Question 1

Scenario analysis is the form of risk analysis

Accepted Answer

A) that examines the relationship between total firm cash flows and the NPV of a particular project. 
B) that examines the volatility of NPV. 
C) that examines the impact of key variables such as sales or costs in various combinations. 
D) that examines the impact of key variables such as sales or costs one at a time. 
A) that examines the relationship between total firm cash flows and the NPV of a particular project. 
B) that examines the volatility of NPV. 
C) that examines the impact of key variables such as sales or costs in various combinations. 
D) that examines the impact of key variables such as sales or costs one at a time. C

Question 2

Which of the following events might negatively affect a project's net present value?

Accepted Answer

A) Rules change to allow for faster depreciation of plant and equipment. 
B) Tax rates go down, which lowers the value of the tax shelter from depreciation. 
C) Projected sales over the life of the project remain the same, but they are higher in the early years and lower in the later years. 
D) Interest rates go up requiring an increase in the required rate of return. 
A) Rules change to allow for faster depreciation of plant and equipment. 
B) Tax rates go down, which lowers the value of the tax shelter from depreciation. 
C) Projected sales over the life of the project remain the same, but they are higher in the early years and lower in the later years. 
D) Interest rates go up requiring an increase in the required rate of return. D

Question 3

An important value driver for an automobile dealership would be

Accepted Answer

A) depreciation. 
B) inventory turnover. 
C) tax rates. 
D) debt to equity ratios. 
A) depreciation. 
B) inventory turnover. 
C) tax rates. 
D) debt to equity ratios. B

Question 4

A company that was most concerned about the impact of price changes in raw materials would use sensitivity analysis.

Accepted Answer

A) True 
 B)False

Question 5

List at least four typical value drivers that could seriously impact the outcome of a project.

Accepted Answer

Typical value drivers that can affect th

Question 6

Sensitivity analysis is the form of risk analysis

Accepted Answer

A) that examines the relationship between total firm cash flows and the NPV of a particular project. 
B) that examines the volatility of NPV. 
C) that examines the impact of key variables such as sales or costs in various combinations. 
D) that examines the impact of key variables such as sales or costs one at a time. 
A) that examines the relationship between total firm cash flows and the NPV of a particular project. 
B) that examines the volatility of NPV. 
C) that examines the impact of key variables such as sales or costs in various combinations. 
D) that examines the impact of key variables such as sales or costs one at a time.

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Which of the following abilities are crucial for risk analysis?

Accepted Answer

A) A knowledge of marketing 
B) A knowledge of cost accounting 
C) A knowledge of economics 
D) All of the above 
A) A knowledge of marketing 
B) A knowledge of cost accounting 
C) A knowledge of economics 
D) All of the above

Question 9

What is the expected free cash flow for the best case scenario?

Accepted Answer

A) $414,400 
B) $330,000 
C) $394,500 
D) $383,240 
A) $414,400 
B) $330,000 
C) $394,500 
D) $383,240

Question 10

Most of the variables used in forecasting cash flows are known with certainty.

Accepted Answer

A) True 
 B)False

Question 11

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 are risky. 
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 are risky. 
D) Financial analysts are rarely excessively pessimistic.

Question 12

What is the expected NPV of the project with the option to expand?

Accepted Answer

A) $310,000 
B) $155,000 
C) $110,000 
D) $300,000 
A) $310,000 
B) $155,000 
C) $110,000 
D) $300,000

Question 13

[blank] is a method of quantifying uncertainty without having to estimate probabilities.

Accepted Answer

A) Standard deviation 
B) Sensitivity analysis 
C) Coefficient of variation 
D) Decision tree analysis 
A) Standard deviation 
B) Sensitivity analysis 
C) Coefficient of variation 
D) Decision tree analysis

Question 14

Bay Lake Enterprises has a large manufacturing facility in Mexico is particularly concerned that a tariff of unknown size will be imposed on goods reimported from that region.The type of risk analysis that accounts for various levels of tariff is [blank].

Accepted Answer

A) sensitivity analysis 
B) political risk analysis 
C) scenario analysis 
D) exchange rate analysis 
A) sensitivity analysis 
B) political risk analysis 
C) scenario analysis 
D) exchange rate analysis

Question 15

[blank] is the risk of the project from the viewpoint of a well-diversified shareholder.

Accepted Answer

A) Project's stand-alone risk 
B) Project's contribution-to-firm risk 
C) Systemic risk 
D) Scenario risk 
A) Project's stand-alone risk 
B) Project's contribution-to-firm risk 
C) Systemic risk 
D) Scenario risk

Question 16

The option to abandon a project before the end of its forecasted life may increase its NPV.

