NPV

Which of the following is NOT relevant to the use of the NPV method of investment appraisal?

• It relies on discounted cash flows
• It’s expressed as a percentage for easier comparison
• Its value will fall if interest rates rise
• A financially viable investment has a positive value

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

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

In calculating the NPV of an investment decision, the lower the discount rate the lower the NPV

• TRUE
• FALSE

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%.

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The formula for Present Value is :

• PV = FV/(1+r)

• FV = PV/(1+r)

• PV = FV/(1+r)ⁿ

• FV = (1+r)/PV

The idea that money to be paid out or received in the future is not equivalent to money paid out or received today

• SMART Money
• Time Value of Money
• PV/FV Money
• Compound Money

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

Process of changing future value to the present value known as

• Compounding

• Discounting

• Simple interest

• Principal

Process of changing present value to the future value known as

• Principal

• Discounting

• Simple interest

• Compounding