Chapter 10 Quiz, A Project is Not a Black Box
1.
Project analysis includes the following procedures:
A.
Sensitivity analysis
B.
Break-even analysis
C.
Monte Carlo simulation
D.
All of the above
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
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
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
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 is $1. Calculate the break-even volume per year. (Ignore taxes.)
A.
400,000
B.
500,000
C.
250,000
D.
None of the above
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
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:
A.
Earnings
B.
Internal rate of return
C.
Cash flows
D.
Profits
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 and every project requires a new simulation model
D.
Simulation models usually ignore opportunities to expand or abandon the project
9.
Generally, the simulation models for projects are developed using a:
A.
Computer
B.
Roulette wheel
C.
Pair of dice
D.
Pack of cards
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
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
12.
The hardest and most important part of a simulation is:
A.
Simulating the cash flows
B.
Specifying the inter-dependencies
C.
Specifying probabilities
D.
Specifying the numbers on the roulette wheel
13.
When conducting a sensitivity analysis, variables are set one at a time to their optimistic and pessimistic values.
A.
True
B.
False
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
15.
Monte Carlo simulation is a tool for considering all possible combinations of variables.
A.
True
B.
False
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