Cumulative level test: Applied Valuation and Decisions Under Uncertainty

Check understanding, separately from reading

12 questions · 80% to pass · no timer. This longer test revisits both units in the level. These authored questions assess recognition and application of the taught distinctions, not professional qualification. You may review the lessons and retry. Repeat attempts reuse the question bank; a remembered answer is not proof of transfer to a new situation.

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Question 1

A clinic’s equipment proposal has positive base NPV, but patients pay later during a downturn while payroll remains due. Which combined analysis is needed before approval?Discount the delayed receipts and test the dated cash shortageKeep the base NPV and assume profitability supplies payroll cash

Question 2

A manager models recession receipts in constant purchasing-power dollars, discounts at an inflation-inclusive rate, and assigns the recession a small unsupported probability. Which two defects need correction?Increase the number of scenarios without changing either conventionMatch real cash flows with a real rate and justify the probability

Question 3

A promoter prefers a small high-IRR project over a larger lower-IRR alternative and plans to fund either with a balloon loan. What is a defensible review?Compare feasible project NPVs and separately test principal maturityChoose the higher IRR because it proves repayment capacity

Question 4

An employee holds employer shares and a fund concentrated in the same industry, while using withdrawals to cover fixed expenses. Why is counting holdings insufficient?A diversified account label eliminates sequence riskCommon income and investment shocks can coincide with forced withdrawals

Question 5

A proposal uses a repayment factor on gross borrowing as its annual cost and excludes the withheld origination fee. What should a decision memo require?Net proceeds, every payment date, all relevant costs, and jurisdiction-specific disclosure checksOnly a comparison of repayment factors from competing lenders

Question 6

Two savings simulations use the same return sequence, but one takes withdrawals before each return and the other after it. Can their ending balances be compared as a pure investment-performance test?Yes; identical asset returns make all spending outcomes identicalNo; first reconcile external-flow timing and the performance measure

Question 7

A project ends with inventory and unpaid customer balances. The terminal valuation assumes full recovery, while the stress memo identifies likely collection disputes. What correction is necessary?Reconcile terminal recoveries with collectability and timing scenariosPreserve full recovery because working capital is not an expense

Question 8

A reviewer discounts already deflated project receipts at a nominal rate and then lowers that rate until NPV becomes positive. What is the sound response?Accept the resulting positive NPV as evidence that the chosen rate is correctRepair units first, then defend the required return and report sensitivity

Question 9

A company borrows to hold assets that were weakly correlated in a calm historical sample. Its stress plan assumes the same correlations and automatic refinancing. What joint scenario is missing?Co-movement can rise while funding becomes unavailableLow historical correlation guarantees creditors will renew loans

Question 10

A board can select only one indivisible project, and the highest NPV exceeds its funding limit. A sponsor proposes hiding the liquidity restriction from the memo. What should the analyst do?Select the unconstrained maximum and remove inconvenient evidencePreserve the restriction and compare feasible alternatives transparently

Question 11

A fund advertisement pairs a positive arithmetic average return with a claim that regular withdrawals could not have depleted capital. Which evidence challenges that inference?Compounded balances and the dates and amounts of withdrawalsThe average alone, provided it is calculated to enough decimals

Question 12

A workshop memo records positive NPV and strong interest coverage but no collection evidence, maturity forecast, or review trigger. Is it ready for an unconditional decision?Yes; value and coverage ratios jointly eliminate uncertaintyNo; verify receipts, test full debt service, and define an observable review rule

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