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Bài test tiếng Anh ngành ngân hàng và đáp án phần 12

Parrino, 2e, Test Bank. Chapter 12

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
1. Total variable costs for a firm do not vary directly with the number of units sold.
A) True
B)

False

Ans: B

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
2. A project with a higher proportion of fixed costs will have cash flows and accounting
profits that are more sensitive to changes in revenues than an otherwise identical project
with a lower proportion of fixed costs.
A) True
B)


False

Ans: A

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
3. A synonym for pretax operating cash flow is EBIT.
A) True
B)

False

Ans: B

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
4. Distinguishing between fixed and variable costs will enable one to calculate the
sensitivity of EBITDA to changes in revenue.
A) True
B)

False

Ans: A

Page 1


Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
5. EBITDA is more sensitive to changes in revenue than EBIT.
A) True
B)

False


Ans: B

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
6. Depreciation and amortization can be handled as a fixed cost of the firm, for accounting
break-even purposes.
A) True
B)

False

Ans: A

Format: True/False
Learning Objective: LO 2
Level of Difficulty: Easy
7. Operating leverage is a measure of the sensitivity of net income to changes in revenue.
A) True
B)

False

Ans: B

Format: True/False
Learning Objective: LO 2
Level of Difficulty: Easy
8. The cash flow degree of operating leverage will change for different levels of revenue.
A) True
B)

False

Ans: A

Page 2


Format: True/False
Learning Objective: LO 2
Level of Difficulty: Easy
9. If a firm's accounting degree of operating leverage is 1.12, then a 10 percent increase in
revenue should result in a 12 percent increase in EBIT.
A) True
B)

False

Ans: B

Format: True/False
Learning Objective: LO 2
Level of Difficulty: Medium
10. If Leaning Marcus' had an increase in EBIT of 24 percent with an accounting degree of
operating leverage of 1.2, then the firm must have had a 20 percent increase in revenue
if no other changes were involved.
A) True
B)

False

Ans: A

Format: True/False
Learning Objective: LO 2
Level of Difficulty: Medium
11. If The Tower of Pizza has a cash flow degree of operating leverage equal to 1.15, then a
20 percent increase in revenue should drive a 35 percent increase in pretax operating
cash flow.
A) True
B)

False

Ans: B

Format: True/False
Learning Objective: LO 2
Level of Difficulty: Easy
12. Taxes do not enter into the equation for the cash flow degree of operating leverage
because both fixed costs and pretax operating cash flows are measured on a pretax
basis.
A) True

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B)

False

Ans: A

Format: True/False
Learning Objective: LO 2
Level of Difficulty: Easy
13. If there is no uncertainty about costs, volatility in pretax operating cash flows and
accounting profits will be driven entirely by changes in revenue and operating leverage.
A) True
B)

False

Ans: A

Format: True/False
Learning Objective: LO 2
Level of Difficulty: Easy
14. Operating profits and operating cash flow describe the same item.
A) True
B)

False

Ans: B

Format: True/False
Learning Objective: LO 2
Level of Difficulty: Easy
15. A firm that has zero fixed costs will have a cash flow degree of operating leverage
equal to one.
A) True
B)

False

Ans: A

Page 4


Format: True/False
Learning Objective: LO 2
Level of Difficulty: Easy
16. An increase in the proportion of a project's costs that are fixed will increase the degree
of operating leverage for the project.
A) True
B)

False

Ans: A

Format: True/False
Learning Objective: LO 3
Level of Difficulty: Easy
17. Break-even analysis tells us how many sales dollars must occur in order for a project to
break even on a cash flow or an accounting basis.
A) True
B)

False

Ans: A

Format: True/False
Learning Objective: LO 3
Level of Difficulty: Easy
18. If a project fails to break even from a pretax operating cash flow perspective, then the
firm is going to have to put more cash into the project to keep it going.
A) True
B)

False

Ans: A

Format: True/False
Learning Objective: LO 3
Level of Difficulty: Easy
19. The pretax operating cash flow (EBITDA) break-even point is determined by how
many units will have to be sold in order to cover the firms fixed cash expenses.
A) True
B)

