Which of the following statements is false?
3.8 Investment Appraisal ('23)

Quiz
•
Professional Development, Business
•
11th Grade - Professional Development
•
Medium
Eduardo Agustin Cortez
Used 10+ times
FREE Resource
18 questions
Show all answers
1.
MULTIPLE CHOICE QUESTION
1 min • 1 pt
The payback period ignores the time value of money
Discount factors indicate the opportunity cost of money received at a future date
The Net Cash Flow (NCF) in an investment project is the profit generated during the lifespan of an investment project
Investments with a positive net present value should be considered on financial grounds
Answer explanation
NCF is used in calculating the ARR and NPV methods of investment appraisal. NCF is the difference between the cash inflow and cash outflow. This is not the same as the total profit earned during the lifespan of an investment project.
2.
FILL IN THE BLANK QUESTION
1 min • 1 pt
The formula for calculating the payback period is:
Initial cost of investment / ____________ ___ _____
3.
MULTIPLE CHOICE QUESTION
30 sec • 1 pt
Which of the following is an example of an investment decision by a construction company?
A decision to purchase a new cement mixing machine
Selling an obsolete timber cutting machine
A decision to pay dividends to its shareholders
Taking out a bank overdraft to ensure sufficient working capital
Answer explanation
The decision to purchase a new cement mixing machine is an investment decision for a construction company and the business will need to assess and justify the capital expenditure in terms of whether it will be profitable.
4.
MULTIPLE CHOICE QUESTION
30 sec • 1 pt
Which of the following attributes is not an advantage of the payback period method of investment appraisal?
It overlooks the overall profitability of an investment
It is simple and relatively fast to calculate
It helps to estimate how fast the initial investment can be recovered
Managers can easily understand the results
Answer explanation
A disadvantage of the payback period as a method of investment appraisal is that ignores the overall profitability of an investment.
5.
FILL IN THE BLANK QUESTION
1 min • 1 pt
Capital expenditure with the intention of a financial return on this spending at some point in the future. _________
6.
MULTIPLE CHOICE QUESTION
2 mins • 1 pt
Assuming interest rates are 10% per annum, what is the net present value of receiving $100 in one year’s time?
$91.09
$90.00
$90.91
$110.00
Answer explanation
Using an interest rate of 10%, the net present value of $100 in a year’s time is $90.91. In other words, $90.91 is the present value of $100 in one year’s time. The net present value of an investment is calculated using a discount factor (the opposite to a compound interest rate figure).
7.
MULTIPLE CHOICE QUESTION
30 sec • 1 pt
Which investment appraisal method calculates the value of total discounted net cash flows minus the initial cost of an investment project?
Accounting rate of return
Payback period
Net present value
Discounted cash flows
Answer explanation
The net present value (NPV) of an investment is determined by the difference between the sum of future net cash flows, expressed in today’s value, and the principal amount invested in the project.
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