Accepted Answer

A) True 
 B)False

Question 17

Natick Nurseries has used scenario analysis to evaluate the purchase of a former dairy to use for nursery stock.The best case scenario produced a very favorable NPV of $4,000,000; the NPV of the most likely case was $2 000,000, but the worst case scenario resulted in an NPV of $3,000,000 which would bring the company close to bankruptcy.Natick could improve its decision by

Accepted Answer

A) using sensitivity analysis. 
B) using simulation analysis. 
C) simply accepting the best case scenario and rejecting the other outcomes. 
D) weighting the favorable scenarios more heavily to increase the expected NPV. 
A) using sensitivity analysis. 
B) using simulation analysis. 
C) simply accepting the best case scenario and rejecting the other outcomes. 
D) weighting the favorable scenarios more heavily to increase the expected NPV.

Question 18

Which of the following results in a probability distribution for possible project outcomes rather than a dollar estimate?

Accepted Answer

A) Sensitivity analysis 
B) Simulation 
C) Value driver analysis 
D) Scenario analysis 
A) Sensitivity analysis 
B) Simulation 
C) Value driver analysis 
D) Scenario analysis

Question 19

What is the expected NPV of the project if the option to abandon is not considered?

Accepted Answer

A) $4545 
B) $31,694 
C) $37,267 
D) $63,388 
A) $4545 
B) $31,694 
C) $37,267 
D) $63,388

Question 20

Eagle Play sets estimates a 60% probability that sales of play sets in the summer of 2019 will be 45,000 units, about the same as in 2018.They believe there is a 20% probability that they will be more popular due to its new exclusive line, and potential sales would be 90,000 units.There is also a 20% probability that restrictive zoning ordinances will limit sales to 30,000 units.The expected unit sales of the play sets are

Accepted Answer

A) 55,000 
B) 51,000 
C) 67,500 
D) 60,000 
A) 55,000 
B) 51,000 
C) 67,500 
D) 60,000

Scenario analysis is the form of risk analysis

Which of the following events might negatively affect a project's net present value?

An important value driver for an automobile dealership would be

A company that was most concerned about the impact of price changes in raw materials would use sensitivity analysis.

List at least four typical value drivers that could seriously impact the outcome of a project.

Sensitivity analysis is the form of risk analysis

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

Which of the following abilities are crucial for risk analysis?

What is the expected free cash flow for the best case scenario?

Most of the variables used in forecasting cash flows are known with certainty.

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

What is the expected NPV of the project with the option to expand?

[blank] is a method of quantifying uncertainty without having to estimate probabilities.

Bay Lake Enterprises has a large manufacturing facility in Mexico is particularly concerned that a tariff of unknown size will be imposed on goods reimported from that region.The type of risk analysis that accounts for various levels of tariff is [blank].

[blank] is the risk of the project from the viewpoint of a well-diversified shareholder.

The option to abandon a project before the end of its forecasted life may increase its NPV.

Which of the following results in a probability distribution for possible project outcomes rather than a dollar estimate?

What is the expected NPV of the project if the option to abandon is not considered?

Getting Startedprinciples of Finance

Firms and the Financial Market

Understanding Financial Statements, Taxes and Cash Flows

Financial Analysissizing up Firm Performance

Time Value of Moneythe Basics

The Time Value of Moneyannuities and Other Topics

Risk and Returnan Introduction: History of Financial Market Returns

Risk and Returncapital Market Theory

Debt Valuation and Interest Rates

Shares Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

The Cost of Capital

Analysis and Impact of Leverage

Capital Structure Policy

Dividend and Share-Buyback Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

Filters

Exam 13: Risk Analysis and Project Evaluations

Scenario analysis is the form of risk analysis

Which of the following events might negatively affect a project's net present value?

An important value driver for an automobile dealership would be

A company that was most concerned about the impact of price changes in raw materials would use sensitivity analysis.

List at least four typical value drivers that could seriously impact the outcome of a project.

Sensitivity analysis is the form of risk analysis

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

Which of the following abilities are crucial for risk analysis?

What is the expected free cash flow for the best case scenario?

Most of the variables used in forecasting cash flows are known with certainty.

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

What is the expected NPV of the project with the option to expand?

[blank] is a method of quantifying uncertainty without having to estimate probabilities.

Bay Lake Enterprises has a large manufacturing facility in Mexico is particularly concerned that a tariff of unknown size will be imposed on goods reimported from that region.The type of risk analysis that accounts for various levels of tariff is [blank].

[blank] is the risk of the project from the viewpoint of a well-diversified shareholder.

The option to abandon a project before the end of its forecasted life may increase its NPV.

Which of the following results in a probability distribution for possible project outcomes rather than a dollar estimate?

What is the expected NPV of the project if the option to abandon is not considered?

Getting Startedprinciples of Finance

Firms and the Financial Market

Understanding Financial Statements, Taxes and Cash Flows

Financial Analysissizing up Firm Performance

Time Value of Moneythe Basics

The Time Value of Moneyannuities and Other Topics

Risk and Returnan Introduction: History of Financial Market Returns

Risk and Returncapital Market Theory

Debt Valuation and Interest Rates

Shares Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

The Cost of Capital

Analysis and Impact of Leverage

Capital Structure Policy

Dividend and Share-Buyback Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

Filters