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# Chapter 10 Project Analysis

## 1. Discounted cash flow (DCF) analysis generally:

I) assumes that firms hold assets passively when it invests in a project
II) considers opportunities to expand a project if the project is successful
III) considers opportunities to abandon a project if the project is a failure
A. I only
B. II only
C. II and III only
D. I, II, and III

5. You are given the following data for year-1. Revenue = \$43; Total costs = \$30;
Depreciation = \$3; Tax rate = 30%. Calculate the operating cash flow for the project for year-
1.
A. \$7
B. \$10
C. \$13
D. None of the above

6. A project has an initial investment of 100. You have come up with the following estimates
of the projects with cash flows.

If the cash flows are perpetuities and the cost of capital is 10%. What does a sensitivity
analysis of NPV (no taxes) show?
A. -50, 20, +100
B. -100, -50, +80
C. -50, +50, +70
D. None of the above

7. You are given the following data for year-1: Revenues = 100, Fixed costs = 30; Total
variable costs = 50; Depreciation = \$10; Tax rate = 30%. Calculate the after tax cash flow for
the project for year-1.
A. \$17
B. \$7
C. \$10
D. None of the above
8. A project has the following cash flows: C0 = -100,000; C1 = 50,000; C2 = 150,000; C3 =
100,000. If the discount rate changes from 12% to 15%, what is the change in the NPV of the
project (approximately)?
A. 12,750 increase
B. 12,750 decrease
C. 122,650 increase
D. 135,400 decrease

## 16. The following are drawbacks of sensitivity analysis except:

A. it provides ambiguous results.
B. underlying variables are likely to be interrelated.
D. all of the above statements are drawbacks of sensitivity analysis.

20. Firms often calculate a project's break-even sales using book earnings. Generally, break-
even sales based on NPV is:
A. Higher than the one calculated using book earnings
B. Lower than the one calculated using book earnings
C. Equal to the one calculated using book earnings
D. None of the above

## 21. The accounting break-even point occurs when:

A. the total revenue line cuts the fixed cost line
B. the present value of inflows line cuts the present value of outflows line
C. the total revenue line cuts the total cost line
D. none of the above

## 22. The NPV break-even point occurs when:

A. the present value of inflows line cuts the present value of outflows line
B. the total revenue line cuts the fixed cost line
C. the total revenue line cuts the total cost line
D. none of the above

32. After the completion of project analysis, the final decision on the project would be from:
A. Sensitivity analysis
B. Break-even analysis
C. Decision trees
D. NPV