When analyzing a project, scenario analysis is best suited to accomplishing which one of the following? Multiple Choice Determining the minimal level of sales required to break even on an accounting basis Identifying the potential range of reasonable outcomes Estimating the residual value of fixed assets Determining how fixed costs affect NPV Determining the minimal level of sales required to break even on a financial basis

When analyzing a project, scenario analysis is best suited to accomplishing which one of the following? Multiple Choice Determining the minimal level of sales required to break even on an accounting basis Identifying the potential range of reasonable outcomes Estimating the residual value of fixed assets Determining how fixed costs affect NPV Determining the minimal level of sales required to break even on a financial basis

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter10: Evaluating Decentralized Operations

Section: Chapter Questions

Problem 12E

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Capital investment evaluation methods can be grouped into which of the following two general categories? a. Methods that use average rate of return and methods that use differential analysis b. Methods that do not use variable costing and methods that use variable costing Oc. Methods that do not use present values and methods that use present values Od. Methods that use absorption costing analysis and methods that use incremental analysis
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Sensitivity analysis determines the: Multiple Choice degree to which the net present value reacts to changes in a single variable. ideal ratio of variable costs to fixed costs for profit maximization. net present value range that can be realized from a proposed project. range of possible outcomes given that most variables are reliable only within a stated range. degree to which a project relies on its initial costs.
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Which control is not a part of the fixed asset system?a. formal analysis of the purchase requestb. review of the assumptions used in the capital budgeting modelc. development of an economic order quantity modeld. estimates of anticipated cost savings
Internal Rate of Return is used: a) To determine the interest rate at which benefits of a project are equivalent to its costs. b) To determine which investment to choose when one of two alternatives must be chosen. c) To determine the interest rate for an investment that yields no income. d) To choose an investment that necessary to preserve the operation of the business. e) To justify a “lost-leader” project of a strategic nature.
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Net Present Value Method Net present value (NPV) is one method that can be used to evaluate the financial viability of potential projects. It determines the present value of all future cash flows associated with potential projects and measures this against the cost of the project. To use net present value, a required rate of return must be defined. The required rate of return is the minimum -v acceptable rate of return that an investment must yield for it to make sense economically. Managers often choose a required rate of return above their cost of capital to ensure that the inherent uncertainties surrounding future cash flows is addressed. This can be risky, however, as it biases the process toward short-term projects. If the NPV is positive, then the project should be accepted - V ; if it is negative, then the project should be rejected V. Let's look at a net present value example using the present value of an ordinary annuity table. The company has a project with a 5-year life that…
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