#1
Which investment appraisal method calculates the time it takes for an investment to recover its initial cost?
Payback Period
ExplanationMeasures the time for investment to break even.
#2
Which financial metric indicates the efficiency of an investment in generating profits relative to its cost?
Return on Investment (ROI)
ExplanationShows profits generated relative to investment cost.
#3
What does the Payback Period represent in investment appraisal?
The time it takes for the investment to break even
ExplanationTime to recover initial investment.
#4
What is the primary limitation of the Return on Investment (ROI) metric?
It does not consider the time value of money
ExplanationDoes not account for present value of cash flows.
#5
What is the primary advantage of the Discounted Cash Flow (DCF) method in investment appraisal?
It considers the time value of money
ExplanationEvaluates cash flows at present value.
#6
What does the Net Present Value (NPV) indicate about an investment project?
The profitability of the investment
ExplanationShows the net value of cash flows, considering time value of money.
#7
In investment appraisal, what does the term 'Discount Rate' refer to?
The interest rate at which future cash flows are discounted
ExplanationDetermines present value of future cash flows.
#8
What is the key advantage of the Internal Rate of Return (IRR) as an investment appraisal method?
It considers the time value of money
ExplanationTakes into account present value of cash flows.
#9
In investment appraisal, what does a positive Net Present Value (NPV) signify?
The investment is profitable
ExplanationCash inflows exceed cash outflows.
#10
Which factor does the Profitability Index (PI) take into account in investment appraisal?
The size of the project
ExplanationConsiders project size in profitability assessment.
#11
In the context of Net Present Value (NPV), what does a negative value indicate?
The investment is unprofitable
ExplanationCash outflows exceed cash inflows.
#12
In the context of investment appraisal, what does the term 'Sunk Cost' refer to?
The cost that cannot be recovered
ExplanationIrrelevant costs incurred regardless of investment decisions.
#13
Which investment appraisal method considers the time value of money by discounting future cash flows?
Discounted Cash Flow (DCF)
ExplanationEvaluates investment by discounting future cash flows.
#14
What is the primary limitation of the Payback Period as an investment appraisal method?
It ignores the time value of money
ExplanationDoes not consider present value of cash flows.
#15
What is the primary drawback of using only the Internal Rate of Return (IRR) for mutually exclusive projects?
It assumes reinvestment at the project's IRR
ExplanationAssumes all cash flows are reinvested at IRR.
#16
Which investment appraisal method is also known as the profitability index?
Profitability Index (PI)
ExplanationCompares present value of cash inflows to investment cost.
#17
What is the formula for calculating the Net Present Value (NPV) of an investment?
NPV = Total Cash Inflows - Total Cash Outflows
ExplanationCalculates present value of net cash flows.
#18
Which investment appraisal method focuses on the percentage return on the initial investment?
Return on Investment (ROI)
ExplanationEvaluates profitability as a percentage of initial investment.
#19
What is the key advantage of the Profitability Index (PI) over other investment appraisal methods?
It accounts for project size
ExplanationConsiders project size in profitability assessment.