Decision Making and Analysis: Master Business Decision-Making Skills

Question 1

What is the definition of 'sunk costs' in capital budgeting?

Accepted Answer

Costs that cannot be recovered

Answer

Costs that are relevant for decision-making

Answer

Costs that are variable

Answer

Costs that decrease with project duration

Question 2

Which of the following is a potential drawback of using decision-making techniques in business?

Accepted Answer

Reduced creativity and innovation

Answer

Increased efficiency

Answer

Enhanced stakeholder buy-in

Answer

Improved objectivity

Question 3

Which of the following is a key assumption of Cost-Volume-Profit (CVP) analysis?

Accepted Answer

Costs vary linearly with volume

Accepted Answer

Selling price per unit remains constant

Answer

All costs are variable

Answer

Production efficiency is always perfect

Question 4

A key assumption of the net present value (NPV) method is that:

Accepted Answer

The cost of capital is constant over the project's life

Answer

Cash flows occur evenly throughout the project's life

Answer

All cash flows are received in a lump sum at the end of the project

Answer

The project's life is infinite

Question 5

Sensitivity analysis is employed to:

Accepted Answer

Evaluate the robustness of a decision to changes in assumptions

Answer

Identify the parameters that significantly impact a decision

Answer

Forecast future cash flows

Answer

Optimize the allocation of scarce resources

Question 6

The expected value of a decision:

Accepted Answer

Is the sum of the probabilities of each outcome multiplied by their corresponding payoffs

Answer

Is the payoff with the highest probability of occurrence

Answer

Is the minimum possible payoff

Answer

Is the maximum possible payoff

Question 7

Scenario planning is a technique used to:

Accepted Answer

Develop a range of potential future scenarios

Answer

Identify the most likely future scenario

Answer

Forecast future cash flows

Answer

Optimize resource allocation

Question 8

True or False: Sensitivity analysis involves assessing how changes in input variables affect the outcome of a decision.

Accepted Answer

True

Answer

False

Question 9

Which of the following is not considered a fixed cost in accounting?

Accepted Answer

Variable Salaries

Answer

Rent

Answer

Depreciation

Answer

Utilities

Question 10

The break-even point is the sales volume at which a company's:

Accepted Answer

Total revenue equals its total costs

Answer

Total revenue exceeds its total costs

Answer

Total costs exceed its total revenue

Answer

Gross profit is maximized

Question 11

Which of the following is a qualitative factor considered in capital budgeting?

Accepted Answer

Market share

Answer

Net present value

Answer

Payback period

Answer

Return on investment

Question 12

The weighted average cost of capital (WACC) is utilized to determine:

Accepted Answer

The cost of raising capital

Answer

The cost of equity

Answer

The cost of debt

Answer

The return on investment

Question 13

Sensitivity analysis in decision making involves:

Accepted Answer

Adjusting one input variable while keeping others constant

Answer

Evaluating the impact of changes in several variables simultaneously

Answer

Making predictions about future events

Answer

Eliminating risk

Question 14

Which is not an advantage of using decision-making tools?

Accepted Answer

Elimination of uncertainty

Answer

Enhanced objectivity

Answer

Reduced bias

Answer

Efficient decision-making

Question 15

In cost-volume-profit analysis, the breakeven point is the level of sales revenue at which total costs are equal to:

Accepted Answer

Total fixed costs

Answer

Total variable costs

Answer

Total revenue

Answer

Total profit

Question 16

Which of the following is NOT a relevant factor to consider when evaluating capital budgeting projects?

Accepted Answer

Historical accounting performance

Answer

Initial investment cost

Answer

Expected cash flows

Answer

Risk tolerance of the business

Question 17

The payback period is a capital budgeting technique that measures:

Accepted Answer

The time it takes for an investment to generate enough cash flow to cover the initial investment

Answer

The time it takes for an investment to reach its breakeven point

Answer

The rate of return on an investment

Answer

The riskiness of an investment

Question 18

Which investment decision rule suggests accepting an investment if its net present value (NPV) is positive?

Accepted Answer

Net present value rule

Answer

Payback period rule

Answer

Internal rate of return rule

Answer

Profitability index rule

Question 19

In a decision-making context, the term 'heuristic' refers to:

Accepted Answer

A rule of thumb or mental shortcut

Answer

A mathematical model that provides an optimal solution

Answer

A technique for gathering and analyzing data

Answer

A method for evaluating the risk of a decision

Question 20

Identify the key distinctions between decision-making under certainty and uncertainty.

