#1
Which of the following is a financial investment evaluation method that calculates the present value of future cash flows?
Net Present Value (NPV)
ExplanationCalculates current value of future cash flows
#2
What does the payback period method assess in investment evaluation?
Time it takes to recover initial investment
ExplanationAssesses time to recover initial investment
#3
Which of the following investment evaluation methods considers the accounting profit relative to the initial investment?
Accounting Rate of Return (ARR)
ExplanationConsiders accounting profit relative to initial investment
#4
What is the main limitation of the payback period method?
It does not account for the time value of money
ExplanationDoesn't account for time value of money
#5
Which of the following investment evaluation methods does not consider the time value of money?
Payback period
ExplanationDoesn't consider time value of money
#6
What is the primary advantage of using the Internal Rate of Return (IRR) method?
It considers the timing of cash flows
ExplanationConsiders timing of cash flows
#7
Which financial investment evaluation method is based on the principle that the sooner cash flows are received, the more valuable they are?
Payback period
ExplanationBased on principle of earlier cash flows being more valuable
#8
Which investment evaluation method accounts for the time value of money?
Net Present Value (NPV)
ExplanationAccounts for time value of money
#9
What is the formula for calculating the Net Present Value (NPV) of an investment?
Present Value of Cash Inflows - Initial Investment
ExplanationSubtracts initial investment from present value of cash inflows
#10
Which investment evaluation method is also known as the discounted cash flow method?
Net Present Value (NPV)
ExplanationAlso known as discounted cash flow method
#11
What does the Profitability Index (PI) indicate in investment analysis?
The ratio of present value of cash inflows to initial investment
ExplanationIndicates ratio of present value of cash inflows to initial investment
#12
Which investment evaluation method may result in multiple rates of return for a single investment project?
Internal Rate of Return (IRR)
ExplanationMay result in multiple rates of return
#13
In investment evaluation, what does a negative Net Present Value (NPV) indicate?
The investment is not profitable
ExplanationIndicates investment is not profitable
#14
What does the Profitability Index (PI) represent?
The ratio of discounted cash inflows to initial investment
ExplanationRepresents ratio of discounted cash inflows to initial investment
#15
What does the Internal Rate of Return (IRR) indicate in investment evaluation?
The discount rate that makes the NPV of an investment zero
ExplanationIndicates the discount rate making NPV zero
#16
In investment evaluation, what does a positive Net Present Value (NPV) indicate?
The investment is profitable
ExplanationIndicates profitability of investment
#17
Which investment evaluation method is often criticized for assuming that cash flows can be reinvested at the project's internal rate of return?
Net Present Value (NPV)
ExplanationCriticism for assuming reinvestment at project's IRR
#18
In investment evaluation, what does the Modified Internal Rate of Return (MIRR) address?
The reinvestment rate assumption
ExplanationAddresses reinvestment rate assumption
#19
Which investment evaluation method is more suitable for ranking mutually exclusive projects?
Net Present Value (NPV)
ExplanationMore suitable for ranking mutually exclusive projects