Deck 2: Strategic Management and Project Selection

Question 1

The __________is the value of an opportunity foregone.

A)real option
B)profit
C)opportunity cost
D)revenue

Answer 1

C

Question 2

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

A)payback period
B)average rate of return
C)discounted cash flow
D)profitability index

Answer 2

A

Question 3

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

A)hurdle rate
B)acceptable rate
C)internal rate of return
D)net present value

Answer 3

A

Question 4

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

A)the system is worth saving at any cost
B)the system is worth saving at the estimated cost of the project
C)the dimension of cost is not relevant to execution of the project
D)the cost overruns can be hidden in someone else's budget

Question 5

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

A)report a profit loss
B)report a profit gain
C)fail to cover its required rate of return
D)fail to generate cash inflows

Question 6

Which of the following demonstrates the quality of realism required of a project selection model?

A)It does not require special interpretation,data that are difficult to acquire,or excessive personnel.
B)It gives valid results within the range of conditions that the firm might experience.
C)It reflects the multiple objectives of both the firm and its managers.
D)It deals with situations both internal and external to the project.

Question 7

Firms usually have two or more projects and this collection of projects is referred to as __________.

A)a portfolio
B)an initiation
C)a program
D)a stochastic model

Question 8

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

A)biased and unbiased
B)numeric and nonnumeric
C)active and passive
D)numeric and qualitative

Question 9

The typical project proposal should include all of the following,EXCEPT a(n)__________.

A)section describing the past experience of the proposing group
B)executive summary
C)description of the ability of the proposer to supply the facilities needed during the project
D)list of the top executives in the proposing firm

Question 10

Which of the following demonstrates the quality of flexibility required of a project selection model?

A)It does not require special interpretation,data that are difficult to acquire,or excessive personnel.
B)It gives valid results within the range of conditions that the firm might experience.
C)It reflects the multiple objectives of both the firm and its managers.
D)It deals with situations both internal and external to the project.

Question 11

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

A)Operating necessity projects have priority over competitive necessity projects.
B)Competitive necessity projects have priority over operating necessity projects.
C)Operating necessity and competitive necessity projects have equal priority.
D)Product line extension projects have priority over operating necessity projects.

Question 12

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

A)delaying an investment may lead to greater returns or may lead to elimination of marginal projects
B)rushing into an investment more quickly may lead to lower returns or may lead to elimination of marginal projects
C)delaying an investment may lead to increased costs due to delays
D)rushing into an investment more quickly may lead to less risk

Question 13

A technique useful for developing numeric values that are equivalent to subjective,verbal measures of relative value is the __________.

A)Delphi system
B)expert system
C)portfolio
D)simulation

Question 14

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

A)the project exceeds its budget
B)the project falls behind schedule
C)the boss recognizes the project as a failure and terminates it
D)the project manager is terminated

Question 15

Which of the following is a type of numeric model?

A)the sacred cow
B)the operating necessity
C)payback period
D)the product line extension

Question 16

Scoring models are most often used to overcome this disadvantage of profitability models.

A)The inability to account for the time value of money.
B)The inability to account for project results beyond the payback period.
C)The inability to account for multiple decision criteria.
D)The inability to account for cash flow.

Question 17

Which of the following is NOT an advantage that favors the use of weighted scoring models?

A)Multiple objectives can be considered.
B)Decision makers are compelled to stick with the decision once it has been made.
C)The models can be adapted to changes in managerial philosophy.
D)They can help avoid a short-term focus on profitability.

Question 18

The __________ is also called the benefit-cost ratio.

A)Q-sort method
B)profitability index
C)internal rate of return
D)payback period

Question 19

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

A)technological opportunity
B)managerial support
C)expected profitability
D)development risk

Question 20

Real options seek to reduce which of the following risks in projects?

A)political
B)environmental
C)technological and commercial
D)sociological

Question 21

Explain the difference between risk and uncertainty.

Question 22

According to research by Sanchez and Robert (2010),which of the following is not a reason why strategic benefits may be difficult to appraise?

A)Not immediately realized
B)Difficult to quantify
C)May be confounded with other factors
D)Easy to plan for when they occur

Question 23

Consider the following three-year projects A and B each with the same initial investment of $1000.You are presented with the following measures for the projects:
Project A: NPV $400; Payback 24 months
Project B: NPV $545; Payback 26 months
Which project would you choose and why?

Question 24

Explain why it is necessary for the project manager to understand the reasons leading to the selection of a project.

Question 25

______ is a modeling technique for emulating a process,usually conducted a considerable number of times to understand the process better and measure its outcomes under different policies.

A)Simulation
B)Project management
C)Projectizing
D)Modeling

Question 26

The set of documents submitted when evaluating a project is referred to as the __________.

A)project proposal
B)evaluation set
C)evaluation criteria
D)project manual

Question 27

In a project portfolio,a project that involves a new technology or even a disruptive technology that is known to the industry would serve as an example of a __________ project.

A)breakthrough
B)R&D
C)platform
D)derivative

Question 28

Financial forecasts are reported as __________ financial statements.

A)final
B)initial
C)pro forma
D)hypothetical

Question 29

__________ 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.

A)Project selection
B)Project initiation
C)Project management
D)Project control

Question 30

The discounted cash flow method determines the net present value of all cash flows by discounting them by the __________.

A)hurdle rate
B)acceptable rate
C)internal rate of return
D)net present value

Question 31

The process of "carving away the unwanted reality from the bones of a problem" is called __________.

A)modeling the problem
B)crafting the problem
C)defining the criteria
D)modeling the criteria

Question 32

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

A)sustainability
B)comparative benefit model
C)production line extension
D)operating necessity

Question 33

When the decision maker's information is not complete,he / she will have to make a decision under conditions of __________.

A)proof
B)uncertainty
C)management
D)risk mitigation

Question 34

Project Typhoon has a net present value of $10,000 and a profitability index of 1.01.Project Cyclone has a net present value of $10,000 and a profitability index of 1.10.Project Surf'sUp has a net present value of $10,000 and a profitability index of 1.05.If only one project could be undertaken,the organization should select __________.

A)Project Typhoon
B)Project Cyclone
C)Project Surf'sUp
D)Not enough information is provided

Question 35

The sophistication and experience of an organization in managing multiple projects is called ________.

A)maturity
B)uncertainty
C)program management
D)multi-tasking

Question 36

In a project portfolio,__________ projects have objectives or deliverables that are only incrementally different in both product and process from existing offerings.

A)breakthrough
B)R&D
C)platform
D)derivative

Question 37

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

A)project management conformance
B)project management maturity
C)project success
D)project portfolio management

Question 38

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

A)sustainability
B)comparative benefit model
C)production line extension
D)operating necessity

Question 39

Project Boulder has a payback period of 2.4 years,an NPV of $10,000,and a profitability index of 1.10.Project Flintstone has a payback period of 3.0 years,an NPV of $10,000 and a profitability index of 1.05.If only one project can be executed,which project should be selected? Explain your reasoning.

Question 40

Which of the following is not a numeric scoring model?

A)Unweighted 0-1 factor model
B)Unweighted factor scoring model
C)Real options
D)The sacred cow

Question 41

Suppose that you have been assigned as the project manager to execute a project that was selected using the sacred cow method of project selection.The project sponsor is an executive who has been with the company for three years.Based on past employment history,the average tenure of a senior executive at your company is 5 years.After reviewing the project's expectations and requirements,the project team has determined that the payback period will be 3.5 years.What are the implications for you and the project team?

Question 42

Contrast the real options selection approach with profitability models.