# MGT o23 – The basic form of what-if analysis is called scenario analysis

Question 1.1.The basic form of what-if analysis is called scenario analysis, or the determination of what happens to NPV estimates when we ask what-if questions. (Points : 2) True False Question 2.2.Financial break-even is the sales level that results in a zero NPV. (Points : 2) True False Question 3.3.Marginal, or incremental, revenue is defined as the change in revenue that occurs when there is a small change in output. (Points : 2) True False Question 4.4.The âbottom-upâ approach to calculating operating cash flow is described by the following formula: OCF = Sales â Costs â Taxes. (Points : 2) True False Question 5.5.âSimulation analysisâ is a combination of scenario and sensitivity analysis. (Points : 2) True False Question 6.6.Marginal, or incremental, cost is defined as the change in costs that occurs when there are large changes in output. (Points : 2) True False Question 7.7.It is important when analyzing an investment opportunity that we consider aftertax cash flows. (Points : 2) True False Question 8.8.The incremental cash flows for project evaluation consist of any and all changes in the firmâs future cash flows that are a direct consequence of taking the project. (Points : 2) True False Question 9.9.A sunk cost is a cost to be incurred in the future. (Points : 2) True False Question 10.10.A negative impact on the cash flows of an existing product from the introduction of a new product is called erosion. In this case, the cash flows from the new line should be adjusted upward to reflect lost profits on other lines. (Points : 2) True False Question 11.11.In calculating break-even, it makes no difference to distinguish between variable costs and fixed costs. (Points : 2) True False Question 12.12.Pro forma financial statements refer to prior yearsâ financial statements. (Points : 2) True False Question 13.13.Operating leverage is the degree to which a firm or project relies on variable costs. (Points : 2) True False Question 14.14.Equivalent annual cost (EAC) is the future value of a projectâs costs calculated on an annual basis. (Points : 2) True False Question 15.15.The degree of operating leverage (DOL) is the percentage change in operating cash flow relative to the percentage change in quantity sold. (Points : 2) True False

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