Fundamentals of Corporate Finance 3e Test Bank
58.
If a project holds an 80 percent probability of high demand and a 20 percent probability of low
demand, then the expected value of the net present value of the two different demand
assumptions would give us a weighted average net present value for the project. Such an
analysis is called:
A)
a sensitivity analysis.
B)
a scenario analysis.
C)
a simulation analysis.
D)
a horizontal analysis.
Ans:
B
59.
An analysis in which each of the inputs and assumptions for a project takes on a separate
assumed distribution whereby a computer draws on each of those input and assumption
distributions to create a distribution for the NPV of the entire project is called:
A)
a sensitivity analysis.
B)
a scenario analysis.
C)
a simulation analysis.
D)
a horizontal analysis.
Ans:
C
Fundamentals of Corporate Finance 3e Test Bank
60.
Ottomony has analyzed a new type of all-in-one retail center where the NPV of the project has
an expected value with a distribution that yields a standard deviation of $25 million. Ottomony
came to this conclusion by analyzing the individual input distributions for the project. This
analysis is called:
A)
a sensitivity analysis.
B)
a scenario analysis.
C)
a simulation analysis.
D)
a horizontal analysis.
Ans:
C
61.
If a firm is interested in the distribution of the NPV for a project that it is considering, then the
firm should be most interested in:
A)
a sensitivity analysis.
B)
a scenario analysis.
C)
a simulation analysis.
D)
a horizontal analysis.
Ans:
C
62.
Which of the following mathematical expressions is used to calculate the degree of pretax cash
flow operating leverage?
A)
1 + (FC / EBITDA)
B)
1 + (FC / EBIT)
C)
1 + [(FC + Depreciation and Amortization) / EBITDA]
D)
1 + [(FC + Depreciation and Amortization) / EBIT]
Ans:
A
Fundamentals of Corporate Finance 3e Test Bank
63.
Which of the following project risk analyses is best able to analyze the effect of a single input,
uncorrelated with other inputs, on the NPV of a project?
A)
Sensitivity analysis
B)
Scenario analysis
C)
Simulation analysis
D)
Horizontal analysis
Ans:
A
64.
Which of the following project risk analyses is best able to analyze the effect of a single set of
circumstances, with correlated inputs, on the NPV of a project?
A)
Sensitivity analysis.
B)
Scenario analysis.
C)
Simulation analysis.
D)
Contribution analysis.
Ans:
B
65.
A change in sales price of a product sold by a firm will probably involve a reduction in the
number of units sold, as well as the possibility of a change in the cost structure of the firm’s
product in question. If a firm were interested in the entire price change effect on the NPV of a
project, then it would be interested in:
A)
sensitivity analysis.
B)
scenario analysis.
C)
simulation analysis.
D)
contribution analysis.
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
66.
An analytical method that uses a computer to quickly examine a large number of scenarios and
obtain probability estimates for various values in a financial analysis is known as:
A)
risk analysis.
B)
credit analysis.
C)
capital structure analysis.
D)
simulation analysis.
Ans:
D
67.
Which of the following mathematical expressions is used to calculate the degree of accounting
operating leverage?
A)
1 + (FC / EBITDA)
B)
1 + (FC / EBIT)
C)
1 + [(FC + Depreciation and Amortization) / EBITDA]
D)
1 + [(FC + Depreciation and Amortization) / EBIT]
Ans:
D
Fundamentals of Corporate Finance 3e Test Bank
68.
Sparran Craft had sales of $2.24 million last year for which the total cost was $2 million. If the
firm had fixed costs of $600,000 on sales of 56,000 books, then what is the firm’s per-unit
contribution? (Round the final answer to the nearest whole dollar.)
A)
$20.00
B)
$19.00
C)
$15.00
D)
$10.00
Ans:
C
Fundamentals of Corporate Finance 3e Test Bank
69.
Oeta Works has a degree of pretax cash flow operating leverage of 1.25. If the firm’s EBITDA
was $1,000 last year while its depreciation and amortization expense was $50 in the same year,
then what was the firm’s degree of accounting operating leverage?
