Quiz 2

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Louisiana State University *

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201

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Economics

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Apr 3, 2024

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docx

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Uploaded by GeneralMorning13907

Quiz 2: Cost-Benefit Analysis 1. What is the primary purpose of conducting a cost-benefit analysis? a) To determine the total cost of a project b) To compare the monetary benefits and costs of a project c) To estimate the time required to complete a project d) To evaluate the environmental impact of a project 2. How is net present value (NPV) calculated? a) Subtracting the initial investment cost from the total revenue b) Subtracting the total cost from the total benefit c) Discounting the future cash flows and subtracting the initial investment d) Discounting the future cash flows and adding the initial investment 3. Define opportunity cost. a) The explicit monetary cost of an activity b) The value of the next best alternative forgone c) The total cost of producing one additional unit of output d) The revenue earned from selling additional units of output 4. What does a positive net present value (NPV) indicate? a) The project is economically feasible b) The project is economically unfeasible c) The project is expected to generate losses d) The project is expected to break even 5. In a cost-benefit analysis, how are non-monetary factors typically evaluated? a) They are converted into monetary units using market prices b) They are ignored because they cannot be quantified c) They are evaluated qualitatively using subjective judgments d) They are considered separately from monetary factors 6. How does the discount rate affect the present value of future cash flows? a) A higher discount rate increases present value b) A higher discount rate decreases present value c) A lower discount rate increases present value d) A lower discount rate decreases present value 7. What is the formula for calculating the benefit-cost ratio? a) Total benefits / Total costs b) Total costs / Total benefits c) Net benefits / Net costs d) Net costs / Net benefits 8. What is the purpose of sensitivity analysis in cost-benefit analysis? a) To identify the most profitable alternative b) To assess the impact of uncertainty on project outcomes c) To estimate the opportunity cost of the project d) To calculate the breakeven point of the project 9. Describe a situation where sunk costs should be ignored in decision- making. a) When sunk costs are recoverable b) When sunk costs are relevant to future decisions c) When sunk costs are non-recoverable and irrelevant to future decisions d) When sunk costs represent a significant portion of the total project cost 10. How does the length of the project affect the discount rate used in a cost-benefit analysis? a) Longer projects require a higher discount rate b) Longer projects require a lower discount rate c) The length of the project has no effect on the discount rate d) Longer projects require a variable discount rate that changes over time

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