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Chapter 14 pt 2

Question 1 of 46

1

Profitability (ROI) Analysis

Select one of the following:

  • Return on investment

  • Rebate on investment

Explanation

Question 2 of 46

1

Return on investment (ROI) analysis focuses on a project’s financial return.

Select one of the following:

  • True
  • False

Explanation

Question 3 of 46

1

Return on investment (ROI) analysis focuses on a project’s financial _____.

Select one of the following:

  • rebate

  • return

Explanation

Question 4 of 46

1

As with any investment, returns can be measured either in dollar terms or in rate of return (percentage) terms.

Select one of the following:

  • True
  • False

Explanation

Question 5 of 46

1

As with any investment, returns can be measured either in ____ terms or in rate of ____ (percentage) terms.

Select one or more of the following:

  • dollar

  • rate

  • rebate

Explanation

Question 6 of 46

1

Net present value (NPV) measures a project’s time value adjusted dollar return.

Internal rate of return (IRR) measures a project’s rate of (percentage) return.

Modified IRR (MIRR) also measures percentage return.

which 2 measures the percentage return?

Select one or more of the following:

  • net present value

  • internal rate of return

  • external rate of return

  • modified irr

Explanation

Question 7 of 46

1

which one measures adjusted dollar return?

Select one of the following:

  • net present value

  • internal rate of return

  • modified irr

Explanation

Question 8 of 46

1

NPV measures return on investment (ROI) in dollar terms.

Select one of the following:

  • True
  • False

Explanation

Question 9 of 46

1

NPV measures return on investment (ROI) in ____ terms.

Select one of the following:

  • half

  • dollar

Explanation

Question 10 of 46

1

NPV is merely the sum of the present values of the project’s net cash flows.

Select one of the following:

  • True
  • False

Explanation

Question 11 of 46

1

NPV is merely the sum of the ____ values of the project’s net cash flows.

Select one of the following:

  • past

  • present

  • future

Explanation

Question 12 of 46

1

the discount rate used is called the _______________. Recall that this is also the opportunity cost of capital, which depends on the riskiness of the investment.

Select one of the following:

  • payback investments

  • project cost of capital

Explanation

Question 13 of 46

1

The discount rate used is called the project cost of capital. Recall that this is also the ''opportunity cost of capital'', which depends on the riskiness of the investm

Select one of the following:

  • discount rate: opportunity cost

  • i dont know

Explanation

Question 14 of 46

1

NPV is the dollar contribution of the project to the equity value of the business.

Select one of the following:

  • True
  • False

Explanation

Question 15 of 46

1

NPV is the ---- contribution of the project to the equity value of the business.

Select one of the following:

  • dollar

  • old

Explanation

Question 16 of 46

1

NPV is the dollar contribution of the project to the --- value of the business.

Select one of the following:

  • price

  • equity

Explanation

Question 17 of 46

1

A positive NPV signifies that the project will enhance the financial condition of the business.
The greater the NPV, the more attractive the project financially.

Select one of the following:

  • True
  • False

Explanation

Question 18 of 46

1

A positive NPV signifies that the project will enhance the financial condition of the business.
The greater the NPV, the more --------- the project financially.

Select one of the following:

  • attractive

  • unattractive

Explanation

Question 19 of 46

1

IRR measures ROI in percentage (rate of return) terms.
It is the discount rate that forces the PV of the inflows to equal the cost of the project. In other words, it is the discount rate that forces the project’s NPV to equal $0.
IRR is the project’s expected rate of return.

Select one of the following:

  • True
  • False

Explanation

Question 20 of 46

1

IRR measures ROI in percentage (rate of return) terms.
It is the discount rate that forces the PV of the inflows to equal the cost of the project. In other words, it is the discount rate that forces the project’s NPV to equal $----.
IRR is the project’s expected rate of return.

