ch8
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ch8

Course Number: NIKA 101, Spring 2011

College/University: Acton School of Business

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ch8 Student: _______________________________________________________________________________________ Multiple Choice Questions 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. B. C. D. E. forecasting scenario sensitivity simulation break-even 2. An analysis of what happens to the estimate of net present...

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_______________________________________________________________________________________ Multiple ch8 Student: Choice Questions 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. B. C. D. E. forecasting scenario sensitivity simulation break-even 2. An analysis of what happens to the estimate of net present value when only one variable is changed is called _____ analysis. A. B. C. D. E. forecasting scenario sensitivity simulation break-even 3. An analysis which combines scenario analysis with sensitivity analysis is called _____ analysis. A. B. C. D. E. forecasting scenario sensitivity simulation break-even 4. An analysis of the relationship between the sales volume and various measures of profitability is called _____ analysis. A. B. C. D. E. forecasting scenario sensitivity simulation break-even 5. Variable costs: A. B. C. D. E. change in direct relationship to the quantity of output produced. are constant in the short-run regardless of the quantity of output produced. are equal to the change in a variable when one more unit of output is produced. are subtracted from fixed costs to compute the contribution margin. form the basis that is used to determine the degree of operating leverage employed by a firm. 6. Fixed costs: A. B. C. D. E. change as the quantity of output produced changes. are constant over the short-run regardless of the quantity of output produced. reflect the change in a variable 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. 7. The sales level that results in a project's net income exactly equaling zero is called the _____ breakeven. A. B. C. D. E. operational leveraged accounting cash present value 8. The sales level that results in a project's net present value exactly equaling zero is called the _____ break-even. A. B. C. D. E. operational leveraged accounting cash present value 9. Conducting scenario analysis helps managers see the: A. B. C. D. E. impact of an individual variable on the outcome of a project. potential range of outcomes from a proposed project. changes in long-term debt over the course of a proposed project. possible range of market prices for their firm's stock over the life of a project. allocation distribution of funds for capital projects under conditions of hard rationing. 10. Sensitivity analysis helps you determine the: A. B. C. D. E. range of possible outcomes given possible ranges for every variable. degree to which the net present value reacts to changes in a single variable. net present value given the best and the worst possible situations. degree to which a project is reliant upon the fixed costs. level of variable costs in relation to the fixed costs of a project. 11. As the degree of sensitivity of a project to a single variable rises, the: A. B. C. D. E. lower the forecasting risk of the project. smaller the range of possible outcomes given a pre-defined range of values for the input. more attention management should place on accurately forecasting the future value of that variable. lower the maximum potential value of the project. lower the maximum potential loss of the project. 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 every 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. 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. B. C. D. E. leverage scenario break-even sensitivity cash flow 14. Simulation analysis is based on assigning a _____ and analyzing the results. A. B. C. D. E. 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 15. The type of analysis that is most dependent upon the use of a computer is _____ analysis. A. B. C. D. E. scenario break-even sensitivity degree of operating leverage simulation 16. Which one of the following is most likely a variable cost? A. B. C. D. E. office rent property taxes property insurance direct labor costs management salaries 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. C. D. E. III only I and III only II and III only I and II only 18. All else constant, as the variable cost per unit increases, the: A. B. C. D. E. contribution margin decreases. sensitivity to fixed costs decreases. degree of operating leverage decreases. operating cash flow increases. net profit increases. 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. B. C. D. E. I and III only II and IV only I, II, and III only I, II, and IV only I, II, III, and IV 20. All else equal, the contribution margin must increase as: A. B. C. D. E. both the sales price and variable cost per unit increase. the fixed cost per unit declines. the variable cost per unit declines. sales price per unit declines. the sales price minus the fixed cost per unit increases. 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. B. C. D. E. I and III only I and IV only II and III only II and IV only I, II, and IV only 22. All else constant, the accounting break-even level of sales will decrease when the: A. fixed costs increase. B. C. D. E. depreciation expense decreases. contribution margin decreases. variable costs per unit increase. selling price per unit decreases. 23. The point where a project produces a rate of return equal to the required return is known as the: A. B. C. D. E. point of zero operating leverage. internal break-even point. accounting break-even point. present value break-even point. income break-even point. 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. B. C. D. E. I and II only I and III only II and IV only III and IV only I, III, and IV only 25. The investment timing decision relates to: A. B. C. D. E. how long the cash flows last once a project is implemented. the decision as to when a project should be started. how frequently the cash flows of a project occur. how frequently the interest on the debt incurred to finance a project is compounded. the decision to either finance a project over time or pay out the initial cost in cash. 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. B. C. D. E. I and III only II and IV only I and II only II, III, and IV only I, II, and IV only 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. B. C. D. E. suspend. expand. abandon. contract. withdraw. 28. Including the option to expand in your project analysis will tend to: A. B. C. D. E. extend the duration of a project but not affect the project's net present value. increase the cash flows of a project but decrease the project's net present value. increase the net present value of a project. decrease the net present value of a project. have no effect on either a project's cash flows or its net present value. 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. B. C. D. E. changing the underlying assumptions on which the decision is based. highlights the areas where more and better data are needed. providing a picture of how an event can affect the calculations. All of the above. None of the above. 30. In order to make a decision with a decision tree: A. B. C. D. E. one starts farthest out in time to make the first decision. one must begin at time 0. any path can be taken to get to the end. any path can be taken to get back to the beginning. None of the above. 31. In a decision tree, the NPV to make the yes/no decision is dependent on: A. B. C. D. E. only the cash flows from successful path. on the path where the probabilities add up to one. all cash flows and probabilities. only the cash flows and probabilities of the successful path. None of the above. 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 the firm's loss. C. decision trees are only used for financial planning. D. Both A and C. E. Both A and B. 33. Sensitivity analysis evaluates the NPV with respect to: A. B. C. D. E. changes in the underlying assumptions. one variable changing while holding the others constant. different economic conditions. All of the above. None of the above. 