Question 1

The constant chain of replacement method of project evaluation can compare mutually exclusive projects that have different ________.

Accepted Answer

The answer of The constant chain of replacement method of...

Question 2

The inclusion of ______________ as cash flows in a net present value analysis would result in double counting.

Accepted Answer

The answer of The inclusion of ______________ as cash flows...

Question 3

Which of the following statements presents the correct treatment of inflation in project evaluation?

Accepted Answer

A) Estimating cash flows based on constant prices and discounting them by the nominal cost of capital. 
B) Estimating cash flows without adjustment for anticipated price changes and discounting them by the real cost of capital. 
C) Estimating cash flows based on anticipated price changes and discounting them by the real cost of capital. 
D) All of the given options. 
A) Estimating cash flows based on constant prices and discounting them by the nominal cost of capital. 
B) Estimating cash flows without adjustment for anticipated price changes and discounting them by the real cost of capital. 
C) Estimating cash flows based on anticipated price changes and discounting them by the real cost of capital. 
D) All of the given options.

Question 4

How would you go about conducting sensitivity analysis?

Accepted Answer

Sensitivity is performed by measuring th

Question 5

Red Brick Ltd is considering replacing its existing fleet of trucks with a fleet of new trucks.It plans to evaluate two options based on the following information:  
Management is considering two options:
i.Option (i)Replace the old trucks now and operate the new trucks for five years,to be replaced in perpetuity;
ii.Option (ii)Replace the old trucks in five years' time and operate the new trucks for five years,to be replaced in perpetuity.
Which option should the management choose?

Accepted Answer

A) Option (i). 
B) Option (ii). 
C) Indifferent between the two options. 
D) Not enough information. 
A) Option (i). 
B) Option (ii). 
C) Indifferent between the two options. 
D) Not enough information.

Question 6

Which of the following statements is false?

Accepted Answer

A) The constant chain of replacement model assumes that the incumbent machines and their replacements are absolutely identical. 
B) The different lives 'problem' in the constant chain of replacement model arises only for independent projects. 
C) Retirement decisions involve evaluating when to abandon a project. 
D) The constant chain of replacement assumption may be used to evaluate projects of unequal lives. 
A) The constant chain of replacement model assumes that the incumbent machines and their replacements are absolutely identical. 
B) The different lives 'problem' in the constant chain of replacement model arises only for independent projects. 
C) Retirement decisions involve evaluating when to abandon a project. 
D) The constant chain of replacement assumption may be used to evaluate projects of unequal lives.

Question 7

If an investment costing $2000 is expected to generate real cash flows of $900 p.a.for three years and prices are expected to increase at a rate of 10% p.a. ,what is the real required rate of return if the nominal cost of capital is 15%?

Accepted Answer

A) 6% 
B) 5% 
C) 1.05% 
D) 4.55% 
A) 6% 
B) 5% 
C) 1.05% 
D) 4.55%

Question 8

The ___________________ method of project evaluation involves calculating the annual cash flow of an annuity that has the same life and present value as the project.

Accepted Answer

equivalent

Question 9

A manager is considering whether to purchase a new company vehicle that costs $50 000.She identifies two uncertain variables: net cash flows and the life of the vehicle.Assuming that the required rate of return is 10% p.a. ,evaluate which of the two variables is less sensitive to changes or errors using the following information:

Accepted Answer

A) Net cash flows. 
B) Life of vehicle. 
C) Both are equally sensitive. 
D) Not enough information. 
A) Net cash flows. 
B) Life of vehicle. 
C) Both are equally sensitive. 
D) Not enough information.

Question 10

The NPV of the infinite chain can be shown as:

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 11

A method which states that each project is assumed to be replaced at the end of its economic life by an identical project is:

Accepted Answer

A) the chain of replacement assumption. 
B) the equivalent annual value assumption. 
C) the constant chain of replacement assumption. 
D) none of the given options. 
A) the chain of replacement assumption. 
B) the equivalent annual value assumption. 
C) the constant chain of replacement assumption. 
D) none of the given options.

Question 12

Given the following information,calculate how many years this project should be run before it is retired.Assume the cost of capital is 10% p.a.

Accepted Answer

A) Two years. 
B) Three years. 
C) Four years. 
D) Five years. 
A) Two years. 
B) Three years. 
C) Four years. 
D) Five years.

Question 13

Equipment should be retired when:

Accepted Answer

A) it is in poor condition. 
B) the net present value of future cash flows is negative. 
C) the net present value of future cash flows is equal to or less than zero. 
D) a better model becomes available. 
A) it is in poor condition. 
B) the net present value of future cash flows is negative. 
C) the net present value of future cash flows is equal to or less than zero. 
D) a better model becomes available.

Question 14

What are sunk costs?

Accepted Answer

A) Costs associated with research and development. 
B) Costs associated with exploration. 
C) Costs that are past outlays that should not influence the decision to continue or terminate a project. 
D) Costs associated with negative net present value projects. 
A) Costs associated with research and development. 
B) Costs associated with exploration. 
C) Costs that are past outlays that should not influence the decision to continue or terminate a project. 
D) Costs associated with negative net present value projects.

Question 15

The constant chain of replacement assumption is used when:

Accepted Answer

A) comparing mutually exclusive projects. 
B) comparing independent projects. 
C) the life of a project cannot be ascertained with certainty. 
D) comparing mutually exclusive projects with unequal economic lives. 
A) comparing mutually exclusive projects. 
B) comparing independent projects. 
C) the life of a project cannot be ascertained with certainty. 
D) comparing mutually exclusive projects with unequal economic lives.

Question 16

Which of the following statements is false?

