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76. A decision tree shows a 30% probability of $2 million in returns and a 70% chance of $1
million in returns. What is the maximum you would invest today in this project if the cash inflow
occurs one year in the future and the discount rate is 10%?
77. According to decision-tree analysis, investment projects should be discontinued when
the:
78. If a decision tree indicates an expected NPV of $1 million, then:
79. A decision tree indicates a 30% chance of making a $250,000 profit and a 70% chance of
sustaining a $140,000 loss. Given this, the project should be:
80. The option for a firm to expand future production has value because:
81. The option to abandon a project inexpensively is likely to have more value when the
project:
82. The option to alter production technology:
83. Income that is measured after the adjustment for the cost of capital is called:
84. Which one of the following is most likely the reason why many projects fail to earn their
projected rates of return?
85. Recognizing that it may be in managers' best interests to be overly optimistic when
proposing projects, how might firms effectively control this impulse?
86. One of the problems inherent in sensitivity analysis is that:
87. One characteristic of simulation analysis is that:
88. The accounting break-even point is that level of sales where:
89. The greater the ratio of variable costs to sales, the:
90. When the level of fixed costs is decreased, the break-even level of revenues:
91. A manufacturer contemplates a change in technology that would reduce fixed costs from
$800,000 to $600,000, and reduce depreciation expense from $125,000 to $100,000. However, the
ratio of variable costs to sales would increase from 68% to 80%. What would be the change in the
break-even level of revenues?
92. In a graphic depiction of accounting break-even analysis, the greater the slope of the
total cost line, the higher the:
93. What is the economic break-even level of sales for a project costing $4,000,000 and
generating annual cash flows equal to 0.30 × sales - $450,000? Assume the project will last 10
years and require a discount rate of 12%.
94. The opportunity to abandon a project loses some of its value when:
95. Which one of the following sets of conditions represents the more suitable investment?
96. Positive NPV projects exist because:
97. How much depreciation expense exists in a firm that has a break-even level of revenues
of $2 million, fixed costs of $400,000, and a 60% ratio of variable costs to sales?
98. The accounting break-even point for a firm is a function of its:
99. What is the level of profits for a firm in which DOL = 5 and fixed costs including
depreciation = $300,000?
100. The DOL measures the percentage change in ______ given a percentage change in _____.
101. The economic break-even point of a project can be found by:
