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Unformatted text preview: FINS 5514 Week 5: Estimating Risk in Capital Budgeting 1. Which one of the following statements is correct? a. A project is at the cash break-even level of sales when the net present value of the project is equal to zero. b. Hard rationing exists when a firm allocates a limited amount of funds to each division for capital expenditures. c. All else constant, total variable costs increase as the quantity produced decreases. d. The monthly lease expense on a piece of equipment is considered a fixed cost in the short-term. 2. The contribution margin is equal to the _____ per unit minus the _____ per unit. a. variable cost; fixed cost b. fixed cost; variable cost c. sales price; variable cost d. sales price; fixed cost 3. The analysis of a project which includes calculating the results of the best case situation and the worst case situation is called _____ analysis. a. scenario b. sensitivity c. rationing d. operating leverage 4. A firm wants to offer a one-time special deal. What should they use as a basis for establishing the sales price if they do not want this special deal to affect the net income of the firm? a. average total cost b. average variable cost c. marginal cost d. marginal fixed cost 5. Baker and Sons is trying to ascertain what the selling price of a new product should be if the project is to break-even on an accounting basis at a quantity of 1,500 units. The projections include fixed costs of $3,295, variable costs per unit of $16.92, and a depreciation expense of $1,100. What is the price they should charge?...
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- Three '11
- Net Present Value