False

Ans: A

Page 5


Format: True/False
Learning Objective: LO 3
Level of Difficulty: Easy
20. The per-unit contribution margin is defined as the sales price of an item less its total
variable cost.
A) True
B)

False

Ans: B

Format: True/False
Learning Objective: LO 3
Level of Difficulty: Easy
21. The cross-over level of unit sales is the level at which one fixed/variable cost
combination of production will begin to generate higher levels of operating cash flows
than another fixed/variable cost combination of production.
A) True
B)

False

Ans: A

Format: True/False
Learning Objective: LO 3
Level of Difficulty: Easy
22. The cross–over level of unit sales can be calculated for any two alternatives that have
the same level of operating leverage.
A) True
B)

False

Ans: B

Format: True/False
Learning Objective: LO 3
Level of Difficulty: Easy
23. The accounting operating profit (EBIT) break-even point tells us how many units must
be sold to avoid an accounting operating loss.
A) True

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B)

False

Ans: A

Format: True/False
Learning Objective: LO 3
Level of Difficulty: Easy
24. The accounting operating profit break-even points are smaller than the corresponding
pretax operating cash flow break-even points for a project with positive costs.
A) True
B)

False

Ans: B

Format: True/False
Learning Objective: LO 4
Level of Difficulty: Medium
25. An analysis in which a firm would like to know the effect of a price change on the NPV
of a project, holding all other variables and forecasts constant, is one type of sensitivity
analysis.
A) True
B)

False

Ans: A

Format: True/False
Learning Objective: LO 4
Level of Difficulty: Medium
26. If a firm knows that a price change will have an effect on a number of other forecast
variables, such as the sales forecast, then the firm might require scenario analysis rather
than sensitivity analysis.
A) True
B)

False

Ans: A

Page 7


Format: True/False
Learning Objective: LO 4
Level of Difficulty: Medium
27. Within a simulation analysis, the firm will need to come up with some distributional
assumptions concerning the forecast inputs, such as the mean and variance of the sales
forecast.
A) True
B)

False

Ans: A

Format: True/False
Learning Objective: LO 4
Level of Difficulty: Medium
28. Simulation analysis has the benefit of providing a pinpoint accurate forecast of a
project's NPV.
A) True
B)

False

Ans: B

Format: True/False
Learning Objective: LO 5
Level of Difficulty: Medium
29. The process of identifying the bundle of projects that creates the greatest total value and
allocates the available capital to these projects is called capital asset pricing.
A) True
B)

False

Ans: B

Format: True/False
Learning Objective: LO 5
Level of Difficulty: Medium
30. If the firm is in a capital rationing situation, then it becomes necessary for the firm to
identify the bundle or combination of positive-NPV projects that crates the greatest
total value for stockholders.
A) True
B)

False

Page 8


Ans: A

Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
31. EBITDA stands for
A) earnings before interest, taxes, and amortized depreciation.
B)

earnings before interest, taxes, depreciation, and amortization.

C)

earnings before interest and taxes.

D)

none of the above.

Ans: B

Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
32. Revenue minus variable and fixed costs best describes
A) EBIT.
B)

EBITDA.

C)

NOPAT.

D)

none of the above.

Ans: B

Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
33. Another name for EBITDA is
A) pretax operating cash flow.
B)

operating cash flow.

C)

net income before tax.

D)

net income.

Ans: A

Page 9


Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
34. A firm with a higher proportion of fixed costs will create
A) a higher degree of sensitivity of EBITDA to a change in revenues.
B)

a lower degree of sensitivity of EBITDA to a change in revenues.

C)

no discernible difference of a change in sensitivity of EBITDA to a change in
revenues.
a firm with a much more stable net income stream as a function of revenues.

