Business Investment and Appraisal Quiz

Which of the following is NOT a reason why businesses invest money?

• To increase profitability

• To expand into new markets

• To reduce the quality of their products

• To train their existing workforce

What are capital goods in the context of business investment?

• Goods used in the direct or indirect production of other goods

• Goods sold directly to consumers

• Goods used only for marketing purposes

• Goods that are always disposable

Which of the following is an investment appraisal method mentioned in the diagram?

• Payback period

• Market research

• Product differentiation

• Employee motivation

What is the payback period?

• The time it takes for a project to generate profit

• The time it takes for a project to pay back the initial outlay

• The time it takes for a project to double its investment

• The time it takes for a project to reach maximum efficiency

If a project costs £20,000 and generates net cash flows of £10,000 each year, what is the payback period?

• 1 year

• 2 years

• 3 years

• 4 years

Which investment option has a payback period of exactly 3 years according to the worked example?

• Option 1 (Cost £90,000)

• Option 2 (Cost £110,000)

• Both Option 1 and Option 2

• Neither Option 1 nor Option 2

A business is comparing two projects using the payback period method. What is the main criterion for selecting a project using this method?

• The project with the highest total cash flow

• The project that repays the initial outlay first

• The project with the lowest cost

• The project with the longest payback period

What is the balance of the initial investment outstanding at the start of year 4 if the initial investment is £110,000 and the cumulative cash flow at the end of year 3 is £70,000?

• £40,000

• £60,000

• £110,000

• £70,000

What is the total payback time if the payback occurs after 3 years plus 8 months?

• 4 years

• 3 years 8 months

• 2 years 8 months

• 5 years

Which of the following is an advantage of using the payback period method?

• Ignores total profitability

• Simple to use

• Ignores flows of cash over the lifetime of the project

• Focuses only on the speed of repayment