Revenue minus variable and fixed costs best describes: EBIT. EBITDA. NOPAT. EAT.

Question

Revenue minus variable and fixed costs best describes:

EBIT.

EBITDA.

NOPAT.

EAT.

2 points   

QUESTION 2

Compared to an identical project with a lower proportion of fixed costs, a project with a higher proportion of fixed costs will have:

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

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

no discernible difference of a change in sensitivity of EBITDA to a change in revenues.

a stable net income stream as a function of revenues.

2 points   

QUESTION 3

Depreciation and amortization are treated like fixed costs:

in the calculation of the degree of pretax cash flow operating leverage.

in the calculation of the degree of accounting operating leverage.

for cash flow purposes.

for computing dividend.

2 points   

QUESTION 4

If the degree of accounting operating leverage is 1.3 for a firm, then a 10 percent increase in revenue should drive a:

12% increase in pretax operating cash flows.

13% increase in EBIT.

30% increase in EBIT.

1.3% increase in pretax operating cash flows.

2 points   

QUESTION 5

Which is the term used to define how many units must be sold for pre-tax operating cash flow to be equal to zero?

Pre-tax accounting operating profit break-even point

Pre-tax operating financial leverage break-even point

Pre-tax accounting sensitivity break-even point

Pre-tax operating cash flow break-even point

2 points   

QUESTION 6

The difference between revenue and variable cost is called:

total contribution.

net profit.

EBIT.

EAT.

2 points   

QUESTION 7

Which of the following statements is true of the economic break-even point?

It is the number of units that must be sold for accounting operating profit to equal $0.

It is the level of unit sales at which cash flows or profitability for one project alternative switches from being lower than that of another alternative to being higher.

It is the number of units that must be sold each year during the life of a project so that the NPV of a project equals $0.

It is the number of units that must be sold for pretax operating cash flow to be $0.

2 points   

QUESTION 8

Astroscope 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. Considering other things to be unchanged, Astroscope's analysis could be described as:

Monte Carlo simulation.

break-even analysis.

sensitivity analysis.

variance analysis.

2 points   

QUESTION 9

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 Monte Carlo simulation.

a scenario analysis.

a sensitivity analysis.

a break-even analysis.

2 points   

QUESTION 10

Scenario analysis can help a firm to:

understand the degree of uncertainty that a different set of project-affecting circumstances may hold.

eliminate all of the uncertainty that a different set of project-affecting circumstances may hold.

transform a risky project into a risk-free project.

understand the degree of certainty that a similar set of project-affecting circumstances may hold.

EBIT.

EBITDA.

NOPAT.

EAT.

Explanation / Answer

Answer to Q1 is EBITDA. EBITDA is Earning before Interest, Taxes, Depreciation and Amortization.

Therefore, Ravenue-Variable cost-Fixed cost is EBITDA.

Answer to Q2

Compared to an identical project with a lower proportion of fixed costs, a project with a higher proportion of fixed costs will have a higher degree of sensitivity of EBITDA to a change in revenues.

Answer to Q 5

Pre-tax operating cash flow break-even point is used to calculate the number of units must be sold for pre-tax operating cash flow to be equal to zero

Answer to Q 6 is Total Contribution

Revenue- Variable Cost= Total Contribution

Answer to Q7

Breakeven point is the number of units that must be sold for accounting operating profit to equal $0.

Breakeven point is the point where there is no profit nor loss.

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