Regarding financial basis breakeven

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Reference no: EM131603811

1. Which of the following might be a question that is directly answered by sensitivity analysis?

a. What is the expected change in our profit if our main suppliers go bankrupt?

b. What is the expected change in our profit if the CEO resigns?

c. What is the expected change in our profit if the housing market crashes?

d. What is the expected change in our profit if we issue new common shares?

e. What is the expected change in our profit if our cost of goods increase?

2. For a project of six year duration and 10% per year cost of capital, what is the financial basis breakeven: Upfront cost $500. Unit price $30. Variable cost: $14. Fixed costs $200/yr. Depreciation $70/yr. Taxes 20%. Sales are the same level each year.

a. 41 units/year

b. 50 units/year

c. 20 units/year

d. 32 units/year

e. 8 units/year

3. Which of the following is correct regarding accounting basis breakeven?

a. At accounting basis breakeven, operating income is negative

b. At accounting basis breakeven, operating income is positive

c. At accounting basis breakeven, sales level is lower than at cash basis breakeven

d. At accounting basis breakeven, taxable income is zero

e. At accounting basis breakeven, the company always will have zero net income

4. What is the best case operating profit for Chapter 11 Problem 3 if the estimations are accurate +/- 20%?

a. $92M

b. $142M

c. $150M

d. $188M

e. $136M

5. Which of the following is correct regarding financial basis breakeven?

a. Financial basis breakeven can only be calculated for projects lasting one year

b. If there are any future cash flows, then a discount rate is required to complete the calculation

c. The operating cash flow is always larger in magnitude than the level of sales required at the financial basis breakeven

d. If a project is expected to go on forever, then financial basis breakeven cannot be calculated

e. It is financially rational for an investor to pursue projects with projected sales below their financial basis breakeven

Reference no: EM131603811

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