Question 1

Scenario analysis allows a firm to ask what-if type questions in capital budgeting.

Accepted Answer

False

Question 2

You have put together a set of cash flow forecasts for a project and have found, on your first calculation, that the NPV is positive. You should accept the project because you are certain to increase shareholder wealth.

Accepted Answer

A positive NPV indicates the project is expected to generate value over its cost, but it doesn't guarantee increased shareholder wealth due to potential risks, assumptions in the forecast, and changes in market conditions that aren't accounted for in the initial calculation.

Question 3

Net income is equal to zero at the accounting break-even point.

Accepted Answer

At the accounting break-even point, a company covers all its operating costs including both variable and fixed costs, but net income is not necessarily zero because this calculation does not account for financing costs or taxes.

Question 4

Projected sales is generally least subject to forecasting risk.

Accepted Answer

Projected sales are often subject to significant forecasting risk due to uncertainties in market conditions, consumer preferences, competition, and other external factors that can affect demand.

Question 5

Sensitivity analysis allows a firm to ask what-if type questions in capital budgeting.

Accepted Answer

The answer of Sensitivity analysis allows a firm to ask...

Question 6

The net present value is equal to zero at the accounting break-even point.

Accepted Answer

The net present value (NPV) is a financial metric used to evaluate the profitability of an investment or project, considering the time value of money, whereas the accounting break-even point refers to the point at which total revenues equal total costs, ignoring the time value of money. They measure different concepts and do not necessarily coincide.

Question 7

You have put together a set of cash flow forecasts for a project and have found, on your first calculation, that the NPV is positive. You should use scenario or sensitivity analysis to investigate the project in greater detail.

Accepted Answer

The answer of You have put together a set of...

Question 8

You have put together a set of cash flow forecasts for a project and have found, on your first calculation, that the NPV is positive. You should try to assess the degree of forecasting risk that exists with the project.

Accepted Answer

The answer of You have put together a set of...

Question 9

Simulation analysis allows a firm to ask what-if type questions in capital budgeting.

Accepted Answer

The answer of Simulation analysis allows a firm to ask...

Question 10

If a project's base case NPV is positive, the project should automatically be accepted.

Accepted Answer

A positive NPV indicates the project is expected to add value, but other factors such as risk, financing, strategic alignment, and alternative investment opportunities should also be considered before making a decision.

Question 11

The discounted payback is equal to the life of the project in a financial break-even calculation.

Accepted Answer

The discounted payback period is the time it takes for the net present value of the cash flows to equal the initial investment, and it does not necessarily equal the life of the project. It specifically measures the time required to break even in terms of discounted cash flows, not the total duration of the project.

Question 12

The quantity sold at the accounting break-even point is equal to the total fixed costs divided by the contribution margin.

Accepted Answer

The answer of The quantity sold at the accounting break-even...

Question 13

Just because the cash flows of a project are positive doesn't mean the NPV is positive.

Accepted Answer

The answer of Just because the cash flows of a...

Question 14

Projected fixed costs is generally least subject to forecasting risk.

Accepted Answer

Fixed costs are generally more predictable and stable, but forecasting risk can still exist due to unexpected changes in business operations, market conditions, or external factors that could affect these costs.

Question 15

The quantity sold at the accounting break-even point is equal to the total fixed costs plus depreciation divided by the contribution margin.

Accepted Answer

The quantity sold at the accounting break-even point is equal to the total fixed costs divided by the contribution margin per unit, not including depreciation.

Question 16

The OCF is equal to zero in a financial break-even calculation.

Accepted Answer

In a financial break-even calculation, the Operating Cash Flow (OCF) is set to cover the fixed financial costs (interest and mandatory principal repayments), not to zero. The goal is to determine the level of operations needed to meet these financial obligations.

Question 17

You have put together a set of cash flow forecasts for a project and have found, on your first calculation, that the NPV is positive. You should try to identify some source of value in the project.

Accepted Answer

The answer of You have put together a set of...

Question 18

Break-even analysis allows a firm to ask what-if type questions in capital budgeting.

Accepted Answer

The answer of Break-even analysis allows a firm to ask...

Question 19

Initial investment is generally least subject to forecasting risk.

Accepted Answer

Initial investment costs are often subject to significant forecasting risk due to potential overruns, changes in project scope, and unforeseen expenses.

Question 20

The IRR is equal to the required rate of return in a financial break-even calculation.

Accepted Answer

The answer of The IRR is equal to the required...

Quiz 11: Project Analysis and Evaluation

Scenario analysis allows a firm to ask what-if type questions in capital budgeting.

You have put together a set of cash flow forecasts for a project and have found, on your first calculation, that the NPV is positive. You should accept the project because you are certain to increase shareholder wealth.

Net income is equal to zero at the accounting break-even point.

Projected sales is generally least subject to forecasting risk.

Sensitivity analysis allows a firm to ask what-if type questions in capital budgeting.

The net present value is equal to zero at the accounting break-even point.

You have put together a set of cash flow forecasts for a project and have found, on your first calculation, that the NPV is positive. You should use scenario or sensitivity analysis to investigate the project in greater detail.

You have put together a set of cash flow forecasts for a project and have found, on your first calculation, that the NPV is positive. You should try to assess the degree of forecasting risk that exists with the project.

Simulation analysis allows a firm to ask what-if type questions in capital budgeting.

If a project's base case NPV is positive, the project should automatically be accepted.

The discounted payback is equal to the life of the project in a financial break-even calculation.

The quantity sold at the accounting break-even point is equal to the total fixed costs divided by the contribution margin.

Just because the cash flows of a project are positive doesn't mean the NPV is positive.

Projected fixed costs is generally least subject to forecasting risk.

The quantity sold at the accounting break-even point is equal to the total fixed costs plus depreciation divided by the contribution margin.

The OCF is equal to zero in a financial break-even calculation.

You have put together a set of cash flow forecasts for a project and have found, on your first calculation, that the NPV is positive. You should try to identify some source of value in the project.

Break-even analysis allows a firm to ask what-if type questions in capital budgeting.

Initial investment is generally least subject to forecasting risk.

The IRR is equal to the required rate of return in a financial break-even calculation.