#1
Which financial metric is used to evaluate the profitability of an investment?
Return on Investment (ROI)
ExplanationAssesses the percentage return relative to cost.
#2
Which financial metric helps assess the efficiency of an investment by considering the time it takes to recover the initial investment?
Payback Period
ExplanationEvaluates efficiency based on time for investment recovery.
#3
Which financial metric is used to assess the efficiency of an investment by comparing its present value of cash inflows to the present value of cash outflows?
Profitability Index (PI)
ExplanationEfficiency assessment based on present value comparison.
#4
Which financial metric provides a measure of the percentage return on an investment relative to its cost?
Return on Investment (ROI)
ExplanationPercentage return relative to cost.
#5
Which investment appraisal method does not explicitly consider the time value of money?
Payback Period
ExplanationDoes not account for money's changing value over time.
#6
What does the Payback Period represent in investment appraisal?
The time it takes to recover the initial investment
ExplanationDuration to recoup the initial investment.
#7
In capital budgeting, what is the primary advantage of the Net Present Value (NPV) method?
Considers the time value of money
ExplanationAccounts for money's changing worth over time.
#8
What is the main limitation of using the Payback Period as a sole investment criterion?
Ignores the time value of money
ExplanationFails to consider money's changing value over time.
#9
Which of the following is a qualitative factor to consider in investment decision-making?
Market share growth potential
ExplanationFocuses on potential growth in market share.
#10
What is the significance of the hurdle rate in investment decision-making?
It represents the minimum rate of return required for an investment to be acceptable.
ExplanationMinimum acceptable return rate.
#11
What is the discount rate used in calculating the Net Present Value (NPV) of an investment?
Cost of capital
ExplanationRate of return used to discount future cash flows.
#12
How does the Internal Rate of Return (IRR) differ from the Net Present Value (NPV) method?
IRR uses a discount rate, while NPV does not
ExplanationIRR incorporates a discount rate; NPV does not.
#13
What does the profitability index (PI) measure in investment appraisal?
Risk-adjusted return
ExplanationEvaluates return considering risk level.
#14
In the context of investment appraisal, what does the term 'sunk cost' refer to?
Costs incurred in the past and cannot be recovered
ExplanationExpenses already spent, not recoverable.
#15
How does the Modified Internal Rate of Return (MIRR) differ from the traditional Internal Rate of Return (IRR)?
MIRR considers reinvestment of cash flows, while IRR assumes cash flows are reinvested at the project's internal rate of return.
ExplanationMIRR adjusts for reinvestment rate; IRR assumes reinvestment at its rate.