D)

Ans: A

Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
35. If a firm is about to operate in an environment in which there will be a great deal of
variability in the level of revenues, then the firm
A) should structure its cost structure to have high fixed costs and higher total
variable costs.
B) should structure its cost structure to have high fixed costs and consequently lower
per unit variable costs.
C) should structure its cost structure to have low fixed costs and consequently higher
per unit variable costs.
D) None of the above.
Ans: C

Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Easy
36. The degree of pretax cash flow operating leverage provides us with
A) a measure of how sensitive pretax operating cash flows are to changes in revenue.
B)
C)

a measure of how sensitive accounting operating profits are to changes in
revenue.
a measure of how sensitive NOPAT is to changes in revenue.

D)

none of the above.

Ans: A

Page 10


Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Easy
37. ___________ is a measure of the sensitivity of EBITDA or EBIT to changes in
revenue.
A) Total leverage
B)

Financial leverage

C)

Operating leverage

D)

None of the above

Ans: C

Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Easy
38. Depreciation and amortization are treated like fixed costs
A) in the calculation of the degree of pretax cash flow operating leverage.
B)

in the calculation of the degree of accounting operating leverage.

C)

for cash flow purposes.

D)

none of the above.

Ans: A

Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Easy
39. If the degree of accounting leverage is 1.3 for a firm, then a 10 percent increase in
revenue should drive a
A) 13% increase in pretax operating cash flows.
B)

13% increase in EBIT.

C)

30% increase in EBIT.

D)

none of the above.

Ans: B

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Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Easy
40. Gilligan's Boat Tours finds that if it were to increase its price by 10 percent, it would
have a 6 percent reduction in the NPV of its new 3-Hour Tour. Gilligan's analysis could
be described as
A) a Monte Carlo simulation.
B)

scenario analysis.

C)

sensitivity analysis.

D)

none of the above.

Ans: B

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Easy
41. If a firm were interested in knowing the effect of a single input change on the net
present value of a project, then the firm would most likely want to perform
A) a Monte Carlo simulation.
B)

scenario analysis.

C)

sensitivity analysis.

D)

none of the above.

Ans: C

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Easy
42. If a firm wanted to find the effect of a change in the variable cost per unit of production
on the net present value of a project, then the firm might perform
A) a sensitivity analysis.
B)

a scenario analysis.

C)

a Monte Carlo simulation.

D)

none of the above.

Ans: A

Page 12


Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Easy
43. At times, when a firm is considering an alternative such that a set of variables affecting
a project are interrelated, then analysis that considers this interrelation could be
performed. This is called
A) a sensitivity analysis.
B)

a scenario analysis.

C)

a Monte Carlo simulation.

D)

none of the above.

Ans: B

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Easy
44. A firm is considering two distinct set of circumstances that assume high inflation and
low inflation. In the high inflationary set of circumstances, the price per unit will be
affected as well as the variable and fixed costs. If the low-inflation set of circumstances
is considered the baseline, then the analysis concerning the high inflationary
circumstances could be considered
A) a sensitivity analysis.
B)

a scenario analysis.

C)

a Monte Carlo simulation.

D)

none of the above.

Ans: B

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Easy
45. Scenario analysis can help a firm to
A) understand the degree of uncertainty that a different set of project-affecting
circumstances may hold.
B) eliminate all of the uncertainty that a different set of project-affecting
circumstances may hold.
C) transform a risky project into a risk-free project.

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D)

none of the above.

Ans: A

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Easy
46. If a project holds an 80 percent probability of high demand and a 20 percent probability
of low demand, then the expected value of the net present value of the two different
demand assumptions would give us a weighted average net present value for the
project. Such an analysis is called
A) a sensitivity analysis.
B)

a scenario analysis.

C)

a simulation analysis.

D)

none of the above.

Ans: B

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Easy
47. An analysis in which each of the inputs and assumptions for a project takes on a
separate assumed distribution whereby a computer draws on each of those input and
assumption distributions to create a distribution for the NPV of the entire project is
called
A) a sensitivity analysis.
B)

a scenario analysis.

C)

a simulation analysis.

D)

none of the above.

Ans: C

Page 14


Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Easy
48. Rouf-Mart has analyzed a new type of all-in-one retail center where the NPV of the
project has an expected value with a distribution that yields a standard deviation of $25
million. Rouf-Mart came to this conclusion by analyzing the individual input
distributions for the project. This analysis is called.
A) a sensitivity analysis.
B)

a scenario analysis.