34. Sensitivity analysis provides information on: A. whether the NPV should be trusted and 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. 35. Fixed production costs are: A. B. C. D. E. directly related to labor costs. measured as cost per unit of time. measured as cost per unit of output. dependent on the amount of goods or services produced. None of the above. 36. Variable costs: A. B. C. D. E. change as the quantity of output changes. are zero when production is zero. are exemplified by direct labor and raw materials. All of the above. None of the above. 37. An investigation of the degree to which NPV depends on assumptions made about any singular critical variable is called a(n): A. B. C. D. E. operating analysis. sensitivity analysis. marginal benefit analysis. decision tree analysis. None of the above. 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 a "by the seat of the pants" technique. 39. In the present-value break-even the EAC is used to: A. B. C. D. E. determine the opportunity cost of investment. allocate depreciation over the life of the project. allocate the initial investment at its opportunity cost over the life of the project. determine the contribution margin to fixed costs. None of the above. 40. The present value break-even point is superior to the accounting break-even point because: A. B. C. D. present value break-even is more complicated to calculate. present value break-even covers the economic opportunity costs of the investment. present value break-even is the same as sensitivity analysis. 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. 41. The potential decision to abandon a project has option value because: A. B. C. D. E. abandonment can occur at any future point in time. a project may be worth more dead than alive. management is not locked into a negative outcome. All of the above. None of the above. 42. Which of the following are types of break-even analysis? A. B. C. D. E. present value break-even accounting profit break-even market value break-even Both A and B. Both A and C. 43. The approach that further attempts to model real world uncertainty by analyzing projects the way one might analyze gambling strategies is called: A. B. C. D. E. gambler's approach. blackjack approach. Monte Carlo simulation. scenario analysis. sensitivity analysis. 44. Monte Carlo simulation is: A. B. C. D. E. the most widely used by executives. a very simple formula. is more complex than sensitivity or scenario analysis. the oldest capital budgeting technique. None of the above. 45. Which of the following are hidden options in capital budgeting? A. B. C. D. E. option to expand timing option option to abandon All of the above. None of the above. The Adept Co. is analyzing a proposed project. The company expects to sell 2,500 units, give or take 10%. 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% range. The depreciation expense is $4,000. The sale price is estimated at $16 a unit, give or take 2%. The company bases its sensitivity analysis on the expected case scenario. 46. What is the sales revenue under the optimistic case scenario? A. B. C. D. E. $40,000 $43,120 $44,000 $44,880 $48,400 47. What is the contribution margin under the expected case scenario? A. B. C. D. E. $2.67 $3.00 $7.92 $8.00 $8.72 48. What is the amount of the fixed cost per unit under the pessimistic case scenario? A. B. C. D. E. $4.55 $5.00 $5.83 $6.02 $6.55 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. B. C. D. E. $4,000 $6,000 $8,500 $10,000 $18,500 50. The company conducts a sensitivity analysis using a variable cost of $9. The total variable cost estimate will be: A. $21,375 B. C. D. E. $22,500 $23,625 $24,125 $24,750 The Can-Do Co. is analyzing a proposed project. The company expects to sell 12,000 units, give or take 4%. 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% range. The depreciation expense is $30,000. The tax rate is 34%. The sale price is estimated at $14 a unit, give or take 5%. The company bases its sensitivity analysis on the expected case scenario. 51. What is the earnings before interest and taxes under the expected case scenario? A. B. C. D. E. $18,000 $24,000 $36,000 $48,000 $54,000 52. What is the earnings before interest and taxes under the optimistic case scenario? A. B. C. D. E. $22,694.40 $24,854.40 $37,497.60 $52,694.40 $67,947.60 53. What is the earnings before interest and taxes under the pessimistic case scenario? A. B. C. D. E. -$566.02 -$422.40 -$278.78 $3,554.50 $5,385.60 54. What is the operating cash flow for a sensitivity analysis using total fixed costs of $32,000? A. B. C. D. E. $14,520 $16,520 $22,000 $44,520 $52,000 55. What is the contribution margin for a sensitivity analysis using a variable cost per unit of $8? A. B. C. D. E. $3 $4 $5 $6 $7 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. B. C. D. E. $216,300 $297,300 $305,300 $313,300 $329,300 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. B. C. D. E. $6.75 $7.00 $7.25 $7.50 $7.75 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. B. C. D. E. $24,126 $26,280 $27,090 $27,820 $28,626 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. B. C. D. E. $25,165 $28,200 $30,570 $32,000 $33,000 60. Wilson's Meats has computed its fixed costs to be $.60 for every pound of meat it sells given an average daily sales level of 500 pounds. It charges $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. B. C. D. E. 61. $0.30 $0.60 $0.90 $2.99 $3.89 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. B. C. D. E. $4.50 $10.50 $14.14 $19.09 $19.25 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 breakeven level of production? A. B. C. D. E. 1,200 units 1,334 units 1,372 units 1,889 units 1,910 units 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. B. C. D. E. $700 $950 $1,025 $1,053 $1,100 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. B. C. D. E. $20.80 $21.00 $21.20 $25.40 $25.60 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 breakeven point? A. B. C. D. E. $3.92 $4.14 $4.50 $4.80 $5.00 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. B. C. D. E. $1,000 $12,000 $13,000 $68,000 $73,000 67. Thompson & Son has been busy analyzing a new product. It has 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 it can realistically capture 10% of the 50,000 unit market for this product. Should the company develop the new product? Why or why not? A. B. C. D. E. Yes; because 5,000 units of sales exceeds the quantity required for a zero net present value Yes; because the internal break-even point is less than 5,000 units No; because the firm can not generate sufficient sales to obtain at least a zero net present value No; because the project has an expected internal rate of return of negative 100% No; because the project will not pay back on a discounted basis 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 breakeven quantity? A. B. C. D. E. 1,800 units 2,480 units 3,057 units 3,750 units 4,280 units 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. B. C. D. E. $-13,275 $-20,232 $ 2,087 $ 7,536 Can not be calculated without the exact timing of future cash flows. The Quick-Start Company has the following pattern of potential cash flows with its planned investment in a new cold weather starting system for fuel injected cars. 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. 71. If the company has a discount rate of 17%, should it decide to invest? A. B. C. D. E. yes, NPV = $2.2 million yes, NPV = $21.6 million no, NPV = -$1.9 million yes, NPV = $ 8.6 million No, since more than one branch is NPV = 0 or negative, the firm must reject. 72. The Mini-Max Company has the following cost information on its 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. B. C. D. E. 25 units per year 68 units per year 103 units per year 113 units per year None of the above. 73. The Mini-Max Company has the following cost information on its 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. B. C. D. E. 68 units per year 75 units per year 84 units per year 114 units per year None of the above. 