Business Finance Quiz

What are capital projects?

• Investment in stocks

• Investment in plant and equipment or buildings

• Investment in cryptocurrencies

• Investment in short-term assets

Why are investment decisions important?

• They do not involve a large amount of funds

• They are reversible without any loss

• They have no impact on the firm's growth

• They are among the most important decisions to make

What is the first step in the evaluation of an investment?

• Estimation of the cash flows

• Identification of the project name

• Estimation of the required rate of return

• Application of the decision rule for decision making

What should be ignored for the purpose of investment appraisal?

• Incremental cash flows

• Sunk cost, committed fixed cost, and non-incremental fixed cost

• Financing cash flows

• All cash flows

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

• NPV = Cash flow / Discount rate

• NPV = Cash flow / Initial investment

• NPV = Cash flow - Initial investment

• NPV = Cash flow / (1 + Discount rate)^n

What is the acceptance rule using NPV?

• Accept if NPV < 0

• Accept if NPV = 0

• Accept if NPV is a negative value

• Accept if NPV > 0

What is the Internal Rate of Return (IRR)?

• The rate at which cash flows are equal to zero

• The rate at which cash flows are infinite

• The rate at which cash flows are negative

• The rate at which cash flows are positive

What is the formula to calculate IRR?

• IRR = (NPV HDR - NPV LDR) / (HDR - LDR)

• IRR = (NPV LDR - NPV HDR) / (HDR - LDR)

• IRR = LDR + (HDR - LDR) / (NPV LDR - NPV HDR)

• IRR = (HDR - LDR) / (NPV HDR - NPV LDR)

What is the Payback period formula for uneven cash flows?

• Payback Period = A / B + C

• Payback Period = A - B / C

• Payback Period = A + B / C

• Payback Period = A * B / C

What is the main advantage of the Payback period method?

• It considers all cash flows

• It does not use cash flow information

• It is a measure of profitability

• It does not emphasize liquidity