C)

a simulation analysis.

D)

none of the above.

Ans: C

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Easy
49. If a firm is interested in the distribution of the NPV for a project that it is considering,
then the firm should be most interested in
A) a sensitivity analysis.
B)

a scenario analysis.

C)

a simulation analysis.

D)

none of the above.

Ans: C

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Easy
50. Which of the following methods of project risk analysis requires a computer?
A) sensitivity analysis.
B)

scenario analysis.

C)

simulation analysis.

D)

none of the above.

Ans: C

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Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Easy
51. Which of the following project risk analyses is best able to analyze the effect of a single
input, uncorrelated with other inputs, on the NPV of a project?
A) sensitivity analysis.
B)

scenario analysis.

C)

simulation analysis.

D)

none of the above.

Ans: A

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Easy
52. Which of the following project risk analyses is best able to analyze the effect of a single
set of circumstances, with correlated inputs, on the NPV of a project?
A) sensitivity analysis
B)

scenario analysis

C)

simulation analysis

D)

none of the above

Ans: B

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Medium
53. A change in sales price of a product sold by a firm will probably involve a reduction in
the number of units sold, as well as the possibility of a change in the cost structure of
the firm's product in question. If a firm were interested in the entire price change effect
on the NPV of a project, then it would be interested in
A) sensitivity analysis.
B)

scenario analysis.

C)

simulation analysis.

D)

none of the above.

Page 16


Ans: B

Format: Multiple Choice
Learning Objective: LO 5
Level of Difficulty: Medium
54. The process of identifying the bundle of projects that creates the greatest total value and
allocating the available capital to the projects is known as
A) risk analysis.
B)

budgeting.

C)

rationing.

D)

capital rationing.

Ans: D

Format: Multiple Choice
Learning Objective: LO 5
Level of Difficulty: Medium
55. Capital constraints can occur due to
A) difficulties in accurately assessing the risks and returns associated with a firm's
projects.
B) the capital market's inability to fund all of a firm's projects due to a lack of funds.
C)

the capital market's policy of not funding all of a firm's projects.

D)

none of the above.

Ans: A

Format: Multiple Choice
Learning Objective: LO 5
Level of Difficulty: Medium
56. The capital market may not be able to fund all of a firm's positive NPV project because
A) the capital market will always speculate that it is not going to get a fair return.
B)
C)
D)

even the capital market has a constraint for the amount of capital that it can
supply a firm.
it can be difficult for outside investors to accurately assess the risks and returns
associated with the firm's projects.
none of the above.

Page 17


Ans: C

Format: Multiple Choice
Learning Objective: LO 5
Level of Difficulty: Easy
57. The profitability index is useful in a capital rationing situation because
A) it helps identify projects by the amount of value created per dollar invested.
B)

if followed, then it is only necessary to take the projects with the highest PI first.

C)

it will rank the best project to be taken in an absolute manner.

D)

none of the above.

Ans: A

Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
58. Variable costs, fixed costs, and project risk. Solutions Bank Textbooks had sales and
operating expenses of $1 million last year. If the firm had fixed costs of $300,000 on
sales of 35,000 books, then what is the firm's per-unit contribution?
A) $28.57
B)

$20.00

C)

$8.57

D)

None of the above

Ans: C
Feedback:
Unit sales = 35,000 units
Sales = $1,000,000
Total fixed costs = $300,000 ===>
Total variable costs = $1,000,000 – $300,000 = $700,000 ===>
Unit variable costs = $700,000 / 35,000 = $20.00
Sale price/unit = $1,000,000 / 35,000 units = $28.57 ===>
Unit contribution margin = $28.57 – $20.00 = $8.57

Page 18


Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Medium
59. Calculating operating leverage. Marvelous Corporation has a degree of cash flow
operating leverage equal to 1.25. If the firm's EBITDA was $1,000 last year while its
depreciation and amortization expense was $50 in the same year, then what was the
firm's degree of accounting operating leverage?
A) 1.26
B)

1.30

C)

1.32

D)

