APSC 221

T/F: The inflation rate is the rate of increase in average prices of goods and services over a specified time period, usually a year

True

T/F: The payback period is the number of years it takes for an investment to be recouped when the interest rate is assumed to be zero

True

T/F: The salvage value of an asset can be estimated using a depreciation model

True

An asset is purchased for $5,000. The salvage value at the end of its four year life is $1000. What is the annual depreciation charge assuming the rate of loss in asset value is constant?

1000

Decision trees are a graphical means of structuring ___________

A decision-making situation

To find the annuity value, A, equivalent to a present amount, P, with a given interest rate, I, and the number of periods over which this annuity will be paid, N, one would use the _________ factor

Capital recovery

There are a variety of changes in terms of scope and approach. Change requires a combination of creating ________ which enable the change and change management ______ to encourage change to occur

Deliverables & Activities

Sunk costs should be included in an engineering economic analysis

False

T/F: A comparison of rate of return and present/annual worth of methods leads to the conclusion that the two sets of methods when properly used give opposing decisions

False

T/F: A concept statement is a well-developed, fully-formed description of a product or service that is used to convince family and friends to invest in your venture.

False

T/F: A license fee is an example of an incremental cost

False

T/F: If an investment yields a profit, the total investment price will be taxed

False

T/F: If two products are mutually exclusive if, in the process of choosing one, all other alternatives are included.

False

T/F: Pro forma financial statements reflect past performance and are usually prepared on a quarterly and annual basis.

False

T/F: Sensitivity graphs illustrate the sensitivity of a particular measure to multiple-at-a-time changes in the uncertain parameters of a project.

False

T/F: The after-tax IRR is simply the IRR calculation on the before-tax cash flows

False

T/F: The book value is usually taken as the actual value an asset can be sold for in an open market

False

T/F: The following are all typical management job titles: plant manager, operations manager, and office manager

False

T/F: When future inflation is expected over the life of the project, the MARR needs to be decreased.

False

One reason why perfect monopolies rarely occur in practice is because

Few products are so unique that substitutes cannot be used

To judge whether an index is appropriate for a particular purpose, the analyst should know how the ___________

Goods and services for which he or she is estimating inflation compare with the set of goods and services use to compute the index

__________ are costs that are difficult to attribute or allocate to a specific output or work activity

Indirect Costs

One of the most important activities of change management is assessing the ___________risks from change, and ensuring ___________ is taken to manage these risks, including the longer-term execution risks

Key & Action

The ____ defines a maximum time period and establishes a range of cost and revenue elements that need to be considered in developing cash flows

Life cycle

The CCA system specifies the ________ rate a firm can use to depreciate its assets for tax purposes, known as the CCA rate

Maximum

The severity of negative consequences in a project's life span is....

Minimal early in the project's life

Change is made by _______

People

Which of the following is NOT one of the risk management steps?

Planning and scheduling

The shared experiences, stories, beliefs, and norms that characterize an organization are known as

The corporate culture

Mathematical equivalence is a consequence of the mathematical relationship between ________

Time and Money

T/F: A cash flow diagram summarizes the timing and magnitude of cash flows as they occur over time.

True

T/F: CERs are excellent predictors of cost if they are correctly developed from good historical data.

True

T/F: Discrete models are more common and more readily understood by persons of varied backgrounds.

True

T/F: One aspect of organizational feasibility analysis is that it determines whether a proposed business can acquire sufficient raw materials to become fully operational.

True

T/F: Sunk costs are irrelevant to any decision to replace the current asset

True

T/F: The break-even point for a new venture is the moment when total revenue received is equal to total costs.

True

T/F: The conventional approach for computing interest is the compound interest approach

True

T/F: The corridor principle occurs when new venture opportunities become apparent after an entrepreneur starts a firm.

