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Worksheets3.8 Investment Appraisal
Total questions: 16
Worksheet time: 8mins
Name
Class
Date
1.
In terms of business accounts and finance, an investment is
a)
Having retained earnings receiving interest in the bank
b)
Purchasing new capital equipment
c)
Returning dividends to shareholders
d)
Financing a long-term bank loan paying interest
2.
The quantitative techniques used to calculate the financial costs and benefits in investments?
a)
Investment Appraisal
b)
Cash Flow Forecast
c)
Payback period
d)
Investment
3.
The Payback Period (PBP) will always select the investment that
a)
Gives the highest rate of return
b)
Returns the cost of investment first
c)
Has the highest total net cash flow
4.
The Average (or Accounting) Rate of Return Method of Investment Appraisal will always select..
a)
The project with the lowest cost
b)
The project with the highest total net return
c)
The project with the highest average rate of return
5.
The main advantage of ARR
a)
easy comparisons
b)
money
c)
profit
d)
ignores timing of cash inflow
6.
The greater net cash flows, the faster the payback period
a)
TRUE
b)
FALSE
7.
The following are all methods of investment appraisal, EXCEPT
a)
Payback period
b)
Balance sheet return
c)
Net present value using discounted cash flows
d)
Average rate of return
8.
Minimum level set by management for investment appraisal results for a project to be accepted
a)
Is the definition of investment appraisal
b)
Is the definition of criterion rate or level
c)
Is the definition of annual forecasted net cash flow
d)
Is the definition of payback period
9.
Which of the following is NOT relevant to the use of the NPV method of investment appraisal?
a)
It relies on discounted cash flows
b)
It’s expressed as a percentage for easier comparison
c)
Its value will fall if interest rates rise
d)
A financially viable investment has a positive value
10.
Cash flows are discounted for various reasons, but NOT because of
a)
Time
b)
Inflation
c)
Interest rate
d)
Risk and uncertainty
11.
In calculating the NPV of an investment decision, the lower the discount rate the lower the NPV
a)
TRUE
b)
FALSE
12.
Which TERM refers to the numerical value needed to calculate the NPV of an investment?
a)
Ratio
b)
Net cash flow
c)
Discounted cash flows
d)
Discount factor
13.
Which is not a qualitative factor affecting a firm’s investment appraisal decisions?
a)
Aims and objectives
b)
Risk
c)
The selected discount factor
d)
Impact on the environment
14.
If interest rates are currently 5 per cent then the NPV of $100 received next year will be $95
a)
True
b)
False, it will be less
c)
False, it will be more
d)
This cannot be determined
15.
NPV will be positive if
a)
companies work hard
b)
discounted cash flows justify initial investment
c)
money is given
d)
they won't be
16.
Choose the CORRECT unit of measurement of these investment appraisal method.
a)
PBP = time
b)
ARR = monetary value
c)
NPV = percentage
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