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. B. C. D. E. 88 units per year 100 units per year 143 units per year 161 units per year None of the above. 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. B. C. D. E. 100 units per year 143 units per year 202 units per year 286 units per year None of the above. 76. You are considering a project which has been assigned a discount rate of 8%. 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. B. C. D. E. $15.23 $17.08 $18.67 $20.20 $50.20 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% 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%? A. B. C. D. E. $1,006.76 $1,235.54 $1,509.28 $1,606.76 $1,735.54 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%. 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 it expects it could sell the project for $50,000. At what level of sales should the firm be willing to abandon this project? A. B. C. D. E. 420 units 1,041 units 1,479 units 1,618 units 2,500 units 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%. 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 it expects it 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% 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. B. C. D. E. $23,617 $23,719 $25,002 $26,877 $28,746 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%. 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. B. C. D. E. 899 units 923 units 967 units 1,199 units 1,206 units Essay Questions 81. What is the benefit of scenario analysis if it does not produce an accept or reject decision for a proposed project? 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. 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. 84. Discuss two shortcomings in the standard decision tree analysis that a financial manager should be cognizant of? 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. 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. ch8 KEY Multiple Choice Questions 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. B. C. D. E. forecasting scenario sensitivity simulation break-even Difficulty level: Easy Ross - Chapter 08 #1 Topic: SCENARIO ANALYSIS 2. An analysis of what happens to the estimate of net present value when only one variable is changed is called _____ analysis. A. B. C. D. E. forecasting scenario sensitivity simulation break-even Difficulty level: Easy Ross - Chapter 08 #2 Topic: SENSITIVITY ANALYSIS 3. An analysis which combines scenario analysis with sensitivity analysis is called _____ analysis. A. B. C. D. E. forecasting scenario sensitivity simulation break-even Difficulty level: Easy Ross - Chapter 08 #3 Topic: SIMULATION ANALYSIS 4. An analysis of the relationship between the sales volume and various measures of profitability is called _____ analysis. A. B. C. D. E. forecasting scenario sensitivity simulation break-even Difficulty level: Easy Ross - Chapter 08 #4 Topic: BREAK-EVEN ANALYSIS 5. Variable costs: A. B. C. D. E. change in direct relationship to the quantity of output produced. are constant in the short-run regardless of the quantity of output produced. are equal to the change in a variable when one more unit of output is produced. are subtracted from fixed costs to compute the contribution margin. form the basis that is used to determine the degree of operating leverage employed by a firm. Difficulty level: Easy Ross - Chapter 08 #5 Topic: VARIABLE COSTS 6. Fixed costs: A. B. C. D. E. change as the quantity of output produced changes. are constant over the short-run regardless of the quantity of output produced. reflect the change in a variable 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. Difficulty level: Easy Ross - Chapter 08 #6 Topic: FIXED COSTS 7. The sales level that results in a project's net income exactly equaling zero is called the _____ breakeven. A. B. C. D. E. operational leveraged accounting cash present value Difficulty level: Easy Ross - Chapter 08 #7 Topic: ACCOUNTING BREAK-EVEN 8. The sales level that results in a project's net present value exactly equaling zero is called the _____ break-even. A. B. C. D. E. operational leveraged accounting cash present value Difficulty level: Easy Ross - Chapter 08 #8 Topic: PRESENT VALUE BREAK-EVEN 9. Conducting scenario analysis helps managers see the: A. B. C. D. E. impact of an individual variable on the outcome of a project. potential range of outcomes from a proposed project. changes in long-term debt over the course of a proposed project. possible range of market prices for their firm's stock over the life of a project. allocation distribution of funds for capital projects under conditions of hard rationing. Difficulty level: Easy Ross - Chapter 08 #9 Topic: SCENARIO ANALYSIS 10. Sensitivity analysis helps you determine the: A. B. C. D. E. range of possible outcomes given possible ranges for every variable. degree to which the net present value reacts to changes in a single variable. net present value given the best and the worst possible situations. degree to which a project is reliant upon the fixed costs. level of variable costs in relation to the fixed costs of a project. Difficulty level: Easy Ross - Chapter 08 #10 Topic: SENSITIVITY ANALYSIS 11. As the degree of sensitivity of a project to a single variable rises, the: A. B. C. D. E. lower the forecasting risk of the project. smaller the range of possible outcomes given a pre-defined range of values for the input. more attention management should place on accurately forecasting the future value of that variable. lower the maximum potential value of the project. lower the maximum potential loss of the project. Difficulty level: Medium Ross - Chapter 08 #11 Topic: SENSITIVITY ANALYSIS 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 every 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 Ross - Chapter 08 #12 Topic: SENSITIVITY ANALYSIS 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. B. C. D. E. leverage scenario break-even sensitivity cash flow Difficulty level: Easy Ross - Chapter 08 #13 Topic: SENSITIVITY ANALYSIS 14. Simulation analysis is based on assigning a _____ and analyzing the results. A. B. C. D. E. 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 Difficulty level: Medium Ross Chapter - 08 #14 Topic: SIMULATION 15. The type of analysis that is most dependent upon the use of a computer is _____ analysis. A. B. C. D. E. scenario break-even sensitivity degree of operating leverage simulation Difficulty level: Easy Ross - Chapter 08 #15 Topic: SIMULATION 16. Which one of the following is most likely a variable cost? A. B. C. D. E. office rent property taxes property insurance direct labor costs management salaries Difficulty level: Easy Ross - Chapter 08 #16 Topic: VARIABLE COSTS 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. B. C. D. E. II only III only I and III only II and III only I and II only Difficulty level: Medium Ross - Chapter 08 #17 Topic: VARIABLE COSTS 18. All else constant, as the variable cost per unit increases, the: A. B. C. D. E. contribution margin decreases. sensitivity to fixed costs decreases. degree of operating leverage decreases. operating cash flow increases. net profit increases. Difficulty level: Medium Ross - Chapter 08 #18 Topic: VARIABLE COSTS 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. B. C. D. E. I and III only II and IV only I, II, and III only I, II, and IV only I, II, III, and IV Difficulty level: Medium Ross - Chapter 08 #19 Topic: FIXED COSTS 20. All else equal, the contribution margin must increase as: A. B. C. D. E. both the sales price and variable cost per unit increase. the fixed cost per unit declines. the variable cost per unit declines. sales price per unit declines. the sales price minus the fixed cost per unit increases. Difficulty level: Medium Ross - Chapter 08 #20 Topic: CONTRIBUTION MARGIN 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. B. C. D. E. I and III only I and IV only II and III only II and IV only I, II, and IV only Difficulty level: Medium Ross - Chapter 08 #21 Topic: ACCOUNTING BREAK-EVEN 22. All else constant, the accounting break-even level of sales will decrease when the: A. B. C. D. fixed costs