1. Sensitivity analysis determines the O A. degree to which a project relies on its fixed costs. O B. net present value range that can be realized from a proposed project. O C. ideal ratio of variable costs to fixed costs for profit maximization. O D. degree to which the net present value reacts to changes in a single variable. 2. Why is it important to find changes of net working capital (NWC) in developing cash flows? O A. Changes in NWC indicate capital expenditures (such as purchase of equipment). They must be subtracted from cash inflows (measured by other cash flow). O B. Changes in NWC have important tax implications (a tax shield), so they must be multiplied by 1 minus the tax rate to find total cash flow. O C. Changes of NWC are unimportant. O D. Changes in NWC indicate cash outflows (measured by change in NWC) must be subtracted from cash inflows (measured by operating cash flow). 3. The maintenance expenses on a rental house you own average $200 a month. The house cost $219,000 when you purchased it four years ago. A recent appraisal on the house valued it at $239,000. If you sell the house, you'll incur $14,000 in real estate fees. The annual property taxes are $4,000. You're trying to decide whether to sell the house or convert it for your own use as a professional office. What value should you place on this house when analyzing the option of using it as a professional office? Q A. $225,000 O B. $211,800 O C. $239,000 O D. $235,000 4. If a firm accepts Project A, it won't be feasible to also accept Project B because both projects would require the simultaneous and exclusive use of the same piece of machinery. These projects are considered to be O A. mutually exclusive. O B. interdependent O C. independent O D. economically scaled. 5. Future cash flows require the development of projected financial statements, projecting future years's operations. These are called statements. O A. pro forma O B. projected O C. forward O D. discounted 6. Mary has decided to get a two-year degree from a local technical school, despite being offered a job at the local hardware store for $11 dollars per hour, 40 hours per week. She quickly calculates that she would have made $45,760 in the two years she was at school. $45,760, the cost of her next best option, is considered alan O A. opportunity cost. O B. erosion cost. O C. sunk cost O D. cash outflow cost 7. You're working on a bid to build two apartment buildings a year for the next three years. This project requires the purchase of $1,089,000 of equipment that will be depreciated using straight-line depreciation to a zero book value over the project's life. The equipment can be sold at the end of the project for $815,000. You'll also need $280,000 in net working capital over the life of the project. The fixed costs will be $528,000 a year, and the variable costs will be $1,640,000 per building. Your required rate of return is 18 percent for this project, and your tax rate is 35 percent. What's the minimal amount, rounded to the nearest $100, you should bid per building? O A. $2,116,200 O B. $4,489,500 O C. $2,780,600 O D. $4,233,0008. G & L Plastic Molders spent $1,200 last week repairing a machine. This week, the company is trying to decide if the machine could be better used if they assigned it to a proposed project. When analyzing the proposed project, the $1,200 should be treated as which type of cost? O A. Incremental O B. Sunk O C. Opportunity O D. Fixed 9. Which of the following will decrease the net present value of a project? O A. Increasing the amount of the final cash inflow O B. Decreasing the required discount rate O C. Increasing the project's initial cost at time zero O D. Increasing the value of each project's discounted cash inflows 10. At an output level of 60,000 units, you calculate that the degree of operating leverage is 3.50. If output rises to 75,000 units, what will the percentage change in operating cash flow be? O A. 80.75 percent O B. 85.55 percent O C. 87.50 percent O D. 70.25 percent 11. Operating leverage is the degree of dependence a firm places on its O A. variable costs. O B. fixed costs. O C. operating cash flows. O D. depreciation tax shield. 12. What's the definition of payback period? O A. The amount of time before the first cash flows are positive on a new investment O B. The amount of time required for an investment to generate enough cash flows to recover its initial cost O C. The full period it takes to pay back the loans associated with long-term debt O D. The average amount of time it takes to pay back short-term debt 13. A project requires an initial investment of $45,400 today. The present value of the cash inflows likely to result from this initial investment is $45,300. Should the firm proceed with the investment? Why or why not? O A. Yes, because the NPV is negative. O B. Yes, because the NPV is positive. O C. No, because the NPV is negative. O D. No, because the NPV is positive.\f