48) DK Markets expects a new project to produce sales of 9,600 units, ±8 percent. The expected
variable cost per unit is $17 and the expected fixed costs are $47,000. Cost estimates are
considered accurate within a range of ±3 percent. The depreciation expense is $24,600. The sale
price is estimated at $39 a unit, ±2 percent. What is the amount of the fixed cost per unit under the
pessimistic case scenario?
A) $5.16
B) $4.40
C) $3.19
D) $4.02
E) $5.48
49) The estimates for a project include a sales quantity of 22,300 units, ±4 percent, variable costs
per unit of $8, and fixed costs of $127,800. Cost estimates are considered accurate within a range
of ±3 percent. The depreciation expense is $48,000. The sale price is estimated at $19 a unit, ±6
percent. The company is conducting a sensitivity analysis on the sale price using a sale price
estimate of $18. Using this value, what will be the earnings before interest and taxes?
A) $50,500
B) $46,000
C) $52,500
D) $47,200
E) $48,500
50) New Foods is analyzing a proposed project with expected sales of 8,700 units, ±4 percent. The
expected variable cost per unit is $26 and the expected fixed costs are $49,000. Cost estimates are
considered accurate within a range of ±1 percent. The depreciation expense is $18,300. The sale
price is estimated at $52 a unit, ±3 percent. If the company conducts a sensitivity analysis using a
variable cost of $28, what will be the total variable cost estimate?
A) $233,856
B) $253,344
C) $253,625
D) $243,600
E) $248,060
51) Mercier’s is analyzing a proposed 4-year project with expected sales of 26,500 units, ±3
percent. The expected variable cost per unit is $10, and the expected fixed costs are $42,000. The
fixed and variable cost estimates are considered accurate within a range of ±2 percent. The sales
price is estimated at $19 a unit, ±2 percent. The project requires an initial investment of $74,000
for equipment that will be depreciated using the straight-line method to zero over the project’s life.
The equipment can be sold for $20,000 at the end of the project. The project requires $11,200 in
net working capital. The discount rate is 14 percent, and the tax rate is 35 percent. What is the
earnings before interest and taxes estimate under the expected case scenario?
A) $178,000
B) $204,000
C) $136,000
D) $248,000
E) $154,000
52) The Garden Mart is analyzing a proposed 3-year project. Expected sales are 16,000 units, ±6
percent. The expected variable cost per unit is $4, and the expected fixed costs are $16,000. The
fixed and variable cost estimates have a range of ±1 percent. The sales price is estimated at $15 a
unit, ±3 percent. The project requires an initial investment of $41,000 for equipment that will be
depreciated using the straight-line method to zero over the project’s life. The equipment can be
sold for $12,000 at the end of the project. The project requires $5,600 in net working capital. The
discount rate is 16 percent, and the tax rate is 35 percent. What is the operating cash flow under the
optimistic case scenario?
A) $120,063.17
B) $118,542.27
C) $121,153.09
D) $122,694.40
E) $117,947.60
53) Green Gardens is analyzing a proposed 5-year project that requires an investment of $77, 000
in fixed assets and $17,400 in net working capital. The company uses straight-line depreciation
over a project’s life. Sales are estimated at 24,000 units ±3 percent. The expected variable cost per
unit is $17, and the expected fixed costs are $39,000. The fixed and variable cost estimates are
considered accurate within a range of ±2 percent. The sales price is estimated at $36 a unit, ±1
percent. The discount rate is 16 percent, and the tax rate is 35 percent. What is the net income
under the pessimistic case scenario?
A) $241,048.60
B) $232,009.48
C) $244,517.20
D) $220,001.32
E) $248,519.70
54) A project requires an initial investment of $69,000 for equipment that will be depreciated using
the straight-line method to zero over the project’s 4-year life. The equipment can be sold for
$15,000 at the end of the project. The project requires $8,700 in net working capital. The company
expects to sell 31,000 units, ±5 percent. The expected variable cost per unit is $12, and the
expected fixed costs are $46,000. The fixed and variable cost estimates are considered accurate
within a range of ±2 percent. The sales price is estimated at $19 a unit, ±2 percent. The discount
rate is 14 percent, and the tax rate is 34 percent. What is the operating cash flow for a sensitivity
analysis using total fixed costs of $45,000?
