Investment Appraisal Quiz

What is the primary focus of investment appraisal?

• Reducing operating costs

• Evaluating and selecting investment projects

• Increasing product quality

• Expanding market reach

Long-term investments generally involve:

• Immediate resale

• Short-term benefits

• Large capital outlay with long-term returns

• Small incremental expenditures

Which of the following best describes incremental cash flows?

• Cash flows that remain constant over time

• Cash flows that change as a direct consequence of a project

• Cash flows that have already been paid

• Cash flows that decrease the overall investment

A cost that has already been incurred and cannot be recovered is known as:

• Incremental cost

• Sunk cost

• Allocated cost

• Opportunity cost

Which of the following should be ignored when evaluating a project?

• Incremental cash flows

• Opportunity costs

• Sunk costs

• Cash outflows

An opportunity cost is defined as:

• The expense incurred from using a resource

• The cost of an asset that remains constant over time

• The most valuable alternative given up when undertaking a project

• A reduction in cash flows due to a side effect

When a new project increases cash flows of existing projects, this is an example of:

• Erosion

• Synergy

• Sunk cost

• Allocated cost

Which of the following costs should be included in project evaluation if they are incremental?

• Sunk costs

• Allocated costs

• Side effects

• All of the above

The net working capital is the difference between:

• Long-term assets and liabilities

• Current assets and current liabilities

• Total liabilities and total assets

• Cash flows and retained earnings

Depreciation is considered a cash inflow in project evaluation because:

• It represents actual cash savings

• It is an expense that does not require a cash outlay

• It increases the project's operating cash flow directly

• It is used to reduce the project's initial cost