1.When conducting a sensitivity analysis using three estimates for each parameter, all
of the following are estimates that should be made, except
Sol: improbable
2.In conducting a sensitivity analysis of a proposed project, the present worth values
of $–10,000, $40,000, and $50,000 were believed to have chances of 25%, 40%, and
35%, respectively. The expected PW is closest to
Sol: $31,000.00
3.A decision tree includes all of the following except
Sol: the MARR.
4.The decision tree branch shown below lists projected cash flows with the
corresponding probabilities for a proposed project. Assuming decision D3 is already
selected, what is the expected value that should be associated with D3? (This
decision branch is part of a larger tree.)
Sol: 16
5.Referring to the diagram below, what is the project’s estimated net present worth?
Sol: $175,000
6.Referring to the diagram below, the project’s present worth is most sensitive to
which of the variables listed?
Sol: sales price
7.Revenue into the general fund of the state of Texas for any biennium is highly
dependent on the price of oil. At a price average of $50 per barrel, general revenue
will be $95 billion. At $68 and $75 per barrel, the revenue will be $118 billion and
$125 billion, respectively. If the chances are estimated at 10%, 35%, and 55% for oil
prices of $50, $68, and $75 per barrel for the next biennium, respectively, the
expected revenue (in $ billion) is closest to
Sol: $119.55.
8.In evaluating the sensitivity of an alternative to its first cost, its AW was calculated
for changes in the estimated first cost by –10%, +5%, and +15%. The resulting AW
values were $+21,000, $–2410, and $–34,000, respectively. On the basis of these
values, one could conclude that
Sol: the attractiveness of the alternative is highly sensitive to its first cost.
9.Consider the decision tree below. You are at the starting decision node D0 (shown in
the orange color). Assume all paths and decisions occur within a 1-year time
horizon, so that no discounting is necessary. There are dollar investments, as shown,
required at decision nodes D1 and D2. Which of the letters (shown in the red color)
represents the optimal path maximizing the expected outcome value?
Sol: D
10.Four mutually exclusive alternatives are evaluated using three estimates or strategies
(pessimistic, most likely, and optimistic) for several parameters. The resulting PW
values over the LCM are determined as shown. Which is the best alternative to select
under the pessimistic strategy?
Sol: alternative 1.
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