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- 1. Multiple ChoiceWhich of the following is NOT relevant to the use of the NPV method of investment appraisal?It relies on discounted cash flowsIt’s expressed as a percentage for easier comparisonIts value will fall if interest rates riseA financially viable investment has a positive value
- 2. Multiple Choice
If interest rates are currently 5 per cent then the NPV of $100 received at the end of two years will be $95
True
False, it will be less
False, it will be more
This cannot be determined
- 3. Multiple Choice
NPV will be positive if
companies work hard to get a good rate of return
discounted cash flows equal or exceed initial investment
money is paid back on time
discounted cash flows are less than initial investment
- 4. Multiple ChoiceIn calculating the NPV of an investment decision, the lower the discount rate the lower the NPVTRUEFALSE
- 5. Multiple Choice
The following cash flows describe an investment.
Yr 0: (30,000)
Yr 1: 8,000
Yr 2: 6,000
Yr 3: 7,500
Yr 4: 10,500
Yr 5: 13,000
Select the answer which has the correct NPV, based on a discount rate of 11%.
- 6. Multiple Choice
The formula for Present Value is :
PV = FV/(1+r)
FV = PV/(1+r)
PV = FV/(1+r)n
FV = (1+r)/PV
- 7. Multiple ChoiceThe idea that money to be paid out or received in the future is not equivalent to money paid out or received todaySMART MoneyTime Value of MoneyPV/FV MoneyCompound Money
- 8. Multiple Choice
The "time value of money" means that
money paid out today less value than if the money is paid out in the future
money received today is worth more than the same amount of money received in the future
the more time a person has to save, the lower the return on the money
the longer money is held, the less likely it will be spent
- 9. Multiple Choice
Process of changing future value to the present value known as
Compounding
Discounting
Simple interest
Principal
- 10. Multiple ChoiceThe quantitative techniques used to calculate the financial costs and benefits in investments?Investment AppraisalCash Flow ForecastPayback periodInvestment
- 11. Multiple ChoiceThe Payback Period (PBP) will always select the investment thatGives the highest rate of returnReturns the cost of investment firstHas the highest total net cash flow
- 12. Multiple ChoiceThe main advantage of ARReasy comparisonsmoneyprofitignores timing of cash inflow
- 13. Multiple ChoiceThe greater net cash flows, the faster the payback periodTRUEFALSE
- 14. Multiple ChoiceThe following are all methods of investment appraisal, EXCEPTPayback periodBalance sheet returnNet present value using discounted cash flowsAverage rate of return
- 15. Multiple ChoiceWhich TERM refers to the numerical value needed to calculate the NPV of an investment?RatioNet cash flowDiscounted cash flowsDiscount factor
- 16. Multiple ChoiceNPV will be positive ifcompanies work harddiscounted cash flows justify initial investmentmoney is giventhey won't be
- 17. Multiple ChoiceWhich is NOT an advantage of using the Payback method to choose between investment options?It focuses on profitability and ignores cash flowReduces the time during which liquidity is riskedEasy to understand and calculateMay encourage growth by favouring quick return projects
- 18. Multiple Choice
To calculate the remaining months, which calculation for Payback is correct?
Payback in months = (Income required to reach payback / Income generated in the payback year) ×12
Payback in years = (Income required to reach profit / Income generated in the payback month) ×12
Payback in months = (Costs in payback year / Income generated in the payback year) ×12
Payback in years = (Costs in payback month / Costs generated in the payback year) ×12
- 19. Multiple Choice
The initial investment is 5,000. In the first year the firm paid back 1,000 in the second year 2,000 and the third year 3,000. Calculate the payback period
2 years
3 years
3 years 4 months
2 years 8 months
- 20. Multiple Choice
Disadvantages of NPV are...
Predicting the likely future inflation level can be difficult
NPV makes the opportunity cost of different projects very unclear
NPV does not take into consideration the impact of inflation on the value of money over a time period
Deciding on an appropriate discounting factor is complex
- 21. Multiple ChoiceChoose the CORRECT unit of measurement of these investment appraisal method.PBP = timeARR = monetary valueNPV = percentage
- 22. Multiple Choice
The initial investment is £5,000. In the first year the firm paid back £1,000 in the second year £2,000 and the third year 3,000. Calculate the payback period
2 years
3 years
3 years 4 months
2 years 8 months
- 23. Multiple Choice
A manufacturing firm is considering investing £ 500,000 in new machinery. The equipment is expected increase the firm's cash flow by £ 150,000 per year.
After 1 year, the cash flow will be £ 150,000.
After 2 years, the cash flow will be £ 300,000.
After 3 years, the cash flow will be £ 450,000
Payback is 3yrs 4 months
Payback is 2yrs 4months
Payback is 3yrs 8months
Payback is 3yrs 9months
- 24. Multiple Choice
The Initial Outlay is £100 000 what is the ARR for Project A?
16.5%
20%
16.67%
6.67%
- 25. Multiple Choice
The Initial Outlay is £100 000 what is the ARR for Project B?
7%
16%
16.67%
6.67%
- 26. Multiple Choice
The Initial Outlay is £100 000 what is the ARR for Project C?
30%
3%
2.96%
29.6%
- 27. Multiple Choice
Using the data in Table 3 calculate the NPV
£60m
£65m
£61.8m
£61.4m
- 28. Multiple Choice
Using the data in Table 3 calculate the Payback
2 years 3months
2 years 6.2months
2 years 7months
2years 6.4months
- 29. Multiple Choice
Using the provided information calculate the ARR
15.4%
15.6%
15.3%
15.8%
- 30. Multiple Choice
Using the information calculate the payback
£29.6m
£30m
£29.2m
£30m
- 31. Multiple Choice
Using the information calculate the NPV
2yrs 13weeks
2yrs 10weeks
2yrs 12weeks
2yrs 14weeks
- 32. Multiple Choice
Using the information calculate the ARR
13%
38%
52%
46%
- 33. Multiple Choice
Using the information calculate the Payback
4yrs and 1.24months
3yrs
3yrs and 2months
3yrs and 1.24months
- 34. Multiple ChoiceIn terms of business accounts and finance, an investment isHaving retained earnings receiving interest in the bankPurchasing new capital equipmentReturning dividends to shareholdersFinancing a long-term bank loan paying interest
- 35. Multiple ChoiceThe Average (or Accounting) Rate of Return Method of Investment Appraisal will always select..The project with the lowest costThe project with the highest total net returnThe project with the highest average rate of return
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