Quiz
Chapter 14 pt 2
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Questions in this quiz (46)
1Profitability (ROI) Analysis
- AReturn on investment
- BRebate on investment
2Return on investment (ROI) analysis focuses on a project’s financial return.
- ATrue
- BFalse
3Return on investment (ROI) analysis focuses on a project’s financial _____.
- Arebate
- Breturn
4As with any investment, returns can be measured either in dollar terms or in rate of return (percentage) terms.
- ATrue
- BFalse
5As with any investment, returns can be measured either in ____ terms or in rate of ____ (percentage) terms.
- Adollar
- Brate
- Crebate
6Net 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?- Anet present value
- Binternal rate of return
- Cexternal rate of return
- Dmodified irr
7which one measures adjusted dollar return?
- Anet present value
- Binternal rate of return
- Cmodified irr
8NPV measures return on investment (ROI) in dollar terms.
- ATrue
- BFalse
9NPV measures return on investment (ROI) in ____ terms.
- Ahalf
- Bdollar
10NPV is merely the sum of the present values of the project’s net cash flows.
- ATrue
- BFalse
11NPV is merely the sum of the ____ values of the project’s net cash flows.
- Apast
- Bpresent
- Cfuture
12the discount rate used is called the _______________. Recall that this is also the opportunity cost of capital, which depends on the riskiness of the investment.
- Apayback investments
- Bproject cost of capital
13The 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
- Adiscount rate: opportunity cost
- Bi dont know
14NPV is the dollar contribution of the project to the equity value of the business.
- ATrue
- BFalse
15NPV is the ---- contribution of the project to the equity value of the business.
- Adollar
- Bold
16NPV is the dollar contribution of the project to the --- value of the business.
- Aprice
- Bequity
17A positive NPV signifies that the project will enhance the financial condition of the business.
The greater the NPV, the more attractive the project financially.- ATrue
- BFalse
18A positive NPV signifies that the project will enhance the financial condition of the business.
The greater the NPV, the more --------- the project financially.- Aattractive
- Bunattractive
19IRR 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.- ATrue
- BFalse
20IRR 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.- A0
- B1
- C2
- D.5
21IRR 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.- Aquality
- Bdiscount
- Cundiscount
22IRR 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.- Aexpected
- Bunexpected
23If 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.- ATrue
- BFalse
24If 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.- Areinvestment
- Bexcess
25Both 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- Areinvestment rate assumption
- Binvestment rate assumption
26Both 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.- Acost of capital
- Birr rate
- Cmri rate
27NPV 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.- Acost of capital
- Birr rate
28MIRR 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 ------- ANPV
- BIRR
29MIRR 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 ______- Acontribute, enhance
- Bnot contribute, not enhance
30Note that the value of the MIRR for any project falls in between the project cost of capital and IRR values.
- Acost of capital and IRR values.
- Bcost of capital and no values.
31Although NPV and IRR generally are perfect substitutes, there are yet other ROI measures that can be used; i.e., the Profitability Index.
- ATrue
- BFalse
32Although NPV and IRR generally are perfect substitutes, there are yet other ROI measures that can be used; i.e., the _________________
- Aglobal index
- Bprofitability index
33A 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.- ATrue
- BFalse
34A 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- Ainput
- Boutput
- Ctask
- Dconfidence
35Presumably, 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.- ATrue
- BFalse
36Presumably, 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.- Abenefits
- Bgoals
37Presumably, 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 ------------------- Asoccer scoring
- Bproject scoring
38The 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!!- ATrue
- BFalse
39TNPV>=0--------------------,! But NPSV >= 0!!
- Aaccepted
- Bnot accepted
40The net present social value (NPSV) model is based on the fact that the total value of a project ---------------------- (NPV) plus its social value.
- Aequals its twice value
- Bequals its economic value
41Project 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.- ATrue
- BFalse
42Project 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.- Amatrix
- Bboard
43Project 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.- Aold and new
- Bfinancial and non financial
44Note 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.
- Aa score of 14 is not necessarily twice as good a project with a score of 7.
- Ba score of 14 is necessarily twice as good a project with a score of 7.
45Post 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- AImprove forecasts
- Bincrease losses
46Post Audit monitoring a project’s performance over time. 4
- AImprove forecasts
- BDevelop historical risk data
- CImprove operations
- DReduce losses
- Eget rid of operations
- Fincrease losses
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