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138B127B38 Flashcards | StudBud
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138B127B38
138B127B38
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Questions
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Answers
1
The payback period method of investment appraisal would be least important for those firms
Requiring an early investment return
That see liquidity as more important than profitability
Focusing on profitability more than cash flows
Prioritising time in investment decisions
2
The payback period uses annual profits generated to examine the worth of a possible investment
True
False
3
Both the
ARR
and the
NPV
results are expressed as a percentage
True
False
4
Which is not a qualitative factor affecting a firm’s investment appraisal decisions?
Impact on the environment
Aims and objectives
Risk
The selected discount factor
5
What is not applicable to the
payback period
method of investment appraisal?
The quality of profit is treated preferentially
It is comparatively easier to calculate and understand
It largely ignores the timing of net cash flows
Time is emphasised over profit
6
If interest rates are currently 5 per cent then the NPV of $100 received next year will be $95
False, it will be less
This cannot be determined
False, it will be more
True
7
Limitations of the
NPV
method of investment appraisal do not include the difficulty of
It being relatively complex to calculate
Choosing the correct discount factor
Forecasting cash flows in the distant future
Considering the timing and size of cash flows
8
Measures the annual profitability of an investment as a percentage of the initial investment
Net present value
Payback period
Average rate of return
Investment appraisal
9
In terms of business accounts and finance, an investment is
Financing a long-term bank loan paying interest
Returning dividends to shareholders
Purchasing new capital equipment
Having retained earnings receiving interest in the bank
10
The
ARR
is a techniques for appraising a possible investment project that calculates the
Accounting period for which a project to break-even
Annual profit as a percentage of the initial cost
Average annual profit as a percentage of the initial cost
Future value of net cash flows for an investment
11
Investment appraisal is
Today’s value of the cash flows resulting from an investment
Measuring the annual profitability of an investment
Evaluating an investment’s profitability or desirability
Forecasted cash inflows less forecasted cash outflows
12
Which investment appraisal method doesn’t measure the long-term profitability of an investment?
Average rate of return
Payback period
Net present values
Discounted cash flows
13
Which is a specific limitation to the
average rate of return
method of investment appraisal?
It does not consider quantitative factors
It focusses on time rather than profit
It favours only short-term investment projects
It ignores the timing and pattern of cash flow
14
The average rate of return will be higher if there is no residual value when capital is sold
True
False
15
The payback period is relatively more difficult to calculate than the NPV
True
False
