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WorksheetsTQ Investment Appraisal Recap Quiz
Total questions: 20
Worksheet time: 14mins
The quantitative techniques used to calculate the financial costs and benefits in investments?
Investment Appraisal
Cash Flow Forecast
Profit
Investment
To calculate the remaining months, which calculation for Payback is correct?
Payback in months = (Income required to reach payback / Income generated in the payback year) ×12
Payback in years = (Income required to reach profit / Income generated in the payback month) ×12
Payback in months = (Costs in payback year / Income generated in the payback year) ×12
Payback in years = (Costs in payback month / Costs generated in the payback year) ×12
The following are all methods of investment appraisal, EXCEPT
Payback period
Net present value using discounted cash flows
Average rate of return
Balance sheet return
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
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
What does the time value of money mean?
The idea that a £ today is worth more than a £ in the future
The idea that a £ today is worth less than a £ in the future
The value of time in monetary terms
How much time is takes to earn an investment back
If interest rates are currently 5 per cent then the NPV of $100 received at the end of two years will be $95
True
False, it will be less
False, it will be more
This cannot be determined
NPV will be positive if
companies work hard to get a good rate of return
discounted cash flows equal or exceed initial investment
money is paid back on time
discounted cash flows are less than initial investment
The following cash flows describe an investment.
Yr 0: (30,000)
Yr 1: 8,000
Yr 2: 6,000
Yr 3: 7,500
Yr 4: 10,500
Yr 5: 13,000
Select the answer which has the correct NPV, based on a discount rate of 11%.
The formula for Present Value is :
PV = FV/(1+r)
FV = PV/(1+r)
PV = FV/(1+r)n
FV = (1+r)/PV
Process of changing future value to the present value known as
Compounding
Discounting
Simple interest
Principal
The present value of an asset's future cash flows minus its purchase price initial investment is
Internal Rate of Return
Payback
Net Present Value
Modified Internal Rate of Return
The disadvantage of the IRR method is that
the IRR deals with cash flows.
the IRR gives equal regard to all returns within a project's life.
the IRR will always give the same project accept/reject decision as the NPV.
the IRR requires long, detailed cash flow forecasts.
Under what condition would you NOT accept a project that has a positive net present value?
If the project has a profitability index less than zero.
If two or more projects are mutually inclusive.
If the firm is limited in the capital it has available (capital rationing).
If a project has more than one sign reversal.
mudharabah is
supporting contract
leasing contract
partnership contract
The contract in Islamic banking that is related to the agricultural goods is:
Istisna'
Musharakah
Salam
Ijarah
