A Level Biz - Investment appraisal NPV

The quantitative techniques used to calculate the financial costs and benefits in investments?

• Investment Appraisal
• Cash Flow Forecast
• Payback period
• Investment

The Payback Period (PBP) will always select the investment that

• Gives the highest rate of return
• Returns the cost of investment first
• Has the highest total net cash flow

The Average (or Accounting) Rate of Return Method of Investment Appraisal will always select..

• The project with the lowest cost
• The project with the highest total net return
• The project with the highest average rate of return

What does the time value of money mean?

• The idea that a £ today is worth more than a £ in the future

• The idea that a £ today is worth less than a £ in the future

• The value of time in monetary terms

• How much time is takes to earn an investment back

What is the theory behind "the time value of money"?

• The £ received today can earn interest up until the £ in the future is received

• The £ received today can lose interest up until the £ in the future is received

• There is risk involved in predicting future Net Cash Flows

• The idea that time is priceless and we should all live in the present

The greater net cash flows, the faster the payback period

• TRUE
• FALSE

Choose the CORRECT unit of measurement of these investment appraisal method.

• PBP = time
• ARR = monetary value
• NPV = percentage

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

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

• TRUE
• FALSE

Which TERM refers to the numerical value needed to calculate the NPV of an investment?

• Ratio
• Net cash flow
• Discounted cash flows
• Discount factor