Question 1

If a system is being updated due to operating necessity,the project was selected because__________.

Accepted Answer

The project being selected because the system is worth saving at the estimated cost of the project indicates that cost is still a relevant factor in the decision-making process, but the benefits of updating the system are deemed worth the cost. Option A is too extreme and does not take into account cost considerations, option C is incorrect as cost is always a relevant factor in any project execution, and option D is unethical and not a valid reason for project selection.

Question 2

The __________is the value of an opportunity foregone.

Accepted Answer

Opportunity cost is the value of the best alternative forgone when a particular choice is made. It is the cost of an opportunity foregone and the benefits that could have been received from that opportunity. The other choices listed (real option, profit, revenue) do not accurately describe the concept of opportunity cost.

Question 3

A project selected using the sacred cow model is likely to be maintained until successfully completed or until __________.

Accepted Answer

The sacred cow model implies that the project is highly valued and protected, even in the face of adversity. Therefore, it is unlikely that the project would be terminated due to budget overruns or schedule delays. The project is likely to be maintained until completion, unless the boss recognizes it as a failure and terminates it. The termination of the project manager is not necessarily a condition for stopping the project.

Question 4

The Åstebro study (2004)of R&D projects found that all the characteristics below were excellent predictors of project commercial success,except __________.

Accepted Answer

The answer of The Åstebro study (2004)of R&D projects found...

Question 5

If the NPV for a project is < 0,it indicates that the project will __________.

Accepted Answer

A negative Net Present Value (NPV) indicates that the project's returns do not meet the required rate of return, hence it fails to cover its cost of capital.

Question 6

The drawback of the __________ model is that it fails to consider cash flows obtained once the initial investment has been recovered.

Accepted Answer

The payback period model only considers the time it takes for the initial investment to be recovered, without taking into account the cash flows generated after that point. The other models listed (B, C, and D) all take into account cash flows over the lifespan of the investment.

Question 7

Which of the following is not an advantage of the discounted cash flow approach to project selection?

Accepted Answer

The discounted cash flow approach's disadvantage is that the accounting data used might be inaccurate, not an advantage. This method relies on future cash flow projections, which can be uncertain or based on assumptions that may not hold true.

Question 8

__________ is the process of evaluating individual projects or groups of projects,and then choosing to implement some set of them so that the objectives of the parent organization will be achieved.

Accepted Answer

Project selection is the process of evaluating and prioritizing projects based on their alignment with the organization's strategic goals and objectives, available resources, and potential benefits. It involves analyzing project proposals, assessing risks and benefits, and selecting a subset of projects that will deliver the highest value to the organization. Project initiation, management, and control are all subsequent phases in the project lifecycle.

Question 9

For a project selected using nonnumeric models,identify the true statement regarding relative priorities for project selection.

Accepted Answer

Operating necessity projects are essential for the organization's day-to-day functioning and maintenance of its current operations. Therefore, projects classified as operating necessities should have priority over competitive necessity projects. Competitive necessity projects are projects that help an organization remain competitive in the market by developing new products, processes, or technologies. While important, they are not essential for the organization's survival in the short term.

Question 10

A project selection criteria that focuses on environmental and social issues is

Accepted Answer

Sustainability is the correct choice because it specifically refers to practices that meet the needs of the present without compromising the ability of future generations to meet their own needs, often focusing on environmental and social issues.

Question 11

A small project has a cost of $12,000 to implement and is expected to have annual cash flows of $3,000.What is its payback period?

Accepted Answer

The payback period is calculated by dividing the initial investment by the annual cash flow. So, $12,000 / $3,000 = 4 years.

Question 12

The two basic types of project selection models identified in the text are ________.

Accepted Answer

The two basic types of project selection models are numeric and nonnumeric, as these categories broadly classify how projects are evaluated and selected based on quantitative data or qualitative assessments, respectively.

Question 13

A project selection criteria that focuses on how well new products would fit the firm's existing product line would be

Accepted Answer

A production line extension criteria focuses on adding new products that can be integrated with the existing product line without requiring significant changes to the manufacturing process. This can help to reduce costs and increase efficiency, making it an important consideration for project selection.

Question 14

The __________ is the interest rate set by an organization as the minimum acceptable rate of return for a project.

Accepted Answer

Hurdle rate is defined as the minimum rate of return that an organization expects to earn on an investment. It is the benchmark rate that managers use to assess the viability of a project. Any project that generates a return equal to or above the hurdle rate is deemed acceptable, while those that generate returns below the hurdle rate are rejected. The hurdle rate can be based on a variety of factors such as the company's cost of capital, inflation, risk premium, and market conditions. Therefore, the correct option is A) hurdle rate.

Question 15

There is usually some oversight committee,typically called a _____ or such,for every project,of which the project owner is usually a member.

Accepted Answer

The term "steering committee" is commonly used in project management to refer to the oversight committee that is responsible for guiding and directing the project. The project owner is typically a member of this committee, along with other stakeholders who have a vested interest in the project's success. Task forces, project management offices, and project councils may also exist in some organizations, but they are not as commonly used or well-known as steering committees.

Question 16

If a company predicted rate of inflation goes down (deflation),what happens to the net present value (NPV)of their projects?

Accepted Answer

When the rate of inflation goes down, the value of money increases. Therefore, the discount rate used in calculating the NPV decreases, leading to an increase in NPV.

Question 17

If a company raises their hurdle rate,what happens to the net present value (NPV)of their projects?

Accepted Answer

If a company raises their hurdle rate, the NPV of their projects goes down. This is because the higher hurdle rate increases the required rate of return, making it more difficult for projects to meet the criteria for investment. Therefore, projects with previously positive NPVs may now have negative NPVs, which results in a decrease in the overall NPV of the company's portfolio.

Question 18

Which of the following is a type of numeric model?

Accepted Answer

Payback period is a type of numeric model that calculates the length of time required to recover the cost of an investment through cash inflows generated by the investment. A and D are not types of numeric models, and B is not a relevant option.

Question 19

The underlying premise of the real options approach is that __________.

Accepted Answer

The real options approach suggests that delaying an investment may lead to higher returns because it allows for more information to be gathered and reduces the risk of investing in marginal projects. Conversely, rushing into an investment may lead to lower returns or even the elimination of potentially profitable projects due to lack of information and higher risk.

Question 20

The mastery of the skills required to manage projects competently is referred to in the literature as __________.

Accepted Answer

Project management maturity refers to the level of proficiency and expertise in project management skills and practices. It involves mastering the core competencies and best practices of project management, such as planning, scheduling, budgeting, risk management, leadership, and communication. Project management maturity is measured on a scale that ranges from low to high, and organizations can improve their project management maturity level through training, coaching, and process improvement initiatives. The other options - project management conformance, project success, and project portfolio management - do not specifically refer to the mastery of project management skills.

Quiz 2: Strategic Management and Project Selection