Accepted Answer

Certainty: Known future outcomes; Uncertainty: Unknown or unpredictable future outcomes

Answer

Certainty: Reversible decisions; Uncertainty: Irreversible decisions

Answer

Certainty: Multiple options; Uncertainty: Single option

Question 21

In capital budgeting, opportunity cost refers to:

Accepted Answer

The value of the most desirable alternative that is sacrificed when a project is chosen

Answer

The expenses associated with carrying out the project

Answer

The difference between the project's cash inflows and outflows

Answer

The cost of borrowing money for the project

Question 22

Which of the following decision-making techniques is qualitative?

Accepted Answer

SWOT analysis

Answer

Cost-volume-profit analysis

Answer

Sensitivity analysis

Answer

Linear programming

Question 23

In cost-volume-profit (CVP) analysis, which element represents the point at which total revenue equals total costs?

Accepted Answer

Break-even point

Answer

Contribution margin

Answer

Margin of safety

Answer

Operating leverage

Question 24

When evaluating long-term investments, which capital budgeting method calculates the present value of future cash flows discounted at a specified rate?

Accepted Answer

Net present value (NPV)

Answer

Payback period

Answer

Internal rate of return (IRR)

Answer

Modified internal rate of return (MIRR)

Question 25

In the context of decision making, what is the role of scenario analysis?

Accepted Answer

To develop alternative plans for different possible future events

Answer

To identify the single best possible outcome

Answer

To eliminate the need for human judgment in decision making

Answer

To reduce the uncertainty associated with a decision

Question 26

What is the primary purpose of a decision support system (DSS)?

Accepted Answer

To provide information and analysis to support decision making

Answer

To make decisions on behalf of the user

Answer

To eliminate the need for human judgment

Answer

To guarantee optimal decision-making

Question 27

Cost-volume-profit analysis is primarily used to:

Accepted Answer

Determine profitability at different levels of volume and cost.

Answer

Analyze the liquidity and solvency of a company.

Answer

Evaluate the return on investment for capital projects.

Question 28

Sensitivity analysis is a technique used to:

Accepted Answer

Assess how changes in input variables affect the decision outcome.

Answer

Identify the most important factors in a decision.

Answer

Rank alternative decisions based on their probability of success.

Question 29

What is the primary purpose of using a decision matrix?

Accepted Answer

To compare multiple options and evaluate them based on multiple criteria.

Answer

To identify the most probable outcome for a given decision.

Answer

To determine the financial impact of a decision.

Question 30

Which of the following is a critical skill for effective decision making?

Accepted Answer

Analytical reasoning

Answer

Luck

Answer

Intuition

Answer

Charisma

Question 31

What is the role of ethics in decision making?

Accepted Answer

To ensure that decisions are aligned with moral principles and values.

Answer

To reduce the potential risks associated with making a decision.

Answer

To increase the probability of a successful decision outcome.

Question 32

What is the purpose of a decision audit?

Accepted Answer

To evaluate the effectiveness of a decision after it has been implemented.

Answer

To identify the best alternative for a decision.

Answer

To reduce the risk associated with making a decision.

Question 33

Which of the following is **not** a key step in the cost-volume-profit (CVP) analysis process?

Accepted Answer

Calculating the break-even point after taxes

Answer

Determining the contribution margin

Answer

Estimating fixed costs

Answer

Forecasting sales volume

Question 34

When conducting a sensitivity analysis, which of the following variables should be held **constant**?

Accepted Answer

All other variables

Answer

The dependent variable

Answer

The independent variable

Answer

The control variable

Question 35

Which of the following is a qualitative factor that can influence decision making?

Accepted Answer

Customer satisfaction

Answer

Accounting profit

Answer

Discounted cash flow

Answer

Return on investment

Question 36

Which of the following is a key difference between deterministic and probabilistic decision making?

Accepted Answer

Deterministic decision making assumes known outcomes, while probabilistic decision making involves uncertainty.

Answer

Deterministic decision making is more complex.

Question 37

Which of the following is a heuristic that can be used to reduce cognitive effort in decision making?

Accepted Answer

Availability heuristic

Answer

Simulation modeling

Answer

Linear programming

Answer

Regression analysis

Question 38

Which of the following is the **first** step in the decision-making process?

Accepted Answer

Identifying and defining the problem

Answer

Developing a contingency plan

Answer

Evaluating and selecting a solution

Question 39

Which of the following is a benefit of using decision support systems (DSS)?

Accepted Answer

Enhanced problem solving capabilities

Answer

Reduced accuracy of decisions

Answer

Increased time spent on decision making