Deck 3: Project Selection and Portfolio Management

Question 1

The checklist model of project screening has a mechanism to accommodate the differential importance of relevant criteria.

Answer 1

False

Question 2

A simplified scoring model is used to determine that project Cow has a score of 38 and project GiGi has a score of 30.Project Cow is therefore 26.7% better than project GiGi.

Answer 2

False

Question 3

The reciprocal of the payback period is used to calculate the average rate of return for a project.

Answer 3

True

Question 4

An options model could be used when financial criteria would change significantly over time.

Question 5

Internal rate of return is preferable to net present value because IRR employs a weighted average cost of capital discount rate that reflects potential reinvestment.

Question 6

Every decision model contains both objective and subjective factors.

Question 7

The Analytical Hierarchy Process elegantly addresses scaling issues in criteria and negative utility in alternative scores.

Question 8

A simplified scoring model addresses all the weakness of a checklist model for project screening.

Question 9

The simplest method of project screening and selection is developing a list of criteria that pertain to the choice of projects and then applying them to alternatives.

Question 10

Successful project management firms rely on home runs and narrowly concentrated efforts since specialization creates name recognition and market share.

Question 11

The efficient frontier in a profile model is the set of options that offers a maximum return for a given level of risk or a minimum risk for every level of return.

Question 12

The present value of money is lower the further out in the future I expect to spend it.

Question 13

If strategy and portfolio are not in sync,the firm is poised on the cusp of success.

Question 14

The most important thing to remember when using project selection models is to be consistent and objective.

Question 15

An expert's opinion on an issue may be subjective but very accurate.

Question 16

An effective project selection model must reflect organizational objectives,including a firm's strategic goals and mission.

Question 17

Personnel costs comprise one of the highest sources of project expense.

Question 18

Numeric project selection models,by their very nature,employ objective values.

Question 19

A balanced project portfolio may be interpreted to mean that a single portfolio contains both high and low risk,low growth and high growth,and risky and safe projects.

Question 20

Because projects managed under a project portfolio management scheme may be independent of each other,it is not necessary to consider resource use when deciding to pursue any single project.

Question 21

________ is the systematic process of selecting,supporting,and managing a firm's collection of projects.

Question 22

Project selection models come in two general classes: ________ and ________.

Question 23

A principal cause of project portfolio underperformance is lack of ________.

Question 24

Souder's project screening criterion that indicates an effective model must reflect organization objectives,including a firm's strategic goals and mission is called:

A)realism.
B)capability.
C)comparability.
D)ease of use.

Question 25

The ________ screening method may arrive at multiple solutions,which is one reason it is used less widely than the net present value technique.

Question 26

Financial models are all predicated on the ________ principle.

Question 27

An organization that has some flexibility in postponing a project and might be able to make a better decision with information that would be available at a later date might make use of a(n)________ for project screening.

Question 28

Profile models allow managers to plot ________ options for various alternatives.

Question 29

The ________ method of project screening generates overall project scores that can be compared meaningfully against each other.

Question 30

The length of time it takes to recoup the investment in a project is the ________.

Question 31

Souder's project screening criterion of realism addresses the question:

A)How many workers will the project need?
B)Will the project work as intended?
C)Who are the stakeholders?
D)How often should the project team meet?

Question 32

In project management,the ________ is the set of project portfolio options that offers either a maximum return for every given level of risk or the minimum risk for every level of return.

Question 33

One method of assigning weights to the criteria used in AHP is to consider the criteria two at a time and decide which is most important.This ________ to weighting is thought to be accurate because it focuses on a series of relatively simple exchanges.

Question 34

A project selection model that is simple to apply has the virtue of ________.

Question 35

A firm that offsets risky ventures with more secure projects or new development ventures with existing product line cash cows is desirous of ________.

Question 36

A project selection model that is broad enough to be applied to multiple projects has the virtue of ________.

Question 37

A simple scoring model assigns ________ to the criteria used to evaluate projects.

Question 38

In AHP,certain choice options may not contribute positively to the decision goals and are therefore said to have ________.

Question 39

Among the different types of risk that might be considered during project selection are ________,________ and ________.