Accepted Answer

A) Simulation,unlike sensitivity analysis,allows the manager to determine the effects of changing all the uncertain variables. 
B) Sensitivity analysis results can be difficult to interpret. 
C) Decision-tree analysis evaluates a series of decisions. 
D) External capital rationing refers to management'sinability to raise funds from the capital market to fund its projects. 
A) Simulation,unlike sensitivity analysis,allows the manager to determine the effects of changing all the uncertain variables. 
B) Sensitivity analysis results can be difficult to interpret. 
C) Decision-tree analysis evaluates a series of decisions. 
D) External capital rationing refers to management'sinability to raise funds from the capital market to fund its projects.

Question 17

Pineapple Ltd is considering replacing its current stock of computers with a new model.It plans to evaluate three options based on the following information:  
Management is considering three options:
(i)Replace the old computers now and operate Model XA for four years,then replace with Model XD and operate for eight years,to be replaced in perpetuity;
(ii)Replace the old computers now and operate Model XXD for 12 years,to be replaced in perpetuity;
(iii)Replace the old computers now and undertake Model XA for three times its estimated life.
Which option should management choose?

Accepted Answer

A) Option (i). 
B) Option (ii). 
C) Option (iii). 
D) Indifferent between options (i)and (ii). 
A) Option (i). 
B) Option (ii). 
C) Option (iii). 
D) Indifferent between options (i)and (ii).

Question 18

The net present value rule is a valid method for determining the retirement of assets.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following should be omitted from projected cash flows?

Accepted Answer

A) Incremental cash flows. 
B) Sunk costs. 
C) Residual value. 
D) Company taxation. 
A) Incremental cash flows. 
B) Sunk costs. 
C) Residual value. 
D) Company taxation.

Question 20

Which analysis is a form of sensitivity analysis?

Accepted Answer

A) Break-even analysis. 
B) Simulation analysis. 
C) None of the given options. 
D) Decision-tree analysis. 
A) Break-even analysis. 
B) Simulation analysis. 
C) None of the given options. 
D) Decision-tree analysis.

The constant chain of replacement method of project evaluation can compare mutually exclusive projects that have different ________.

The inclusion of ______________ as cash flows in a net present value analysis would result in double counting.

Which of the following statements presents the correct treatment of inflation in project evaluation?

How would you go about conducting sensitivity analysis?

Which of the following statements is false?

If an investment costing $2000 is expected to generate real cash flows of $900 p.a.for three years and prices are expected to increase at a rate of 10% p.a. ,what is the real required rate of return if the nominal cost of capital is 15%?

The ___________________ method of project evaluation involves calculating the annual cash flow of an annuity that has the same life and present value as the project.

The NPV of the infinite chain can be shown as:

A method which states that each project is assumed to be replaced at the end of its economic life by an identical project is:

Given the following information,calculate how many years this project should be run before it is retired.Assume the cost of capital is 10% p.a.

Equipment should be retired when:

What are sunk costs?

The constant chain of replacement assumption is used when:

Which of the following statements is false?

The net present value rule is a valid method for determining the retirement of assets.

Which of the following should be omitted from projected cash flows?

Which analysis is a form of sensitivity analysis?

Introduction

Consumption, Investment and the Capital Market

The Time Value of Money: An Introduction to Financial Mathematics

Applying the Time Value of Money to Security Valuation

Project Evaluation: Principles and Methods

Risk and Return

The Capital Market

Sources of Finance: Equity

Sources of Finance: Debt

Payout Policy

Principles of Capital Structure

Capital Structure Decisions

The Cost of Capital and Taxation Issues in Project Evaluation

Leasing and Other Equipment Finance

Capital Market Efficiency

Futures Contracts

Options and Contingent Claims

Analysis of Takeovers

International Financial Management

Management of Short-Term Assets: Inventory

Management of Short-Term Assets: Liquid Assets and Accounts Receivable

Filters

Exam 6: The Application of Project Evaluation Methods

The constant chain of replacement method of project evaluation can compare mutually exclusive projects that have different ________.

The inclusion of ______________ as cash flows in a net present value analysis would result in double counting.

Which of the following statements presents the correct treatment of inflation in project evaluation?

How would you go about conducting sensitivity analysis?

Which of the following statements is false?

If an investment costing $2000 is expected to generate real cash flows of $900 p.a.for three years and prices are expected to increase at a rate of 10% p.a. ,what is the real required rate of return if the nominal cost of capital is 15%?

The ___________________ method of project evaluation involves calculating the annual cash flow of an annuity that has the same life and present value as the project.

The NPV of the infinite chain can be shown as:

A method which states that each project is assumed to be replaced at the end of its economic life by an identical project is:

Given the following information,calculate how many years this project should be run before it is retired.Assume the cost of capital is 10% p.a.

Equipment should be retired when:

What are sunk costs?

The constant chain of replacement assumption is used when:

Which of the following statements is false?

The net present value rule is a valid method for determining the retirement of assets.

Which of the following should be omitted from projected cash flows?

Which analysis is a form of sensitivity analysis?

Introduction

Consumption, Investment and the Capital Market

The Time Value of Money: An Introduction to Financial Mathematics

Applying the Time Value of Money to Security Valuation

Project Evaluation: Principles and Methods

Risk and Return

The Capital Market

Sources of Finance: Equity

Sources of Finance: Debt

Payout Policy

Principles of Capital Structure

Capital Structure Decisions

The Cost of Capital and Taxation Issues in Project Evaluation

Leasing and Other Equipment Finance

Capital Market Efficiency

Futures Contracts

Options and Contingent Claims

Analysis of Takeovers

International Financial Management

Management of Short-Term Assets: Inventory

Management of Short-Term Assets: Liquid Assets and Accounts Receivable

Filters