Reference no: EM133035470

Questions -

Q1. Tom is evaluating a project that costs $950,000, has a five-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 90,000 units per year, price per unit is $65, variable cost per unit is $30, and fixed costs are $2 million per year. The tax rate is 21%, and the required rate of return on the project is 12%. Calculate the NPV for the project.

Q2. Tom is evaluating a project that costs $950,000, has a five-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 90,000 units per year, price per unit is $65, variable cost per unit is $30, and fixed costs are $2 million per year. The tax rate is 21%, and the required rate of return on the project is 12%. Calculate the accounting break-even number of units for the project.

Q3. Tom is evaluating a project that costs $950,000, has a five-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 90,000 units per year, price per unit is $65, variable cost per unit is $30, and fixed costs are $2 million per year. The tax rate is 21%, and the required rate of return on the project is 12%. Calculate the equivalent annual cost of the machine.

Q4. Tom is evaluating a project that costs $950,000, has a five-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 90,000 units per year, price per unit is $65, variable cost per unit is $30, and fixed costs are $2 million per year. The tax rate is 21%, and the required rate of return on the project is 12%. Calculate the financial breakeven number of units for the project.

Q5. Tom is evaluating a project that costs $950,000, has a five-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 90,000 units per year, price per unit is $65, variable cost per unit is $30, and fixed costs are $2 million per year. The tax rate is 21%, and the required rate of return on the project is 12%. Suppose the projections given for price, quantity, VC per unit, and FC are accurate within +/- 15%. Calculate the best case NPV.

Q6. Tom is evaluating a project that costs $950,000, has a five-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 90,000 units per year, price per unit is $65, variable cost per unit is $30, and fixed costs are $2 million per year. The tax rate is 21%, and the required rate of return on the project is 12%. Suppose the projections given for price, quantity, VC per unit, and FC are accurate within +/- 15%. Calculate the worst-case NPV.

Q7. Suzan just finished a new movie script. Paramount offers to buy the script for either (a) $500,000 or (b) 2% of the movie's profits. There are two decisions the studio will have to make. The first is to decide if the script is good or bad, and the second if the movie is good or bad. There is an 80% the script is bad. If the script is bad, the studio does nothing. If the script is good, the studio will shot the movie. After the movie is shot, the studio will review it, and there is a 50% the movie is good. If the movie is bad, the movie will not be promoted. If the movie is good, the studio will promote it heavily and the expected profit is $200 million. If the movie is bad, the movie will make 20 million. Calculate the expected profit on this film.

Q8. Suzan just finished a new movie script. Paramount offers to buy the script for either (a) $500,000 or (b) 2% of the movie's profits. There are two decisions the studio will have to make. The first is to decide if the script is good or bad, and the second if the movie is good or bad. There is an 80% the script is bad. If the script is bad, the studio does nothing. If the script is good, the studio will shot the movie. After the movie is shot, the studio will review it, and there is a 50% the movie is good. If the movie is bad, the movie will not be promoted. If the movie is good, the studio will promote it heavily and the expected profit is $200 million. If the movie is bad, the movie will make 20 million. Calculate Suzan's payoff if she chooses Option B.

Q9. Which of the following statements is least applicable to the option to wait?

the option to wait could have a negative value

the option to wait is partially dependent on the discount rate applied to the project

the option to wait may have minimal value if the project relates to a rapidly changing technology

the option to wait is valued based on a project's equivalent annual cost

Q10. Which break-even analysis results in a net income equal to zero?

Accounting break-even

Operational break-even

Financial break-even

Cash flow break-even