Question 40

The simplest method of project screening and selection is developing a(n)________ that contains criteria that pertain to a choice of projects.

Question 41

A project manager is using a simple scoring model to decide which of four projects is best,given the company's limited resources.The criteria,importance weights,and scores for each are shown in the table.Which project should be chosen?

A)Project Greenlight
B)Project Runway
C)Project X
D)Project Ilevomit

Question 42

A checklist screening model does not consider:

A)whether one criterion is more important than another.
B)governmental or stakeholder interference.
C)product durability and future market potential of the product line.
D)the riskiness of the new venture.

Question 43

One project factor that directly impacts a firm's internal operations is the:

A)expected return on investment.
B)financial risk.
C)need to develop employees.
D)impact on company's image.

Question 44

An internal operating issue in project screening and selection is:

A)expected return on investment.
B)change in physical environment.
C)patent protection.
D)the chance that the firm's goodwill will suffer due to the quality of the finished project.

Question 45

A simple scoring model for project evaluation requires:

A)importance weights from 1 to 10 assigned to each criterion.
B)score values assigned to each criterion in terms of its rating.
C)a division of weights by scores to arrive at a standardized score for each criterion.
D)a summation for each criterion to achieve an overall criterion score.

Question 46

A selection model that is broad enough to be applied to multiple projects has the benefit of:

A)ease of use.
B)comparability.
C)capability.
D)flexibility.

Question 47

A writer estimates it will take three months to generate spiffy documents to accompany a seminal work in operations management.He grossly underestimates the time required and misses his deadline by two months.This estimate was:

A)objective and accurate.
B)subjective and accurate.
C)objective and inaccurate.
D)subjective and inaccurate.

Question 48

If a model can be applied successfully by people in all areas and levels of an organization,it is said to possess the trait of:

A)capability.
B)ease of use.
C)flexibility.
D)realism.

Question 49

The simple scoring model has this advantage over a checklist model for screening projects.

A)Scaling from 1 to 5 is extremely accurate.
B)Scaling models ensure a reasonable link between the selected and weighted criteria and the business objectives that motivated their selection.
C)Scaling models allow decision makers to treat one criterion as more important than another.
D)Scaling models have been proven to make correct decisions better than 95% of the time while checklists only achieve 80% accuracy.

Question 50

The first step in the Analytical Hierarchy Process:

A)requires supporting requirements to be combined into Level II challenges.
B)is analyzing the process you intend to improve before undertaking any improvement project.
C)requires Saatyfication of the team members.
D)consists of constructing a hierarchy of criteria and subcriteria.

Question 51

A project screening criterion that allows the company to compare long-term versus short-term projects,projects with different technologies,and projects with different commercial objectives is:

A)flexibility.
B)ease of use.
C)capability.
D)realistic.

Question 52

A wedding planner allows $10,000 for flowers and three weeks to receive all RSVPs back from the list of 700 guests.Both estimates are correct within a fraction of a percent.We could describe this factoid as:

A)numeric and subjective.
B)numeric and objective.
C)non-numeric and subjective.
D)non-numeric and objective.

Question 53

An MBA redesign committee spends the better part of a decade traveling the Caribbean to benchmark graduate programs at other universities.Whatever screening model is being used suffers from poor performance on:

A)realism.
B)capability.
C)ease of use.
D)cost.

Question 54

One facet of risk in project screening is:

A)the change in manufacturing operations resulting from the project.
B)the initial cash outlay.
C)the potential for lawsuits or legal obligation.
D)the strategic fit of the project with the company.

Question 55

A commercial factor in project selection and screening might be:

A)a need to develop employees.
B)the likelihood that users of the project are injured.
C)the long-term market dominance.
D)the impact on the company's image.

Question 56

A simple scoring model is used to decide among three projects that we'll call A,B,and C.The total score for project A is 30,for project B is 20,and for project C is 10.Which of the following statements is best?

A)If project A is successfully completed,it will yield three times the benefits that project C would have provided.
B)If project C is chosen,the company would benefit only half as much as if they had chosen project B.
C)Project C is better than project B for this company at this point in time.
D)Project A is better than project B for this company at this point in time.

