FM - NPV

Which of the following statements concerning the payback method is correct?

• 1. It does not consider the time value of money

• 1. It is the time required for profits to recover the initial cost of investment

• 1. It considers the whole life of a project

• 1. It is reliable for project selection decisions

Which investment appraisal method is most likely to result in the maximisation of shareholder wealth?

• 1. Payback period

• 1. Return on capital employed

• 1. Internal rate of return

• 1. Net present value

A company is considering an investment of $340,000 in equipment for a project which will have a life of five years. The equipment can be sold at the end of the five-year period for $55,000.

What is the average investment to be included in the calculation of ROCE?

• 1. $340,000

• 1. $197,500

• 1. $170,000

• 1. $142,500

Which of the following is NOT an advantage of the ROCE method of investment appraisal?

• 1. It is based on profits rather than cash flows

• 1. It is simple to calculate and understand

• 1. It uses readily available accounting information

• 1. It is often used by financial analysts to appraise performance

Which Islamic financial instrument involves a bank voluntarily paying its customers a gift on savings account balances?

• 1. Musharaka

• 1. Murabaha

• 1. Ijara

• 1. Hibah

Supply-side government policy is designed for what purpose?

• 1. To raise the level of aggregate monetary demand in the economy

• 1. To manage the money supply in the economy

• 1. To improve the ability of the economy to produce goods and services

• 1. To reduce unemployment by limiting the supply of labour

Which of the following government policies would NOT tend to raise the level of demand in the economy?

• 1. Increased expenditure on the economic infrastructure

• 1. Tax cuts

• 1. Employment training schemes

• 1. Financial incentives to encourage personal saving

What method of managing exchange rates allows a currency to fluctuate but only within a relatively narrow range around a target rate?

• 1. Managed peg

• 1. Crawling peg

• 1. Fluctuating peg

• 1. Floating peg

Which of the following statements about financial market efficiency is/are true?

1. 1. If share prices reflect all information currently available, share prices cannot be predicted and gains through insider dealing are not possible

2. 2. Rules against insider dealing are less important in a strong-form efficient market

• 1. 1 only

• 1. 2 only

• 1. Both 1 and 2

• 1. Neither 1 nor 2

Salem Co is considering a six-year project that produces annual net cash inflows of $420,000 for the first five years and a net cash inflow of $100,000 at the end of the sixth year. The project will require an initial investment of $1,800,000. Salem’s cost of capital is 10%.

What is the net present value for this project to the nearest $100?

• 1. $83,000

• 1. ($108,200)

• 1. ($151,400)

• 1. ($442,000)