2024 CFA1 CI M5

Which types of project is in "Business growth"?

• Going concern projects

• New lines of business and other

• Regulatory projects

• Compliance projects

How many steps are there in Capital allocation process?

• 2

• 3

• 4

• 5

Which statement is true?

• A sunk cost is one that has already been incurred

• An incremental cash flow is the cash flow that include sunk cost

• Cannibalization is a positive externality

Project A and Project B are Mutually exclusive projects, so Corporate can decide to invest in...

• A or B

• Both A and B

• Neither A nor B

• There is no limitation

Which project is preferred?

• NPV > 0

  &
  IRR > RRR

• NPV > 0

  &

  IRR < RRR

• NPV > 0

  &

  There are more than one IRR

• NPV > IRR

If the projects are mutually exclusive, ... is strongly preferred?

• IRR criterion
• Payback period criterion
• Accounting rate of return criterion
• NPV criterion

If NPV is always preferred over IRR for selecting projects, why do companies even bother with IRRs?

• Because IRR is a more accurate measure of a project's profitability
• To provide a percentage return that can be easily compared to the cost of capital
• Companies use IRR as a backup method in case NPV is inconclusive
• To confuse investors and stakeholders with conflicting information

Which is advantage of NPV?

• It only considers the initial investment
• It ignores the time value of money
• It does not take into account the risk of the investment
• It considers the time value of money

Unlike project NPV and IRR, ROIC can be calculated using data available to ... as ROIC is based on accounting data.

• BoD

• BoM

• Outside Investors

• Senior Managers

Which is Behavioral Biases?

• Inertia

• Internal forecasting errors

• Not considering the cost of

  internal funds

• Incorrectly accounting for inflation