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Financial Valuation - Multiple choice questions
Finance appraisal of investment project (Đại học Kinh tế Quốc dân)
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Question 1
Which one of the following statements concerning scenario analysis is correct?
a. Scenario analysis defines the entire range of results that could be realized
from a proposed investment project.
b. The pessimistic case scenario determines the maximum loss, in current
dollars, that a firm could possibly incur from a given project.
c. Scenario analysis helps managers analyze various outcomes that are possible
given reasonable ranges for each of the assumptions.
d. Scenario analysis determines which variable has the greatest impact on a
project's final outcome.
Question 2
Thang is considering the purchase of only one of the three machines that differ in
price, operating costs, expected lifespan, and replacement schedule. What method
should he use to determine which machine to buy?
a. Internal rate of return
b. Equivalent annual cost
c. Depreciation tax shield
d. Operating cash flow
Question 3
When you assign the lowest anticipated sales price and the highest anticipated
costs to a project, you are analyzing the project under the condition known as:
a.worst-case sensitivity analysis.
b.best-case sensitivity analysis.
c.best-case scenario analysis.
d.worst-case scenario analysis.
Question 4
Three years ago, KG purchased a machine for a 3-year project. The machine is
being depreciated straight-line to zero over 5 years. Today, the project ended and
the machine was sold. What is the accurate definition of the after-tax salvage
value of that machine? (T represents the applicable tax rate).
a.Sale price + (Book value - Sale price) × T
b.Sale price + (Sales price - Book value) × T
c.Sale price + (Book value - Sale price) × (1 - T)
d.Sale price + (Sales price - Book value) × (1 - T)
Question 5
Operating leverage is the extent of reliance a firm has on its:
a.variable costs.
b.fixed costs.
c.operating cash flows.
d.sales.
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Question 6
What factors are always considered when determining the bid price?
a.Positive salvage value for any assets purchased at the end of the project.
b.Zero net present value for the project.
c.A project's lifespan of one year.
d.Zero after-tax net income for the project.
Question 7
When using the equivalent annual cost method to decide which equipment to
purchase, the equipment must meet which two of the following criteria? I. They
must have different productive lives; II. They may be from different
manufacturers; III. They must require replacement at the end of their economic
life; IV. They must have different initial costs.
a.II and IIII
b.I and III
c.I and IV
d.I and II
Question 8
Jack is evaluating the feasibility of buying a new sausage system that requires an
initial investment of $397,800. The system will be depreciated linearly over the 7-
year project lifespan, and it has a salvage value of $61,200 at the end. The system
is expected to save the company $122,400 annually in pretax operating costs, and
an investment of $28,560 is necessary for net working capital. The net working
capital will be fully recovered when the project is completed. The tax rate is 33
percent, and the discount rate is 9 percent. What is the net present value (NPV) of
the project?
a.-$7,820
b.$98,441
c.$81,507
d.$118,821
Question 9
By definition, which of the following must equal zero at the cash break-even
point?
a. net income
b. payback period
c. internal rate of return
d. operating cash flow
Question 10
Scenario analysis is characterized by:
a. isolating the impact of a single variable on the NPV of a project.
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b. evaluating changes in NPV estimates in response to posed what-if questions.
c. distinguishing between a project's sunk costs and its opportunity costs.
d. assessing the initial cash outlay needed for project implementation.