True

Which of the following are steps in the creative process? a. Evaluation b. Insight c. Elaboration d. Preparation e. Opportunity f. Incubation

a, b, c, d, f

A set of equal disbursements or receipts over a sequence of periods, is referred to as a(n) _______. a. Annuity b. Single Disbursement c. Geometric gradient series d. Arithmetic gradient series

a. Annuity

Before undertaking a systematic analysis of mutually exclusive alternatives using the IRR method, you should ensure that the alternatives ________. a. Have equal lives b. Have the same initial cost c. Are similar projects d. Are from the same company

a. Have equal lives

Models of cash flows which assume that all cash flows and all compounding of cash flows occur at the ends of conventionally defined periods are called __________. a. Continuous models b. Discrete Models c. Irregular models d. End of period models

b. Discrete Models

For executives, before worrying about the details of selecting changes and performing change management, there are four fundamental questions that are worth answering: Why _____ with change? What are the _____ of change? What are the _____ of change? What are the _____ of change?

bother, risks, costs, rewards

A project organization can choose to ____ risk. a. Accept b. Share c. Transfer d. All of the above

d. All of the above

To assess the demand for a product or service, one can: a. Use online tools b. Talk with potential customers c. Gumshoe research d. All of the above

d. All of the above

Which of the following is NOT an aspect of change management? a. minimize unplanned operational disruption. b. understand associated implementation risks. c. achieve performance improvements. d. controlling, scheduling and planning.

d. controlling, scheduling and planning.

Any outcome cannot have a chance of occurring _______. a. less than 0% b. greater than 0% c. greater than 100% d. less than 100% e. Both A and C

e. Both A and C

Market equivalence is a consequence of the ability to _________ one cash flow for another at zero cost

exchange

In many cases the best source of information on future risks is ______

history

Many project organizations create relationships with suppliers and customers that include ____________requirements for risk to be shared among those involved in the project

legal

Which technique sums the product of several quantities or components and adds these to any components estimated directly? a. Unit technique b. Power-sizing technique c. Factor technique d. Adding technique

c. Factor technique

Personal income taxes usually exhibit a: a. Constant tax rate b. Proportional tax rate c. Progressive tax rate d. Flat tax rate

c. Progressive tax rate

___________ is an approach to project evaluation that can be used to gain a better understanding of how uncertainty affects the outcome of the evaluation by examining how sensitive the outcome is to changes in the uncertain parameters. a. Break even analysis b. Cash flow analysis c. Sensitivity analysis d. Replacement analysis e. All of the above

c. Sensitivity analysis

The period of highest risk impact in a project's life span occurs ... a. between the conceive and develop phases. b. between the develop and implementation (execute) phases. c. between the implementation (execute) and the termination (finish) phases. d. at the end of the termination (finish) phase.

c. between the implementation (execute) and the termination (finish) phases.

Typically a price index relates the average price of a given set of ________ in some time period to the average price of the same ________ in another period. a. weightings b. prices c. goods d. stocks e. None of the above

c. goods

Planning is the process of determining __________. a. the way employees will be allocated to different departments b. activity's slack time and thus which ones are on the critical path c. the firm's goals and developing a strategy for achieving them d. the amount of costs that are allowed to be incorporated in the analysis

c. the firm's goals and developing a strategy for achieving them

It is ________ true that capital cost per year falls with increasing life. a. always b. rarely c. usually d. never e. None of the above

c. usually

A ______ is a preliminary description of your product/service that is used to get feedback from experts in the industry and potential future customers.

concept statement

T/F: A decision tree is a graphical representation of the logical structure of a decision problem in terms of the sequence of decisions to be made and outcomes of chance events

True

T/F: A random variable is a parameter that can take on a number of possible outcomes

True

T/F: An index is a dimensionless number that indicates how a cost or price has changed with time with respect to a base year

True

T/F: An investment may be thought of as an exchange of resources now for an expected flow of benefits in the future

True

T/F: Capital purchases cannot usually be fully claimed as an expense in the year in which the purchase occurred

True

T/F: Compound interest takes the interest accumulated in one interest period and adds it to the principle amount used to calculate interest in the next period

True

T/F: Concentration, growth, integration, diversification and investment reduction are all examples of different corporate level strategies

True

T/F: Material costs are an example of costs that are typically included in an engineering economy study.

