Question 1

When evaluating projects with real options,businesses must consider the probability that the option will be exercised.

Accepted Answer

A) True 
 B)False  True

Question 2

DNATECH has developed a hair growth treatment at a cost of $10 million.They can license the technology to another company for a period of 10 years.What is the minimum annual free cash flow they could accept in order to reach break-even NPV on this product? Use a discount rate of 8%.

Accepted Answer

A) $1,490,295 
B) $1,639,324 
C) $1,108,000 
D) $1,000,000 
A) $1,490,295 
B) $1,639,324 
C) $1,108,000 
D) $1,000,000 A

Question 3

There is a 30% probability that an office building will be sold after 5 years for $30 million,a 50% probability that it will be sold for $20 million and a 20% probability that it will be sold for $10 million.What is the expected value of the office building in 5 years?

Accepted Answer

A) $20 million 
B) $21 million 
C) $30 million 
D) $10 million 
A) $20 million 
B) $21 million 
C) $30 million 
D) $10 million B

Question 4

Which of the following costs is NOT covered in an accounting break-even analysis?

Accepted Answer

A) Shareholders expected rate of return 
B) Variable production costs 
C) Interest expense 
D) Depreciation expense 
A) Shareholders expected rate of return 
B) Variable production costs 
C) Interest expense 
D) Depreciation expense

Question 5

Enchanted Hearth expects to sell 1,200 wood pellet stoves in 2011 at an average price of $2,400 each.It believes that unit sales will grow between -5% and +5% per year and prices will rise or fall by as much as 5% per year.Forecast sales revenue for 2013 if both price and the number of units sold increase by 5% per year.

Accepted Answer

A) $3,492,720 
B) $3,500,658 
C) $3,333,960 
D) $3,175,200 
A) $3,492,720 
B) $3,500,658 
C) $3,333,960 
D) $3,175,200

Question 6

One advantage of simulation is that it can differentiate between unsystematic and systematic risk.

Accepted Answer

A) True 
 B)False

Question 7

Klaus Nicholas plans to sell Christmas trees from a vacant lot in downtown Springfield.The trees will cost him $12 each.It will cost Klaus $1,500 to rent the lot from November 1 through December 30.If Klaus sells the trees for $20 each,how many trees must he sell to break even? Assume that he makes an initial,non-refundable purchase of 200 trees but can buy more trees in any quantity after that for $12 each.

Accepted Answer

A) $1,500/($20-$12)= 188 trees with a very small profit on the last tree 
B) $3,900/$20 = 195 trees 
C) All 200 trees 
D) The Christmas tree project can never break even. 
A) $1,500/($20-$12)= 188 trees with a very small profit on the last tree 
B) $3,900/$20 = 195 trees 
C) All 200 trees 
D) The Christmas tree project can never break even.

Question 8

What is the approximate five year survival rate for new businesses?

Accepted Answer

A) 20% 
B) 40% 
C) 60% 
D) 80% 
A) 20% 
B) 40% 
C) 60% 
D) 80%

Question 9

Which of the following are reasons to analyze the risk of capital projects?

Accepted Answer

A) The people who propose projects have a vested interest in getting them accepted. 
B) Cash flows can rarely be estimated with certainty. 
C) Many of the variables in capital budgeting analysis are highly sensitive to changes in economic conditions. 
D) All of the above. 
A) The people who propose projects have a vested interest in getting them accepted. 
B) Cash flows can rarely be estimated with certainty. 
C) Many of the variables in capital budgeting analysis are highly sensitive to changes in economic conditions. 
D) All of the above.

Question 10

Approximately what percentage of new businesses survive their first year?

Accepted Answer

A) 20% 
B) 40% 
C) 60% 
D) 80% 
A) 20% 
B) 40% 
C) 60% 
D) 80%

Question 11

In the 4th year of project M,expected revenues will be $4,750,000,variable costs will be $4,000,000,depreciation expense $180,000,and fixed cash costs $570,000.Which of the following is true?

Accepted Answer

A) Accounting income equals $0.00 
B) Free cash flow equals $180,000 
C) Free cash flow equals 0 
D) Both A and B are true. 
A) Accounting income equals $0.00 
B) Free cash flow equals $180,000 
C) Free cash flow equals 0 
D) Both A and B are true.

Question 12

Which of the following is a reason why risk analysis is an important part of capital budgeting?

Accepted Answer

A) The people who propose projects have no vested interest in whether or not they are accepted. 
B) Marketing managers are rarely excessively optimistic. 
C) Project cash flows can be highly uncertain. 
D) Financial analysts are rarely excessively pessimistic. 
A) The people who propose projects have no vested interest in whether or not they are accepted. 
B) Marketing managers are rarely excessively optimistic. 
C) Project cash flows can be highly uncertain. 
D) Financial analysts are rarely excessively pessimistic.

Question 13

Briefly explain what is meant by a real option in capital budgeting.Give 2 concrete examples.

Accepted Answer

Real options are opportunities to use in

Question 14

A would be entrepreneur is considering buying a franchise from a national chain of fitness centers.Identify some of the risks she might face.

Accepted Answer

Competition: other franchises or even an

Question 15

Briefly distinguish between sensitivity analysis,scenario analysis,and simulation.

Accepted Answer

Sensitivity analysis changes one value d

Question 16

Sensitivity analysis shows how the distribution of possible net present values is affected by a change in one input variable.

