Home / Questions / The break-even level of revenues represents the point at which the firm
The break-even level of revenues represents the point at which the firm has:
A. zero pretax profit.
B. zero net present value.
C. covered all opportunity costs.
D. covered all fixed and variable costs.
75. If forecasted sales exceed the break-even level but are less than the economic break-even level, the project has a:
A. positive NPV but earns less than the discount rate.
B. negative NPV but earns more than the discount rate.
C. net loss on the income statement.
D. net profit on the income statement.
76. Calculate the ratio of variable costs to sales for a firm with $3,000,000 accounting break-even revenues, $1.2 million fixed costs, and $450,000 depreciation.
77. Approximately how much was paid to invest in a project that has an economic break-even level of sales of $5 million, cash flows determined by .1 ? sales - $300,000, a 6-year life, and an 8% discount rate?
78. Calculate the economic break-even level of sales for a project requiring an investment of $3,000,000 and providing as cash flows .15 ? sales less $250,000. Assume the project will generate these cash flows for 10 years and that the discount rate is 10%.
79. If the level of sales is less than that calculated as the economic break-even level, then the:
A. project will break even only in accounting terms.
B. project's EVA will be greater than zero but less than the opportunity cost of capital.
C. project will have a negative EVA.
D. discount rate should be reduced.
80. The difference between an NPV break-even level of sales and an accounting break-even level of sales is:
A. the consideration of opportunity cost.
B. the consideration of depreciation expense.
C. the allowance of the sales level to vary in response to changes in demand.
D. the inclusion of income taxes.
81. Fixed costs including depreciation have increased at Leverage, Inc. from $4 million to $6 million in an effort to reduce variable costs. What must the new variable cost percentage be to leave break-even at $20 million?
82. Which of the following offers the most plausible scenario for a firm that maintained a constant degree of operating leverage when its level of fixed costs doubled?
A. Depreciation expense increased.
B. Variable cost percentage decreased.
C. Sales revenues declined.
D. Pretax profits decreased.
83. One of the problems inherent in sensitivity analysis is that:
A. NPVs do not change once a project is introduced.
B. most projects are equally sensitive to all variables.
C. it can be difficult to define the range of outcomes.
D. the cost of conducting the analysis is excessive.
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