Select one of the following:

  • 0

  • 1

  • 2

  • .5

Explanation

Question 21 of 46

1

IRR measures ROI in percentage (rate of return) terms.
It is the ------- rate that forces the PV of the inflows to equal the cost of the project. In other words, it is the discount rate that forces the project’s NPV to equal $0.
IRR is the project’s expected rate of return.

Select one of the following:

  • quality

  • discount

  • undiscount

Explanation

Question 22 of 46

1

IRR measures ROI in percentage (rate of return) terms.
It is the discount rate that forces the PV of the inflows to equal the cost of the project. In other words, it is the discount rate that forces the project’s NPV to equal $0.
IRR is the project’s -------- rate of return.

Select one of the following:

  • expected

  • unexpected

Explanation

Question 23 of 46

1

If a project’s IRR is greater than its cost of capital, then there is an “excess” return that contributes to the equity value of the business.
In our example, IRR = 29.7% and the project cost of capital is 10%, so the project is expected to enhance Midtown Clinic’s financial condition.

Select one of the following:

  • True
  • False

Explanation

Question 24 of 46

1

If a project’s IRR is greater than its cost of capital, then there is an “------” return that contributes to the equity value of the business.
In our example, IRR = 29.7% and the project cost of capital is 10%, so the project is expected to enhance Midtown Clinic’s financial condition.

Select one of the following:

  • reinvestment

  • excess

Explanation

Question 25 of 46

1

Both NPV and IRR require a reinvestment rate assumption.

NPV assumes it is the cost of capital.
IRR assumes it is the IRR rate.

Of the two, reinvestment at the cost of capital is the better assumption since NPV measures profit in dollars.

MIRR forces reinvestment at the cost of capital.

________

Both NPV and IRR require a

Select one of the following:

  • reinvestment rate assumption

  • investment rate assumption

Explanation

Question 26 of 46

1

Both NPV and IRR require a reinvestment rate assumption.
NPV assumes it is the -------------
IRR assumes it is the ---------
Of the two, reinvestment at the cost of capital is the better assumption since NPV measures profit in dollars.
MIRR forces reinvestment at the cost of capital.

Select one or more of the following:

  • cost of capital

  • irr rate

  • mri rate

Explanation

Question 27 of 46

1

NPV assumes it is the cost of capital.
IRR assumes it is the IRR rate.
Of the two, reinvestment at the cost of capital is the better assumption since NPV measures profit in dollars.

Select one of the following:

  • cost of capital

  • irr rate

Explanation

Question 28 of 46

1

MIRR is interpreted in the same way as is IRR. In our example, MIRR = 21.4% and the project cost of capital is 10%, so the project is expected to contribute to shareholder wealth (or enhance the financial condition of a NFP business).
Note that the value of the MIRR for any project falls in between the project cost of capital and IRR values.

_______
MIRR is interpreted in the same way as is ------

Select one of the following:

  • NPV

  • IRR

Explanation

Question 29 of 46

1

MIRR is interpreted in the same way as is IRR. In our example, MIRR = 21.4% and the project cost of capital is 10%, so the project is expected to contribute to shareholder wealth (or enhance the financial condition of a NFP business).
Note that the value of the MIRR for any project falls in between the project cost of capital and IRR values.

________
MIRR is interpreted in the same way as is IRR. In our example, MIRR = 21.4% and the project cost of capital is 10%, so the project is expected to_____ or ______

Select one of the following:

  • contribute, enhance

  • not contribute, not enhance

Explanation

Question 30 of 46

1

Note that the value of the MIRR for any project falls in between the project cost of capital and IRR values.

Select one of the following:

  • cost of capital and IRR values.

  • cost of capital and no values.

Explanation

Question 31 of 46

1

Although NPV and IRR generally are perfect substitutes, there are yet other ROI measures that can be used; i.e., the Profitability Index.

