Question 1

Describe the backward induction procedure used in decision tree analysis.

Accepted Answer

Backward induction, also known as the ro

Question 2

Graphically, the break-even value for any one of the input parameters to a project is captured by

Accepted Answer

A) the slope of the project's sensitivity graph. 
B) y-axis intercept of the graph of present worth as a function of that input parameter. 
C) x-axis intercept of the graph of present worth as a function of that input parameter. 
D) inverse of the slope of the graph of present worth as a function of that input parameter. 
E) the ratio of the vertical intercept to horizontal intercept of the project's sensitivity graph. 
A) the slope of the project's sensitivity graph. 
B) y-axis intercept of the graph of present worth as a function of that input parameter. 
C) x-axis intercept of the graph of present worth as a function of that input parameter. 
D) inverse of the slope of the graph of present worth as a function of that input parameter. 
E) the ratio of the vertical intercept to horizontal intercept of the project's sensitivity graph.

Question 3

The host of a TV show offers you a chance to pick one of four boxes. Three are empty, one contains $1 000. If you pick an empty box, you can pay $250 for a second pick from the remaining three boxes. If you pick another empty box, you can pay $500 for a third pick from the two remaining boxes. If you pick wrong a third time, you are out of the game. What is your expected gain (or loss)from playing this game?

Accepted Answer

A) $250 
B) $310 
C) $330 
D) $350 
E) $500 
A) $250 
B) $310 
C) $330 
D) $350 
E) $500

Question 4

The sensitivity graph of a project is presented below:   What is the least sensitive input of the project?

Accepted Answer

A) MARR 
B) SV 
C) FC 
D) VC 
E) O&M 
A) MARR 
B) SV 
C) FC 
D) VC 
E) O&M

Question 5

A pie company has two employees who each earn $30 000 a year, and it pays $10 000 rent every year. The ingredients for a pie, including the gas to cook it, cost $10 per pie. If pies are sold at $20 each, the break-even point for the company (calculated pre-tax)is

Accepted Answer

A) 3 500 pies. 
B) 4 000 pies. 
C) 6 000 pies. 
D) 7 000 pies. 
E) 8 000 pies. 
A) 3 500 pies. 
B) 4 000 pies. 
C) 6 000 pies. 
D) 7 000 pies. 
E) 8 000 pies.

Question 6

The probability of heavy traffic on a provincial highway is 20%, while the probabilities of low and medium traffic are 50% and 30% respectively. It was estimated that annual maintenance costs of the highway are $20 000 in the case of low traffic, $30 000 in the case of medium traffic and $100 000 in the case of heavy traffic. Calculate the expected value of the annual maintenance costs.

Accepted Answer

The event under study is intensity of tr

Question 7

The decision tree of a project is represented by the following graph:   What is the outcome of an alternative A if the expected monetary value of a project is $4.56?

Accepted Answer

A) $2.0 
B) $2.5 
C) $5.0 
D) $8.4 
E) $10.3 
A) $2.0 
B) $2.5 
C) $5.0 
D) $8.4 
E) $10.3

Question 8

The slope of a sensitivity graph of -5 with respect to operating costs means

Accepted Answer

A) a 1% increase in operating costs leads to a 5% decrease in PW of the project. 
B) a 1% increase in operating costs leads to a $5 decrease in PW of the project. 
C) a $1 increase in operating costs leads to a 5% decrease in PW of the project. 
D) a $1 increase in operating costs leads to a $5 decrease in PW of the project. 
E) a 1% increase in operating costs leads to a 5% increase in PW of the project. 
A) a 1% increase in operating costs leads to a 5% decrease in PW of the project. 
B) a 1% increase in operating costs leads to a $5 decrease in PW of the project. 
C) a $1 increase in operating costs leads to a 5% decrease in PW of the project. 
D) a $1 increase in operating costs leads to a $5 decrease in PW of the project. 
E) a 1% increase in operating costs leads to a 5% increase in PW of the project.

Question 9

A graphical representation of the logical structure of a decision problem is usually

Accepted Answer

A) an event tree. 
B) a decision tree. 
C) a probability tree. 
D) a risk tree. 
E) an uncertainty tree. 
A) an event tree. 
B) a decision tree. 
C) a probability tree. 
D) a risk tree. 
E) an uncertainty tree.