increase. depreciation expense decreases. contribution margin decreases. variable costs per unit increase. E. selling price per unit decreases. Difficulty level: Medium Ross - Chapter 08 #22 Topic: PRESENT VALUE BREAK-EVEN 23. The point where a project produces a rate of return equal to the required return is known as the: A. B. C. D. E. point of zero operating leverage. internal break-even point. accounting break-even point. present value break-even point. income break-even point. Difficulty level: Easy Ross - Chapter 08 #23 Topic: ACCOUNTING BREAK-EVEN 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. B. C. D. E. I and II only I and III only II and IV only III and IV only I, III, and IV only Difficulty level: Medium Ross - Chapter 08 #24 Topic: PRESENT VALUE BREAK-EVEN 25. The investment timing decision relates to: A. B. C. D. E. how long the cash flows last once a project is implemented. the decision as to when a project should be started. how frequently the cash flows of a project occur. how frequently the interest on the debt incurred to finance a project is compounded. the decision to either finance a project over time or pay out the initial cost in cash. Difficulty level: Medium Ross - Chapter 08 #25 Topic: INVESTMENT TIMING DECISION 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 Ross - Chapter 08 #26 Topic: OPTION TO WAIT 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. B. C. D. E. suspend. expand. abandon. contract. withdraw. Difficulty level: Easy Ross - Chapter 08 #27 Topic: OPTION TO EXPAND 28. Including the option to expand in your project analysis will tend to: A. B. C. D. E. extend the duration of a project but not affect the project's net present value. increase the cash flows of a project but decrease the project's net present value. increase the net present value of a project. decrease the net present value of a project. have no effect on either a project's cash flows or its net present value. Difficulty level: Medium Ross - Chapter 08 #28 Topic: OPTION TO EXPAND 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. B. C. D. E. changing the underlying assumptions on which the decision is based. highlights the areas where more and better data are needed. providing a picture of how an event can affect the calculations. All of the above. None of the above. Difficulty level: Medium Ross - Chapter 08 #29 Topic: SENSITIVITY AND SENARIO ANALYSIS 30. In order to make a decision with a decision tree: A. B. C. D. E. one starts farthest out in time to make the first decision. one must begin at time 0. any path can be taken to get to the end. any path can be taken to get back to the beginning. None of the above. Difficulty level: Medium Ross - Chapter 08 #30 Topic: DECSION TREE 31. In a decision tree, the NPV to make the yes/no decision is dependent on: A. B. C. D. E. only the cash flows from successful path. on the path where the probabilities add up to one. all cash flows and probabilities. only the cash flows and probabilities of the successful path. None of the above. Difficulty level: Medium Ross - Chapter 08 #31 Topic: DECISION TREE 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 the firm's loss. C. decision trees are only used for financial planning. D. Both A and C. E. Both A and B. Difficulty level: Medium Ross - Chapter 08 #32 Topic: DECISION TREE 33. Sensitivity analysis evaluates the NPV with respect to: A. B. C. D. E. changes in the underlying assumptions. one variable changing while holding the others constant. different economic conditions. All of the above. None of the above. Difficulty level: Medium Ross - Chapter 08 #33 Topic: SENSITIVITY ANALYSIS 34. Sensitivity analysis provides information on: A. whether the NPV should be trusted and 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 Ross - Chapter 08 #34 Topic: SENSITIVITY ANALYSIS 35. Fixed production costs are: A. directly related to labor costs. B. C. D. E. measured as cost per unit of time. measured as cost per unit of output. dependent on the amount of goods or services produced. None of the above. Difficulty level: Medium Ross - Chapter 08 #35 Topic: FIXED COSTS 36. Variable costs: A. B. C. D. E. change as the quantity of output changes. are zero when production is zero. are exemplified by direct labor and raw materials. All of the above. None of the above. Difficulty level: Easy Ross - Chapter 08 #36 Topic: VARIABLE COSTS 37. An investigation of the degree to which NPV depends on assumptions made about any singular critical variable is called a(n): A. B. C. D. E. operating analysis. sensitivity analysis. marginal benefit analysis. decision tree analysis. None of the above. Difficulty level: Easy Ross - Chapter 08 #37 Topic: SENSITIVITY ANALYSIS 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 a "by the seat of the pants" technique. Difficulty level: Medium Ross - Chapter 08 #38 Topic: SENSITIVITY AND SCENARIOS ANALYSIS 39. In the present-value break-even the EAC is used to: A. B. C. D. E. determine the opportunity cost of investment. allocate depreciation over the life of the project. allocate the initial investment at its opportunity cost over the life of the project. determine the contribution margin to fixed costs. None of the above. Difficulty level: Medium Ross - Chapter 08 #39 Topic: EQUIVALENT ANNUAL COST 40. The present value break-even point is superior to the accounting break-even point because: A. B. C. D. present value break-even is more complicated to calculate. present value break-even covers the economic opportunity costs of the investment. present value break-even is the same as sensitivity analysis. 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 Ross - Chapter 08 #40 Topic: BREAK-EVEN 41. The potential decision to abandon a project has option value because: A. B. C. D. E. abandonment can occur at any future point in time. a project may be worth more dead than alive. management is not locked into a negative outcome. All of the above. None of the above. Difficulty level: Easy Ross - Chapter 08 #41 Topic: ABANDONMENT 42. Which of the following are types of break-even analysis? A. B. C. D. E. present value break-even accounting profit break-even market value break-even Both A and B. Both A and C. Difficulty level: Easy Ross - Chapter 08 #42 Topic: TYPES OF BREAK-EVEN ANALYSIS 43. The approach that further attempts to model real world uncertainty by analyzing projects the way one might analyze gambling strategies is called: A. B. C. D. E. gambler's approach. blackjack approach. Monte Carlo simulation. scenario analysis. sensitivity analysis. Difficulty level: Medium Ross - Chapter 08 #43 Topic: MONTE CARLO SIMULATION 44. Monte Carlo simulation is: A. the most widely used by executives. B. C. D. E. a very simple formula. is more complex than sensitivity or scenario analysis. the oldest capital budgeting technique. None of the above. Difficulty level: Easy Ross - Chapter 08 #44 Topic: MONTE CARLO SIMULATION 45. Which of the following are hidden options in capital budgeting? A. B. C. D. E. option to expand timing option option to abandon All of the above. None of the above. Difficulty level: Easy Ross - Chapter 08 #45 Topic: OPTIONS IN CAPITAL BUDGETING The Adept Co. is analyzing a proposed project. The company expects to sell 2,500 units, give or take 10%. 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% range. The depreciation expense is $4,000. The sale price is estimated at $16 a unit, give or take 2%. The company bases its sensitivity analysis on the expected case scenario. Ross - Chapter 08 46. What is the sales revenue under the optimistic case scenario? A. B. C. D. E. $40,000 $43,120 $44,000 $44,880 $48,400 Sales revenue for the best case = 2,500 x 1.1 x $16 x 1.02 = $44,880 Difficulty level: Medium Ross - Chapter 08 #46 Topic: SCENARIO ANALYSIS 47. What is the contribution margin under the expected case scenario? A. B. C. D. E. $2.67 $3.00 $7.92 $8.00 $8.72 Contribution margin for the base case = $16 - $8 = $8 Difficulty level: Medium Ross - Chapter 08 #47 Topic: SCENARIO ANALYSIS 48. What is the amount of the fixed cost per unit under the pessimistic case scenario? A. B. C. D. E. $4.55 $5.00 $5.83 $6.02 $6.55 Fixed cost per unit for the worst case = ($12,500 x 1.05) (2,500 x .9) = $5.83 Difficulty level: Medium Ross - Chapter 08 #48 Topic: SCENARIO ANALYSIS 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. B. C. D. E. $4,000 $6,000 $8,500 $10,000 $18,500 EBIT = [($17 - $8) x 2,500] - $12,500 - $4,000 = $6,000 Difficulty level: Medium Ross - Chapter 08 #49 Topic: SENSITIVITY ANALYSIS 50. The company conducts a sensitivity analysis using a variable cost of $9. The total variable cost estimate will be: A. B. C. D. E. $21,375 $22,500 $23,625 $24,125 $24,750 Total variable cost = $9 x 2,500 = $22,500 Difficulty level: Medium Ross - Chapter 08 #50 Topic: SENSITIVITY ANALYSIS The Can-Do Co. is analyzing a proposed project. The company expects to sell 12,000 units, give or take 4%. 