Question 57

Quality risk refers to the chance that:

A)the project relies on developing new or untested technologies.
B)the firm's reputation may suffer when the product becomes available.
C)the well-being of the users or developers may decline dramatically.
D)the firm may face a lawsuit.

Question 58

Souder's model selection criterion that encourages ease of adaptation to changes in tax laws,building codes,among others,is called:

A)ease of use.
B)cost.
C)capability.
D)flexibility.

Question 59

Which statement regarding project selection is best?

A)Organizational reality can be perfectly captured by most decision-making models.
B)Before selecting any project,the team should identify all the relevant issues that play a role in project selection.
C)Decision models must contain either objective or subjective factors.
D)Every decision model has both objective and subjective factors.

Question 60

Which statement regarding project selection and screening criteria is best?

A)The most complete model in the world is still only a partial reflection of organization reality.
B)It is possible,given enough time and effort,to identify all relevant issues that play a role in project selection.
C)Decision models are either objective or subjective.
D)For many projects,more than 80% of the decision criteria are vital.

Question 61

Which statement about the Analytical Hierarchy Process is FALSE?

A)AHP scores are significant.
B)AHP can be used to capture choice options that do not yield positive outcomes.
C)AHP can improve the process of developing project proposals.
D)AHP groups subcriteria that share the weight of a common higher-level criterion.

Question 62

Which of these statements about internal rate of return analysis is best?

A)If the IRR is less than the company's required rate of return,the project is worth funding.
B)Projects having lower IRR are generally superior to those having higher IRR.
C)IRR and NPV calculations always make the same investment recommendations.
D)If net outflows follow a period of net inflows,IRR may give conflicting results.

Question 63

The pairwise comparison approach:

A)is a method to split the weights assigned to subcriteria.
B)is a method to compare pairs of hierarchies prior to any further analysis.
C)is a means of achieving all project objectives within the allocated time frame.
D)may be used instead of AHP if time is limited.

Question 64

A project manager is using the payback method to make the final decision on which project to undertake.The company has a 10% required rate of return and expects a 4% rate of inflation for the following five years.What is the discounted payback of a project that has cash flows as shown in the table?

A)3.4 years
B)2.6 years
C)5.0 years
D)4.2 years

Question 65

The profile model plots a graph on a(n):

A)perception-reality pair of axes.
B)risk-return pair of axes.
C)efficiency-effectiveness pair of axes.
D)Saxon-Norman pair of axes.

Question 66

A project manager is using the internal rate of return method to make the final decision on which project to undertake.Which of these four projects has the highest internal rate of return?

A)$100,000 initial outlay with $10,000 cash inflows during the first two years,$20,000 during the third and fourth years,and $30,000 during the fifth year
B)$100,000 initial outlay with a $5,000 cash inflow during the first year,$15,000 cash inflow during the second year,and $25,000 cash inflows during years three through five
C)$75,000 initial outlay with a $5,000 cash inflow during the first year,increasing by $5,000 per year through the fifth year
D)$50,000 initial outlay with $5,000 cash inflows during the first two years,$15,000 during the third and fourth years,and $20,000 during the fifth year

Question 67

A project manager is using the payback method to make the final decision on which project to undertake.The company has a 10% required rate of return and expects a 4% rate of inflation for the following five years.What is the non-discounted payback of a project that has cash flows as shown in the table?

A)3.5 years
B)2.6 years
C)5.0 years
D)4.2 years

Question 68

The efficient frontier in project management is the set of portfolio options that offer:

A)a minimum return for a minimum risk.
B)a minimum return for a maximum risk.
C)a maximum return for a minimum risk.
D)a maximum return for a maximum risk.

Question 69

Which of these statements about valuation models is NOT correct?

A)NPV employs a weighted average cost of capital discount rate that reflects potential reinvestment.
B)IRR and NPV calculations typically make the same investment recommendations only when the projects are independent of each other.
C)If cash flows are not normal,IRR may arrive at multiple solutions.
D)IRR is a more robust determinant of project viability than NPV.