A)
1.26
B)
1.30
C)
1.32
D)
1.35
Ans:
C
Fundamentals of Corporate Finance 3e Test Bank
70.
Synthgration has a degree of pretax cash flow operating leverage equal to 1.266. If the firm’s
EBITDA was $1,500 last year while its depreciation and amortization expense was $100 in the
same year, then what was the firm’s degree of accounting operating leverage?
A)
1.29
B)
1.33
C)
1.36
D)
1.39
Ans:
C
Fundamentals of Corporate Finance 3e Test Bank
71.
Mussubsound Audotec Inc. had EBIT of $1,850 last year with fixed costs equal to $500
(depreciation and amortization not included) and depreciation and amortization equal to $150.
What was Mussubsound Audotec’s degree of accounting operating leverage?
A)
1.25
B)
1.35
C)
1.38
D)
1.40
Ans:
B
72.
Dupaudio Inc. had EBITDA of $3,000 and EBIT of $2,750, with fixed cash expense of $600
last year. What was Dupaudio’s degree of accounting operating leverage?
A)
1.20
B)
1.25
C)
1.28
D)
1.31
Ans:
D
Fundamentals of Corporate Finance 3e Test Bank
73.
Metkia Inc. had a degree of accounting operating leverage equal to 1.841 during the most
recent period. If the firm’s EBITDA was $4,800 and depreciation and amortization was equal
to$600, then what was Metkia’s fixed cash expenses during the same period?
(Round your answer to the nearest whole dollar.)
A)
$1,548
B)
$2,932
C)
$2,324
D)
$2,886
Ans:
B
AICPA: Industry/Sector Perspective
74.
Ergotone Audio had a degree of accounting operating leverage equal to 1.60 during the most
recent period. If the firm’s EBITDA was $3,000 and its fixed costs were equal to $1,250, then
what was Ergotone ‘s depreciation and amortization expense during the same period?(Round
the final answer to the nearest whole dollar.)
A)
$344
B)
$507
C)
$377
D)
$404
Ans:
A
Fundamentals of Corporate Finance 3e Test Bank
75.
Resoneffect Inc. has a degree of pretax cash flow operating leverage equal to 1.12. If the firm’s
EBITDA was $2,000 last year while its depreciation and amortization expense was $150 in the
same year, then what was the firm’s degree of accounting operating leverage? (Round the final
answer to two decimal places.)
A)
1.09
B)
1.21
C)
2.09
D)
2.18
B
Feedback:
Fundamentals of Corporate Finance 3e Test Bank
76.
Silevector has a degree of pretax cash flow operating leverage equal to 1.341. If the firm’s
EBITDA was $2,500 last year while its depreciation and amortization expense was $200 in the
same year, then what was the firm’s degree of accounting operating leverage? (Do not round the
intermediate calculations. Round your final answer to two decimal places)
A)
2.54
B)
1.96
C)
1.46
D)
2.39
Ans:
C
Fundamentals of Corporate Finance 3e Test Bank
77.
Treguard Inc. has total fixed costs of $8,500 per month. It sells rib plates for $15 each and the
variable cost of providing each plate is $10. What is the pretax operating cash flow break-even
point for Treguard?
A)
567 plates
B)
1,700 plates
C)
1,900 plates
D)
1,622 plates
Ans:
B
78.
SileCuatro has produced 22,000 tins in a year. The pretax operating cash flow (EBITDA)
break-even point is 22,000 tins. If the fixed costs for the product is $1,500,000 and the variable
cost per tin is $298, then what price can SileCuatro charge per tin if the firm needs to break
even on a pretax operating cash flow basis? (Round to nearest whole dollar.)
A)
$366
B)
$298
C)
$268
D)
$372
Ans:
A
Fundamentals of Corporate Finance 3e Test Bank
79.
AchtTre has found that its pretax operating cash flow basis break-even number of glasses sold
is 550,000 pairs. If each pair is sold for $15 and the variable cost per unit is $10, then what is
the amount of AchtTre’s fixed costs?
A)
$887,000
B)
$1,558,000
C)
$2,750,000
D)
$1,582,000
Ans:
C