Question 1

Which of the following statements considering investment appraisal methods are correct?
(i) Payback Period is based on Cashflow,not profits
(ii) ARR is based on cashflow,not profits
(iii) Discounted Cashflow includes the Time Value of Money in the calculation

Accepted Answer

A)   They are all correct
B)   (i)  is false. (ii)  and (iii)  are correct
C)   (i)  and (iii)  are correct. (ii)  is false
D)   They are all falseE) A) and D)
F) All of the above

Question 2

Which of the following is false?

Accepted Answer

A)   It is usually assumed that, at the end of a projects life, additional working capital will no longer be required and will become a cash inflow
B)   Installation costs are not relevant for the purposes of investment appraisal
C)   The scrap value of machinery to be replaced should be included in an investment appraisal
D)   The amount of corporation tax to be paid should be included in an investment appraisalE) B) and C)
F) A) and D)

Question 3

One of the key advantages of using "payback" as a method of investment appraisal is that it considers cash flows after the initial investment has been paid back

Accepted Answer

A) True 
 B)False

Question 4

Companies may have a variety of funding methods.
For example,a company may have 10,000 £1 shares in issue,currently trading at £2.00.This gives it an equity value of £20,000.The shareholders have an expected return of 20% i.e.for the £2 share they would expect a dividend of 40p
It also has a £5,000 loan at a rate of 10% interest (after tax) .This gives it a debt value of £5,000.
The Weighted Average Cost of Capital is:

Accepted Answer

A)   A conservative estimate of the Cost of Capital. Shareholders should be aware of the minimum expected return. Although they expect 40p, they may not get it and so the rate is lowered
B)   10%. This is the rate to use when discounting a new capital investment that is to be funded with a loan
C)   15% because some of the company is equity and some is debt
D)   The different rates of the different funding methods, combined at their respective "weights"E) A) and D)
F) A) and C)

Question 5

The internal rate of return (IRR)calculates the discount rate at which the net present value (NPV)of the project is zero

Accepted Answer

A) True 
 B)False

Exam 14: Investment Appraisal

The internal rate of return (IRR)calculates the discount rate at which the net present value (NPV)of the project is zero

Correct Answer
verified

One of the key advantages of using "payback" as a method of investment appraisal is that it considers cash flows after the initial investment has been paid back

Correct Answer
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Which of the following is false?

Correct Answer
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Which of the following statements considering investment appraisal methods are correct? (i) Payback Period is based on Cashflow,not profits (ii) ARR is based on cashflow,not profits (iii) Discounted Cashflow includes the Time Value of Money in the calculation

Correct Answer
verified

Correct Answer
verified

Exam 14: Investment Appraisal

The internal rate of return (IRR)calculates the discount rate at which the net present value (NPV)of the project is zero

Correct AnswerverifiedShow Answer

One of the key advantages of using "payback" as a method of investment appraisal is that it considers cash flows after the initial investment has been paid back

Correct AnswerverifiedShow Answer

Which of the following is false?

Correct AnswerverifiedShow Answer

Which of the following statements considering investment appraisal methods are correct? (i) Payback Period is based on Cashflow,not profits (ii) ARR is based on cashflow,not profits (iii) Discounted Cashflow includes the Time Value of Money in the calculation

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified