FINC312 Qualitative Connect Problems Exam #2

The difference between a company's future cash flows if it accepts a project and the company's future cash flows if it does not accept the project is referred to as the project's:

incremental cash flows.

Net present value:

is the best method of analyzing mutually exclusive projects.

Which one of the following will decrease the net present value of a project?

Increasing the project's initial cost at Time 0

Which one of the following methods predicts the amount by which the value of a firm will change if a project is accepted?

Net Present Value

The option that is forgone so that an asset can be utilized by a specific project is referred to as which one of the following?

Opportunity Cost

Which type of analysis identifies the variable, or variables, that are most critical to the success of a particular project?

Sensitivity

Which one of the following types of costs was incurred in the past and cannot be recouped?

Sunk Costs

The length of time a firm must wait to recoup the money it has invested in a project is called the:

payback period.

An analysis of the change in a project's NPV when a single variable is changed is called _____ analysis.

sensitivity

A project has a net present value of zero. Given this information:

the project's cash inflows equal its cash outflows in current dollar terms.

To determine a firm's cost of capital, one must include:

the returns currently required by both debtholders and stockholders.

Simulation analysis is based on assigning a _____ and analyzing the results.

wide range of values to multiple variables simultaneously