1.35

Ans: C
Feedback:
Degree of cash flow operating leverage =
FC
1.25  1 
� FC  $250
$1, 000

1

FC
EBITDA

FC  D & A
EBITDA  D & A
Degree of accounting operating leverage =
$250  $50
1
 1.315789 �1.32
$1,
000

$50
Degree of accounting operating leverage =
1

Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Medium
60. Calculating operating leverage. Potter Corporation has a degree of cash flow
operating leverage equal to 1.266. If the firm's EBITDA was $1,500 last year while its
depreciation and amortization expense was $100 in the same year, then what was the
firm's degree of accounting operating leverage?
A) 1.29
B)

1.33

C)

1.36

D)

1.39

Ans: C

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Feedback:
Degree of cash flow operating leverage =
1.266  1 

1

FC
EBITDA

FC
� FC  $399
$1,500

Degree of accounting operating leverage =

Degree of accounting operating leverage =

1

FC  D & A
EBITDA  D & A

1

$399  $100
 1.35642857 �1.36
$1,500  $100

Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Medium
61. Calculating operating leverage. Coach K Sneakers, Inc., had EBIT of $1,850 last year
with fixed costs equal to $500 (depreciation and amortization not included) and
depreciation and amortization equal to $150. What was Coach K's degree of accounting
operating leverage?
A) 1.25
B)

1.35

C)

1.38

D)

1.40

Ans: B
Feedback:
Degree of accounting operating
leverage
1

$500  $150
 1.35135 �1.35
$1,850

=

1

FC  D & A
FC  D & A
 1
EBITDA  D & A
EBIT

Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Medium
62. Calculating operating leverage. SunBucks Tea Supplies had EBITDA of $3,000 and
EBIT of $2,750, with fixed cash expenses of $600 last year. What was SunBucks
degree of accounting operating leverage?
A) 1.20

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B)

1.25

C)

1.28

D)

1.31

Ans: D
Feedback:
EBITDA = $3,000 and EBIT = $2,750 ==>

D&A = $250
FC  D & A
FC  D & A
1
 1
EBITDA  D & A
EBIT
Degree of accounting operating leverage =
Degree of accounting operating leverage =
FC  D & A
$600  $250
1
 1
 1.30909 �1.31
EBIT
$2, 750

Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Medium
63. Calculating operating leverage. TurkeyJerkey Dried Meats, Inc., had a degree of
accounting operating leverage equal to 1.714 during the most recent period. If the firm's
EBITDA was $4,000 and depreciation and amortization was equal to $500, then what
was TurkeyJerkey's fixed cash expenses during the same period?
A) $1,499
B)

$1,999

C)

$5,499

D)

$5,999

Ans: B
Feedback:
1

FC  D & A
 1.714
EBITDA  D & A

Degree of accounting operating leverage =
Degree of accounting operating leverage =
FC  D & A
FC  $500
1
 1
 1.714 � FC  $1,999
EBITDA  D & A
$4, 000  $500

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Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Medium
64. Calculating operating leverage. Swan's Bicycle Boats had a degree of accounting
operating leverage equal to 1.50 during the most recent period. If the firm's EBITDA
was $5,000 and its fixed costs were equal to $1,750, then what was Swan's depreciation
and amortization expense during the same period?
A) $500
B)

$1,000

C)

$1,500

D)

$2,833

Ans: A
Feedback:
1

FC  D & A
 1.5
EBITDA  D & A

Degree of accounting operating leverage =
Degree of accounting operating leverage =
FC  D & A
$1, 750  D & A
1
 1
 1.5 � D & A  $500
EBITDA  D & A
$5, 000  D & A

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
65. Break-even analysis. IronVerks Ribshack has total fixed costs of $8,500 per month. It
sells rib plates for $15 each, and the variable cost of providing each plate is $10. What
is the pretax operating cash flow break-even point for IronVerks?
A) 567 plates
B)

1,700 plates

C)

8,500 plates

D)