Question 10

The host of a TV show offers you a choice of five closed boxes. One contains $1 000, one contains $500, one contains $100, and two are empty. He offers, for a price, to remove one of the empty boxes and let you choose among the remaining four. How much is this offer worth?

Accepted Answer

A) It's not worth anything, because you still might choose the other empty box. 
B) $80 
C) $320 
D) $400 
E) $1 600 
A) It's not worth anything, because you still might choose the other empty box. 
B) $80 
C) $320 
D) $400 
E) $1 600

Question 11

MMM Consulting is considering three scenarios of building a bridge. Data collected by the firm's experts are presented below:
   Probability of the best case scenario is 10% while probability of the expected and the worst case scenarios is 70% and 20% respectively. Assuming zero inflation and 10% annual interest rate, should the bridge be built?

Accepted Answer

Since the alternatives have different li

Question 12

Suppose you are asked to do a sensitivity analysis of a project when an economy is in recession, what assumptions do you need to make to evaluate the project?

Accepted Answer

A) Market share is low, variable costs are high, product price is high. 
B) Market share is low, fixed costs are high, product price is low. 
C) Market share is high, variable costs are high, product price is low. 
D) Market share is low, variable costs are high, product price is low. 
E) Market share is low, variable costs are low, product price is low. 
A) Market share is low, variable costs are high, product price is high. 
B) Market share is low, fixed costs are high, product price is low. 
C) Market share is high, variable costs are high, product price is low. 
D) Market share is low, variable costs are high, product price is low. 
E) Market share is low, variable costs are low, product price is low.

Question 13

If a decision tree shows the possible profits associated with each of several alternative decisions, what is the optimal decision strategy?

Accepted Answer

A) the strategy that has the maximum profit as one of its possible outcomes 
B) the strategy that results in the highest expected value of profit 
C) the strategy for which the sum of leaf-node values is a maximum 
D) the strategy that minimizes the variance in profit 
E) the strategy that minimizes the risk of obtaining the lowest possible profit 
A) the strategy that has the maximum profit as one of its possible outcomes 
B) the strategy that results in the highest expected value of profit 
C) the strategy for which the sum of leaf-node values is a maximum 
D) the strategy that minimizes the variance in profit 
E) the strategy that minimizes the risk of obtaining the lowest possible profit

Question 14

The break-even point is defined as the point at which

Accepted Answer

A) variable costs are equal to fixed costs. 
B) the sum of variable and fixed costs is equal to total profit. 
C) total income is just equal to the sum of fixed and variable costs. 
D) profits are at a maximum. 
E) profits are equal to variable costs. 
A) variable costs are equal to fixed costs. 
B) the sum of variable and fixed costs is equal to total profit. 
C) total income is just equal to the sum of fixed and variable costs. 
D) profits are at a maximum. 
E) profits are equal to variable costs.

Question 15

The Kisu Company has just spent $100 000 to install a new technological line to produce kitchen knives. Estimates and probabilities for net annual savings, depreciation rates, CCA rates and useful life are given below:
   Kisu pays a 30% corporate tax rate. Calculate the expected value of the annual worth of the line if the after-tax MARR is 10%.

Accepted Answer

Under each outcome the annual worth can

Question 16

A coal mine extracts 100 000 tons of coal annually using mining equipment that costs $10 million. Operating and maintenance costs are $3 million per year. Define the break-even price of coal over planning horizon of six years under a 8% annual interest rate if the equipment's salvage value is $200 000.

Accepted Answer

The break-even price of the coal is that

Question 17

Below the results of a scenario analysis are presented:   What is the expected value of total profit according to this analysis?

Accepted Answer

A) $2.8M 
B) $3.2M 
C) $3.6M 
D) $4.2M 
E) $4.4M 
A) $2.8M 
B) $3.2M 
C) $3.6M 
D) $4.2M 
E) $4.4M

Question 18

This decision tree represents the expected profits and the standard deviations associated with three decisions facing a mobile phone producer (All figures are in millions of dollars). The root node (the one on the left)represents the decision of whether to produce the phones in China or North America. The second pair of nodes represent the decision of whether to market the phones in China or North America; and the final nodes represent the choice of selling price: if the phones are sold in China, they will be sold for either $30 or $40, whereas if they are sold in North America, they will be sold for either $40 or $50. Based on the calculated values, what is the company's best strategy?

