Morison Cars Inc. has a new project with a cost of $480,000 and annual cash flows of $154,000 for 5 years. The cost of capital for the project is 15%. Calculate (i) net present value, (ii) discounted payback period, (iii) profitability index. Make a decision in each case and at the end (assume a benchmark period of 3.61 years).

a. When the degree of sensitivity of a project to a single variable rises, the: A. less important the variable to the final outcome of the project. B. less volatile the project's net present value to that variable. C. greater the importance of accurately predicting the value of that variable. D. greater the sensitivity of the project to the other variable inputs.

b. From these four statements related to scenario analysis, which one is correct?

A. The pessimistic case scenario determines the maximum loss, in current dollars, that a firm could possibly incur from a given project. B. Scenario analysis defines the entire range of results that could be realized from a proposed investment project. C. Scenario analysis determines which variable has the greatest impact on a project's final outcome. D. Scenario analysis helps managers analyze various outcomes that are possible given reasonable ranges for each of the assumptions.

c. In a scenario analysis, the used base case values are the ones considered the most: A. optimistic. B. desired by management. C. pessimistic. D. likely to occur.

d. The issue of forecasting risk stresses the point that the correctness of any decision to accept/reject a project highly depends upon the:

A. method of analysis used to make the decision. B. initial cash outflow. C. ability to recoup any investment in net working capital. D. accuracy of the projected cash flows.