Question 1

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.

Accepted Answer

The scaling model allows decision makers to treat one criterion as more important than another, which is an advantage over the checklist model. The other options are either inaccurate or not necessarily true.

Question 2

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.

Accepted Answer

The statement that best describes the use of the profile model is D. The profile model is used to compare different projects based on their risk and return. A positive move on the return axes, while keeping the risk constant, indicates a superior project. The other options are not entirely accurate, as the profile model does not necessarily require calculating risk percentages for each project, can use any two variables, and does not necessarily have an efficient frontier where return is 100% and risk is 0%.

Question 3

The profile model plots a graph on a:
A) perception-reality pair of axes.
B) risk-return pair of axes.
C) efficiency-effectiveness pair of axes.
D) Saxon-Norman pair of axes.

Accepted Answer

The profile model typically plots a graph on a risk-return pair of axes, which is commonly used in finance to assess investment portfolios.

Question 4

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.

Accepted Answer

IRR and NPV are both important measures of a project's value, and each has its own strengths and weaknesses. However, it is generally accepted that NPV is a more robust and reliable indicator of a project's viability because it explicitly accounts for the time value of money and incorporates a more realistic discount rate. In contrast, IRR can be more prone to errors and multiple solutions when cash flows are irregular or when comparing projects with different investment sizes or timing. Therefore, statement D is incorrect.

Question 5

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.

Accepted Answer

The total scores for each project were not given in relation to a scale of 1.0 or 100%. Therefore, we cannot conclude that the total scores should sum up to 1.0. The total scores for each project were obtained using the Analytical Hierarchy Process, which assigns weights to different criteria and sub-criteria to evaluate and prioritize alternatives. Hence, we cannot infer that the analysis is incorrect because there are two total scores that exceed 0.50 or because project C's total score is odd. Therefore, the best choice is A because it compares projects A and C and states that project A is twice as good as project C.

Question 6

The Analytical 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%.

Accepted Answer

The intermediate-term cost receives a weighting of 12% because it is 30% of the 40% allocated to cost (0.3 * 0.4 = 0.12 or 12%).

Question 7

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.

Accepted Answer

The efficient frontier in project management represents the portfolio options that offer the maximum return for a given level of risk. Therefore, the correct answer is C, which states "a maximum return for a minimum risk." Options A and B are incorrect because they prioritize minimum risk over return, while option D prioritizes maximum return over risk.

Question 8

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.

Accepted Answer

The first step in the Analytical Hierarchy Process (AHP) consists of constructing a hierarchy of criteria and sub-criteria, which is essential for the decision-making process. This hierarchy forms the basis for further analysis using pairwise comparisons to determine the relative importance and weights of the criteria and sub-criteria. Therefore, option D is the correct answer. Option A is incorrect because it refers to the second step of AHP. Option B is also incorrect because it is not a part of the AHP process, although it is important to understand the process before implementing it. Option C is not a relevant concept in AHP.

Question 9

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.

Accepted Answer

The answer of A simple scoring model for project evaluation...

Question 10

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

Accepted Answer

The net present value (NPV) is higher when cash flows are received earlier, as they can be reinvested sooner. Option B, with the highest cash flows in the earliest years, would yield the greatest NPV at a 4% interest rate.

Question 11

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.

Accepted Answer

The answer of A checklist screening model does not consider:
A)...

Question 12

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.

Accepted Answer

The statement acknowledges that even the most complete model cannot capture all aspects of an organization's reality, emphasizing the limitations of project selection criteria.

Question 13

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.

Accepted Answer

The answer of Which statement regarding project selection is best?
A)...

Question 14

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.

Accepted Answer

If there are net outflows following a period of net inflows, IRR may give conflicting results. This is because IRR assumes that cash flows are reinvested at the project's IRR, which may not be realistic in the case of unconventional cash flow patterns. The other options (A, B, C) are incorrect. A lower IRR generally suggests that the project is less attractive since it generates a lower return relative to its cost of capital. NPV and IRR may not always lead to the same investment recommendation, particularly in the presence of mutually exclusive projects. And if the IRR is less than the cost of capital, the project should not be funded.

Question 15

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

Accepted Answer

The answer of A company facing an interest rate of...

Question 16

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.

Accepted Answer

A shorter payback period means that the initial investment in project A will be recovered in a shorter time period than in project B. This makes project A more financially attractive as it frees up funds to be invested in other projects or to generate additional returns.

Question 17

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

Accepted Answer

The answer of A project manager is using a simple...

Question 18

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.

Accepted Answer

AHP is a decision-making process that prioritizes multiple criteria and alternatives. It does not capture choice options that do not yield positive outcomes; it only evaluates positive outcomes and determines their relative importance.

Question 19

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.

Accepted Answer

The answer of The pairwise comparison approach:
A) is a method...

Question 20

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.

Accepted Answer

The answer of A simple scoring model is used to...

Quiz 3: Project Selection and Portfolio Management

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

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

The profile model plots a graph on a:

Which of these statements about valuation models is NOT correct?

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?

The Analytical 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?

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

The first step in the Analytical Hierarchy Process:

A simple scoring model for project evaluation requires:

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 checklist screening model does not consider:

Which statement regarding project selection and screening criteria is best?

Which statement regarding project selection is best?

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

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?

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

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?

Which statement about the Analytical Hierarchy Process is false?

The pairwise comparison approach:

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?