#1
Which of the following is NOT an investment appraisal technique?
Profit and Loss Statement (P&L)
ExplanationIt's a financial statement, not an appraisal technique.
#2
What does the Payback Period measure?
The time it takes to recoup the initial investment
ExplanationIt assesses how long it takes to recover the initial investment.
#3
Which investment appraisal technique considers the time value of money?
Net Present Value (NPV)
ExplanationIt discounts future cash flows to present value.
#4
What does the Profitability Index (PI) indicate?
The ratio of net present value to initial investment
ExplanationIt shows the efficiency of an investment.
#5
What is the main limitation of using the Payback Period as an investment appraisal technique?
It ignores the time value of money
ExplanationIt doesn't consider the discounted cash flows.
#6
Which investment appraisal technique provides a measure of the efficiency of an investment project?
Accounting Rate of Return (ARR)
ExplanationIt calculates the average rate of return.
#7
What is the formula for calculating Net Present Value (NPV)?
NPV = ∑ (Cash Flows / (1 + Discount Rate)^t)
ExplanationIt sums discounted cash flows.
#8
Which investment appraisal technique takes into account the time value of money and risk?
Net Present Value (NPV)
ExplanationIt discounts cash flows and considers risk.
#9
Which investment appraisal technique considers the total cash flows generated by a project relative to the initial investment?
Payback Period
ExplanationIt focuses on recouping the initial investment.
#10
Which investment appraisal technique can be used to evaluate mutually exclusive projects?
Internal Rate of Return (IRR)
ExplanationIt compares different project's rates of return.
#11
In Net Present Value (NPV) analysis, if the NPV is positive, what does it indicate?
The project's profitability
ExplanationIt suggests the project is financially worthwhile.
#12
Which investment appraisal technique assumes reinvestment at the project's cost of capital?
Internal Rate of Return (IRR)
ExplanationIt assumes the project's returns are reinvested at its rate.
#13
Which of the following statements regarding the Internal Rate of Return (IRR) is true?
IRR is the discount rate at which the NPV of a project equals zero
ExplanationIt's the rate that makes NPV zero.
#14
What is the primary drawback of using the Accounting Rate of Return (ARR) method?
It does not consider the time value of money
ExplanationIt ignores the timing of cash flows.
#15
Which investment appraisal technique is commonly used to rank projects when capital is rationed?
Profitability Index (PI)
ExplanationIt ranks projects based on efficiency.
#16
What does a negative Net Present Value (NPV) indicate?
The project is not financially viable
ExplanationThe project is expected to generate losses.