The correct answer for each question is indicated by a .

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 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

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

Generally, the simulation models for projects are developed using a:

A)

Computer

B)

Roulette wheel

C)

Pair of dice

D)

Pack of cards

8

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

9

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

10

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

11

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

12

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

13

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

14

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

15

A major con of decision trees is their ___________.

A)

Complexity

B)

Flexibility

C)

Cost

D)

All of the Above

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