WorksheetsFM - Introduction & Basics of Investment Appraisal
Total questions: 20
Worksheet time: 32mins
Which of the following statements describes the main objective of financial management?
Efficient acquisition and deployment of financial resources to ensure achievement of objectives
Providing information to management for day to day functions of control and decision making
Providing information to external users about the historical results of the organisation
Maximisation of shareholder wealth
Which of the following is LEAST likely to fall within financial management?
The dividend payment to shareholders is increased.
Funds are raised to finance an investment project.
Surplus assets are sold off.
Non-executive directors are appointed to the remuneration committee.
Which of the following does NOT form part of the objectives of a corporate governance best practice framework?
Separation of chairperson and CEO roles
Establishment of audit, nomination and remuneration committees
Minimisation of risk
Employment of non-executive directors
Are the following statements true or false?
True False
1. Maximising market share is an example of a financial objective.
2. Shareholder wealth maximisation is the primary financial objective for a company listed on a stock exchange.
3. Financial objectives should be quantitative so that their achievement can be measured.
True, False, True
True, True, True
True, False, False
False, True, True
A school decides to have larger classes, and examination results suffer as a result. In terms of the 'value for money' framework, which of the following statements is true?
Economy has increased but efficiency has decreased.
Efficiency has increased but effectiveness has decreased.
Economy has increased but effectiveness has decreased.
Economy has increased but efficiency and effectiveness have decreased.
Are the following statements true or false?
True False
1. Accounting profit is not the same as economic profit.
2. Profit takes account of risk.
3. Accounting profit can be manipulated by managers.
True, False, False
True, False, True
False, False, True
True, True, False
A government body uses measures based upon the 'three Es' to measure value for money generated by a publicly funded hospital.
Which of the following relates to efficiency?
Cost per successfully treated patient
Cost per operation
Proportion of patients readmitted after unsuccessful treatment
Percentage change in doctors' salaries compared with previous year
Are the following statements true or false?
True False
1. Cash flow forecasting is primarily the responsibility of financial reporting.
2. Whether to undertake a particular new project is a financial management decision.
True & False
True & True
False & False
False & True
In relation to the financial management of a company, which of the following provides the best definition of a firm’s primary financial objective?
To achieve long‐term growth in earnings
To maximise the level of annual dividends
To maximise the wealth of its ordinary shareholder
To maximise the level of annual profit
Indicate, by clicking in the relevant boxes, whether the following objectives are financial or non‐financial objectives of a company.
Objective
1. Maximisation of market share
2. Earnings growth
3. Sales revenue growth
4. Achieving a target level of customer satisfaction
5. Achieving a target level of return on capital employed
Financial - 1, 3
Non‐financial - 2, 4 & 5
Financial - 2, 3 & 5
Non‐financial - 1 & 4
Financial - 2, 4 & 5
Non‐financial - 1 & 3
Financial - 4 & 5
Non‐financial - 1, 2 & 3
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. Calculate the payback period -
2 years
3 years
3 years 4 months
2 years 8 months
NW Co is considering investing $46,000 in a new delivery lorry that will last for 4 years, after which time it will be sold for $7,000. Depreciation is charged on a straight-line basis. Forecast operating profits/(losses) to be generated by the machine are as follows.
Year $
1 16,500
2 23,500
3 13,500
4 (1,500)
What is the return on capital employed (ROCE) for the lorry (using the average investment method, to the nearest %)?
49%
49.5%
48%
None of the above
NW Co is considering investing $46,000 in a new delivery lorry that will last for 4 years, after which time it will be sold for $7,000. Depreciation is charged on a straight-line basis. Forecast operating profits/(losses) to be generated by the machine are as follows.
Year $
1 16,500
2 23,500
3 13,500
4 (1,500)
Assuming operational cash flows arise evenly over the year, what is the payback period for this investment (to the nearest month)?
1 year 7 months
2 year 7 months
1 year 5 months
3 years 2 months
Which of the following are benefits of the ROCE method of investment appraisal?
It is cash flow based.
It will not be impacted by a company’s accounting polices
It is a percentage which, being meaningful to non-finance professionals, helps communicate the benefits of investment decisions
None of these
Which of the following is a drawback of the payback period method of investment appraisal?
It is cash flow based.
It considers the time value of money
It doesn't measure the potential impact on shareholder wealth.
It is profit based.
EE Co is considering investing in a new 40-year project which will require an initial investment of $50,000 (with zero scrap value) and has a payback period of 20 years. The 40-year project has consistent cash flows each year.
What is the ROCE (using the average investment method, to one decimal place)?
6 %
5.5 %
5 %
None of the above
Which of the following statements is NOT correct?
Return on capital employed can be defined as profit before interest and tax divided by the sum of shareholders’ funds and prior charge capital
Return on capital employed is the product of net profit margin and net asset turnover
Dividend yield can be defined as dividend per share divided by the ex dividend share price
Return on equity can be defined as profit before interest and tax divided by shareholders’ funds
NW Co is considering investing $46,000 in a new delivery lorry that will last for 4 years, after which time it will be sold for $7,000. Depreciation is charged on a straight-line basis. Forecast operating profits/(losses) to be generated by the machine are as follows.
What is the return on capital employed (ROCE) for the lorry (using the average investment method, to the nearest %)?
47%
48%
50%
49%
