3.8 Investment Appraisal ('23)

3.8 Investment Appraisal ('23)

11th Grade - Professional Development

18 Qs

quiz-placeholder

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3.8 Investment Appraisal ('23)

3.8 Investment Appraisal ('23)

Assessment

Quiz

Professional Development, Business

11th Grade - Professional Development

Medium

Created by

Eduardo Agustin Cortez

Used 10+ times

FREE Resource

18 questions

Show all answers

1.

MULTIPLE CHOICE QUESTION

1 min • 1 pt

Which of the following statements is false?

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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