APSC 221 FINAL
The WBS is sometimes called a work element structure. (T/F)
True
Working capital refers to the funds required for current assets that are needed for the start-up and support of operational activity (T/F)
True
In the early years of an asset's life, the capital costs per year always dominate total yearly costs. (T/F)
False
A license fee is an example of an incremental cost. (T/F)
False
Your company must decide what to do with an old pump it purchased 12 years ago. The pump hasn't been used for two years and is now in storage. You have collected the following data; Purchase price 12 years ago = $7,000 Storage costs to date = $500 Current price for a new pump = $12,000 Amount offered for the pump two years ago = $1,250 Best estimate of what the pump would bring today = $1,000 What is the opportunity cost associated with this pump?
$1000
A set of equal disbursements or receipts over a sequence of periods, is referred to as a(n) _______.
Annuity
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 __________.
Discrete Models
Market equivalence is a consequence of the ability to _________ one cash flow for another at zero cost.
Exchange
Which technique sums the product of several quantities or components and adds these to any components estimated directly?
Factor Technique
A comparison of rate of return and present/annual worth methods leads to the conclusion that the two sets of methods when properly used give opposing decisions. (T/F)
False
The payback period method will always give results consistent with rate of return or present/annual worth methods. (T/F)
False
The power-sizing technique is sometime referred to as a linear model. (T/F)
False
The timing of cash flows is always simple and regular.
False
When future inflation is expected over the life of the project, the MARR needs to be decreased. (T/F)
False
One reason why perfect monopolies rarely occur in practice is because:
Few products are so unique that substitutes cannot be used.
Before undertaking a systematic analysis of mutually exclusive alternatives using the IRR method, you should ensure that the alternatives ________.
Have equal lives
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.
Study Period
Which of the following are steps for computing the ERR that belong to a more convenient, but approximate procedure than finding a precise ERR?
Take all net receipts forward at the MARR to the times of the last cash flow. Take all net disbursements forward at an unknown interest rate also to the time of the last cash flow. 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.
To determine the after-tax first cost of an asset for a complete present-worth tax calculation, one must multiply the first cost by:
The CTF
Which of the following is NOT one of the replacement cases discussed in this chapter? The defender and challenger are identical and the challenger does not repeat. The defender and challenger are identical and repeat indefinitely. The challenger is different from the defender and the challenger does not repeat. The challenger is different from the defender and the challenger repeats indefinitely.
The defender and challenger are identical and the challenger does not repeat.
Mathematical equivalence is a consequence of the mathematical relationship between _______.
Time and Money
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. (T/F)
True
A random variable is a parameter that can take on a number of possible outcomes. (T/F)
True
Actual dollars, sometimes called current or nominal dollars are expressed ________
at the time the cash flow occurs.
There are nine phases to a comprehensive project risk assessment and they include steps such as ...
consolidate information, identify what might go wrong, clarify ownership and identify areas of uncertainty.
There are two alternative ways to use expert opinion in assessing project risks. The more quantifiable method, commonly referred to as the___ approach, collects and consolidates the judgments of isolated anonymous respondents.
delphi
A break-even analysis could be used to _______.
determine the MARR that results in a zero present worth determine what parameter value causes the performance measure to reach some threshold compare multiple projects determine the revenues required to produce a zero annual worth
In project evaluation, we cannot make comparisons of ________ across time without taking the price changes into account.
dollar value
The economic life of an asset is found at the point where the rate of increase in operating and maintenance costs per period _______ the rate of decrease in capital costs per period.
equals
In the replacement case where the defender and challenger are identical, it is not necessary to assume that the two options are technologically identical. (T/F)
false
The costs discussed in the chapter on replacement decisions can be related to the more general ideas of _________ and ________ costs.
fixed, variable
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.
goods
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.
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.
While possibly thrilling, there is a chance that you would have an accident if you decided to drive on the Autobahn while blindfolded. This is an example of an event that is ...
high in consequence and high in probability.
Any outcome cannot have a chance of occurring _______.
less than 0% greater than 100%
Inflation can also be viewed as ________ the purchasing power of money over time. an increase in a change in an interest rate change in a published number describing None of the above
none of the above
Capital purchases cannot usually be fully claimed as an expense in the year in which the purchase occurred. (T/F)
True
The market analysis and the industry analysis are distinctly different. (T/F)
True
CERs are excellent predictors of cost if they are correctly developed from good historical data. (T/F)
True
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. (T/F)
True
The present worth of any money invested in the MARR is zero. (T/F)
True
Which of the following is not an essential quality of an opportunity?
Adaptable
Two main issues with industry/market feasibility:
Attractiveness to industry and target market
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
Purchase of a long-lived asset implies which of the following?