A) $124,520
B) $116,520
C) $122,000
D) $119,385
E) $132,033
55) A project has estimated sales of 11,500 units, ±2 percent. The expected variable cost per unit is
$13, and the expected fixed costs are $29,000. The fixed and variable cost estimates are considered
accurate within a range of ±3 percent. The sales price is estimated at $29 a unit, ±1 percent. What is
the contribution margin for a sensitivity analysis using a fixed cost of $30,000?
A) $13
B) $14
C) $15
D) $16
E) $17
24
56) A 6-year project has expected sales of 2,000 units, ±4 percent. The expected variable cost per
unit is $8, and the expected fixed costs are $9,800. The fixed and variable cost estimates are
considered accurate within a range of ±2 percent. The sales price is estimated at $22 a unit, ±3
percent. The project requires an initial investment of $42,000 for equipment that will be
depreciated straight-line to zero over the project’s life. The equipment has a pretax salvage value of
$5,000 at the end of the project. The project requires $2,600 in net working capital during its life.
The discount rate is 9 percent, and tax rate is 30 percent. What is the net present value for the
optimistic scenario?
A) $35,096.52
B) $34,008.12
C) $28,008.46
D) $31,490.07
E) $22,295.33
57) A project has earnings before interest and taxes of $7,318, fixed costs of $13,480, a selling
price of $14 a unit, and a sales quantity of 7,500 units. Depreciation is $2,200. What is the variable
cost per unit?
A) $10.56
B) $12.08
C) $8.87
D) $10.93
E) $11.24
58) At a production level of 5,150 units, a project has total cash costs of $130,789. The variable
cost per unit is $11.07, and the depreciation is $8,600. What is the amount of the total fixed costs?
A) $65,178.50
B) $78,992.11
C) $56,204.09
D) $73,778.50
E) $68,626.67
59) At a production level of 7,500 units, a project has earnings before interest and taxes of
$48,310. Depreciation is $9,700, and fixed costs are $12,200. What is the variable cost per unit if
the sales price per unit is $29.50?
A) $21.43
B) $24.07
C) $17.76
D) $18.92
E) $20.14
60) The Meat Mart has computed its fixed costs to be $.38 per pound given an average daily sales
level of 500 pounds. It charges $5.59 a pound for top-grade ground beef. The variable cost per
pound is $2.64. The tax rate is 34 percent. The accounting profit breakeven point is 211.5 pounds
per day. What is the amount of the depreciation expense?
A) $266.67
B) $433.93
C) $384.01
D) $128.09
E) $233.33
61) ELK, Inc. has compiled this information for a proposed project: sales price = $89 ±3 percent;
fixed costs = $21,800 ±1 percent; variable cost per unit = $42.90 ±3 percent; sales quantity = 1,500
units ±5 percent; tax rate = 34 percent; initial investment in fixed assets = $36,500; depreciation
method = straight-line to a zero book value over the project’s life; project life = 4 years; salvage
value of fixed assets = $0; net working capital requirement = $4,800, which will be recouped at the
end of the project; discount rate = 12 percent. What is the project’s net present value for the
pessimistic scenario?
A) $40,661.08
B) $47,422.30
C) $45,899.21
D) $44,371.15
E) $52,222.12
62) The Short Stack expects to sell 8,000 units, ±2 percent. The expected variable cost per unit is
$8,±3 percent, and the expected fixed costs are $20,000, ±1 percent. The depreciation expense is
$6,000. The sale price is estimated at $23 a unit, ±2 percent. What is the sales revenue under the
optimistic case scenario?
