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1 | |
Just because the cash flows of a project are positive doesn't mean the NPV is positive. |
| | A) | True |
| | B) | False |
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2 | |
The higher the degree of operating leverage, the greater the danger of forecasting risk. |
| | A) | True |
| | B) | False |
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3 | |
Fixed costs are costs that do not change when the quantity of output changes during a particular time period. |
| | A) | True |
| | B) | False |
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4 | |
Simulation analysis is a combination of scenario and sensitivity analysis. |
| | A) | True |
| | B) | False |
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5 | |
If you are interested in finding out how sensitive your NPV estimate is to changes in the gross profit margin, you should use scenario analysis. |
| | A) | True |
| | B) | False |
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6 | |
Of the breakeven levels discussed, the financial break-even point is likely to be the most important point for a firm to identify. |
| | A) | True |
| | B) | False |
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7 | |
Projected cash flow is typically defined to be |
| | A) | the best case expected cash flow |
| | B) | an average of the possible cash flows from the various scenarios |
| | C) | the largest possible cash flow |
| | D) | the cash flow that results in the lowest NPV but still allows the project to be accepted |
| | E) | the least likely cash flow |
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8 | |
Positive net present value projects _____________________. |
| | A) | tend to be rare in a highly competitive market |
| | B) | will likely have a source of value that is difficult to determine |
| | C) | tend to be rare in a highly monopolistic market |
| | D) | will typically occur in international markets, but not domestic markets |
| | E) | are common for firms in old, well established industries |
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9 | |
Which of the following does NOT correctly complete this sentence: Conventional capital budgeting analysis will tend to understate the true NPV of a project unless ________ is considered. |
| | A) | a contingency plan option |
| | B) | the option to default |
| | C) | the option to expand |
| | D) | the option to abandon |
| | E) | the option to wait |
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10 | |
_________ allows a firm to ask what-if type questions in capital budgeting.
I. Scenario analysis II. Sensitivity analysis
III. Simulation analysis IV. Break-even analysis |
| | A) | I and II only |
| | B) | II and III only |
| | C) | I, II, and III only |
| | D) | I, II, and IV only |
| | E) | I, II, III, and IV |
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