chap 11
Quiz yourself by thinking what should be in
each of the black spaces below before clicking
on it to display the answer.
Help!
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| show | cannot be observed
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| show | A cost incurred in the past that is irrelevant to the capital investment decision process.
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| Which of the following is an opportunity cost in the context of a vacant building that a firm currently owns? | show 🗑
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| A potential problem with DCF analysis is that a project may appear to have a positive NPV because the estimated cash flows are . | show 🗑
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| Evans Corporation estimated that the cash flows last year from a particular project would be $40,000, but the actual cash flow turned out to be $37,500. Evans Corporation should _____. | show 🗑
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| show | NPV considers all the cash flows.
NPV considers time value of money.
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| The possibility that errors in projected cash flows will lead to incorrect decisions is called , or estimation risk. | show 🗑
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| show | Research and development expense incurred in the past
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| If we conclude that a project has a negative NPV when the true NPV is positive, we lose a valuable opportunity. | show 🗑
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| show | inaccurate
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| A legitimately positive NPV may be due to all of the following except _____. | show 🗑
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| show | be close to
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| show | uncommon
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| The possibility that errors in projected cash flows will lead to incorrect decisions is known as _____. | show 🗑
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| A firm will start generating positive accounting profits _____. | show 🗑
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| show | Total variable costs are directly related to the level of output.
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| show | The potential rental income lost by using the empty building for a project
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| show | remains constant as the level of business activity changes
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| show | Palmer can produce the product more cheaply than its competition.
Palmer has a better product than its competition.
Palmer has a better distribution channel than its competition.
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| show | Fixed costs per unit will decrease while variable costs per unit will stay constant if the level of output increases.
Total fixed costs remain constant while total variable costs increase if the level of output increases.
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| show | Wendy's
Burger King
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| show | Rent for the building
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| show | To determine the level of sales at which profits are equal to zero.
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| show | Both the total revenue and total cost curves will slope upward.
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| Which of the following are true about variable costs? | show 🗑
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| Which of the following are examples of fixed costs for a car repair shop performing oil changes and other repairs? | show 🗑
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| An accounting break-even point of 1,000 units means that ____. | show 🗑
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| Total fixed costs remain constant while total variable costs (decrease/increase) if the level of output increases. | show 🗑
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| show | Manager's salary of $98,000/year
Building rent of $10,000/month
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| The contribution margin per unit will increase if ____. | show 🗑
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| In a graph with output on the x-axis and dollar amount (for costs and revenues) on the y-axis, what will be the shapes of variable and fixed costs? | show 🗑
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| Depreciation expense on a specific asset could be a fixed dollar amount or a variable dollar amount. | show 🗑
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| show | Total variable costs are directly related to the level of output.
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| An accounting break-even point of 2,000 means the firm ____. | show 🗑
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| show | (Fixed costs + Depreciation)/Contribution margin
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| Corporate managers care about the break-even point because it indicates the level to which _____ can fall before a project will start losing money. | show 🗑
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| Which of the following defines the contribution margin per unit? Ignore taxes. | show 🗑
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| show | True
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| show | It affects cash flows.
It affects the accounting profit break-even point.
It is a noncash expense.
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| The cost is equal to the quantity of output times the cost per unit of output. | show 🗑
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| value is superior to accounting profit because it adjusts for time value and considers the depreciation tax shield effect. | show 🗑
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| show | the total number of units sold exceeds the accounting break-even point
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| show | OCF = −400 + 4*Q
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| Corporate managers care about the break-even point because it indicates the level _____. | show 🗑
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| The sales level that results in a zero operating cash flow is called the break-even. | show 🗑
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| Rank each of the following in order from most important to least important as they pertain to project analysis: | show 🗑
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| The break-even is the sales level that results in a zero NPV. | show 🗑
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| show | the depreciation allowance for that period
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| The break-even point adjusts for time value of money, whereas the break-even point does not. | show 🗑
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| show | OCF = (P − v) × Q − FC
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| show | Operatiing
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| show | zero
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| From a managerial perspective, highly uncertain projects can be dealt with by keeping the degree of operating leverage _____. | show 🗑
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| show | an NPV of zero
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| show | DOL
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| show | The financial break-even point adjusts for time value of money.
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| A situation in which a firm has positive NPV projects but cannot find the necessary financing is called capital . | show 🗑
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| A firm with higher operating leverage will have ______ fixed costs relative to a firm with low operating leverage. | show 🗑
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| The Omega Division of Alpha Corporation has been allocated $4 million for capital spending but has identified $4.6 million in positive NPV projects. Omega's manager thinks he can convince the company to fund the additional $0.6 million dollars because Ome | show 🗑
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| A firm with higher operating leverage will have (low/high) fixed costs relative to a firm with low operating leverage. | show 🗑
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| show | true
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| Which of the following is the correct equation for the degree of operating leverage? | show 🗑
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| Capital rationing exists when a company has identified positive NPV projects but can't find _____. | show 🗑
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| The degree to which a firm or project relies on fixed costs is called the leverage. | show 🗑
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| The situation that occurs when units in a business are allocated a certain amount of financing for capital budgeting is called rationing. | show 🗑
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| show | hard
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| show | dol
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Created by:
agordon93