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% range. The depreciation expense is $30,000. The tax rate is 34%. The sale price is estimated at $14 a unit, give or take 5%. The company bases its sensitivity analysis on the expected case scenario. Ross - Chapter 08 51. What is the earnings before interest and taxes under the expected case scenario? A. $18,000 B. C. D. E. $24,000 $36,000 $48,000 $54,000 Difficulty level: Medium Ross - Chapter 08 #51 Topic: SCENARIO ANALYSIS 52. What is the earnings before interest and taxes under the optimistic case scenario? A. B. C. D. E. $22,694.40 $24,854.40 $37,497.60 $52,694.40 $67,947.60 EBIT for best case = (12,000 x 1.04) x [($14 x 1.05) - ($7 x .94)] ($36,000 x .94) - $30,000 = $37,497.60 Difficulty level: Challenge Ross - Chapter 08 #52 Topic: SCENARIO ANALYSIS 53. What is the earnings before interest and taxes under the pessimistic case scenario? A. B. C. D. E. -$566.02 -$422.40 -$278.78 $3,554.50 $5,385.60 Difficulty level: Challenge Ross - Chapter 08 #53 Topic: SCENARIO ANALYSIS 54. What is the operating cash flow for a sensitivity analysis using total fixed costs of $32,000? A. B. C. D. E. $14,520 $16,520 $22,000 $44,520 $52,000 Difficulty level: Medium Ross - Chapter 08 #54 Topic: SENSITIVITY ANALYSIS 55. What is the contribution margin for a sensitivity analysis using a variable cost per unit of $8? A. B. C. D. E. $3 $4 $5 $6 $7 Contribution margin = $14 - $8 = $6 Difficulty level: Medium Ross - Chapter 08 #55 Topic: SENSITIVITY ANALYSIS 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. B. C. D. E. $216,300 $297,300 $305,300 $313,300 $329,300 Total variable costs = ($8.90 + $21.63) x 10,000 = $305,300 Difficulty level: Medium Ross - Chapter 08 #56 Topic: VARIABLE COST 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. B. C. D. E. $6.75 $7.00 $7.25 $7.50 $7.75 [11,500 x ($13.00 v)] - $50,000 - $7,500 = $5,750; v = $7.50 Difficulty level: Medium Ross - Chapter 08 #57 Topic: VARIABLE COST 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. B. C. D. E. $24,126 $26,280 $27,090 $27,820 $28,626 Total fixed cost = $89,000 (5,600 x $11.20) = $26,280 Difficulty level: Medium Ross - Chapter 08 #58 Topic: FIXED COST 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. B. C. D. E. $25,165 $28,200 $30,570 $32,000 $33,000 Total fixed cost = $120,000 (6,000 x $14.50) = $33,000 Difficulty level: Medium Ross - Chapter 08 #59 Topic: FIXED COST 60. Wilson's Meats has computed its fixed costs to be $.60 for every pound of meat it sells given an average daily sales level of 500 pounds. It charges $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. B. C. D. E. $0.30 $0.60 $0.90 $2.99 $3.89 Contribution margin = $3.89 - $2.99 = $.90 Difficulty level: Medium Ross - Chapter 08 #60 Topic: CONTRIBUTION MARGIN 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. B. C. D. E. $4.50 $10.50 $14.14 $19.09 $19.25 Contribution margin = ($17,500 - $9,800) 400 = $19.25 Difficulty level: Medium Ross - Chapter 08 #61 Topic: CONTRIBUTION MARGIN 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 breakeven 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 Ross - Chapter 08 #62 Topic: ACCOUNTING BREAK-EVEN 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. B. C. D. E. $700 $950 $1,025 $1,053 $1,100 Depreciation at the accounting break-even = (5,425 x $6) - $31,600 = $950 Difficulty level: Medium Ross - Chapter 08 #63 Topic: ACCOUNTING BREAK-EVEN 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. B. C. D. E. $20.80 $21.00 $21.20 $25.40 $25.60 Accounting break-even Q = 2,000 = ($4,200 + $400) (P - $23.10); P = $25.40 Difficulty level: Medium Ross - Chapter 08 #64 Topic: ACCOUNTING BREAK-EVEN 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 breakeven point? A. B. C. D. E. $3.92 $4.14 $4.50 $4.80 $5.00 Contribution margin = ($3,600 + $1,500) 1,300 = $3.92 Difficulty level: Medium Ross - Chapter 08 #65 Topic: ACCOUNTING BREAK-EVEN 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. B. C. D. E. $1,000 $12,000 $13,000 $68,000 $73,000 Operating cash flow at the financial break-even point = (5,000 x $5) - $12,000 = $13,000 Difficulty level: Medium Ross - Chapter 08 #66 Topic: PRESENT VALUE BREAK-EVEN 67. Thompson & Son has been busy analyzing a new product. It has 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 it can realistically capture 10% of the 50,000 unit market for this product. Should the company develop the new product? Why or why not? A. B. C. D. E. Yes; because 5,000 units of sales exceeds the quantity required for a zero net present value Yes; because the internal break-even point is less than 5,000 units No; because the firm can not generate sufficient sales to obtain at least a zero net present value No; because the project has an expected internal rate of return of negative 100% No; because the project will not pay back on a discounted basis 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. Difficulty level: Challenge Ross - Chapter 08 #67 Topic: PRESENT VALUE BREAK-EVEN 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 breakeven quantity? A. B. C. D. E. 1,800 units 2,480 units 3,057 units 3,750 units 4,280 units Financial break-even point = ($4,500 + $6,200) ($11 - $8.50) = 4,280 Difficulty level: Medium Ross - Chapter 08 #68 Topic: PRESENT VALUE BREAK-EVEN 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. B. C. D. E. $-13,275 $-20,232 $ 2,087 $ 7,536 Can not be calculated without the exact timing of future cash flows. Feedback: $-44,000 + [((2/3($53,000)) + (1/3($-24,000))) / 1.15] = $-20,232 Difficulty level: Medium Ross - Chapter 08 #69 Topic: DECISION TREE NET PRESENT VALUE The Quick-Start Company has the following pattern of potential cash flows with its planned investment in a new cold weather starting system for fuel injected cars. Ross - Chapter 08 70. If the company has a discount rate of 17%, what is the value closest to time 1 net present value? A. B. C. D. E. $ 48.6 million $ 80.9 million $108.2 million $181.4 million None of the above. Difficulty level: Challenge Ross - Chapter 08 #70 Topic: DECISION TREE 71. If the company has a discount rate of 17%, should it decide to invest? A. B. C. D. E. yes, NPV = $2.2 million yes, NPV = $21.6 million no, NPV = -$1.9 million yes, NPV = $ 8.6 million No, since more than one branch is NPV = 0 or negative, the firm must reject. Difficulty level: Challenge Ross - Chapter 08 #71 Topic: DECISION TREE 72. The Mini-Max Company has the following cost information on its 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. B. C. D. E. 25 units per year 68 units per year 103 units per year 113 units per year None of the above. Feedback: Contribution Margin = ($8 - $3) (1 0.34) = $3.30 Difficulty level: Challenge Ross - Chapter 08 #72 Topic: ACCOUNTING BREAK-EVEN 73. The Mini-Max Company has the following cost information on its 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. B. C. D. E. 68 units per year 75 units per year 84 units per year 114 units per year None of the above. Difficulty level: Challenge Ross - Chapter 08 #73 Topic: PRESENT VALUE BREAK-EVEN 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. B. C. D. E. 88 units per year 100 units per year 143 units per year 161 units per year None of the above. Contribution Margin = ($20 - $6) (10.34) = $9.24 Difficulty level: Challenge Ross - Chapter 08 #74 Topic: ACCOUNTING BREAK-EVEN 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. B. C. D. E. 100 units per year 143 units per year 202 units per year 286 units per year None of the above. Difficulty level: Challenge Ross - Chapter 08 #75 Topic: PRESENT VALUE BREAK-EVEN 76. You are considering a project which has been assigned a discount rate of 8%. 