Financial Management for Project Managers Capital Budgeting 3

Question 1

Working capital requirements for a new project should be treated in capital budgeting as:

Accepted Answer

An initial cash outflow recovered at project end

Answer

An operating expense deducted annually

Answer

A non-cash charge spread over project life

Answer

A financing cost excluded from analysis

Question 2

Which method adjusts the NPV analysis by incorporating the probability of different scenarios to account for uncertainty?

Accepted Answer

Monte Carlo simulation

Answer

Break-even analysis

Answer

Sensitivity analysis

Answer

Payback Period extension

Question 3

An opportunity cost in capital budgeting represents:

Accepted Answer

The benefit foregone by choosing one investment over another

Answer

The cost of financing the project

Answer

The salvage value of existing equipment

Answer

The total depreciation over project life

Question 4

The terminal (salvage) value in a capital budgeting analysis represents:

Accepted Answer

The after-tax proceeds from disposing of project assets at end of life

Answer

The book value of assets at the start of the project

Answer

The total depreciation accumulated over the project

Answer

The working capital required at project start

Question 5

Which capital budgeting scenario analysis asks: 'At what level of sales does the project break even in NPV terms?'

Accepted Answer

Break-even analysis

Answer

Scenario analysis

Answer

Sensitivity analysis

Answer

Decision tree analysis

Question 6

Real options in capital budgeting give project managers the right to:

Accepted Answer

Expand, delay, or abandon a project based on future information

Answer

Lock in a fixed discount rate for future projects

Answer

Eliminate all project risks through hedging

Answer

Finance the project entirely through equity