Forecasting risk is important for financial managers because Select one: a

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Forecasting risk is important for financial managers because

Select one:

a. the firm may not be able to correctly project its future financing costs without considering risk.

b. forecasts by industry analysts may not agree with the firm's forecasts of its future revenues.

c. strategic options cannot be included in the capital budgeting decision criteria without considering risk.

d. the investment decision process should aim to match projected cash flows with actual cash flows.

e. overly optimistic estimation of future cash flows may lead to incorrect capital budgeting decisions.

 

Norister Inc. is considering introducing a new product line. This will require the purchase of new fixed assets of $2.4 million. The company estimates that demand for the new product will be approximately 15,000 units per year, with a price per unit of $100. The variable cost of producing each unit of the product is $35, and fixed costs per year will be $100,000. Demand for the product is expected to remain constant for six years, after which both demand and production will cease, and the associated fixed assets will have no salvage value. Depreciation on the fixed assets will be straight-line to zero. The company's marginal tax rate is 35%, and the required return on the project is 13%. How will the after-tax operating cash flow (ATOCF) change if the number of units sold is 10% more than the projected demand of 15,000 units?

Select one:

a. ATOCF will increase by 8.94%.

b. ATOCF will decrease by 8.94%.

c. ATOCF will increase by 10%.

d. ATOCF will decrease by 10%.

e. ATOCF will remain unchanged.

 

Norister Inc. is considering introducing a new product line. This will require the purchase of new fixed assets of $2.4 million. The company estimates that demand for the new product will be approximately 15,000 units per year, with a price per unit of $100. The variable cost of producing each unit of the product is $35, and fixed costs per year will be $100,000. Demand for the product is expected to remain constant for six years, after which both demand and production will cease, and the associated fixed assets will have no salvage value. Depreciation on the fixed assets will be straight-line to zero. The company's marginal tax rate is 35%, and the required return on the project is 13%. Due to forecasting risk, the company estimates that price per unit, variable cost, fixed costs, and quantity sold could vary by ±10%, ±15%, ±5%, and ±10%, respectively. What is the project's net present value in the best-case scenario?

Select one:

a. $1,543,413

b. $1,353,424

c. $1,043,502

d. $368,020

e. $103,677

 

 

At the accounting break-even point, taxes are

Select one:

a. very low.

b. infinitely low.

c. zero.

d. infinitely high.

e. very high.

 

Oscar Inc. has a new product priced at $650 per unit. Variable cost is $350 per unit, and fixed costs are $300,000 per year. Quantity sold is expected to be 15,000 units per year. The new product will require an initial investment of $16 million, depreciation will be straight-line to zero for eight years, and salvage at the end of eight years is expected to be $2 million. Demand for the product is expected to be stable and to continue for eight years. The required rate of return on this new product line is 12%. Ignoring taxes, what is the accounting break-even quantity?

Select one:

a. 667

b. 6,776

c. 7,667

d. 7,767

e. 77,667

 

Oscar Inc. has a new product priced at $650 per unit. Variable cost is $350 per unit, and fixed costs are $300,000 per year. Quantity sold is expected to be 15,000 units per year. The new product will require an initial investment of $16 million, depreciation will be straight-line to zero for eight years, and salvage at the end of eight years is expected to be $2 million. Demand for the product is expected to be stable and to continue for eight years. The required rate of return on this new product line is 12%. Ignoring taxes, what is the cash break-even quantity?

Select one:

a. 800

b. 900

c. 1,000

d. 1,100

e. 11,000

 

Oscar Inc. has a new product priced at $650 per unit. Variable cost is $350 per unit, and fixed costs are $300,000 per year. Quantity sold is expected to be 15,000 units per year. The new product will require an initial investment of $16 million, depreciation will be straight-line to zero for eight years, and salvage at the end of eight years is expected to be $2 million. Demand for the product is expected to be stable and to continue for eight years. The required rate of return on this new product line is 12%. Ignoring taxes, what is the financial break-even quantity?

Select one:

a. 11,000

b. 11,194

c. 17,667

d. 18,800

e. 20,000

 

Oscar Inc. has a new product priced at $650 per unit. Variable cost is $350 per unit, and fixed costs are $300,000 per year. Quantity sold is expected to be 15,000 units per year. The new product will require an initial investment of $16 million, depreciation will be straight-line to zero for eight years, and salvage at the end of eight years is expected to be $2 million. Demand for the product is expected to be stable and to continue for eight years. The required rate of return on this new product line is 12%. What is the degree of operating leverage at the expected quantity sold of 15,000 units?

Select one:

a. 1.01

b. 1.03

c. 1.05

d. 1.07

e. 1.09

 

The _________ the degree of operating leverage, the higher is the danger from __________ risk.

Select one:

a. lower; operating

b. higher; forecasting

c. lower; forecasting

d. higher; financial

e. lower; financial

 

The option to postpone a project is valuable as long as

Select one:

a. managers engage in contingency planning and capital rationing.

b. there are other positive NPV projects.

c. there are no other positive NPV projects.

d. there are possible future scenarios under which the project will yield a positive NPV.

e. tax credits are available for the project.