True

T/F: Savings (reducing expenses) increase the profits of a firm and therefore they are taxed

True

T/F: The WBS is sometimes called a work element structure

True

T/F: The actual MARR is the real MARR plus an upward adjustment that reflects the effect of inflation

True

T/F: The effective cost of purchasing an asset is less than its first cost

True

T/F: The expected value associated with the node farthest to the left in a decision tree is the expected value of the overall decision

True

T/F: The external rate of return (ERR) is the rate of return on a project where any cash flows that are not invested in the project are assumed to earn interest at a predetermined explicit rate.

True

T/F: The general Price-Demand relationship can be expressed as a linear function

True

T/F: The internal benefit to writing a business plan is that it forces the founding team to systemically think through every aspect of its venture.

True

T/F: prediction markets involve creating a market where people can buy "shares" in various answers to important questions that need to be answered.

True

An ideal outcome from a change is when the risks from change (or every component of change) are ______and appropriate ___________ ___________are put in place

Understood & Mitigating activities

Bicycles have a limited life span because the tires wear out. This is an example of ...

Use-related physical loss

What is considered a major con and one of the biggest reasons many new ventures do not create a business plan is because: a. It takes up valuable time. b. It usually does not help with intriguing investors. c. It forces the venture to be stuck in specific guidelines laid out in the business plan. d. The founders already know everything needed to be successful in their industry.

a. It takes up valuable time.

A company evaluating projects will set for itself a lower limit for investment acceptability known as the _______. a. Minimum acceptable rate of return b. Present worth c. Payback period d. Annual worth

a. Minimum acceptable rate of return

In which of the following financial documents would the projected value of shareholders equity be most likely found? a. Pro Forma Balance Sheet b. Historical Financial Statement c. Pro Forma Income Statement d. Ratio Analysis Sheet

a. Pro Forma Balance Sheet

Which of the following is NOT one of the replacement cases discussed in this chapter? a. The defender and challenger are identical and the challenger does not repeat. b. The defender and challenger are identical and repeat indefinitely. c. The challenger is different from the defender and the challenger does not repeat. d. The challenger is different from the defender and the challenger repeats indefinitely. e. None of the above

a. The defender and challenger are identical and the challenger does not repeat.

Decisional equivalence is a consequence of the ________ on the part of a decision maker among available choices. a. indifference b. market analysis c. study of general economic activity levels within an industry d. understanding

a. indifference

Any number of risks of a relatively minor nature may be present in a project as a matter of course. However, because the likelihood of their occurrence is so small or the consequences of their impact are so minor, they may be judged ____ and ignored

acceptable

Nominal interest rate is found by multiplying the __________ by the number of compounding periods per year. a. Principle sum b. Interest rate per compounding period c. Effective interest rate d. None of the above

b. Interest rate per compounding period

The IRR is the interest rate at which a project ________. a. Makes a profit b. Just breaks even c. Fails d. Incurs a loss

b. Just breaks even

________ is the use of historical cost data and statistical techniques to predict future costs a. Power-sizing. b. Parametric cost estimating c. Selected estimating. d. Historical estimating.

b. Parametric cost estimating

If a product/service idea proves to be feasible in all four areas discussed, what is the next step? a. Re-think weaker areas of business idea b. Proceed with business plan c. Formulate a more concrete business plan d. Drop or rethink business idea

b. Proceed with business plan

The largest external reason for developing a business plan is to: a. Show regulators that the business follows any laws that pertain to them. b. Showcase the core ideas of a new business to potential investors. c. Create a standard for which new employees can follow. d. Make sure that the founding team is familiar with every aspect of the new venture.

b. Showcase the core ideas of a new business to potential investors.

The ______ can also be used for the annual worth method if the assumption of being able to indefinitely repeat the choice of alternatives is not justified. a. Payback period b. Study period c. MARR d. Independent project

b. Study period

Actual dollars, sometimes called current or nominal dollars are expressed ________ a. as a ratio of future dollars normalized to the consumer price index. b. at the time the cash flow occurs. c. as the numerical value of the consumer price index. d. in terms of constant purchasing power. e. None of the above

b. at the time the cash flow occurs.

