Quiz 3. Investment Decisions

The Net Present Value (NPV) is the difference between :

• The initial cost of the investment, and the present value of the cash flows generated by this investment

• The initial price of the investment, and the present value of the cash flows generated by this financing

• The initial cost of financing, and the earned value of the cash flows generated by this investment

• No answer

The profitability index is the ratio between :

• The ratio of accumulated discounted cash flows to invested capital

• Capital invested over the sum of cash flows

• The ratio between the capital invested and the NPV

• No answer

Investments made by companies:

• Corresponding to tangible, intangible and financial assets

• Only material

• are short-term operations

• No answer

A company would like to invest in a machine costing 20 000 TD. Its lifespan is estimated at 5 years. According to the forecasts for this investment, the company would have a gross loss of TD 10 000 in the first year and would be taxed at 15%.

What would be the value of its first NCF?

• • -10 000 TD

• 6000 TD

• -6000 TD

• No answer

An investment project with discounted CFNs as follows:

Year 1: discounted NCF = 21 000 TD

Year 2: discounted NCF = 32 000 TD

Year 3: discounted NCF = 15 000 TD

Knowing that its NPV is 18 000 TD

• The capital invested is TND 86 000

• The PI for this project is 0.264

• The PI for this project is 1.36

• Project PI cannot be calculated

Knowing that the net present value of a project is NPV= -2.4384 and its PI = 0.987808,

What would be its initial investment Io :

• I0= 200 000 TD

• I0= 400 000 TD

• No answer

This is an investment project with discounted cash flows of 18 000 TD in the first year, 23 000 TD in the second year and 9 000 TD in the third year for an invested capital of 44 000 TD.

• His PP is 2 years and 3 months

• His PP is 2 years and 4months

• His PP is 2 years and 5 months

An investment is considered acceptable when:

• Its future earnings are greater than its cost at t=0

• Its future earnings are less than its price

• What you pay for it in t=0 is less than its CFN spread over its lifetime

• All answers are correct

The future value of money depends:

• agents' preference for the present

• Risk

• inflation

• all the answers are correct

A project manager was faced with a choice between 2 projects:

XZ Project : NPV = DT 18,236 and PI = 2.03

ML project: NPV = DT 50,430 and PI = 1.56

• He chose the XZ project

• He chose the ML project

• It has to calculate the PP of each project to be able to decide on the most profitable project

• No answer