Investment Appraisal

The payback period method evaluates an investment project based on:

• • Total net profit over its life

• Time required to recover the initial investment

• Discounted cash flows

• Accounting profits only

Which of the following is a disadvantage of the payback period method?

• It considers the time value of money

• It ignores cash flows beyond the payback period

• It accounts for the project's profitability

• It includes all cash flows of the project

The main advantage of NPV over other appraisal methods is:

• It ignores non-financial factors

• It always predicts cash flow accuracy

• It considers the time value of money and provides a measure of value addition

• • It is easier to calculate than payback period

If the NPV of a project is positive, it means that:

• The project should be rejected

• The project will not break even

• The project adds value to the firm

What is the primary objective of investment appraisal?

• To maximize short-term profits

• To reduce taxes

• To increase the payback period

• To evaluate the financial viability of a project

The method that calculates the time required to recover the initial investment is called:

• Net Present Value (NPV)

• Payback Period

• • Internal Rate of Return (IRR)

• Average Rate of Return (ARR)

A project requires an initial investment of $45,000. It generates cash inflows of $15,000 annually for the next 5 years. What is the payback period for the project?

• 2 years

• 3 years

• 4 years

• 5 years

Which of the following does the Net Present Value (NPV) method consider?

• Total cash inflows only

• Accounting profits

• • Time value of money and all cash flows

• • Only the initial investment

A project requires an initial investment of $60,000 and generates cash inflows of $20,000 annually for 4 years. If the discount rate is 10%, what is the Net Present Value (NPV) of the project?

• $4,580

• $6,210

• $8,410

• $10,540

Which method calculates the percentage return based on average profits?

• Payback Period

• ARR

• NPV

• IRR