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| 1 | |
Project analysis includes the following procedures: |
| | A) | Sensitivity analysis |
| | B) | Break-even analysis |
| | C) | Monte Carlo simulation |
| | D) | All of the above |
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| 2 | |
After the completion of project analysis, the final decision on the project would be from: |
| | A) | Sensitivity analysis |
| | B) | Break-even analysis |
| | C) | Decision trees |
| | D) | NPV |
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| 3 | |
You are given the following data for year 1: Revenues = 120, Fixed costs = 30; Total variable costs = 50; Depreciation = $10; Tax rate = 30%. Calculate the after tax cash flow for the project for year 1. |
| | A) | $31 |
| | B) | $21 |
| | C) | $30 |
| | D) | None of the above |
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| 4 | |
A project has the following cash flows: C0 = -100,000; C1 = 50,000; C2 = 150,000; C3 = 100,000. If the discount rate changes from 12% to 13%, what is the change in the NPV of the project (approximately)? |
| | A) | 4375 decrease |
| | B) | 4375 increase |
| | C) | 122,650 increase |
| | D) | 131,025 decrease |
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| 5 | |
Eble Company proposes to invest $6 million in a new type of text printing equipment. The fixed costs are $0.5 million per year. The equipment is expected to last for 5 years. The manufacturing costs per hammer are $1. Calculate the break-even volume per year. (Ignore taxes.) |
| | A) | 400,000 |
| | B) | 500,000 |
| | C) | 250,000 |
| | D) | None of the above |
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| 6 | |
Monte Carlo simulation is a tool for considering the: |
| | A) | Effect of changing one variable on the NPV of the project |
| | B) | Effect of changing a limited number of plausible combination of variables on the NPV of the project |
| | C) | Effect of changing all possible combinations of variables on the NPV of the project |
| | D) | None of the above |
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| 7 | |
Which of the following simulation outputs is likely to be most useful and easy to interpret? The output shows the distribution(s) of the project cash flows: |
| | A) | To be normally distributed |
| | B) | Are random |
| | C) | Over the past 20 years |
| | D) | As a percentage of sales |
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| 8 | |
The following statements about simulation models are true except: |
| | A) | Simulation models enable the financial manager to analyze risky projects without estimating the approximate cost of capital |
| | B) | Simulation models are complex and expensive to develop |
| | C) | Simulation models are specific to the project |
| | D) | Simulation models usually ignore opportunities to expand or abandon the project |
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| 9 | |
Generally, the simulation models for projects are developed using a: |
| | A) | Computer |
| | B) | Roulette wheel |
| | C) | Pair of dice |
| | D) | Pack of cards |
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| 10 | |
Monte Carlo simulation is likely to be most useful: |
| | A) | For simple problems |
| | B) | For problems of moderate complexity |
| | C) | For very complex problems |
| | D) | Regardless of the problem's complexity |
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| 11 | |
The following is not among the steps involved in the Monte Carlo method: |
| | A) | Modeling the project |
| | B) | Specifying the numbers on the roulette wheel |
| | C) | Specifying probabilities |
| | D) | Simulating the cash flows |
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| 12 | |
The hardest and most important part of a simulation is: |
| | A) | Simulating the cash flows |
| | B) | Specifying the inter-dependencies |
| | C) | Calculating the payback period |
| | D) | Specifying the numbers on the roulette wheel |
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| 13 | |
When conducting a sensitivity analysis, variables are set one at a time to their optimistic and pessimistic values. |
| | A) | True |
| | B) | False |
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| 14 | |
The break-even point in terms of EAC flows is usually lower than the break-even point on an accounting basis. |
| | A) | True |
| | B) | False |
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| 15 | |
Monte Carlo simulation is a tool for considering all possible combinations of variables. |
| | A) | True |
| | B) | False |
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| 16 | |
Which of the following is not a limit to sensitivity analysis? |
| | A) | It gives ambiguous results |
| | B) | Underlying variables are likely to be interrelated |
| | C) | It is complex to set up |
| | D) | It is difficult to extract the forecaster's notion of true probabilities of possible outcomes |
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| 17 | |
Scenario Analysis allows managers to look at different ___________ combinations of variables. |
| | A) | and inconsistent |
| | B) | and unknown |
| | C) | but consistent |
| | D) | none of the above |
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| 18 | |
Which of the following is not a step in Monte Carlo simulation? |
| | A) | Modeling the Project |
| | B) | Specify Probabilities |
| | C) | Calculate Present Values |
| | D) | Determine the discounted payback period |
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| 19 | |
Which of the following is not considered a real option? |
| | A) | Option to Expand |
| | B) | Option to Hire |
| | C) | Option to Abandon |
| | D) | Timing Options |
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| 20 | |
A major con of decision trees is their ___________. |
| | A) | Complexity |
| | B) | Flexibility |
| | C) | Cost |
| | D) | All of the Above |
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| 21 | |
Decision trees are can be used to describe real options. |
| | A) | True |
| | B) | False |
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| 22 | |
Sensitivity analysis is always helpful. |
| | A) | True |
| | B) | False |
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| 23 | |
Managers should recognize the option to abandon when considering project investment. |
| | A) | True |
| | B) | False |
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