Payback and Break-even Point Analysis Quiz

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What is the purpose of determining Return on Investment (ROI) for a project?

To measure the average rate of return on the invested money (correct)

To calculate net present value

To calculate total benefits

To determine the break-even point

Which statement best describes a high Return on Investment (ROI)?

The costs of the project are more than the benefits

The project's benefits greatly exceed its costs (correct)

The project has no costs

The benefits of the project are less than the costs

Why is it cautioned in the text that Return on Investment (ROI) should not be the only measure of a project's wealth?

ROI calculations are too complex

ROI can be misleading due to its limitations (correct)

ROI does not consider total benefits

ROI makes projects look less profitable than they are

What is another term used to refer to the Break-Even Point method?

Payback Method Signup and view all the answers

How is the Break-Even Point method defined in relation to a project?

It is when all project costs have been repaid Signup and view all the answers

Which financial concept involves dividing a project's net benefits by total costs to assess its worth?

Return on Investment Signup and view all the answers

What does the payback method measure?

The number of years to recover original investments from net cash flows Signup and view all the answers

What is an example of tangible benefits mentioned in the text?

Increased sales Signup and view all the answers

How are intangible costs and benefits described in the text?

Difficult to incorporate into economic feasibility analysis Signup and view all the answers

Which of the following is true about the break-even point?

It is easy to calculate and understand Signup and view all the answers

Why is the break-even point considered biased against long-term projects?

It ignores cash flows after the break-even point is reached Signup and view all the answers

What is the most effective strategy for estimating costs and benefits according to the text?

Rely on people with the best understanding of them Signup and view all the answers

If predicting a specific value for a cost or benefit proves difficult, what strategy is suggested in the text?

Estimate a range of values and assign probability estimates Signup and view all the answers

What does organizational feasibility refer to in a system implementation?

How well the system will be accepted by users and integrated into organization operations Signup and view all the answers

Which of the following would not be considered a tangible benefit according to the text?

Intangible costs Signup and view all the answers

Why is organizational feasibility often challenging to assess?

Because it can be difficult to gauge user acceptance and integration Signup and view all the answers

What does Net Present Value (NPV) compare for a project?

The present value of all cash flows in today's dollar terms Signup and view all the answers

What role does assigning specific dollar values to costs and benefits play in economic feasibility analysis?

Facilitates comparison and decision-making Signup and view all the answers

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