Investment Appraisal Techniques Quiz

Which investment appraisal technique ignores the time value of money?

• Net Present Value

• Payback Period

• Internal Rate of Return

• Discounted Cash Flow

The Accounting Rate of Return (ARR) is criticized because it:

• Uses discounted cash flows

• Is difficult to calculate

• Uses profit instead of cash flows

• Considers the time value of money

Which appraisal method identifies the discount rate at which the net present value becomes zero?

• ARR

• IRR

• Payback

• CBA

A project with a higher IRR than the cost of capital is generally considered:

• Unfavorable

• Risk-free

• Acceptable

• Impossible

What does a positive NPV imply about a project?

• The project recovers its cost

• The IRR is negative

• The project adds value to the business

• The project has a high ARR

Which of the following techniques best incorporates both cash flow and the time value of money?

• ARR

• Payback Period

• NPV

• ROI

Cost-Benefit Analysis (CBA) is primarily used to:

• Maximize payback time

• Compare costs with qualitative benefits only

• Determine whether the social benefits outweigh the costs

• Ignore externalities

What is meant by “value for money” in public sector investment appraisal?

• The cheapest option

• The option with the highest ARR

• Optimal use of resources to achieve intended outcomes

• Shortest payback period

Which of the following is a key difference between short-term and long-term finance?

• Short-term finance has a higher interest rate

• Short-term finance is for over 10 years

• Long-term finance usually involves fixed assets

• Long-term finance cannot be used for working capital

Why is it important to match finance with the duration of the project?

• To avoid long-term tax liabilities

• To reduce currency fluctuation

• To ensure liquidity and solvency are maintained

• To satisfy equity shareholders