Chapter 11 - Project Analysis and Evaluation
Chapter 11
Project Analysis and Evaluation
Multiple Choice Questions
1. Forecasting risk is defined as the possibility that:
A. some proposed projects will be rejected.
B. some proposed projects will be temporarily delayed.
C. incorrect decisions will be made due to erroneous cash flow projections.
D. some projects will be mutually exclusive.
E. tax rates could change over the life of a project.
2. Scenario analysis is defined as the:
A. determination of the initial cash outlay required to implement a project.
B. determination of changes in NPV estimates when what-if questions are posed.
C. isolation of the effect that a single variable has on the NPV of a project.
D. separation of a project's sunk costs from its opportunity costs.
E. analysis of the effects that a project's terminal cash flows has on the project's NPV.
3. An analysis of the change in a project's NPV when a single variable is changed is called
_____ analysis.
A. forecasting
B. scenario
C. sensitivity
D. simulation
E. break-even
4. An analysis which combines scenario analysis with sensitivity analysis is called _____
analysis.
A. forecasting
B. combined
C. complex
D. simulation
E. break-even
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,Chapter 11 - Project Analysis and Evaluation
5. Variable costs can be defined as the costs that:
A. remain constant for all time periods.
B. remain constant over the short run.
C. vary directly with sales.
D. are classified as non-cash expenses.
E. are inversely related to the number of units sold.
6. Fixed costs:
A. change as a small quantity of output produced changes.
B. are constant over the short-run regardless of the quantity of output produced.
C. are defined as the change in total costs when one more unit of output is produced.
D. are subtracted from sales to compute the contribution margin.
E. can be ignored in scenario analysis since they are constant over the life of a project.
7. The change in revenue that occurs when one more unit of output is sold is referred to as:
A. marginal revenue.
B. average revenue.
C. total revenue.
D. erosion.
E. scenario revenue.
8. The change in variable costs that occurs when production is increased by one unit is
referred to as the:
A. marginal cost.
B. average cost.
C. total cost.
D. scenario cost.
E. net cost.
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,Chapter 11 - Project Analysis and Evaluation
9. By definition, which one of the following must equal zero at the accounting break-even
point?
A. net present value
B. internal rate of return
C. contribution margin
D. net income
E. operating cash flow
10. By definition, which one of the following must equal zero at the cash break-even point?
A. net present value
B. internal rate of return
C. contribution margin
D. net income
E. operating cash flow
11. Which one of the following is defined as the sales level that corresponds to a zero NPV?
A. accounting break-even
B. leveraged break-even
C. marginal break-even
D. cash break-even
E. financial break-even
12. Operating leverage is the degree of dependence a firm places on its:
A. variable costs.
B. fixed costs.
C. sales.
D. operating cash flows.
E. net working capital.
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, Chapter 11 - Project Analysis and Evaluation
13. Which one of the following is the relationship between the percentage change in operating
cash flow and the percentage change in quantity sold?
A. degree of sensitivity
B. degree of operating leverage
C. accounting break-even
D. cash break-even
E. contribution margin
14. Bell Weather Goods has several proposed independent projects that have positive NPVs.
However, the firm cannot initiate any of the projects due to a lack of financing. This situation
is referred to as:
A. financial rejection.
B. project rejection.
C. soft rationing.
D. marginal rationing.
E. capital rationing.
15. The procedure of allocating a fixed amount of funds for capital spending to each business
unit is called:
A. marginal spending.
B. capital preservation.
C. soft rationing.
D. hard rationing.
E. marginal rationing.
16. PC Enterprises wants to commence a new project but is unable to obtain the financing
under any circumstances. This firm is facing:
A. financial deferral.
B. financial allocation.
C. capital allocation.
D. marginal rationing.
E. hard rationing.
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Chapter 11
Project Analysis and Evaluation
Multiple Choice Questions
1. Forecasting risk is defined as the possibility that:
A. some proposed projects will be rejected.
B. some proposed projects will be temporarily delayed.
C. incorrect decisions will be made due to erroneous cash flow projections.
D. some projects will be mutually exclusive.
E. tax rates could change over the life of a project.
2. Scenario analysis is defined as the:
A. determination of the initial cash outlay required to implement a project.
B. determination of changes in NPV estimates when what-if questions are posed.
C. isolation of the effect that a single variable has on the NPV of a project.
D. separation of a project's sunk costs from its opportunity costs.
E. analysis of the effects that a project's terminal cash flows has on the project's NPV.
3. An analysis of the change in a project's NPV when a single variable is changed is called
_____ analysis.
A. forecasting
B. scenario
C. sensitivity
D. simulation
E. break-even
4. An analysis which combines scenario analysis with sensitivity analysis is called _____
analysis.
A. forecasting
B. combined
C. complex
D. simulation
E. break-even
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,Chapter 11 - Project Analysis and Evaluation
5. Variable costs can be defined as the costs that:
A. remain constant for all time periods.
B. remain constant over the short run.
C. vary directly with sales.
D. are classified as non-cash expenses.
E. are inversely related to the number of units sold.
6. Fixed costs:
A. change as a small quantity of output produced changes.
B. are constant over the short-run regardless of the quantity of output produced.
C. are defined as the change in total costs when one more unit of output is produced.
D. are subtracted from sales to compute the contribution margin.
E. can be ignored in scenario analysis since they are constant over the life of a project.
7. The change in revenue that occurs when one more unit of output is sold is referred to as:
A. marginal revenue.
B. average revenue.
C. total revenue.
D. erosion.
E. scenario revenue.
8. The change in variable costs that occurs when production is increased by one unit is
referred to as the:
A. marginal cost.
B. average cost.
C. total cost.
D. scenario cost.
E. net cost.
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,Chapter 11 - Project Analysis and Evaluation
9. By definition, which one of the following must equal zero at the accounting break-even
point?
A. net present value
B. internal rate of return
C. contribution margin
D. net income
E. operating cash flow
10. By definition, which one of the following must equal zero at the cash break-even point?
A. net present value
B. internal rate of return
C. contribution margin
D. net income
E. operating cash flow
11. Which one of the following is defined as the sales level that corresponds to a zero NPV?
A. accounting break-even
B. leveraged break-even
C. marginal break-even
D. cash break-even
E. financial break-even
12. Operating leverage is the degree of dependence a firm places on its:
A. variable costs.
B. fixed costs.
C. sales.
D. operating cash flows.
E. net working capital.
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, Chapter 11 - Project Analysis and Evaluation
13. Which one of the following is the relationship between the percentage change in operating
cash flow and the percentage change in quantity sold?
A. degree of sensitivity
B. degree of operating leverage
C. accounting break-even
D. cash break-even
E. contribution margin
14. Bell Weather Goods has several proposed independent projects that have positive NPVs.
However, the firm cannot initiate any of the projects due to a lack of financing. This situation
is referred to as:
A. financial rejection.
B. project rejection.
C. soft rationing.
D. marginal rationing.
E. capital rationing.
15. The procedure of allocating a fixed amount of funds for capital spending to each business
unit is called:
A. marginal spending.
B. capital preservation.
C. soft rationing.
D. hard rationing.
E. marginal rationing.
16. PC Enterprises wants to commence a new project but is unable to obtain the financing
under any circumstances. This firm is facing:
A. financial deferral.
B. financial allocation.
C. capital allocation.
D. marginal rationing.
E. hard rationing.
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