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WorksheetsInvestment Appraisal Techniques
Total questions: 10
Worksheet time: 8mins
The Payback Period (PBP) will always select the investment that
Gives the highest rate of return
Returns the cost of investment first
Has the highest total net cash flow
Which of the following is NOT relevant to the use of the NPV method of investment appraisal?
It relies on discounted cash flows
It’s expressed as a percentage for easier comparison
Its value will fall if interest rates rise
A financially viable investment has a positive value
Which TERM refers to the numerical value needed to calculate the NPV of an investment?
Ratio
Net cash flow
Discounted cash flows
Discount factor
The initial investment is £5,000. In the first year the firm paid back £1,000 in the second year £2,000 and the third year 3,000. The payback period for the investment is:
2 years
3 years
3 years 4 months
2 years 8 months
The following are all methods of investment appraisal, EXCEPT:
Payback period
Balance sheet return
Net present value
Discounted Payback period
NPV will be positive if
Companies work hard
Discounted cash flows justify initial investment
Money is given back
They won't be
The amount of time taken to generate sufficient cash to cover its own investment costs is called ...
Return period
Payback period
Depreciation period
Investment period
Which of the following will not be a relevant factor when using the payback method of capital investment appraisal?
The cash flows generated by the asset up to the payback period
The cost of the asset
The timing of the first cash inflow
The total cash flows generated by the asset
Popps Ltd is considering the purchase of an asset for £120,000. This asset will generate the following cash flows:
£
Year 1 15,000
Year 2 25,000
Year 3 40,000
Year 4 40,000
Year 5 35,000
Year 6 30,000
Using a discount rate of 20% the discounted payback period would be:
4 years
6 years
The investment does not pay back
5 years
The discount factor used to appraise capital investment decisions is a measure of:
The current high street interest rate
The opportunity cost of capital of the business
The current inflation rate
The opportunity cost of capital of all businesses in the same industry
