Project Analysis and Evaluation - Chapter 11 PDF

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Project Analysis and Evaluation - Chapter 11 how to analyze projects. Learning Objective: 11-01 How to perform and interpret a sensitivity analysis for a proposed investment....

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Chapter 11 - Project Analysis and Evaluation

Chapter 11 Project Analysis and Evaluation

True / False Questions 1. You have put together a set of cash flow forecasts for a project and have found, on your first calculation, that the NPV is positive. You should accept the project because you are certain to increase shareholder wealth. FALSE

Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Medium Learning Objective: 11-01 How to perform and interpret a sensitivity analysis for a proposed investment. Topic: 11-01 Evaluating NPV Estimates

2. You have put together a set of cash flow forecasts for a project and have found, on your first calculation, that the NPV is positive. You should try to identify some source of value in the project. FALSE

Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Medium Learning Objective: 11-01 How to perform and interpret a sensitivity analysis for a proposed investment. Topic: 11-05 Sources of Value

3. You have put together a set of cash flow forecasts for a project and have found, on your first calculation, that the NPV is positive. You should try to assess the degree of forecasting risk that exists with the project. FALSE

Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Medium Learning Objective: 11-01 How to perform and interpret a sensitivity analysis for a proposed investment. Topic: 11-04 Forecasting Risk

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Chapter 11 - Project Analysis and Evaluation

4. Just because the cash flows of a project are positive doesn't mean the NPV is positive. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-01 How to perform and interpret a sensitivity analysis for a proposed investment. Topic: 11-03 Projected versus Actual Cash Flows

5. Projected sales is generally least subject to forecasting risk. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-01 How to perform and interpret a sensitivity analysis for a proposed investment. Topic: 11-04 Forecasting Risk

6. Initial investment is generally least subject to forecasting risk. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-01 How to perform and interpret a sensitivity analysis for a proposed investment. Topic: 11-04 Forecasting Risk

7. Projected fixed costs is generally least subject to forecasting risk. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-01 How to perform and interpret a sensitivity analysis for a proposed investment. Topic: 11-04 Forecasting Risk

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Chapter 11 - Project Analysis and Evaluation

8. Scenario analysis allows a firm to ask what-if type questions in capital budgeting. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-02 How to perform and interpret a scenario analysis for a proposed investment. Topic: 11-08 Scenario Analysis

9. Sensitivity analysis allows a firm to ask what-if type questions in capital budgeting. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-02 How to perform and interpret a scenario analysis for a proposed investment. Topic: 11-09 Sensitivity Analysis

10. Simulation analysis allows a firm to ask what-if type questions in capital budgeting. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-02 How to perform and interpret a scenario analysis for a proposed investment. Topic: 11-10 Simulation Analysis

11. You have put together a set of cash flow forecasts for a project and have found, on your first calculation, that the NPV is positive. You should use scenario or sensitivity analysis to investigate the project in greater detail. FALSE

Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Medium Learning Objective: 11-02 How to perform and interpret a scenario analysis for a proposed investment. Topic: 11-08 Scenario Analysis

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Chapter 11 - Project Analysis and Evaluation

12. If a project's base case NPV is positive, the project should automatically be accepted. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-02 How to perform and interpret a scenario analysis for a proposed investment. Topic: 11-07 Getting Started

13. Net income is equal to zero at the accounting break-even point. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-13 Accounting Break-Even

14. The quantity sold at the accounting break-even point is equal to the total fixed costs plus depreciation divided by the contribution margin. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-11 Break-Even Analysis

15. The net present value is equal to zero at the accounting break-even point. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-13 Accounting Break-Even

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Chapter 11 - Project Analysis and Evaluation

16. The discounted payback is equal to the life of the project in a financial break-even calculation. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-18 Cash Flow and Financial Break-Even Points

17. The IRR is equal to the required rate of return in a financial break-even calculation. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-18 Cash Flow and Financial Break-Even Points

18. The OCF is equal to zero in a financial break-even calculation. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-18 Cash Flow and Financial Break-Even Points

19. Break-even analysis allows a firm to ask what-if type questions in capital budgeting. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-11 Break-Even Analysis

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Chapter 11 - Project Analysis and Evaluation

20. The quantity sold at the accounting break-even point is equal to the total fixed costs divided by the contribution margin. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-13 Accounting Break-Even

21. All else the same, if a firm revises its production process to use more labour and less machinery, the firm will have smaller changes in OCF for a given change in sales quantity. FALSE

Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Medium Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-16 Operating Cash Flow, Sales Volume, and Break-Even

22. All else equal, if you decrease your level of fixed costs, accounting break-even will also fall. FALSE

Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-11 Break-Even Analysis Topic: 11-17 Accounting Break-Even and Cash Flow

23. All else equal, if you decrease your level of fixed costs, cash break-even will also fall. FALSE

Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-11 Break-Even Analysis Topic: 11-17 Accounting Break-Even and Cash Flow

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Chapter 11 - Project Analysis and Evaluation