Select one of the following:

  • True
  • False

Explanation

Question 32 of 46

1

Although NPV and IRR generally are perfect substitutes, there are yet other ROI measures that can be used; i.e., the _________________

Select one of the following:

  • global index

  • profitability index

Explanation

Question 33 of 46

1

A thorough analysis will consider all profitability measures, plus examine input variable breakevens.
However, the key to effective project analysis is the ability to forecast the cash flows with some confidence.

Select one of the following:

  • True
  • False

Explanation

Question 34 of 46

1

A thorough analysis will consider all profitability measures, plus examine -------- variable breakevens.
However, the key to effective project analysis is the ability to forecast the cash flows with some --------.

2

Select one or more of the following:

  • input

  • output

  • task

  • confidence

Explanation

Question 35 of 46

1

Presumably, not-for-profit providers have important goals besides financial ones. Other considerations can be incorporated into the analysis by using:
The net present social value model.
Project scoring.

Select one of the following:

  • True
  • False

Explanation

Question 36 of 46

1

Presumably, not-for-profit providers have important --------- besides financial ones. Other considerations can be incorporated into the analysis by using:
The net present social value model.
Project scoring.

Select one of the following:

  • benefits

  • goals

Explanation

Question 37 of 46

1

Presumably, not-for-profit providers have important goals besides financial ones. Other considerations can be incorporated into the analysis by using:
1 The net present social value model.
2 ------------------

Select one of the following:

  • soccer scoring

  • project scoring

Explanation

Question 38 of 46

1

The net present social value (NPSV) model is based on the fact that the total value of a project equals its economic value (NPV) plus its social value.
Thus, the present value of the future annual social values is added to the NPV to estimate the project’s total value.
TNPV = NPV + NPSV
TNPV>=0, accepted! But NPSV >= 0!!

Select one of the following:

  • True
  • False

Explanation

Question 39 of 46

1

TNPV>=0--------------------,! But NPSV >= 0!!

Select one of the following:

  • accepted

  • not accepted

Explanation

Question 40 of 46

1

The net present social value (NPSV) model is based on the fact that the total value of a project ---------------------- (NPV) plus its social value.

Select one of the following:

  • equals its twice value

  • equals its economic value

Explanation

Question 41 of 46

1

Project scoring uses a matrix to create a numerical “score” for projects that incorporates both financial and nonfinancial factors.
Note the scores attached to projects are non-linear in the sense that a project with a score of 14 is not necessarily twice as good a project with a score of 7.

Select one of the following:

  • True
  • False

Explanation

Question 42 of 46

1

Project scoring uses a ------- to create a numerical “score” for projects that incorporates both financial and nonfinancial factors.
Note the scores attached to projects are non-linear in the sense that a project with a score of 14 is not necessarily twice as good a project with a score of 7.

Select one of the following:

  • matrix

  • board

Explanation

Question 43 of 46

1

Project scoring uses a matrix to create a numerical “score” for projects that incorporates both ----- and ------l factors.
Note the scores attached to projects are non-linear in the sense that a project with a score of 14 is not necessarily twice as good a project with a score of 7.

Select one of the following:

  • old and new

  • financial and non financial

Explanation

Question 44 of 46

1

Note the scores attached to projects are non-linear in the sense that a project with a score of 14 is not necessarily twice as good a project with a score of 7.

Select one of the following:

  • a score of 14 is not necessarily twice as good a project with a score of 7.

  • a score of 14 is necessarily twice as good a project with a score of 7.

Explanation

Question 45 of 46

1

Post Audit

The post audit is a formal process for monitoring a project’s performance over time.

It has several purposes:

Improve forecasts
Develop historical risk data
Improve operations
Reduce losses

Select one of the following:

  • Improve forecasts

  • increase losses

Explanation

Question 46 of 46

1

Post Audit monitoring a project’s performance over time. 4

Select one or more of the following:

  • Improve forecasts

  • Develop historical risk data

  • Improve operations

  • Reduce losses

  • get rid of operations

  • increase losses

Explanation

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