A) $187,680.00
B) $83,760.33
C) $88,000.61
D) $197,335.20
E) $191,433.60
63) The Tall Stack expects to sell 3,000 units, ±10 percent. The expected variable cost per unit is
$7, ±3 percent, and the expected fixed costs are $13,700, ±1 percent. The depreciation expense is
$6,870. The sale price is estimated at $16 a unit, ±2 percent. The company is conducting a
sensitivity analysis on the sales price using a sales price estimate of $15. What will be the earnings
before interest and taxes?
A) $6,430
B) $10,300
C) $4,300
D) $3,430
E) $13,130
64) You are considering a new project with depreciation of $974, fixed costs of 11,580, and a sales
price of $14.99. The variable cost per unit is $6.92. Ignore taxes. What is the accounting breakeven
level of production?
A) 1,555.64 units
B) 933.33 units
C) 1,292.02 units
D) 1,592.91 units
E) 910.00 units
65) The accounting breakeven production quantity for a project is 7,209 units. The fixed costs are
$34,780, and the contribution margin is $11. Assume a zero tax rate. What is the projected
depreciation expense?
A) $43,600
B) $45,050
C) $44,519
D) $47,053
E) $47,143
66) A project has an accounting breakeven point of 3,800 units. The fixed costs are $3,208, and the
projected variable cost per unit is $16.42. The project requires an initial investment in fixed assets
of $840 that will be depreciated straight-line to zero over the 4-year life of the project. What is the
projected sales price given a zero tax rate?
A) $14.67
B) $21.08
C) $16.82
D) $20.08
E) $17.32
67) A proposed project has fixed costs of $159,800, depreciation expense of $47,920, and a sales
quantity of 6,750 units. Ignore taxes. What is the contribution margin if the projected level of sales
is the accounting breakeven point?
A) $33.29
B) $30.77
C) $27.18
D) $34.36
E) $32.00
68) A project has a contribution margin of $13.27, projected fixed costs of $78,900, projected
variable cost per unit of $9, and a projected financial breakeven point of 16,230 units. The
depreciation expense is $36,200, and the tax rate is 35 percent. What is the operating cash flow at
this level of output?
A) $65,176.87
B) $103,038.10
C) $112,500.00
D) $101,376.87
E) $122,320.50
69) Miller Tools is considering a new project that requires an initial investment of $81,300 for
fixed assets, which will be depreciated straight-line to zero over the project’s 3-year life. The
project is expected to have fixed costs of $37,600 a year, and a contribution margin of $18.40. The
tax rate is 34 percent and the discount rate is 15 percent. What is the financial breakeven point?
A) 2,950 units
B) 4,217 units
C) 2,200 units
D) 2,483 units
E) 3,667 units
70) Kurt’s Coffees has a new hot drink in mind that is expected to generate sales of 24,000 units
over its 2-year life. The initial cost for equipment is $69,500. This equipment will be depreciated
straight-line to zero over 2 years and have no salvage value. The fixed costs are $17,800, and the
contribution margin is $2.20. The tax rate is 35 percent, and the discount rate is 14 percent. Should
this new drink be pursued? Why or why not?
A) Yes; because the financial breakeven quantity of 19,014 units is less than expected sales
B) Yes; because the financial breakeven quantity of 18,648 units is less than expected sales
C) Yes; because the financial breakeven quantity of 29,101 units exceeds the expected sales
D) No; because the financial breakeven quantity of 19,014 units is less than expected sales
E) No; because the financial breakeven quantity of 29,101 units exceeds the expected sales
71) Mosler Company is considering a project requiring an initial investment of $229,700, fixed
costs of $71,900, variable costs of $5.07 per unit, a selling price of $13.07 per unit, and a life of 4
years. The discount rate is 14 percent, and the tax rate is 30 percent. Depreciation is straight-line to
zero over the project’s life. What is the accounting breakeven point?
A) 15,008 units
B) 13,200 units
C) 16,166 units
D) 11,302 units
E) 17,352 units
72) Assume a project has estimated fixed costs of $61,200, variable costs per unit of $84.29, a
selling price of $199, and an initial cost of $402,000 for fixed assets. Depreciation is straight-line
to zero over the project’s 4-year life. The tax rate is 30 percent, and the discount rate is 12 percent.