Capital cost Maintenance cost Operating cost Installation cost
Which of the following forecasting methods best match the following description: The cost of each item will grow by the same rate as sales.
Constant Ratio Method
Which of the following is considered a red flag of an insufficient business plan?
Excessively optimistic business plan Defining a broad market size Sloppiness
"Entrepreneurial alertness" is a natural trait for most entrepreneurs, unrelated to any knowledge they may have in a specific area. (T/F)
False
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. (T/F)
False
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. (T/F)
False
An idea is a thought, an impression, or a notion that always meets the criteria of an opportunity. (T/F)
False
An independent project is acceptable if the present worth is less than zero. (T/F)
False
Controlling involves the interactions between managers and their subordinates as they both work to meet the firm's objectives. (T/F)
False
EV is an acronym for "expected variable". (T/F)
False
Effective interest rate is the conventional method of stating the annual interest rate. (T/F)
False
Efficiency means achieving the organizational goals that have been set. (T/F)
False
If a business sells a single product plus a service guarantee, it only has one revenue driver. (T/F)
False
If an investment yields a profit, the total investment price will be taxed. (T/F)
False
If two products are mutually exclusive if, in the process of choosing one, all other alternatives are included. (T/F)
False
On a cash flow diagram, the vertical arrows pointing upwards represent a negative cash flow. (T/F)
False
Prices of goods and services bought and sold over time by individuals and firms generally remain constant over time. (T/F)
False
Pro forma financial statements reflect past performance and are usually prepared on a quarterly and annual basis. (T/F)
False
Sensitivity graphs illustrate the sensitivity of a particular measure to multiple-at-a-time changes in the uncertain parameters of a project. (T/F)
False
Sunk costs should be included in an engineering economic analysis. (T/F)
False
The IRR method cannot be used to determine which of a group of mutually exclusive alternatives to accept. (T/F)
False
The after-tax IRR is simply the IRR calculation on the before-tax cash flows. (T/F)
False
The future worth of an infinitely long uniform series of cash flows is called the capitalized value of the series. (T/F)
False
The internal benefit to writing a business plan is that it forces the founding team to devote time and resources which could be spent elsewhere. (T/F)
False
The lifetime that will maximize the average cost per year of owning and using long lived assets is referred to as the economic life of the asset. (T/F)
False
Decisional equivalence is a consequence of the __________ on the part of a decision maker among available choices.
Indifference
________ are costs that are difficult to attribute or allocate to a specific output or work activity.
Indirect costs
Which of the following are steps in the creative process?
Insight Incubation Preparation Evaluation Elaboration
Nominal interest rate is found by multiplying the __________ by the number of compounding periods per year
Interest rate per compounding period
Which of the following options best describes the benefits of a pro forma financial statement?
It allows a venture to forecast its future financial performance so it can efficiently utilize its assets.
What is considered a major con and one of the biggest reasons many new ventures do not create a business plan is because:
It takes up valuable time.
The IRR is the interest rate at which a project _____.
Just break even
The _______ defines a maximum time period and establishes a range of cost and revenue elements that need to be considered
Life Cycle
A company evaluating projects will set for itself a lower limit for investment acceptability known as the _______.
MARR
You should invest in any project that has an IRR equal to or exceeding the ______.
MARR
The CCA system specifies the ______ rate a firm can use to depreciate its assets for tax purposes, known as the CCA Rate.
Maximum
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. (T/F)
True
Which one of the options is best described by the following definition? "A business plan primarily intended for an internal audience, that contains a great amount of detail."
Operational Business Plan
Which of the following options is not an example of a liability that would be included on a balance sheet?
Owned Equipment
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
__________ is the use of historical cost data and statistical techniques to predict future costs.
Parametric cost estimating
The __________ worth of an infinitely long uniform series of cash flows is called the capitalized value of the series.
Present
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:
Present economy studies
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
In which of the following financial documents would the projected value of shareholders equity be most likely found?
Pro Forma Balance Sheet
There are four main financial objectives that most entrepreneurial firms aim to achieve. Without securing a firms financial success, businesses will fail no matter how good the product or service. What are these four main objectives?
Profitability, Liquidity, Efficiency, and Stability
Personal income taxes usually exhibit a:
Progressive tax rate
The meaning of multiple roots is seen most easily with the concept of __________.
Project balance
If the lives of alternatives are not the same, one can transform them to equal lives using:
Repeated lives
The rollback procedure on a decision tree is executed _________
Right to left
______ are used in the preliminary or conceptual design stage of a project.
Semi-detailed or budget estimates
______ 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.
Sensitivity analysis
It is very easy to use the present worth method to choose the best project (mutually exclusive) when the ________.
