Strategic Planning A - Market and Risk Analysis

Question 1

Contribution Margin Ratio =

Answer 1

(Sales Price - Variable Cost) / Sales Price

Question 2

Breakeven units =

Answer 2

Fixed Costs / (Price per unit - Variable cost per unit)

Question 3

Breakeven units =

Answer 3

Annual Fixed Costs / Contribution Margin

Question 4

A risk analysis technique based upon utility theory that compels the decision maker to choose at what point he/she is indifferent to the choise between a certain amount of money and the expected value of a risky amount is

Answer 4

certainty equivalent adjustment

Question 5

Using a real options approach in capital investments planning helps managers in dealing with

Answer 5

uncertainty

Question 6

Probability (risk) analysis is

Answer 6

an extension of sensitivity analysis

Question 7

Probability analysis has the characteristics of:

Answer 7

• being used with an infinite # of outcomes

- the largest possible probability is 1.00

Question 8

Sensitivity analysis determines

Answer 8

how the results will change if the original data or the underlying assumptions change

Question 9

Strategic plan is

Answer 9

a document that assists a business with implementing its long-term goals and mission statement

Question 10

The first step to complete in performing the strategic planning process is

Answer 10

create a mission statement

Question 11

Sensitivity analysis in an investment project proposal

Answer 11

calculates the change in the result due to a potential change in the project’s CF

Question 12

Techniques for assessing the potential effect of risk in a capital budgeting project include:

Answer 12

• sensitivity analysis
• adjusting req. rate of return
• adjusting estimated future cash inflows
• adjust payback period

Question 13

Strategic planning establishes

Answer 13

the general direction of the organization

Question 14

Strategic planning answers the questions:

Answer 14

• what product or service do we supply
• who are our customers
• how can we perform well

Question 15

Correlation coefficient is

Answer 15

a measure of how closely 2 variables move in relation to one another; indicates which direction and by how much

Question 16

The range of the Correlation coefficient is

Answer 16

-1 to +1

Question 17

A negative Correlation coefficient means

Answer 17

that as one variable increases by 1 unit the other variable decreases by 1 unit

Question 18

A positive Correlation coefficient means

Answer 18

that as one variable increases by 1 unit the other variable will also increase by 1 unit

Question 19

A Correlation coefficient of zero means

Answer 19

that the movement of the variables is unrelated

Question 20

Correlation coefficient is used by portfolio managers to

Answer 20

• diversify a portfolio
• remove unsystematic risk
• reduce volatility

*aim for negative correlation

Question 21

Disadvantage of NPV is that it

Answer 21

does not provide the true rate of return on investment

Question 22

The appropriate technique to analyze the alternatives by using expected inputs and then altering them before a decision is mad is

Answer 22

sensitivity analysis

Question 23

The proper discount rate to use in calculating certainty equivalent NPV is the

Answer 23

risk-free rate