Chapter 5: Present Worth Analysis Learning Outcomes Quiz
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Chapter 5: Present Worth Analysis Learning Outcomes Quiz

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@CaptivatingFuturism

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Questions and Answers

When evaluating different-life alternatives, what are the assumptions of the LCM approach?

  • Service provided is needed over the LCM or more years, and cash flow estimates are the same for each life cycle (correct)
  • Service provided is needed over the LCM or more years, and selected alternative can be repeated over each life cycle of LCM in exactly the same manner
  • Cash flow estimates are the same for each life cycle, and selected alternative can be repeated over each life cycle of LCM in exactly the same manner
  • Service provided is needed over the LCM or more years, and short study periods are often defined by management when business goals are short-term

    • In the context of evaluating different-life alternatives, what is the purpose of using a study period?

  • To select the alternative with the highest present worth value
  • To compare alternatives for equal service
  • To specify a time frame for ignoring all cash flows after this time (correct)
  • To identify the alternative with the lowest annual cost

    • What is the purpose of using present worth analysis with a specified study period?

  • To find the future worth of different-life alternatives
  • To identify the alternative with the lowest annual cost
  • To select the alternative with the highest present worth value (correct)
  • To compare alternatives for equal service

    • What should be disregarded in present worth evaluation when using a study period?

    <p>All estimates after the study period</p> Signup and view all the answers

    When comparing machines using present worth analysis at a specified interest rate, which factor determines whether to repurchase a machine after a certain number of years?

    <p>Salvage value</p> Signup and view all the answers

    When formulating alternatives, what is the difference between mutually exclusive and independent projects?

    <p>Mutually exclusive projects compete against each other, while independent projects compete only against the Do Nothing alternative</p> Signup and view all the answers

    In cash flow estimates, what is the main difference between Revenue and Cost alternatives?

    <p>Revenue alternatives include estimates of costs and revenues, while Cost alternatives include only costs and assume equal revenues and savings for all options</p> Signup and view all the answers

    What does PW Analysis of Alternatives involve?

    <p>Converting all cash flows to present worth (PW) using the Minimum Acceptable Rate of Return (MARR)</p> Signup and view all the answers

    In the evaluation of alternatives using PW, what does a PW of 0 indicate for one project?

    <p>It is justified</p> Signup and view all the answers

    For mutually exclusive alternatives, how should the selection be made based on PW analysis?

    <p>Select one with numerically largest PW</p> Signup and view all the answers

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