PM3110 Chapter 3

Question 1

(AHP) Analytical Hierarchy Process

Answer 1

84 - was developed to address many of the technical and managerial problems frequently associated with decision making through scoring models.

Question 2

Checklist

Answer 2

80 - a list of criteria that pertain to our choice of projects, and then applying them to different possible projects.

Question 3

(DCF) Discounted cash flow method

Answer 3

90 - estimate cash outlays and expected cash inflows resulting from investment in a project. All potential costs of development (most of which are contained in the project budget) are assessed and projected prior to the decision to initiate the project. They are then compared with all expected sources of revenue from the project.

Question 4

Discounted payback method

Answer 4

94 - accounts for the time value of money. In other words, it allows us to discount the future cash inflows (or outflows) and calculate the present the value of them.

Question 5

(IRR) Internal rate of return

Answer 5

94 - an alternative method for evaluating the expected outlays and income associated with a new project investment opportunity. The IRR method asks the simple question: What rate of return will this project earn?

Question 6

Lead time

Answer 6

101 -

Question 7

(NPV) Net present value

Answer 7

92 - projects the change in the firm’s value if a project is undertaken.

Question 8

Nonnumeric models

Answer 8

79 - do not employ numbers as decision inputs, relying instead on other data.

Question 9

Numeric models

Answer 9

79 - seek to use numbers as inputs for the decision process involved in selecting projects.

Question 10

Pairwise comparison approach

Answer 10

85 - every criterion is compared with every other criterion. This procedure, argue the researchers, permits more accurate weighting because it allows managers to focus on a series of relatively simple exchanges

Question 11

Payback period

Answer 11

90 - the estimated amount of time that will be necessary to recoup the investment in a project, that is, how long will it take for the project to pay back its initial investment and begin to generate positive cash flow for the company.

Question 12

Present value of money

Answer 12

90 - Money that we cannot invest is money that earns no interest. In real terms, therefore, the present value of money must be discounted by some factor the farther out into the future I expect to receive it.

Question 13

Profile models

Answer 13

88 - allow managers to plot risk/return options for various alternatives and then select the project that maximizes return while staying within a certain range of minimum acceptable risk

Question 14

Project portfolio

Answer 14

78 - the set of projects that an organization is considering/undertaking at any given time.

Question 15

Project portfolio management

Answer 15

98 - the systematic process of selecting, supporting, and managing a firm’s collection of projects.

Question 16

(RRR) Required rate of return

Answer 16

(WWW) The minimum annual percentage earned by an investment that will induce the individuals or companies to put money into a particular security or project. It is used in both equity valuation and in corporate finance.

Question 17

Risk/return

Answer 17

88 - options for various alternatives and then select the project that maximizes return while staying within a certain range of minimum acceptable risk. “Risk,” of course, is a subjective assessment: It may be difficult to reach overall agreement on the level of risk associated with a given project.

Question 18

Simplified scoring model

Answer 18

82 - In the simplified scoring model, each criterion is ranked according to its relative importance. Our choice of projects will thus reflect our desire to maximize the impact of certain criteria on our decision.

Question 19

Time Value of Money

Answer 19

90 - suggests that money earned today is worth more than money we expect to earn in the future.