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. B. C. D. E. $15.23 $17.08 $18.67 $20.20 $50.20 Difficulty level: Challenge Ross - Chapter 08 #76 Topic: TIMING OPTIONS 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% 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%? A. B. C. D. E. $1,006.76 $1,235.54 $1,509.28 $1,606.76 $1,735.54 Difficulty level: Challenge Ross - Chapter 08 #77 Topic: TIMING OPTIONS 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%. 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 it expects it could sell the project for $50,000. At what level of sales should the firm be willing to abandon this project? A. B. C. D. E. 420 units 1,041 units 1,479 units 1,618 units 2,500 units Difficulty level: Challenge Ross - Chapter 08 #78 Topic: OPTION TO ABANDON 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%. 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 it expects it 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% 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. B. C. D. E. $23,617 $23,719 $25,002 $26,877 $28,746 Difficulty level: Challenge Ross - Chapter 08 #79 Topic: OPTION TO ABANDON 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%. 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. B. C. D. E. 899 units 923 units 967 units 1,199 units 1,206 units Difficulty level: Challenge Ross - Chapter 08 #80 Topic: OPTION TO ABANDON Essay Questions 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. Ross - Chapter 08 #81 Topic: SCENARIO ANALYSIS 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. Ross - Chapter 08 #82 Topic: EVALUATION 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 Ross - Chapter 08 #83 Topic: PRESENT VALUE BREAK-EVEN 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. Ross - Chapter 08 #84 Topic: DECISION TREE 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. Ross - Chapter 08 #85 Topic: SENSITIVITY AND SENARIOS ANALYSIS 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. Ross - Chapter 08 #86 Topic: OPTIONS IN CAPITAL BUDGETING ch8 Summary Category # of Questions Difficulty level: Challenge Difficulty level: Easy Difficulty level: Medium 15 22 43 Ross - Chapter 08 89 Topic: ABANDONMENT 1 Topic: ACCOUNTING BREAK-EVEN 9 Topic: BREAK-EVEN 1 Topic: BREAK-EVEN ANALYSIS Topic: CONTRIBUTION MARGIN Topic: DECISION TREE Topic: DECISION TREE NET PRESENT VALUE Topic: DECSION TREE Topic: EQUIVALENT ANNUAL COST Topic: EVALUATION Topic: FIXED COST Topic: FIXED COSTS Topic: INVESTMENT TIMING DECISION Topic: MONTE CARLO SIMULATION Topic: OPTION TO ABANDON Topic: OPTION TO EXPAND Topic: OPTION TO WAIT Topic: OPTIONS IN CAPITAL BUDGETING Topic: PRESENT VALUE BREAK-EVEN Topic: SCENARIO ANALYSIS Topic: SENSITIVITY ANALYSIS Topic: SENSITIVITY AND SCENARIOS ANALYSIS Topic: SENSITIVITY AND SENARIO ANALYSIS Topic: SENSITIVITY AND SENARIOS ANALYSIS Topic: SIMULATION Topic: SIMULATION ANALYSIS Topic: TIMING OPTIONS Topic: TYPES OF BREAK-EVEN ANALYSIS Topic: VARIABLE COST Topic: VARIABLE COSTS 1 3 5 1 1 1 1 2 3 1 2 3 2 1 2 9 9 12 1 1 1 2 1 2 1 2 5

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Acton School of Business - NIKA - 101
ch9Student: _Multiple Choice Questions1. The excess return required from a risky asset over that required from a risk-free asset is called the:A.B.C.D.E.risk premium.geometric premium.excess return.average return.variance.2. The average squa
Acton School of Business - NIKA - 101
ch10Student: _Multiple Choice Questions1. A portfolio is:A.B.C.D.E.a group of assets, such as stocks and bonds, held as a collective unit by an investor.the expected return on a risky asset.the expected return on a collection of risky assets.t
Acton School of Business - NIKA - 101
ch11Student: _Multiple Choice Questions1. In the equation R =+ U, the three symbols stand for:A.B.C.D.E.average return, expected return, and unexpected return.required return, expected return, and unbiased return.actual total return, expected
Acton School of Business - NIKA - 101
ch12Student: _Multiple Choice Questions1. The weighted average of the firm's costs of equity, preferred stock, and after tax debt isthe:A.B.C.D.E.reward to risk ratio for the firm.expected capital gains yield for the stock.expected capital gai
Acton School of Business - NIKA - 101
ch13Student: _Multiple Choice Questions1. An efficient capital market is one in which:A.B.C.D.E.brokerage commissions are zero.taxes are irrelevant.securities always offer a positive rate of return to investors.security prices are guaranteed b
Acton School of Business - NIKA - 101
ch14Student: _Multiple Choice Questions1. A stock certificate often has a stated value on it. This amount is the:A.B.C.D.E.book value.stated book value.subordinated liquidation value.par value.None of the above.2. The dedicated capital of a
Acton School of Business - NIKA - 101
ch15Student: _Multiple Choice Questions1. The use of personal borrowing to change the overall amount of financial leverage to which anindividual is exposed is called:A.B.C.D.E.homemade leverage.dividend recapture.the weighted average cost of c
Acton School of Business - NIKA - 101
ch16Student: _Multiple Choice Questions1. The explicit costs, such as the legal expenses, associated with corporate default are classified as_ costs.A.B.C.D.E.flotationbeta conversiondirect bankruptcyindirect bankruptcyunlevered2. The costs
Acton School of Business - NIKA - 101
ch17Student: _Multiple Choice Questions1. The flow-to-equity (FTE) approach in capital budgeting is defined to be the:A. discounting all cash flows from a project at the overall cost of capital.B. scale enhancing discount process.C. discounting of t
Acton School of Business - NIKA - 101
ch18Student: _Multiple Choice Questions1. Payments made out of a firm's earnings to its owners in the form of cash or stock are called:A.B.C.D.E.dividends.distributions.share repurchases.payments-in-kind.stock splits.2. Payments made by a fi
Acton School of Business - NIKA - 101
ch19Student: _Multiple Choice Questions1. An equity issue sold directly to the public is called:A.B.C.D.E.a rights offer.a general cash offer.a restricted placement.a fully funded sales.a standard call issue.2. An equity issue sold to the fi
Acton School of Business - NIKA - 101
ch20Student: _Multiple Choice Questions1. The length of time debt remains outstanding with some unpaid balance is called the:A.B.C.D.E.funded period.sinking fund period.deferred call period.maturity.None of the above.2. Long-term debt is som
Acton School of Business - NIKA - 101
ch21Student: _Multiple Choice Questions1. In a lease arrangement, the owner of the asset is:A.B.C.D.E.the lesser.the lessee.the lessor.the leaser.None of the above.2. In a lease arrangement, the user of the asset is:A.B.C.D.E.the lesse
Acton School of Business - NIKA - 101
ch22Student: _Multiple Choice Questions1. A financial contract that gives its owner the right, but not the obligation, to buy or sell a specifiedasset at an agreed-upon price on or before a given future date is called a(n) _ contract.A.B.C.D.E.o
Acton School of Business - NIKA - 101
ch23Student: _Multiple Choice Questions1. The option to abandon is:A.B.C.D.E.a real option.usually of little value because of the cost associated with abandonment.irrelevant in capital budgeting analysis.nearly always less relevant the option
Acton School of Business - NIKA - 101
ch24Student: _Multiple Choice Questions1. A warrant gives the owner:A.B.C.D.E.the obligation to sell securities directly to the firm at a fixed price for a specified time.the right to purchase securities directly from the firm at a fixed price f
Acton School of Business - NIKA - 101
ch25Student: _Multiple Choice Questions1. A derivative is a financial instrument whose value is determined by:A.B.C.D.E.regulatory body such as the FTC.a primitive or underlying asset.hedging a risk.hedging a speculation.None of the above.2.