24. The NPV is equal to zero in a financial break-even calculation. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-11 Break-Even Analysis Topic: 11-18 Cash Flow and Financial Break-Even Points

25. The accounting break-even point has a net income is zero. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-13 Accounting Break-Even Topic: 11-17 Accounting Break-Even and Cash Flow

26. The accounting break-even point has an internal rate of return is zero. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-11 Break-Even Analysis Topic: 11-17 Accounting Break-Even and Cash Flow

27. The accounting break-even point has a net present value is zero. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-13 Accounting Break-Even Topic: 11-17 Accounting Break-Even and Cash Flow

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Chapter 11 - Project Analysis and Evaluation

28. The accounting break-even point has an operating cash flow is zero. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-13 Accounting Break-Even Topic: 11-17 Accounting Break-Even and Cash Flow

29. A project that just breaks even on an accounting basis will not pay back. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-13 Accounting Break-Even Topic: 11-17 Accounting Break-Even and Cash Flow

30. A project that just breaks even on a cash basis will not pay back. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-11 Break-Even Analysis Topic: 11-18 Cash Flow and Financial Break-Even Points

31. A project that just breaks even on a financial basis will not pay back. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-11 Break-Even Analysis Topic: 11-18 Cash Flow and Financial Break-Even Points

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Chapter 11 - Project Analysis and Evaluation

32. A project that just breaks even on an accounting basis must have a positive NPV. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-11 Break-Even Analysis Topic: 11-18 Cash Flow and Financial Break-Even Points

33. A project that just breaks even on an accounting basis has a discounted payback period equal to its life. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-11 Break-Even Analysis Topic: 11-18 Cash Flow and Financial Break-Even Points

34. A project that just breaks even on a cash basis must have a zero NPV. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-11 Break-Even Analysis Topic: 11-18 Cash Flow and Financial Break-Even Points

35. A project that just breaks even on a cash basis has a discounted payback period equal to its life. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-11 Break-Even Analysis Topic: 11-18 Cash Flow and Financial Break-Even Points

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Chapter 11 - Project Analysis and Evaluation

36. A project that just breaks even on a financial basis has a discounted payback equal to the project's life. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-11 Break-Even Analysis Topic: 11-18 Cash Flow and Financial Break-Even Points

37. A project that just breaks even on a financial basis has a PI equal to zero. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-11 Break-Even Analysis Topic: 11-18 Cash Flow and Financial Break-Even Points

38. In a financial break-even calculation, the project never pays back on a discounted basis. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-18 Cash Flow and Financial Break-Even Points

39. In a financial break-even calculation, the present value of the cash inflows equals the amount of the initial investment. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-18 Cash Flow and Financial Break-Even Points

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Chapter 11 - Project Analysis and Evaluation

40. In a financial break-even calculation, the operating cash flow is at a level that produces a net present value of zero. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-18 Cash Flow and Financial Break-Even Points

41. In a financial break-even calculation, the payback period of the project is equal to the life of the project. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-18 Cash Flow and Financial Break-Even Points

42. All else equal, if you decrease your level of fixed costs, operating cash flow will also fall. FALSE

Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-12 Fixed and Variable Costs Topic: 11-16 Operating Cash Flow, Sales Volume, and Break-Even

43. All else the same, if a firm revises its production process to use more labour and less machinery, the firm will have an increased capital intensity. FALSE

Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Medium Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-12 Fixed and Variable Costs

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Chapter 11 - Project Analysis and Evaluation

44. Fixed costs per unit remain constant over a given range of production output. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-11 Break-Even Analysis Topic: 11-12 Fixed and Variable Costs

45. Fixed costs are variable over long periods of time. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-11 Break-Even Analysis Topic: 11-12 Fixed and Variable Costs

46. Fixed costs must be paid even if production is halted. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-11 Break-Even Analysis Topic: 11-12 Fixed and Variable Costs

47. Fixed costs are generally affected by the amount of fixed assets owned by a firm. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-11 Break-Even Analysis Topic: 11-12 Fixed and Variable Costs

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Chapter 11 - Project Analysis and Evaluation

48. Variable costs are equal to zero when production is equal to zero. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-11 Break-Even Analysis Topic: 11-12 Fixed and Variable Costs

49. Variable costs minus fixed costs equal marginal costs. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-11 Break-Even Analysis Topic: 11-12 Fixed and Variable Costs

50. An increase in variable costs increases the operating cash flow. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-11 Break-Even Analysis Topic: 11-12 Fixed and Variable Costs

51. Variable costs can be ascertained with certainty when evaluating a proposed project. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-11 Break-Even Analysis Topic: 11-12 Fixed and Variable Costs

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Chapter 11 - Project Analysis and Evaluation

52. The higher the contribution margin, the lower the accounting break-even point. FALSE

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 How to determine and interpret cash, accounting, and financial break-even points. Topic: 11-11 Break-Even Analysis Topic: 11-12 Fixed and Variable Costs

53. The higher the contribution margin, the lower the cash break-even point. FALSE

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