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# Document - CHAPTER 11 Project Analysis and Evaluation I...

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CHAPTER 11 Project Analysis and Evaluation I. DEFINITIONS FORECASTING RISK a 1. The possibility that errors in projected cash flows can lead to incorrect estimates of net present value is called _____ risk. a. forecasting b. projection c. scenario d. Monte Carlo e. accounting SCENARIO ANALYSIS b 2. An analysis of what happens to the estimate of the net present value when you consider the best case and the worst case situations is called _____ analysis. a. forecasting b. scenario c. sensitivity d. simulation e. break-even SENSITIVITY ANALYSIS c 3. An analysis of what happens to the estimate of net present value when only one variable is changed is called _____ analysis. a. forecasting b. scenario c. sensitivity d. simulation e. break-even SIMULATION ANALYSIS d 4. An analysis which combines scenario analysis with sensitivity analysis is called _____ analysis. a. forecasting b. scenario

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c. sensitivity d. simulation e. break-even BREAK-EVEN ANALYSIS e 5. An analysis of the relationship between the sales volume and various measures of profitability is called _____ analysis. a. forecasting b. scenario c. sensitivity d. simulation e. break-even VARIABLE COSTS a 6. Variable costs: a. change in direct relationship to the quantity of output produced. b. are constant in the short-run regardless of the quantity of output produced. c. reflect the change in a variable when one more unit of output is produced. d. are subtracted from fixed costs to compute the contribution margin. e. form the basis that is used to determine the degree of operating leverage employed by a firm. FIXED COSTS b 7. Fixed costs: a. change as the quantity of output produced changes. b. are constant over the short-run regardless of the quantity of output produced. c. reflect the change in a variable when one more unit of output is produced. d. are subtracted from sales to compute the contribution margin. e. can be ignored in scenario analysis since they are constant over the life of a project. MARGINAL COSTS c 8. Marginal costs: a. are used solely for accounting and tax purposes. b. are equal to the total costs divided by the number of units produced.
c. reflect changes created by producing one more unit of output. d. are the total production expenses of a firm for some stated period of time. e. are the variable costs incurred over the entire life of a project. TOTAL COSTS d 9. Total costs: a. must equal total revenue for a project. b. are constant no matter what quantity of output is produced. c. plus the change in retained earnings must equal total revenue. d. are the summation of all the expenses of a firm for a stated period of time. e. are equal to fixed costs plus the marginal cost. AVERAGE COSTS e 10. Average total cost: a. increases in direct proportion to an increase in output. b. is constant no matter what quantity of output is produced.

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Document - CHAPTER 11 Project Analysis and Evaluation I...

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