Question 70

A project manager is using the net present value method to make the final decision on which project to undertake.The company has a 10% required rate of return and expects a 4% rate of inflation for the following five years.What is the NPV of a project that has cash flows as shown in the table?

A)$264,252
B)$324,606
C)$442,242
D)$398,780

Question 71

Between projects A and B,project A will be considered a superior financial undertaking if it has:

A)a shorter payback period than project B.
B)a lower average rate of return than project B.
C)a lower net present value than project B.
D)a longer payback period than project B.

Question 72

A project manager is using the payback method to make the final decision on which project to undertake.The company has a 10% required rate of return and expects a 4% rate of inflation for the following five years.What is the discounted payback of a project that has cash flows as shown in the table?

A)3.5 years
B)5.3 years
C)4.6 years
D)4.2 years

Question 73

A company facing an interest rate of 8% must choose among projects offering the following four-year cash flows.If the company is employing the net present value criterion,which project should they choose?

A)$25,000 in year 1;$15,000 in year 2;$10,000 in year 3;and $5,000 in year 4
B)$5,000 in year 1;$5,000 in year 2;$20,000 in year 3;and $30,000 in year 4
C)$15,000 in year 1;$15,000 in year 2;$15,000 in year 3;and $15,000 in year 4
D)$5,000 in year 1;$5,000 in year 2;$25,000 in year 3;and $25,000 in year 4

Question 74

Net present value is being used to break the tie among four otherwise equal projects.If the interest rate is 4%,which of these anticipated four-year flows would yield the greatest net present value?

A)$10,000 in year 1;$11,000 in year 2;$12,000 in year 3;and $13,000 in year 4
B)$13,000 in year 1;$12,000 in year 2;$11,000 in year 3;and $10,000 in year 4
C)$10,000 in year 1;$10,000 in year 2;$13,000 in year 3;and $13,000 in year 4
D)$11,000 in year 1;$11,000 in year 2;$12,000 in year 3;and $12,000 in year 4

Question 75

Which statement about the use of the profile model is best?

A)The profile model requires careful calculation of the percentage risk for each possible project.
B)The scale used for the profile model can be any two numerical variables that a company deems important.
C)The efficient frontier in the profile model is where return is 100% (or greater)and risk is 0%.
D)For a given level of risk,a positive move on the return axes would indicate a superior project.

Question 76

A project manager is using the internal rate of return method to make the final decision on which project to undertake.Which of these four projects has the highest internal rate of return?

A)$25,000 initial outlay with $10,000 cash inflows during the following five years
B)$12,500 initial outlay with $10,000 cash inflows during the following five years
C)$25,000 initial outlay with $5,000 cash inflows during the following five years
D)$12,500 initial outlay with $5,000 cash inflows during the following five years

Question 77

The Analytic Hierarchy Process is being employed in a project selection decision.One major criteria,cost,receives a weighting value of 40%,which is split into short term (50%),intermediate term (30%),and long term (20%).Which of these statements is best?

A)Short term,intermediate term,and long term must receive overall weightings that total 100%.
B)There must be at least one other major criteria that has 40% weighting.
C)Intermediate-term cost receives a weighting of 12%.
D)Long-term cost receives an overall weighting of 80%.

Question 78

A project manager is using the net present value method to make the final decision on which project to undertake.The company has a 10% required rate of return and expects a 4% rate of inflation for the following five years.What is the NPV of a project that has cash flows as shown in the table?

A)$564.955
B)$642,586
C)$431,667
D)$322,320

Question 79

The Analytical Hierarchy Process is used to decide among three projects that we'll call A,B,and C.The total score for project A is .650,for project B is .514,and for project C is .321.Which of the following statements is best?

A)Project A is twice as good as project C.
B)The analysis must be incorrect because the total scores should sum to 1.00.
C)The analysis must be incorrect because there are two total scores that exceed 0.50.
D)The analysis must be incorrect because project C's total score is odd.

Question 80

A project manager is using the payback method to make the final decision on which project to undertake.The company has a 10% required rate of return and expects a 4% rate of inflation for the following five years.What is the non-discounted payback of a project that has cash flows as shown in the table?

A)3.4 years
B)2.6 years
C)5.0 years
D)4.2 years