Accepted Answer

The two highest expected values, $1 250M

Question 19

New equipment was bought by an engineering firm for $5 million. For the base case, assume a 7% interest rate, a 20% depreciation rate and service life of four years. Construct a sensitivity graph for the PW of the equipment's salvage value with respect to a variation of 20% in its depreciation rate.

Accepted Answer

The relevant equation is
PW(S)= BVDB * (

Question 20

A firm's evaluation of all possible alternatives with respect to production costs produced the following results:   Which alternatives should be eliminated from consideration?

Accepted Answer

A) 3, 4 
B) 2, 3, 4 
C) 1, 2 
D) 2, 5 
E) 1, 3, 4 
A) 3, 4 
B) 2, 3, 4 
C) 1, 2 
D) 2, 5 
E) 1, 3, 4

Describe the backward induction procedure used in decision tree analysis.

Graphically, the break-even value for any one of the input parameters to a project is captured by

The sensitivity graph of a project is presented below: What is the least sensitive input of the project?

A pie company has two employees who each earn $30 000 a year, and it pays $10 000 rent every year. The ingredients for a pie, including the gas to cook it, cost $10 per pie. If pies are sold at $20 each, the break-even point for the company (calculated pre-tax)is

The decision tree of a project is represented by the following graph: What is the outcome of an alternative A if the expected monetary value of a project is $4.56?

The slope of a sensitivity graph of -5 with respect to operating costs means

A graphical representation of the logical structure of a decision problem is usually

The host of a TV show offers you a choice of five closed boxes. One contains $1 000, one contains $500, one contains $100, and two are empty. He offers, for a price, to remove one of the empty boxes and let you choose among the remaining four. How much is this offer worth?

Suppose you are asked to do a sensitivity analysis of a project when an economy is in recession, what assumptions do you need to make to evaluate the project?

If a decision tree shows the possible profits associated with each of several alternative decisions, what is the optimal decision strategy?

The break-even point is defined as the point at which

Below the results of a scenario analysis are presented: What is the expected value of total profit according to this analysis?

New equipment was bought by an engineering firm for $5 million. For the base case, assume a 7% interest rate, a 20% depreciation rate and service life of four years. Construct a sensitivity graph for the PW of the equipment's salvage value with respect to a variation of 20% in its depreciation rate.

A firm's evaluation of all possible alternatives with respect to production costs produced the following results: Which alternatives should be eliminated from consideration?

Engineering Decision Making

Time Value of Money

Cash Flow Analysis

Comparison Methods: Part I

Comparison Methods: Part Ii

Financial Accounting and Business Plans

Replacement Decisions

Taxes

Inflation

Public Sector Decision Making

Project Management

Filters

Exam 12: Dealing With Uncertainty and Risk

Describe the backward induction procedure used in decision tree analysis.

Graphically, the break-even value for any one of the input parameters to a project is captured by

The sensitivity graph of a project is presented below: What is the least sensitive input of the project?

A pie company has two employees who each earn $30 000 a year, and it pays $10 000 rent every year. The ingredients for a pie, including the gas to cook it, cost $10 per pie. If pies are sold at $20 each, the break-even point for the company (calculated pre-tax)is

The decision tree of a project is represented by the following graph: What is the outcome of an alternative A if the expected monetary value of a project is $4.56?

The slope of a sensitivity graph of -5 with respect to operating costs means

A graphical representation of the logical structure of a decision problem is usually

The host of a TV show offers you a choice of five closed boxes. One contains $1 000, one contains $500, one contains $100, and two are empty. He offers, for a price, to remove one of the empty boxes and let you choose among the remaining four. How much is this offer worth?

Suppose you are asked to do a sensitivity analysis of a project when an economy is in recession, what assumptions do you need to make to evaluate the project?

If a decision tree shows the possible profits associated with each of several alternative decisions, what is the optimal decision strategy?

The break-even point is defined as the point at which

Below the results of a scenario analysis are presented: What is the expected value of total profit according to this analysis?

A firm's evaluation of all possible alternatives with respect to production costs produced the following results: Which alternatives should be eliminated from consideration?

Engineering Decision Making

Time Value of Money

Cash Flow Analysis

Comparison Methods: Part I

Comparison Methods: Part Ii

Financial Accounting and Business Plans

Replacement Decisions

Taxes

Inflation

Public Sector Decision Making

Project Management

Filters