Acton School of Business - NIKA - 101
ch26Student: _Multiple Choice Questions1. The length of time between the acquisition of inventory and the collection of cash from receivablesis called the:A.B.C.D.E.operating cycle.inventory period.accounts receivable period.accounts payable
Acton School of Business - NIKA - 101
ch27Student: _Multiple Choice Questions1. Financial managers broaden their definition of cash to include:A.B.C.D.E.currency, bank deposits, stocks and bonds.currency, checking deposits, undeposited checks, and bonds.cash, bonds, bank deposits a
Acton School of Business - NIKA - 101
ch28Student: _Multiple Choice Questions1. Selling goods and services on credit is:A.B.C.D.E.an investment in a customer.never necessary unless customers cannot pay for the goods.a decision independent of customers.permissible if your bank lend
Acton School of Business - NIKA - 101
ch29Student: _Multiple Choice Questions1. The complete absorption of one company by another, wherein the acquiring firm retains its identityand the acquired firm ceases to exist as a separate entity, is called a:A.B.C.D.E.merger.consolidation.
Acton School of Business - NIKA - 101
Chapter 2Problems 1-27Input boxes in tanOutput boxes in yellowGiven data in blueCalculations in redAnswers in greenNOTE: Some functions used in these spreadsheets may require thatthe "Analysis ToolPak" or "Solver Add-in" be installed in Excel.To
Acton School of Business - NIKA - 101
Chapter 3Problems 1-30Input boxes in tanOutput boxes in yellowGiven data in blueCalculations in redAnswers in greenNOTE: Some functions used in these spreadsheets may require thatthe "Analysis ToolPak" or "Solver Add-in" be installed in Excel.To
Acton School of Business - NIKA - 101
Chapter 4Problems 1-76Input boxes in tanOutput boxes in yellowGiven data in blueCalculations in redAnswers in greenNOTE: Some functions used in these spreadsheets may require thatthe "Analysis ToolPak" or "Solver Add-in" be installed in Excel.To
Acton School of Business - NIKA - 101
Chapter 5Problems 1-40Input boxes in tanOutput boxes in yellowGiven data in blueCalculations in redAnswers in greenNOTE: Some functions used in these spreadsheets may require thatthe "Analysis ToolPak" or "Solver Add-in" be installed in Excel.To
Acton School of Business - NIKA - 101
Chapter 7Problems 1-40Input boxes in tanOutput boxes in yellowGiven data in blueCalculations in redAnswers in greenNOTE: Some functions used in these spreadsheets may require thatthe "Analysis ToolPak" or "Solver Add-in" be installed in Excel.To
Acton School of Business - NIKA - 101
Chapter 8Problems 1-30Input boxes in tanOutput boxes in yellowGiven data in blueCalculations in redAnswers in greenNOTE: Some functions used in these spreadsheets may require thatthe "Analysis ToolPak" or "Solver Add-in" be installed in Excel.To
Acton School of Business - NIKA - 101
Chapter 9Problems 1-30Input boxes in tanOutput boxes in yellowGiven data in blueCalculations in redAnswers in greenNOTE: Some functions used in these spreadsheets may require thatthe "Analysis ToolPak" or "Solver Add-in" be installed in Excel.To
Acton School of Business - NIKA - 101
Chapter 10Problems 1-39Input boxes in tanOutput boxes in yellowGiven data in blueCalculations in redAnswers in greenNOTE: Some functions used in these spreadsheets may require thatthe "Analysis ToolPak" or "Solver Add-in" be installed in Excel.To
Acton School of Business - NIKA - 101
Chapter 14Problems 1-7Input boxes in tanOutput boxes in yellowGiven data in blueCalculations in redAnswers in greenNOTE: Some functions used in these spreadsheets may require thatthe "Analysis ToolPak" or "Solver Add-in" be installed in Excel.To
Acton School of Business - NIKA - 101
Chapter 28Problems 1-25Input boxes in tanOutput boxes in yellowGiven data in blueCalculations in redAnswers in greenNOTE: Some functions used in these spreadsheets may require thatthe "Analysis ToolPak" or "Solver Add-in" be installed in Excel.To
Acton School of Business - NIKA - 101
Chapter 1INTRODUCTION TO CORPORATE FINANCESLIDES1.11.21.31.41.51.61.71.81.91.101.111.121.131.141.151.161.171.181.191.201.21Key Concepts and SkillsChapter OutlineWhat is Corporate Finance?Balance Sheet Model of the FirmThe Capit
Acton School of Business - NIKA - 101
Chapter 2FINANCIAL STATEMENTS AND CASH FLOWSLIDES2.12.22.32.42.52.62.72.82.92.102.112.122.132.142.152.162.172.182.192.202.212.222.232.242.252.262.272.282.292.302.312.322.332.342.352.36Key Concepts and SkillsChapter
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Chapter 3FINANCIAL STATEMENTS ANALYSIS AND LONGTERM PLANNINGSLIDES3.13.23.33.43.53.63.73.83.93.103.113.123.133.143.153.163.173.183.193.203.213.223.233.243.253.263.273.283.293.30Key Concepts and SkillsChapter OutlineFinan
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Chapter 4DISCOUNTED CASH FLOW VALUATIONSLIDES4.14.24.34.44.54.64.74.84.94.104.114.124.134.144.154.164.174.184.194.204.214.224.234.244.254.264.274.284.294.304.314.324.334.344.354.364.374.384.394.40Key Concepts and
Acton School of Business - NIKA - 101
Appendix 4ANet Present Value: First Principles of FinanceSLIDES4A.14A.24A.34A.44A.54A.64A.74A.84A.94A.104A.114A.124A.13Key Concepts and SkillsAppendix OutlineMaking Consumption Choices over TimeIntertemporal Consumption Opportunity Set
Acton School of Business - NIKA - 101
Chapter 5HOW TO VALUE BONDS AND STOCKSSLIDESA-70 CHAPTER 55.15.25.35.45.55.65.75.85.95.105.115.125.135.145.155.165.175.185.195.205.215.225.235.245.255.265.275.285.295.305.315.325.335.345.355.365.375.385.395.40Ke
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Chapter 6NET PRESENT VALUE AND OTHER INVESTMENTRULESSLIDES6.16.26.36.46.56.66.76.86.96.106.116.126.136.146.156.166.176.186.196.206.216.226.236.246.256.266.276.286.296.306.316.326.336.346.356.36Key Concepts and Skill
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Chapter 7MAKING CAPITAL INVESTMENT DECISIONSSLIDES7.17.27.37.47.57.67.77.87.97.107.117.127.137.147.157.167.177.187.197.207.217.227.237.247.257.267.277.287.297.307.31Key Concepts and SkillsChapter OutlineIncremental Cash
Acton School of Business - NIKA - 101
Chapter 8RISK ANALYSIS, REAL OPTIONS, AND CAPITALBUDGETINGSLIDES8.18.28.38.48.58.68.78.88.98.108.118.128.138.148.158.168.178.188.198.208.218.228.238.248.258.268.278.288.298.30Key Concepts and SkillsChapter OutlineSensit
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Chapter 9RISK AND RETURNLESSONS FROM MARKET HISTORYSLIDES9.19.29.39.49.59.69.79.89.99.109.119.129.139.149.159.169.179.189.199.209.219.229.23Key Concepts and SkillsChapter OutlineReturnsReturnsReturns: ExampleReturns: Exampl
Acton School of Business - NIKA - 101
Chapter 10RETURN AND RISKTHE CAPITAL ASSET PRICING MODEL (CAPM)SLIDESA-130 CHAPTER 1010.110.210.310.410.510.610.710.810.910.1010.1110.1210.1310.1410.1510.1610.1710.1810.1910.2010.2110.2210.2310.2410.2510.2610.2710.2810.29
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Chapter 11AN ALTERNATIVE VIEW OF RISK AND RETURNTHE ARBITRAGE PRICING THEORYSLIDES11.111.211.311.411.511.611.711.811.911.1011.1111.1211.1311.1411.1511.1611.1711.1811.1911.2011.2111.2211.2311.2411.2511.2611.27Key Concepts and
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Chapter 12RISK, COST OF CAPITAL, AND CAPITAL BUDGETINGSLIDES12.112.212.312.412.512.612.712.812.912.1012.1112.1212.1312.1412.1512.1612.1712.1812.1912.2012.2112.2212.2312.2412.2512.2612.2712.2812.2912.3012.3112.3212.3312.