Leading involves the interactions between _____. a. mobilizing the resources and the drive to achieve competitive advantage b. managers and their subordinates as they work to meet the firm's objectives c. senior managers as they monitor a firm;s performance to make sure it is meeting its goals d. strategic, tactical and operational plans

b. managers and their subordinates as they work to meet the firm's objectives

What would the after-tax MARR be on an investment with a before-tax MARR of 16% for a company who pays 30% corporate taxes? a. 0.112% b. 1.2% c. 11.2% d. 16%

c. 11.2%

Very broadly, change initiatives can be categorized into three main types, which of the following is NOT one of them? a. Transformational or visionary change. b. Bounded or limited scope change. c. Contingency or crisis change. d. Deliverable-led or project change.

c. Contingency or crisis change.

If the lives of alternatives are not the same, one can transform them to equal lives using:

Repeated lives

An asset starts to lose value as soon as it's purchased

True

T/F: Effective interest rate is the conventional method of stating the annual interest rate

False

T/F: Efficiency means achieving the organizational goals that have been set

False

T/F: In the early years of an asset's life, the capital costs per year always dominate total yearly costs

False

T/F: On a cash flow diagram, the vertical arrows pointing upwards represent a negative cash flow

False

T/F: The IRR method cannot be used to determine which of a group of mutually exclusive alternatives to accept

False

T/F: The following are all typical middle management job titles: plant manager, operations manager, and office manager.

False

T/F: The future worth of an infinitely long uniform series of cash flows is called the capitalized value of the series

False

T/F: The payback period method will always give results consistent with rate of return or present/annual worth methods

False

T/F: The power-sizing technique is sometimes referred to as a linear model

False

T/F: The timing of cash flows is always simple and regular

False

The costs discussed in Chapter 13 can be related to the more general ideas of ________ and _________ costs

Fixed, Variable

He knew instinctively that his professor wouldn't appreciate it if he brought his single scoop of vanilla ice cream into the lecture room with him. He could almost hear the inevitable question, "Did you bring enough for everyone?" To avoid such an embarrassment, he practically inhaled his frozen confection as he raced down the hall. He had eaten ice cream this way before and knew he would soon have an ice cream headache. This is an example of an event that is: high/low in probability and high/low in consequence.

High in probability and low in consequence

___________ are costs that are difficult to attribute or allocate to a specific output or work activity

Indirect costs

You should invest in any project that has an IRR equal to or exceeding the ________

MARR

The term _____ refers to the process of perceiving the possibility of a profitable new business, product, or service.

opportunity recognition

In determining relevant risk and formulating proactive strategies for their mitigation, the project team can pay a little in terms of extra time and cost initially, or it must be prepared to....

pay potential exorbitant amounts of time and money in the future

_____ and _____ changes provide the basis for opportunities when entrepreneurs find ways of helping companies, individuals, and government agencies comply with new laws.

political, regulatory

An ideal outcome from a change is a change that is _____, or at least _____ , by sufficient _____ affected by the change.

supported, accepted, stakeholders

The cost of capital for large companies is an average of the costs of borrowing and of selling shares, which is referred to as the ________ average cost of capital

weighted

A declining-balance method in which the depreciation rate is calculated as 1.5/N for a service life of N years is known as

150% - declining balance

T/F: Capital cost is incurred by the difference between what is paid for the asset and what the asset could be resold for some time after purchase

False

The duration and structure of change initiatives vary significantly, but all have a degree of complexity and...

Are outside the normal daily workload

T/F: Controlling involves the interactions between managers and their subordinates as they both work to meet the firm's objective

False

T/F: EV is an acronym for "expected variable"

False

Graphically the ________ of an asset can be determined by drawing a straight line between its first cost and its salvage value when using the straight-line depreciation method

Book value

T/F: If a business sells a single product plus a service guarantee, it only has one revenue driver.

