Edexcel Bus: 3.3.2 Investment Appraisal

How is the simple payback period calculated?

• Initial Investment / Annual Cash Inflows

• Annual Cash Inflows / Initial Investment

• Initial Investment - Annual Cash Inflows

• Annual Cash Inflows - Initial Investment

What does the simple payback method fail to provide information about?

• The profitability of the investment beyond the payback period

• The initial investment amount

• The annual cash inflows

• The project duration

Which of the following is NOT mentioned as a technique in investment appraisal in the provided text?

• Simple payback

• Average (accounting) rate of return

• Discounted cash flow

• Market analysis

What is the formula for calculating the Average Rate of Return (ARR)?

If a US company invests £200,000 in a project and expects an average annual profit of £40,000, what is the ARR?

• (A) 10%

• (B) 15%

• (C) 20%

• (D) 25%

What does the Average Rate of Return (ARR) not take into account?

• (A) The time value of money

• (B) The initial investment

• (C) The average annual profit

• (D) The total profit

What is the formula for calculating Net Present Value (NPV)?

• (A) NPV = Initial Investment - Present Value of Cash Inflows

• (B) NPV = Present Value of Cash Inflows - Initial Investment

• (C) NPV = Total Profit - Initial Investment

• (D) NPV = Initial Investment - Total Profit

What is necessary to calculate the figures generated by investment appraisal techniques?

• Accurate data on the initial investment, cash inflows, and discount rate

• Only the initial investment data

• Only the cash inflows data

• Only the discount rate data

What is one limitation of simple payback and ARR?

• Lack of consideration for the time value of money

• Reliance on accurate projections

• Assumptions about the discount rate

• Ignoring non-financial factors

What should be considered when using investment appraisal techniques?

• Their limitations

• Only financial factors

• Only non-financial factors

• Only the initial investment