following when analyzing
a project?
-Determining how fixed costs affect NPV
-Estimating the residual value of fixed assets
-Identifying the potential range of reasonable outcomes
-Determining the minimal level of sales required to break-even on an accounting basis
-Determining the minimal level of sales required to break-even on a financial basis correct
answers Identifying the potential range of reasonable outcomes
Which one of the following will be used in the computation of the best-case analysis of a
proposed project?
-Minimal number of units that are expected to be produced and sold
-The lowest expected salvage value that can be obtained for a project's fixed assets
-The most anticipated sales price per unit
-The lowest variable cost per unit that can reasonably be expected
,-The highest level of fixed costs that is actually anticipated correct answers The lowest
variable cost per unit that can reasonably be expected
The base case values used in scenario analysis are the values considered to be the most:
-optimistic.
-desired by management.
-pessimistic.
-likely to create a positive net present value.
-likely to occur. correct answers likely to occur.
Which of the following variables will be forecast at their highest expected level under a best-
case scenario?
-Fixed costs and units value
-Variable costs and sales price
-Fixed costs and sales price
-Salvage value and units sold
-Initial cost and variable costs correct answers Salvage value and units sold
Which one of the following statements concerning scenario analysis is correct?
-The pessimistic case scenario determines the maximum loss, in current dollars, that a firm
could possibly incur from a given project.
-Scenario analysis defines the entire range of results that could be realized from a proposed
investment project.
-Scenario analysis determines which variable has the greatest impact on a project's final
outcome.
-Scenario analysis helps managers analyze various outcomes that are possible given
reasonable ranges for each of the assumptions.
-Management is guaranteed a positive outcome for a project when the worst-case scenario
produces a positive NPV. correct answers Scenario analysis helps managers analyze various
outcomes that are possible given reasonable ranges for each of the assumptions.
Sensitivity analysis determines the:
-range of possible outcomes given that most variables are reliable only within a stated range.
-degree to which the net present value reacts to changes in a single variable.
-net present value range that can be realized from a proposed project.
-degree to which a project relies on its initial costs.
-ideal ratio of variable costs to fixed costs for profit maximization. correct answers degree to
which the net present value reacts to changes in a single variable.
As the degree of sensitivity of a project to a single variable rises, the:
-less important the variable is to the final outcome of the project.
-less volatile the project's net present value is to that variable.
-greater is the importance of accurately predicting the value of that variable.
-greater is the sensitivity of the project to the other variable inputs.
,-less volatile is the project's outcome. correct answers greater is the importance of accurately
predicting the value of that variable.
A firm's managers realize they cannot monitor all aspects of their projects but do want to
maintain a constant focus on the key aspect of each project in an attempt to maximize their
firm's value. Given this specific desire, which type of analysis should they require for each
project and why?
-Sensitivity analysis; to identify the key variable that affects a project's profitability
-Scenario analysis; to guarantee each project will be profitable
-Cash breakeven; to ensure the firm recoups its initial investment
-Accounting breakeven; to ensure each project earns its required rate of return
-Financial breakeven; to ensure each project has a positive NPV correct answers Sensitivity
analysis; to identify the key variable that affects a project's profitability
Simulation analysis is based on assigning a ________ and analyzing the results.
-a narrow range of values to a single variable
-narrow range of values to multiple -variables simultaneously
-wide range of values to a single variable
-wide range of values to multiple variables simultaneously
-single value to each of the variables correct answers wide range of values to multiple
variables simultaneously
An analysis of the change in a project's NPV when a single variable is changed is called
________ analysis.
-forecasting
-scenario
-sensitivity
-simulation
-break-even correct answers sensitivity
Variable costs can be defined as the costs that:
-remain constant for all time periods.
-remain constant over the short run.
-vary directly with sales.
-are classified as noncash expenses.
-are inversely related to the number of units sold. correct answers vary directly with sales.
Fixed costs:
-change as a small quantity of output produced changes.
-are constant over the short run regardless of the quantity of output produced.
-are defined as the change in total costs when one more unit of output is produced.
-are subtracted from sales to compute the contribution margin.
-can be ignored in scenario analysis since they are constant over the life of a project. correct
answers are constant over the short-run regardless of the quantity of output produced.
, By definition, which one of the following must equal zero at the accounting break-even
point?
-Net present value
-Depreciation
-Contribution margin
-Net income
-Operating cash flow correct answers Net income
Which one of these combinations must increase the contribution margin?
-Increasing both the sales price and the variable cost per unit
-Increasing the sales quantity and increasing the variable cost per unit
-Decreasing the sales price and increasing the sales quantity
-Decreasing both fixed costs and depreciation expense
-Increasing the sales price and decreasing the variable cost per unit correct answers
Increasing the sales price and decreasing the variable cost per unit
Qui-Gon Jinn, the sales manager for Obi One Light Sabers, wants to sponsor a one-week
"Customer Appreciation Sale" where the firm offers to sell additional units of a product at the
lowest price possible without negatively affecting the firm's profits. Which one of the
following represents the price that should be charged for the additional units during this sale?
-Average variable cost
-Average total cost
-Average total revenue
-Marginal revenue
-Marginal cost correct answers Marginal cost
The contribution margin per unit is equal to the:
-sales price per unit minus the total costs per unit.
-variable cost per unit minus the fixed cost per unit.
-sales price per unit minus the variable cost per unit.
-pretax profit per unit.
-aftertax profit per unit. correct answers sales price per unit minus the variable cost per unit.
Poe Dameron Leather Wear started a new project last year. As it turns out, the project has
been operating at its accounting break-even level of output and is now expected to continue at
that level over its lifetime. Given this, you know that the project:
-will never pay back.
-has a zero net present value.
-is operating at a higher level than if it were operating at its cash break-even level.
-is operating at a higher level than if it were operating at its financial break-even level.
-is lowering the total net income of the firm. correct answers is operating at a higher level
than if it were operating at its cash break-even level.
A project that has a payback period exactly equal to the project's life is operating at:
