3.8 Investment Appraisal - HL

Click any of the following terms, which could be another way of saying "Investment" in this section of the syllabus.

• Capital expenditure

• Principal cost

• Net Cash Flow

• Total returns

• Initial Outlay

​ (a)   appraisal refers to the ​ (b)   techniques used to calculate the ​ (c)   costs and ​ (d)   of an investment decision.

• Investment
• quantitative
• financial
• benefits
• qualitative
• Opportunities

"The time it takes for the initial amount of money invested to be repaid using the gains from the original investment."

Which investment appraisal method does this describe?

• ARR

• Net Present Value

• Payback Period

• Return on Capital Employed

The higher the value of the ARR, the greater the expected return on investment as a percentage of the amount of money invested in the project.

• True

• False

The ARR is expressed as a

• years & months

• %

• $ amount

Which investment appraisal method calculates the value of total discounted net cash flows minus the initial cost of an investment project?

• ARR

• Discounted Cash Flows

• Payback period

• Net Present Value

How is the net present value of a project calculated?

• total present value of profits less the present value of losses

• The period over which the initial investment is completely paid back

• Total present values of cash inflows less the original investment cost

• The net profit (after tax) generated by the project divided by the total cost of the investment

A company invests $1.5 million in a new factory. The annual net cash flows arising from the investment are $300,000 per annum and the factory is expected to stay operational for 20 years.

What is the project's payback period?

• 5 years

• 10 years

• 5 years 6 months

• 15 years

The figure used to reduce the future value of money. It is used to establish the present value of cash that is yet to be received by the business.

• Economic interest rate

• Investment cost

• Inflation

• Discount Factor

Which investment appraisal method calculates the average annual profit of an investment project, expressed as a percentage of the initial sum of money invested in the project?

• Net Present Value

• Payback Period

• ARR

• Present Cash Flows