Deck 11: Project Analysis and Evaluation

Question 1

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

Answer 1

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.

Answer 2

False

Question 3

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

Answer 3

False

Question 4

Projected sales is generally least subject to forecasting risk.

Question 5

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

Question 6

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

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.

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.

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

Projected fixed costs is generally least subject to forecasting risk.

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.

Question 16

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

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.

Question 18

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

Question 19

Initial investment is generally least subject to forecasting risk.

Question 20

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

Question 21

A project that just breaks even on a financial basis has a discounted payback equal to the project's life.

Question 22

All else the same, if a firm revises its production process to use more labour and less machinery, the firm will have smaller changes in OCF for a given change in sales quantity.

Question 23

In a financial break-even calculation, the present value of the cash inflows equals the amount of the initial investment.

Question 24

A project that just breaks even on an accounting basis must have a positive NPV.

Question 25

In a financial break-even calculation, the operating cash flow is at a level that produces a net present value of zero.

Question 26

A project that just breaks even on a financial basis will not pay back.

Question 27

The accounting break-even point has a net income is zero.

Question 28

The accounting break-even point has an internal rate of return is zero.

Question 29

A project that just breaks even on a financial basis has a PI equal to zero.

Question 30

A project that just breaks even on a cash basis must have a zero NPV.

Question 31

A project that just breaks even on a cash basis will not pay back.

Question 32

The accounting break-even point has a net present value is zero.

Question 33

A project that just breaks even on an accounting basis has a discounted payback period equal to its life.

Question 34

In a financial break-even calculation, the project never pays back on a discounted basis.

Question 35

A project that just breaks even on a cash basis has a discounted payback period equal to its life.

Question 36

The accounting break-even point has an operating cash flow is zero.

Question 37

All else equal, if you decrease your level of fixed costs, cash break-even will also fall.

Question 38

A project that just breaks even on an accounting basis will not pay back.

Question 39

All else equal, if you decrease your level of fixed costs, accounting break-even will also fall.

Question 40

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

Question 41

Variable costs are equal to zero when production is equal to zero.

Question 42

Fixed costs are generally affected by the amount of fixed assets owned by a firm.

Question 43

An increase in variable costs increases the operating cash flow.

Question 44

Fixed costs are variable over long periods of time.

Question 45

The higher the contribution margin, the lower the financial break-even point.

Question 46

In a financial break-even calculation, the payback period of the project is equal to the life of the project.

Question 47

All else equal, if you decrease your level of fixed costs, operating cash flow will also fall.

Question 48

Fixed costs per unit remain constant over a given range of production output.

Question 49

Fixed costs are equal to zero when production is zero.

Question 50

All else the same, if a firm revises its production process to use more labour and less machinery, the firm will have a decreased accounting break-even.

Question 51

The higher the contribution margin, the lower the cash break-even point.

Question 52

Fixed costs change with the quantity of output produced.

Question 53

All else the same, if you decrease fixed costs, accounting break-even will also decline.

Question 54

The higher the contribution margin, the lower the accounting break-even point.

Question 55

Variable costs can be ascertained with certainty when evaluating a proposed project.

Question 56

Fixed costs must be paid even if production is halted.

Question 57

Variable costs minus fixed costs equal marginal costs.

Question 58

All else the same, if you decrease fixed costs, will also operating cash flow decline.

Question 59

All else the same, if you decrease fixed costs, cash break-even will also decline.

Question 60

All else the same, if a firm revises its production process to use more labour and less machinery, the firm will have an increased capital intensity.

Question 61

A project with a high degree of operating leverage is capital intensive.

Question 62

Variable costs change with the quantity of output produced.

Question 63

Capital intensive projects have a high degree of operating leverage.

Question 64

Fixed costs are constant for a given period of time.

Question 65

Variable costs are equal to zero when production is zero.

Question 66

The higher the degree of operating leverage, the more the danger from forecasting risk.

Question 67

The option to wait is defined as the situation where operations are shut down for a period of time.

Question 68

A project with a high degree of operating leverage has a high forecasting risk.

Question 69

The higher the degree of operating leverage, the lower the break-even point, regardless of how it's measured.

Question 70

Degree of operating leverage (DOL) is equal to the percentage change in OCF divided by the percentage change in sales quantity.

Question 71

A project with a high degree of operating leverage has an initial cash outlay that is generally relatively large in relation to the size of the project.

Question 72

The higher the degree of operating leverage, the lower is the risk of forecasting error.

Question 73

A project with a high degree of operating leverage has relatively high variable costs.

Question 74

The higher the degree of operating leverage, the higher the break-even point, regardless of how it's measured.

Question 75

The higher the degree of operating leverage, the greater is the risk of forecasting error.

Question 76

A project with a low degree of operating leverage is capital intensive.

Question 77

Variable costs can be forecast with a high degree of certainty beforehand.

Question 78

All else the same, if a firm revises its production process to use more labour and less machinery, the firm will have an increased degree of operating leverage.

Question 79

All else the same, if you decrease fixed costs, operating leverage will also decline.

Question 80

A firm that substitutes labour for machinery and equipment is said to be capital-intensive.