Fundamentals Of Corporate Finance 10th Canadian Edition By Ross – Test Bank

Chapter 11
Project Analysis and Evaluation

True / False Questions

1. You have put together a set of cash flow forecasts for a project and have found, on your first calculation, that the NPV is positive. You should accept the project because you are certain to increase shareholder wealth.
FALSE

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 11-01 How to perform and interpret a sensitivity analysis for a proposed investment.
Topic: 11-01 Evaluating NPV Estimates

2. You have put together a set of cash flow forecasts for a project and have found, on your first calculation, that the NPV is positive. You should try to identify some source of value in the project.
TRUE

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 11-01 How to perform and interpret a sensitivity analysis for a proposed investment.
Topic: 11-05 Sources of Value

3. You have put together a set of cash flow forecasts for a project and have found, on your first calculation, that the NPV is positive. You should try to assess the degree of forecasting risk that exists with the project.
TRUE

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 11-01 How to perform and interpret a sensitivity analysis for a proposed investment.
Topic: 11-04 Forecasting Risk

4. Just because the cash flows of a project are positive doesn’t mean the NPV is positive.
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 11-01 How to perform and interpret a sensitivity analysis for a proposed investment.
Topic: 11-03 Projected versus Actual Cash Flows

5. Projected sales is generally least subject to forecasting risk.
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 11-01 How to perform and interpret a sensitivity analysis for a proposed investment.
Topic: 11-04 Forecasting Risk

6. Initial investment is generally least subject to forecasting risk.
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 11-01 How to perform and interpret a sensitivity analysis for a proposed investment.
Topic: 11-04 Forecasting Risk

7. Projected fixed costs is generally least subject to forecasting risk.
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 11-01 How to perform and interpret a sensitivity analysis for a proposed investment.
Topic: 11-04 Forecasting Risk

8. Scenario analysis allows a firm to ask what-if type questions in capital budgeting.
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 11-02 How to perform and interpret a scenario analysis for a proposed investment.
Topic: 11-08 Scenario Analysis

9. Sensitivity analysis allows a firm to ask what-if type questions in capital budgeting.
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 11-02 How to perform and interpret a scenario analysis for a proposed investment.
Topic: 11-09 Sensitivity Analysis

10. Simulation analysis allows a firm to ask what-if type questions in capital budgeting.
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 11-02 How to perform and interpret a scenario analysis for a proposed investment.
Topic: 11-10 Simulation Analysis