False

T/F: In the replacement case where the defender and challenger are identical, it is not necessary to assume that the two options are technologically identical

False

If a firm establishes a back-up plan, they are engaging in __________

Contingency plan

T/F: An arithmetic gradient series is a series of receipts or disbursements that starts at zero at the end of the first period and then remains constant from period to period

False

The European Association for Project Management has developed an integrated program of risk management, based on efforts to extend risk management to cover a project's entire life cycle. The acronym for this program is_______

PRAM

There are four classic outcomes from change, which reflect the risks and the ways to avoid them. They are: the disaster, the lost investment, the _______ and the ideal

Partial success

The _________ worth of an infinitely long uniform series of cash flows is called the capitalized value of the series

Present

The ___________, denoted (P/F,i,N), gives the present amount, P, that is equivalent to a future amount, F, when the interest rate is i and the number of periods is N

Present worth factor

The meaning of multiple roots is seen most easily with the concept of __________

Project Balance

_______ are used in preliminary or conceptual design stage of a project

Semi-detailed or budget estimates

One of the most important activities of change management is selecting and prioritizing the optimal change(s) to undertake at any time, balancing ________ term operational needs with _______ term strategic vision.

Short & Long

Which of the following is NOT a force that shapes corporate culture?

Stock Price

One significant cost that is often forgotten is the effect on the time of everyone affected by change. Many people in the organisation will need to give up time to ... a. Explain how things work to those involved in designing changes. b. Be consulted on the effectiveness and realism of planned change. c. Be trained and have changes explained to them. d. All of the above

d. All of the above

Which of the following are steps for computing the ERR that belong to a more convenient, but approximate procedure that finding a precise ERR? a. Take all net receipts forward at the MARR to the times of the last cash flow b. Take all net disbursements forward at an unknown interest rate also to the time of the last cash flow c. Equate the future value of the receipts from the first step of the procedure to the future value of the disbursements for the second step of the procedure and solve for d. All of the above

d. All of the above

Which of the following options best describes the benefits of a pro forma financial statement? a. It raises charitable funds. b. It allows a venture to review their past financial performance and learn where the majority of their profits are coming from. c. It creates liabilities which can later be turned into profit. d. It allows a venture to forecast its future financial performance so it can efficiently utilize its assets.

d. It allows a venture to forecast its future financial performance so it can efficiently utilize its assets.

When alternatives for accomplishing a specific task are being compared over one year or less (time value of money is ignored) they can be referred to as: a. Engineering comparisons b. Opportunity costs c. Cost concepts d. Present economy studies

d. Present economy studies

Crisis management involves a. identifying aspects of a business or its environment that might entail changes in strategy. b. ensuring that all the employees know what to do in an emergency. c. knowing how to contain a crisis, should one happen. d. an organization's plan for dealing with emergencies that require an immediate response.

d. an organization's plan for dealing with emergencies that require an immediate response.

A line manager at AB Engineering Inc. has initiated a mentorship program to guide and motivate new employees. Within the context of the management process, this is an example of _________. a. planning b. scheduling c. controlling d. leading

d. leading

Organizing involves __________. a. developing tactical plans from strategic plans. b. the process of monitoring a firm's performance c. the human resources department d. mobilizing the resources that are required to complete a particular task

d. mobilizing the resources that are required to complete a particular task

Once project risk analysis has been completed, it is important to begin developing a reporting and _____ system for cataloging and future reference.

documentation

A break-even analysis could be used to ______. a. Determine the MARR that results in a zero present worth b. Determine what parameter value causes the performance measure to reach some threshold c. Compare multiple projects d. Determine the revenues required to produce a zero annual worth e. All of the above

e. All of the above

Controlling is the process of _______. a. Establishing standards b. Monitoring a firm's performance c. Assessing if performance matches standards d. Adjusting performance standards e. All of the above

e. All of the above

Management is the process of ____________. a. Planning b. Organizing c. Leading d. Controlling e. All of the above

e. All of the above

Purchase of a long-lived asset implies which of the following? a. Capital cost b. Maintenance cost c. Operating cost d. Installation cost e. All of the above

e. All of the above

Inflation can also be viewed as ___________ the purchasing power of money over time. a. An increase in b. A change in c. An interest rate change in d. A published number describing e. None of the above

e. None of the above

Which of the following is a way to identify an opportunity? a. Observing Trends b. Solving a Problem c. Generating Ideas d. Finding Gaps in the Marketplace e. A and B f. A, B, and D g. All of the above

f. A, B, and D

There are two main dimensions to every change: the ______ dimension dealing with the responses of individuals, and the ______ dimension ensuring the change is compatible with your operations.

human, organizational