MCQs Revision F9 buổi 3 (12/05/2025)

Harvey Co is evaluating a capital investment proposal with the following information:

Initial cost: $500,000; Life: 10 years; Annual operating cash inflow: $200,000; Scrap value: $100,000.
The investment will be depreciated using the straight-line method.

What is the payback period for this investment?

• 3.25 years

• 2.67 years

• 2.5 years

• 2 years

A project requires an initial outlay of $1,000. The forecast cash inflows are:

Year 1: $200; Year 2: $200; Year 3: $400; Year 4: $400.
What is the project’s payback period (to one decimal place)?

• 3 years

• 3.5 years

• 4 years

• 4.5 years

Which of the following statements about investment decision making is correct?

• Opportunity costs are not relevant

• The return on capital employed considers the time value of money

• A strength of the payback method is that it is based on profitability

• Capital budgeting is based on predictions of an uncertain future

Kuchman Kookies will invest $100,000 in new equipment. The company’s discount rate is 8% and the operating cash flows from the investment are expected to be as follows:

Year 1: $35,000; Year 2: $38,000; Year 3: $25,000; Year 4: $20,000; Year 5 $10,000.
What is the investment’s payback period?

• 2.3 years

• 3.1 years

• 4.0 years

• 4.7 years

LEFM Co is considering investing in a new 20-year project which will require an initial investment of $100,000 (with a $10,000 scrap value) and will have a payback of 10 years. The project has consistent cash flows each year.

What is the ROCE calculated using the average investment?

• 8.2%

• 9.1%

• 10.0%

• 11.1%

A project has average estimated cash flows of $3,000 per year with an initial investment of $9,000. Depreciation is straight-line with no residual value and the project has a five-year life span. The company has a target return on capital employed (ROCE) of 15% and a target payback period of 2.5 years. ROCE is based on initial investment.

Under which investment appraisal method(s), using the company's targets, will the project be accepted?

(1) ROCE
(2) Payback basis

• 1 only

• 2 only

• Both 1 and 2

• Neither 1 nor 2

In relation to the return on capital employed (ROCE) investment appraisal method, which of the following statements is correct?

• ROCE leads to better investment decisions since it uses accounting profit rather than estimated cash flows

• All investment projects with a ROCE greater than the weighted average cost of capital should be accepted

• All investment projects with a ROCE less than the current ROCE of an organisation should be rejected

• ROCE takes into account all years of operation of an investment project

A company is considering investing in the following project:

Initial outlay: $100,000; Residual value: $0; Project life: 10 years; Annual project cash flow $14,500.
What is the accounting rate of return (ARR) for the project using the average investment?

• 4.5%

• 9%

• 14.5%

• 29%

Which TWO of the following statements about the investment appraisal methods of return on capital employed (ROCE) and payback are true?

• Both methods are affected by changes in the cost of capital

• The ROCE does not take account of returns over the entire life of the project

• The payback method is based on the project’s cash flows

• A requirement for an early payback can increase a company's liquidity

A company undertakes a project that involves purchasing machinery at a cost of $65,000. The machinery is used on the project for four years, generating operating cash inflows of $20,000 per year. It is sold at the end of the project for $10,000. Taxation is charged at a rate of 30%.
Calculate the initial return on capital employed (ROCE) for the project, to the nearest whole percentage.

• 8%

• 10%

• 12%

• 14%