Question 1

Shep Ltd is considering a possible four-year project. Details are as follows:
 The accounting rate of return of this project will be:

Accepted Answer

D

Question 2

The cash flows associated with a project are as follows:
 The payback period for the project is:

Accepted Answer

B

Question 3

Which of the following is an advantage of using the payback period?

Accepted Answer

The payback period is a simple measure that indicates how quickly an investment will recover its initial cost, making it useful for assessing the speed of payback.

Question 4

A business can either receive £200 now or an agreed amount in two years' time. If the business requires a return of 12% on sums invested, what is the minimum amount the business should agree to receive in two years' time?

Accepted Answer

The future value of £200 invested at a 12% annual return over two years is calculated using the formula: Future Value = Present Value * (1 + rate)^number of years. Therefore, £200 * (1 + 0.12)^2 = £200 * 1.2544 = £250.88, which rounds to £251.

Question 5

If a 10% discount rate is used, what is the present value of the following two cash inflows?
£1,600 received in one year's time, plus
£2,000 received in two years' time.

Accepted Answer

The present value of £1,600 received in one year's time at a 10% discount rate is £1,600 / (1 + 0.1) = £1,454.55. The present value of £2,000 received in two years' time at a 10% discount rate is £2,000 / (1 + 0.1)^2 = £1,653.44. The total present value of the two cash inflows is £1,454.55 + £1,653.44 = £3,108.

Question 6

Alternative projects, M and N, have been evaluated and the following results found:
 Which of the following is the most valid reason for choosing to undertake project N?

Accepted Answer

The answer of Alternative projects, M and N, have been...

Question 7

Jigger Ltd is considering two alternative projects; each of which will involve an initial outlay of £600,000. Both will have a four-year life and are expected to yield the following cash inflows:
 Which of the following is not true?

Accepted Answer

The answer of Jigger Ltd is considering two alternative projects;...

Question 8

Jigger Ltd is considering undertaking project X, which will involve an initial outlay of £600k. The project has the following cash inflows associated with it:
 What is the NPV of project X if a 12% discount rate is used?

Accepted Answer

The answer of Jigger Ltd is considering undertaking project X,...

Question 9

Which of the following statements concerning the IRR is true?

Accepted Answer

The IRR (Internal Rate of Return) is the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.

Question 10

What does the accounting rate of return measure?

Accepted Answer

The accounting rate of return measures the average annual expected profit as a percentage of the average funds invested in the project.

Quiz 15: Investment Appraisal Techniques

Shep Ltd is considering a possible four-year project. Details are as follows: The accounting rate of return of this project will be:

The cash flows associated with a project are as follows: The payback period for the project is:

Which of the following is an advantage of using the payback period?

A business can either receive £200 now or an agreed amount in two years' time. If the business requires a return of 12% on sums invested, what is the minimum amount the business should agree to receive in two years' time?

If a 10% discount rate is used, what is the present value of the following two cash inflows? £1,600 received in one year's time, plus £2,000 received in two years' time.

Alternative projects, M and N, have been evaluated and the following results found: Which of the following is the most valid reason for choosing to undertake project N?

Jigger Ltd is considering two alternative projects; each of which will involve an initial outlay of £600,000. Both will have a four-year life and are expected to yield the following cash inflows: Which of the following is not true?

Jigger Ltd is considering undertaking project X, which will involve an initial outlay of £600k. The project has the following cash inflows associated with it: What is the NPV of project X if a 12% discount rate is used?

Which of the following statements concerning the IRR is true?

What does the accounting rate of return measure?