Accepted Answer

A) True 
 B)False

Question 17

An appropriate tool to analyze the interaction of various value drivers for Orange Electronics would be

Accepted Answer

A) simulation 
B) sensitivity analysis 
C) scenario analysis 
D) either A or C 
A) simulation 
B) sensitivity analysis 
C) scenario analysis 
D) either A or C

Question 18

An appropriate tool to analyze the interaction of various value drivers for Destroya Extermination Services would be

Accepted Answer

A) simulation 
B) scenario analysis 
C) sensitivity analysis 
D) either A or B 
A) simulation 
B) scenario analysis 
C) sensitivity analysis 
D) either A or B

Question 19

There is a 20% probability that the NPV of a project will be $20 million,a 50% probability that it will be sold for $45 million and a 30% probability that it will be for $15 million.What is the expected NPV of the project?

Accepted Answer

A) $17.5 million 
B) $45 million 
C) $31 million 
D) $26.67 million 
A) $17.5 million 
B) $45 million 
C) $31 million 
D) $26.67 million

Question 20

When Charles River Publisher's sales revenue increased from $25 million to $27.5 million,net operation income increased from $3,750,000 to $3,937,500.Quineboag's degree of operating leverage (DOL)is ________.

Accepted Answer

A) .5 
B) 2 
C) 6.67 
D) .05 
A) .5 
B) 2 
C) 6.67 
D) .05

When evaluating projects with real options,businesses must consider the probability that the option will be exercised.

DNATECH has developed a hair growth treatment at a cost of $10 million.They can license the technology to another company for a period of 10 years.What is the minimum annual free cash flow they could accept in order to reach break-even NPV on this product? Use a discount rate of 8%.

There is a 30% probability that an office building will be sold after 5 years for $30 million,a 50% probability that it will be sold for $20 million and a 20% probability that it will be sold for $10 million.What is the expected value of the office building in 5 years?

Which of the following costs is NOT covered in an accounting break-even analysis?

One advantage of simulation is that it can differentiate between unsystematic and systematic risk.

What is the approximate five year survival rate for new businesses?

Which of the following are reasons to analyze the risk of capital projects?

Approximately what percentage of new businesses survive their first year?

In the 4th year of project M,expected revenues will be $4,750,000,variable costs will be $4,000,000,depreciation expense $180,000,and fixed cash costs $570,000.Which of the following is true?

Which of the following is a reason why risk analysis is an important part of capital budgeting?

Briefly explain what is meant by a real option in capital budgeting.Give 2 concrete examples.

A would be entrepreneur is considering buying a franchise from a national chain of fitness centers.Identify some of the risks she might face.

Briefly distinguish between sensitivity analysis,scenario analysis,and simulation.

Sensitivity analysis shows how the distribution of possible net present values is affected by a change in one input variable.

An appropriate tool to analyze the interaction of various value drivers for Orange Electronics would be

An appropriate tool to analyze the interaction of various value drivers for Destroya Extermination Services would be

There is a 20% probability that the NPV of a project will be $20 million,a 50% probability that it will be sold for $45 million and a 30% probability that it will be for $15 million.What is the expected NPV of the project?

When Charles River Publisher's sales revenue increased from $25 million to $27.5 million,net operation income increased from $3,750,000 to $3,937,500.Quineboag's degree of operating leverage (DOL)is ________.

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements, taxes, and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

Filters

Exam 13: Risk Analysis and Project Evaluation

When evaluating projects with real options,businesses must consider the probability that the option will be exercised.

DNATECH has developed a hair growth treatment at a cost of $10 million.They can license the technology to another company for a period of 10 years.What is the minimum annual free cash flow they could accept in order to reach break-even NPV on this product? Use a discount rate of 8%.

There is a 30% probability that an office building will be sold after 5 years for $30 million,a 50% probability that it will be sold for $20 million and a 20% probability that it will be sold for $10 million.What is the expected value of the office building in 5 years?

Which of the following costs is NOT covered in an accounting break-even analysis?

One advantage of simulation is that it can differentiate between unsystematic and systematic risk.

What is the approximate five year survival rate for new businesses?

Which of the following are reasons to analyze the risk of capital projects?

Approximately what percentage of new businesses survive their first year?

In the 4th year of project M,expected revenues will be $4,750,000,variable costs will be $4,000,000,depreciation expense $180,000,and fixed cash costs $570,000.Which of the following is true?

Which of the following is a reason why risk analysis is an important part of capital budgeting?

Briefly explain what is meant by a real option in capital budgeting.Give 2 concrete examples.

A would be entrepreneur is considering buying a franchise from a national chain of fitness centers.Identify some of the risks she might face.

Briefly distinguish between sensitivity analysis,scenario analysis,and simulation.

Sensitivity analysis shows how the distribution of possible net present values is affected by a change in one input variable.

An appropriate tool to analyze the interaction of various value drivers for Orange Electronics would be

An appropriate tool to analyze the interaction of various value drivers for Destroya Extermination Services would be

There is a 20% probability that the NPV of a project will be $20 million,a 50% probability that it will be sold for $45 million and a 30% probability that it will be for $15 million.What is the expected NPV of the project?

When Charles River Publisher's sales revenue increased from $25 million to $27.5 million,net operation income increased from $3,750,000 to $3,937,500.Quineboag's degree of operating leverage (DOL)is ________.

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements, taxes, and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

Filters