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3.8 B [HL] Flashcards | StudBud
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3.8 B [HL]
3.8 B [HL]
12 terms
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Flashcards
12 cards
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Practice quiz
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Questions
12
Answers
1
Which investment appraisal method doesn’t measure the long-term profitability of an investment?
Average rate of return
Discounted cash flows
Payback period
Net present values
2
Measures the annual profitability of an investment as a percentage of the initial investment
Investment appraisal
Average rate of return
Payback period
Net present value
3
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
4
The payback period uses annual profits generated to examine the worth of a possible investment
True
False
5
The
ARR
is a techniques for appraising a possible investment project that calculates the
Future value of net cash flows for an investment
Annual profit as a percentage of the initial cost
Average annual profit as a percentage of the initial cost
Accounting period for which a project to break-even
6
The payback period method of investment appraisal would be
least
important for firms...
Prioritising time in investment decisions
Requiring an early investment return
Focusing on profitability more than cash flows
That see liquidity as more important than profitability
7
Limitations of the
NPV
method of investment appraisal do not include the difficulty of
It being relatively complex to calculate
Forecasting cash flows in the distant future
Considering the timing and size of cash flows
Choosing the correct discount factor
8
Which is a specific limitation to the
average rate of return
method of investment appraisal?
It ignores the timing of cash inflows
It favours only short-term investment projects
It does not consider quantitative factors
It focusses on time rather than profit
9
Both the
ARR
and the
NPV
results are expressed as a percentage
True
False
10
Which is not a qualitative factor affecting a firm’s investment appraisal decisions?
Risk
Impact on the environment
The selected discount factor
Aims and objectives
11
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
12
The average rate of return will be higher if there is no residual value when capital is sold
False
True
