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1 | |
One of the following statements is not true. The DCF method is a good system because it takes into account
(Learning Objective 1 Ch 10) |
| | A) | The time value of money |
| | B) | Profits |
| | C) | Cash Flows |
| | D) | Results in more research being done than would be the case otherwise. |
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2 | |
An NPV project will be acceptable if the NPV is…. Tick one of the following options that is true.
(Learning Objective 1 Ch 10) |
| | A) | Negative |
| | B) | Zero |
| | C) | A NPV project in not evaluated in this way |
| | D) | Positive |
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3 | |
The cumulative discount factor at 10% is 3.791, the initial investment is £10,000 at year 0 and £3,000 is expected to be received in each of the next 5 years at the end of each year then the NPV of the investment is:
(Learning Objective 1 Ch 10) |
| | A) | £11,373 |
| | B) | £5,000 |
| | C) | £1,137 |
| | D) | £18,955 |
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4 | |
One of the following is not a disadvantage of IRR
(Learning Objective 2 Ch 10) |
| | A) | It can be difficult to calculate without a computer |
| | B) | It is possible calculate two IRR’s |
| | C) | It is not based on book profits |
| | D) | Managers do not like it because it is a percentage |
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5 | |
A project has an initial cost of £10,000 and a return of £4,000 a year for 5 years with no salvage value, the IRR is
(Learning Objective 2 Ch 10) |
| | A) | Just over 20% |
| | B) | 5% |
| | C) | Nearly 14% |
| | D) | 40% |
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6 | |
The hurdle rate for new projects is 10%. Two projects have been evaluated. they are not alternatives. Project A has an IRR of 9% and Project B, 8%. We should select…
(Learning Objective 3 Ch 10) |
| | A) | A |
| | B) | B |
| | C) | Both |
| | D) | Neither |
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7 | |
Two projects have been evaluated, they are not alternatives. Project A has an NPV of +£8,000 and Project B, +£6,000. We should select…
(Learning Objective 3 Ch 10) |
| | A) | A |
| | B) | B |
| | C) | Both |
| | D) | Neither |
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8 | |
Two competing projects have the following NPV’s: Project A +£4,000: Project B +£2,000. We should select
(Learning Objective 4 Ch 10) |
| | A) | A |
| | B) | B |
| | C) | Both |
| | D) | Neither |
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9 | |
Under the incremental cost approach to competing projects. The NPV of project A less project B is - £18,000
(Learning Objective 4 Ch 10) |
| | A) | A |
| | B) | B |
| | C) | Both |
| | D) | Neither |
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10 | |
Under the incremental cost approach to competing projects, using NPV, which one of these is true
(Learning Objective Ch 10) |
| | A) | Looking solely at the comparative figure we may end up with an unprofitable project |
| | B) | Costs in common may be ignored |
| | C) | A project that lasts for 4 years can be straightforwardly compared with a project with a life of 7 years. |
| | D) | Revenues in common may be ignored |
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11 | |
Which one of the following is true when making a capital investment decision involving automated equipment?
(Learning Objective 5 Ch 10) |
| | A) | It is as straightforward as any other capital investment decision |
| | B) | The intangible benefits of such a decision should be ignored |
| | C) | The intangible benefits are very easy to measure |
| | D) | Sometimes the intangible benefits may have to be estimated using unconventional methods |
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12 | |
When ranking investment projects using the IRR methods, which one of the following is true?
(Learning Objective 6 Ch 11) |
| | A) | The IRR method is more reliable than the NPV method |
| | B) | The lower the IRR, the more desirable the project |
| | C) | Sometimes if projects receive unequal starting capital, misleading results may occur |
| | D) | IRR is not used widely to rank projects |
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13 | |
When ranking investment projects using the NPV/Profitability Index (PI) methods, which one of the following is true?
(Learning Objective 6 Ch 11) |
| | A) | If the projects are of unequal size then the NPV is ideal for comparing the two |
| | B) | If the projects are of unequal size then the PI is a better alternative |
| | C) | The lower the PI the more desirable the project |
| | D) | PI is good for utilising scarce resources |
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14 | |
One of the following is not an advantage of the payback method. Payback ….
(Learning Objective 7 Ch 11) |
| | A) | uses book depreciation |
| | B) | uses cashflows |
| | C) | is easy to calculate |
| | D) | gives a crude measure of risk |
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15 | |
A project requires an initial investment of £100,000. The cashflows each year are as follows: Year 1 £30,000; Year 2 £10,000; Year 3 £30,000; Year 3 £60,000; Year 5 £80,000. The payback of the project is…
(Learning Objective 7 Ch 11) |
| | A) | 4 years |
| | B) | 3 ½ years |
| | C) | 1 ½ years |
| | D) | 2 years |
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16 | |
One of the following is true regarding the rate of return method. The rate of return…
(Learning Objective 8 Ch 11) |
| | A) | Doesn’t use depreciation |
| | B) | Uses cashflows |
| | C) | Is widely understood |
| | D) | Is hard to calculate |
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17 | |
A project requires an initial investment of £100,000. The cashflows each year are as follows: Year 1 £30,000; Year 2 £10,000; Year 3 £30,000; Year 3 £60,000; Year 5 £80,000. Depreciation of the initial investment is 20% straight line. The rate of return is
(Learning Objective 8 Ch 11) |
| | A) | 11% |
| | B) | 110% |
| | C) | 9% |
| | D) | 99% |
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18 | |
Which of the following is not true about Present Value (PV) Methods
(Learning Objective 9 Ch 11) |
| | A) | It is concerned with the time value of money |
| | B) | It is concerned with discounting today’s value |
| | C) | It is not concerned with compound interest |
| | D) | A stream of identical cashflows is called an annuity |
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19 | |
When considering the impact of corporation tax on investment decisions, which one of the following is untrue?
(Learning Objective 10 Ch 11) |
| | A) | In the UK depreciation is a tax deductible expense |
| | B) | Cash flows have to be split between non-tax deductible and tax deductible amounts |
| | C) | The timing of tax payments (eg when losses exist) may mean that tax payments have to be looked at separately from expenses and revenues |
| | D) | Corporation tax may sometimes be ignored when comparing alternative projects if they have the same impact on each project |
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2003 A McGraw-Hill Online Learning Centre