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Chapter 13CORPORATE FINANCING DECISIONS AND EFFICIENTCAPITAL MARKETSSLIDES13.113.213.313.413.513.613.713.813.913.1013.1113.1213.1313.1413.1513.1613.1713.1813.1913.2013.2113.2213.2313.2413.2513.2613.2713.2813.2913.3013.31
Acton School of Business - NIKA - 101
Chapter 14LONG-TERM FINANCINGAN INTRODUCTIONSLIDES14.114.214.314.414.514.614.714.814.914.1014.1114.1214.1314.1414.1514.1614.1714.1814.1914.2014.2114.2214.2314.2414.2514.2614.2714.2814.2914.30Key Concepts and SkillsChapte
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Chapter 15CAPITAL STRUCTUREBASIC CONCEPTSSLIDES15.115.215.315.415.515.615.715.815.915.1015.1115.1215.1315.1415.1515.1615.1715.1815.1915.2015.2115.2215.2315.24Key Concepts and SkillsChapter OutlineCapital Structure and the Pie
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Chapter 16CAPITAL STRUCTURELIMITS TO THE USE OF DEBTSLIDES16.116.216.316.416.516.616.716.816.916.1016.1116.1216.1316.1416.1516.1616.1716.1816.1916.2016.2116.2216.2316.24Key Concepts and SkillsChapter OutlineCosts of Financial
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Chapter 17VALUATION AND CAPITAL BUDGETING FOR THELEVERED FIRMSLIDES17.117.217.317.417.517.617.717.817.917.1017.1117.1217.1317.1417.1517.1617.1717.1817.1917.2017.2117.2217.2317.24Key Concepts and SkillsChapter OutlineAdjusted
Acton School of Business - NIKA - 101
Chapter 18DIVIDENDS AND OTHER PAYOUTSSLIDES18.118.218.318.418.518.618.718.818.918.1018.1118.1218.1318.1418.1518.1618.1718.1818.1918.2018.2118.2218.2318.2418.25Key Concepts and SkillsChapter OutlineDifferent Types of Dividends
Acton School of Business - NIKA - 101
Chapter 19ISSUING SECURITIES TO THE PUBLICSLIDES19.119.219.319.419.519.619.719.819.919.1019.1119.1219.1319.1419.1519.1619.1719.1819.1919.2019.2119.2219.2319.2419.2519.2619.2719.2819.2919.30Key Concepts and SkillsChapter O
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Chapter 20LONG-TERM DEBTSLIDES20.120.220.320.420.520.620.720.820.920.1020.1120.1220.1320.1420.1520.1620.1720.1820.1920.2020.2120.22Key Concepts and SkillsChapter OutlineLong-Term Debt: A ReviewFeatures of a Cisco Systems BondT
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CHAPTER 21LEASINGSLIDES21.121.221.321.421.521.621.721.821.921.1021.1121.1221.1321.1421.1521.1621.1721.1821.1921.2021.2121.2221.2321.2421.2521.2621.2721.2821.2921.3021.3121.3221.3321.3421.35Key Concepts and SkillsChap
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CHAPTER 22OPTIONS AND CORPORATE FINANCESLIDES22.122.222.322.422.522.622.722.822.922.1022.1122.1222.1322.1422.1522.1622.1722.1822.1922.2022.2122.2222.2322.2422.2522.2622.2722.2822.2922.3022.3122.3222.3322.3422.3522.36
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CHAPTER 23OPTIONS AND CORPORATE FINANCEEXTENSIONS AND APPLICATIONSSLIDES23.123.223.323.423.523.623.723.823.923.1023.1123.1223.1323.1423.1523.1623.1723.1823.1923.2023.2123.2223.2323.2423.2523.2623.2723.2823.29Key Concepts a
Acton School of Business - NIKA - 101
CHAPTER 24WARRANTS AND CONVERTIBLESSLIDES24.124.224.324.424.524.624.724.824.924.1024.1124.1224.1324.1424.1524.1624.1724.1824.1924.2024.2124.2224.2324.24Key Concepts and SkillsChapter OutlineWarrantsWarrantsThe Difference bet
Acton School of Business - NIKA - 101
CHAPTER 25DERIVATIVES AND HEDGING RISKA-37 CHAPTER 2525.40 An Example of an Interest Rate Swap25.1 Key Concepts and Skills25.41 An Example of a Currency Swap25.2 Chapter Outline25.42 An Example of a Currency Swap25.3 Forward Contracts25.43 An Exa
Acton School of Business - NIKA - 101
Chapter 26SHORT-TERM FINANCE AND PLANNINGSLIDES26.126.226.326.426.526.626.726.826.926.1026.1126.1226.1326.1426.1526.1626.1726.1826.1926.2026.2126.2226.2326.24Key Concepts and SkillsChapter OutlineTracing Cash and Net Working C
Acton School of Business - NIKA - 101
Chapter 27CASH MANAGEMENT27.127.227.327.427.527.627.727.827.927.1027.1127.1227.1327.1427.1527.1627.1727.1827.1927.2027.2127.2227.2327.24Key Concepts and SkillsChapter OutlineReasons for Holding CashDetermining the Target Cash
Acton School of Business - NIKA - 101
Chapter 28CREDIT MANAGEMENT28.128.228.328.428.528.628.728.828.928.1028.1128.1228.1328.1428.1528.1628.1728.1828.1928.2028.2128.2228.2328.2428.2528.2628.2728.2828.2928.30Key Concepts and SkillsChapter OutlineTerms of the Sa
Acton School of Business - NIKA - 101
CHAPTER 29MERGERS AND ACQUISITIONSSLIDES29.129.229.329.429.529.629.729.829.929.1029.1129.1229.1329.1429.1529.1629.1729.1829.1929.2029.2129.2229.2329.2429.25Key Concepts and SkillsChapter OutlineThe Basic Forms of Acquisitions