Comp Problem
1. What is the change in the NPV of a one-year project if fixed costs are increased from $400 to $600, the firm is profitable, has a 35% tax rate, and employs a 12% cost of capital?
A. -$200.00
B. -$178.57
C. -$130.00
D. -$116.07
2. What happens to the NPV of a one-year project if fixed costs are increased from $400 to $600, the firm is not profitable, has a 35% tax rate, and employs a 12% cost of capital?
A. NPV decreases by $200.00.
B. NPV decreases by $178.57.
C. NPV decreases by $130.00.
D. NPV decreases by $113.04.
3. Assume a 5-year project has a base-case NPV of $213,000, a tax rate of 34%, and a cost of capital of 14%. What will be the worst-case NPV if the annual cash flows are reduced in that scenario by $35,000 for each of the 5 years?
A. -$92,842.17
B. -$120,157.83
C. $92,842.17
D. $120,157.83
4. A firm has fixed costs of $1.2 million and depreciation of $1 million. At a sales level of $3.6 million, the variable costs of $2.304 million. What is the accounting break-even level of sales?
A. $5.23 million
B. $3.44 million
C. $6.11 million
D. $4.87 million
5. Weston's has variable costs that average 68% of sales. If fixed costs increase by $1, what will be the increase in the break-even level of revenues?
A. An increase of $0.68
B. An increase of $1.00
C. An increase of $1.471
D. An increase of $3.125
6. The Corner Market has fixed costs of $1,600, depreciation of $1,200, a tax rate of 35%, and a cost of capital of 12%. Variable costs represent 67% of sales. What minimum level of sales must the market obtain to avoid a net loss on its income statement?
A. $8,484.85
B. $6,666.67
C. $7,033.33
D. $7,867.67
7. Calculate the accounting break-even level of sales assuming $865,000 of fixed costs, $400,000 depreciation expense, and a variable costs-to-sales ratio of 65%.
A. $2,769,230.77
B. $3,614,285.71
C. $4,237,769.23
D. $1,946.153.85
8. Calculate the ratio of variable costs to sales for a firm with a $3 million accounting break-even revenue point, $1.2 million fixed costs, and $450,000 depreciation.
A. 40%
B. 45%
C. 55%
D. 60%
9. A 6-year project has an economic break-even level of sales of $5 million and a discount rate of 8%. The annual cash inflows are equal to 10% of sales minus $300,000. What was the initial investment in the project assuming that none of the investment is recoverable when the project ends?
A. $416,667
B. $924,576
C. $1,016,678
D. $2,311,450
10. What percentage change in sales occurs if profits increase by 3% when the firm's degree of operating leverage is 4.5?
A. 0.33%
B. 0.67%
C. 3.03%
D. 1.50%
11. What percentage change in sales will occur if pretax profits decrease by 13.8% when the DOL is 3.8?
A. 0.28%
B. -2.75%
C. -3.63%
D. 10.00%
12. A firm with $600,000 of fixed costs and $200,000 of depreciation is expected to produce $225,000 in profits. What is its DOL?
A. 3.56
B. 3.67
C. 4.56
D. 4.67
13. A share of stock currently sells for $60, pays an annual dividend of $4.00, and earned a rate of return of 20% over the past year. What did this stock sell for one year ago?
A. $42.00
B. $46.15
C. $48.46
D. $53.33
14. Sue purchased a stock for $25 a share, held it for one year, received a $1.34 dividend, and sold the stock for $26.45. What nominal rate of return did she earn?
A. 11.16%
B. 14.23%
C. 12.09%
D. 10.55%
15. What is the percentage return on a stock that was purchased for $48.40, paid a $1.67 dividend, and was then sold after one year for $46.20?
A. -2.50%
B. -1.10%
C. 0.23%
D. -0.33%
16. What was the percentage return on a non-dividend-paying stock that was purchased for $40.00 and then sold after one year for $39.00?
A. -2.50%
B. -0.39%
C. -0.04%
D. -2.56%
17. An investor receives a 15% total return by purchasing a stock for $40 and selling it after one year with a 5% capital gain. How much was received in dividend income during the year?
A. $2.00
B. $2.20
C. $4.00
D. $4.40
18. If a stock consistently goes down (up) by 1.6% when the market portfolio goes down (up) by 1.2%, then its beta equals:
A. 1.04.
B. 1.24.
C. 1.33.
D. 1.40.
19. If a stock's beta is 0.8 during a period when the market portfolio was down by 10%, then, a priori, we could expect this individual stock to:
A. lose more than 10%.
B. lose, but less than 10%.
C. gain more than 10%.
D. gain, but less than 10%.
20. Estimate a stock's beta based on the following information: Month 1 = Stock +1.5%, Market +1.1%; Month 2 = Stock +2.0%, Market +1.4%; Month 3 = Stock -2.5%, Market -2.0%.
A. Greater than 1.0
B. Less than 1.0
C. Equal to 1.0
D. Indeterminate