NUMBER 3
Questions 1–20: Select the one best answer to each question.
1. The amount of time required for an investment to generate
cash flows sufficient to recover its initial cost is called the
A. net present value.
B. average accounting return.
C. internal rate of return.
D. payback period.
2. To calculate a firm’s break-even point, you need to
A. divide fixed costs by variable costs.
B. add fixed costs to variable costs, and divide the total
by the unit contribution margin.
C. divide fixed costs by the unit contribution margin.
D. divide the unit contribution margin by variable costs.
3. The present value of an investment’s future cash flows
divided by its initial cost is called the
A. profitability index.
B. average accounting return.
C. net present value.
D. discounted payback.
4. Assume that a firm has an average net income of $125,000 and an average book
value of $500,000. What is the firm’s average accounting return?
A. 25 percent C. 40 percent
B. 65 percent D. 12.5 percent
5. A cost that has already been incurred and that should therefore not be considered
in an investment decision is called a(n)
A. pro forma. C. erosion.
B. sunk cost. D. opportunity cost.
6. A situation in which a company can’t raise financing for a project under any
circumstances is called
A. simulation analysis. C. operating leverage.
B. hard rationing. D. forecasting risk.
7. A project requires an initial investment of $75,000 today. The present value of the
cash inflows likely to result from this initial investment is $98,293. What is the net
present value of this investment?
A. –$23,293 C. $51,707
B. $75,000 D. $23,293
8. The discount rate that makes the net present value of an investment zero is called the
A. average accounting return. C. project cash flow.
B. internal rate of return. D. crossover rate.
9. Assume that an item costs $4 per unit to manufacture, and sells for $19 per unit.
What is the unit contribution margin?
A. $23 C. $15
B….