None of the above

Ans: B
Feedback:
EBITDA Break  Even 

FC
$8,500

 1, 700
Pr ice  Unit VC $15  $10

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Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
66. Break-even analysis. Markovian Caviar Sales has discovered that the extent of the
demand for its caviar harvest is 20,000 tins per year. If the fixed costs for the new
product are $2,300,000 and the variable harvest cost per tin is $35, then what price can
Markovian charge per tin if the firm needs to break even on a pretax operating cash
flow basis?
A) $135.00
B)

$150.00

C)

$185.00

D)

None of the above

Ans: B
Feedback:
EBITDA Break  Even 

FC
$2,300, 000

 20, 000 � Pr ice  $150
Pr ice  Unit VC Pr ice  $35

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
67. Break-even analysis. Monochrome Sun Glasses has found that its pretax operating
cash flow basis break-even number of glasses sold is 770,000 pairs. If each pair is sold
for $25 and the variable cost per unit is $15, then what is the amount of Monochrome's
fixed costs?
A) $77,000
B)

$1,155,000

C)

$7,700,000

D)

$11,550,000

Ans: C
Feedback:
EBITDA Break  Even 

FC
FC

 770, 000 � FC  $7, 700, 000
Pr ice  Unit VC $25  $15

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Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
68. Break-even analysis. TimeKeepers is about to introduce a new LED clock and has
determined that it will charge $30 per clock. The firm must decide whether or not to
purchase a high-capacity clock-making machine. If the high-capacity machine is
selected, then the fixed costs for the firm will be $5,000 per year, with variable costs of
$5 per clock. Otherwise the fixed costs will be $1,000, with variable costs of $15 per
clock. Above what level of expected sales should TimeKeepers choose the high fixed
cost alternative to maximize pretax operating cash flow?
A) 400 units
B)

500 units

C)

4,000 units

D)

5,000 units

Ans: A
Feedback:
COEBITDA 

FC Alt 1  FC Alt 2
$5, 000  $1, 000

 400 units
Unit ContribAlt1  Unit Contribalt 2
$25  $15

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
69. Break-even analysis. Binders-For-School, Inc., is in the process of determining
whether to purchase a high-capacity machine to make textbooks for the upcoming
school year. The high-capacity machine will generate fixed costs of $10,000 per year
versus the $2,000 fixed costs of using a low-capacity machine. The variable costs per
unit when using the high-capacity machine will be $30. The firm will charge $60 for
each textbook and has determined that the high-capacity machine will maximize pretax
operating cash flow if sales are greater than 800 books. What is the contribution margin
under the low-capacity machine scenario?
A) $10
B)

$20

C)

$30

D)

$40

Ans: B

Page 24


Feedback:
COEBITDA 

FC Alt1  FC Alt 2
$10, 000  $2, 000

 800 units �
Unit ContribAlt1  Unit Contribalt 2 ($60  $30)  Unit Contribalt 2

Unit Contribalt 2  $20

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
70. Break-even analysis. Binders-For-School, Inc., is in the process of determining
whether to purchase a high-capacity machine to make textbooks for the upcoming
school year. The high-capacity machine will generate fixed costs of $10,000 per year
versus the $2,000 fixed costs of using a low-capacity machine. The variable costs per
unit when using the high-capacity machine will be $30. The firm will charge $60 for
each textbook and has determined that the high-capacity machine will maximize pretax
operating cash flow if sales are greater than 800 books. What is the variable cost per
unit under the low-capacity machine scenario?
A) $20
B)

$40

C)

$60

D)

$80

Ans: B
Feedback:
COEBITDA 

FC Alt1  FC Alt 2
$10, 000  $2, 000

 800 units �
Unit ContribAlt1  Unit Contribalt 2 ($60  $30)  Unit Contribalt 2

Unit Contribalt 2  $20 � VC  $60  $20  $40

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
71. Break-even analysis. A cement contractor has determined that he will maximize pretax
operating cash flow buying a large cement truck if he is able to sell more than 500
yards of cement per month. The price of a yard of cement is $60, and the variable costs
for a large truck are $20 per yard. The variable costs for a small truck are $40 per yard,
and the fixed costs for the small truck are $10,000. What are the fixed costs associated
with the large truck?
A) $0

Page 25


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