What is the financial breakeven point?
A) 1,422 units
B) 1,806 units
C) 1,366 units
D) 1,698 units
E) 1,228 units
73) Rita’s Flowers is considering a 3-year project with a discount rate of 12 percent, a tax rate of 34
percent, and an initial cost of $12,000 for fixed assets. The selling price is estimated at $22 a unit
based on variable costs per unit of $6.20 and fixed costs of $2,280. Depreciation is straight-line to
zero over 3 years. What is the accounting breakeven point?
A) 262 units
B) 301 units
C) 492 units
D) 397 units
E) 406 units
74) Arvin’s is analyzing a project with an initial cost of $212,000 that would be depreciated
straight-line to zero over the project’s 3-year life. Estimates include fixed costs of $48,280,
variable costs per unit of $13.12, and a selling price of $26.50 per unit. The discount rate is set at
16 percent with a tax rate of 35 percent. What is the financial breakeven point?
A) 10,749 units
B) 13,067 units
C) 11,618 units
D) 10,117 units
E) 11,199 units
75) You are considering a project that has been assigned a discount rate of 12 percent. If you start
the project today, you will incur an initial cost of $280 and will receive cash inflows of $350 a year
for 3 years. If you wait 1 year to start the project, the initial cost will rise to $420 and the cash flows
will increase to $385 a year for 3 years. What is the value of the option to wait?
A) –$110.01
B) –$55.93
C) $18.67
D) –$20.20
E) $20.20
76) Rosita’s is considering a project with a discount rate of 9 percent. If the firm starts the project
today, it will incur an initial cost of $32,260 and will receive cash inflows of $18,320 a year for 4
years. If the firm waits 1 year to start the project, the initial cost will decrease to $30,500, the cash
flows will increase to $18,640 a year for 4 years, and the discount rate will decrease to 8.5 percent.
What is the value of the option to wait?
A) $848.29
B) $1,471.42
C) $1,489.20
D) $681.04
E) $1,071.58
77) Wilson’s Antiques is considering a project that has an initial cost today of $14,000. The project
has a life of 2 years with cash inflows of $9,500 a year. Should Wilson’s decide to wait 2 years to
commence this project, the initial cost will increase by 3 percent and the cash inflows will increase
to $11,000 a year. What is the value of the option to wait if the applicable discount rate is 12
percent?
A) $1,269.26
B) $1,335.54
C) $2,115.08
D) $1,606.76
E) $1,935.54
78) Rizzo’s is considering a project with a life of 5 years and an initial cost of $131,000. The
discount rate for the project is 14 percent. The firm expects to sell 2,100 units a year. The cash flow
per unit is $23. The firm will have the option to abandon this project after 3 years at which time it
expects it could sell the project for $49,000. At what level of sales should the firm be willing to
abandon this project?
A) 1,087 units
B) 1,294 units
C) 1,479 units
D) 1,619 units
E) 1,502 units
79) Denver Mart is considering a project with a life of 5 years and an initial cost of $136,000. The
discount rate is 11 percent. The firm expects to sell 2,200 units a year with a cash flow per unit of
$26. The firm will have the option to abandon this project after 3 years at which time it expects it
could sell the project for $48,000. The firm is interested in knowing how the project will perform if
the sales forecast for Years 4 and 5 of the project are revised such that there is a probability of 50
percent that the sales will be 1,000 units and a probability of 50 percent they will be 2,500 units a
year. What is the net present value of this project given your sales forecasts?
A) $23,617
B) –$43,719
C) $55,002
D) $6,877
E) $62,025
80) Isabelle is reviewing a project with projected sales of 1,500 units a year, a cash flow of $38 a
unit, and a project life of 4 years. The initial cost of the project is $87,000. The relevant discount
rate is 12 percent. She has the option to abandon the project after 1 year at which time she feels she
could sell the project for $50,000. At what level of sales should she be willing to abandon the
project?
A) 713 units
B) 483 units
C) 967 units
D) 548 units
E) 607 units