Service life is the same
The largest external reason for developing a business plan is to
Showcase the core ideas of a new business to potential investors.
A concept statement will tend NOT to include:
The flaws and weaker points in the product/service's conception
Which of the following does the "Market Analysis" segment of a business plan describe?
The target customer group for the product or service.
"Trust the Midas Touch" is an example of a tagline. (T/F)
True
An assumption required by the principle of discrete compounding is that the compounding periods are of equal length. (T/F)
True
An example of a current asset belonging to a new venture is the raw material it owns that has not yet been converted into its final product. (T/F)
True
An index is a dimensionless number that indicates how a cost or price has changed with time with respect to a base year. (T/F)
True
An investment may be thought of as an exchange of resources now for an expected flow of benefits in the future. (T/F)
True
An investment may be thought of as an exchange of resources now for an expected flow of benefits in the future. (t/f)
True
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. (T/F)
True
Discrete models are more common and more readily understood by persons of varied backgrounds. (T/F)
True
If there are several independent projects, the IRR for each is calculated separately. (T/F)
True
Material costs are an example of costs that are typically included in an engineering economy study.(T/F)
True
One aspect of organizational feasibility analysis is that it determines whether a proposed business can acquire sufficient raw materials to become fully operational. (T/F)
True
Savings (reducing expenses) increase the profits of a firm and therefore they are taxed. (T/F)
True
Selling stock is considered a financing activity. (T/F)
True
Sunk costs are irrelevant to any decision to replace the current asset. (T/F)
True
The actual MARR is the real MARR plus an upward adjustment that reflects the effect of inflation. (T/F)
True
The annual profit margin ratio for a new ventures first three years of operation were 12.2% in year one, 13.9% in year two, and 17.0% in year three. This trend is considered to be financially healthy, showing a positive trend in the new ventures profitability (T/F)
True
The break-even point for a new venture is the moment when total revenue received is equal to total costs. (T/F)
True
The conventional approach for computing interest is the compound interest approach. (T/F)
True
The effective cost of purchasing an asset is less than its first cost. (T/F)
True
The expected value associated with the node farthest to the left in a decision tree is the expected value of the overall decision. (T/F)
True
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. (T/F)
True
The general Price-Demand relationship can be expressed as a linear function. (T/F)
True
The inflation rate is the rate of increase in average prices of goods and services over a specified time period, usually a year. (T/F)
True
The internal benefit to writing a business plan is that it forces the founding team to systemically think through every aspect of its venture. (T/F)
True
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
Decision trees are a graphical means of structuring _______.
a decision-making situation
A project organization can choose to __________ risk.
accept share transfer
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
The duration and structure of change initiatives vary significantly, but all have a degree of complexity and ...
are outside the normal daily workload.
One of the most important activities of change management is developing a ______ case for change(s), and ______ the change until it is complete.
compelling championing
If a firm establishes a back-up plan, they are engaging in ________.
contingency planning
Which of the following is NOT an aspect of change management? understand associated implementation risks. controlling, scheduling and planning. achieve performance improvements. minimize unplanned operational disruption.
controlling, scheduling and planning.
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 the change to occur.
deliverables activities
Once project risk analysis has been completed, it is important to begin developing a reporting and_____system for cataloging and future reference.
documentation
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 in probability and low in consequence.
In many cases the best source of information on future risks is______.
history
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
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 _______________ .
leading
Many project organizations create relationships with suppliers and customers that include ___ requirements for risk to be shared among those involved in the project.
legal
One successful method for dealing with project risks involves ______ new project managers and team members. In such a program, junior or inexperienced project personnel are paired with senior managers in order to help them learn best practices.
mentoring
The severity of negative consequences in a project's life span is ...
minimal early in the project's life.
Organizing involves __________.
mobilizing the resources that are required to complete a particular task
The first approach to identifying opportunities is to ______ and study how they create opportunities for entrepreneurs to pursue.
observe trends
In determining relevant risks 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 potentially exorbitant amounts of time and money in the future.
Change is made by ...
people
There are several methods that companies use to transfer risks, depending upon their______ relative to the client organizations and the types of risks they face.
power
If you are conducting an analysis and are collecting your own research this is called _______ research.
primary
One method of identifying opportunities is to recognize______ and find ways to solve them.
problems
0 / 1 point A ___ based approach to risk factor identification encourages identification of a more comprehensive set of potential project risks.
team
Planning is the process of determining __________.
the firm's goals and developing a strategy for achieving them
It is _______ true that capital cost per year falls with increasing life.
usually