Ch15 Investment Appraisal Techniques Verified Test Bank - Smart Accounting 4e | Test Bank Knowles by Cathy Knowles, Mary Carey. DOCX document preview.
Chapter 15: Investment Appraisal Techniques
Test Bank
Type: multiple choice question
Title: Chapter 15 Question 01
1) Shep Ltd is considering a possible four-year project. Details are as follows:
£ | |
Initial outlay | 200,000 |
Years 1 to 4, annual profit before depreciation | 45,000 |
Years 1 to 4, annual profit after depreciation | 27,500 |
Residual value of project at the end of 4 years | 30,000 |
The accounting rate of return of this project will be:
a. 39.1%.
b. 11.9%.
c. 19.6%.
d. 23.9%.
Type: multiple choice question
Title: Chapter 15 Question 02
2) The cash flows associated with a project are as follows:
€ | |
Initial outlay | 3,000,000 |
Annual cash inflows – years 1 to 8 | 900,000 |
The payback period for the project is:
a.
b. 3 years and 4 months.
c. 4 years and 3 months.
d. 3 years.
Type: multiple choice question
Title: Chapter 15 Question 03
3) Which of the following is an advantage of using the payback period?
a. It ignores cash inflows after the payback point has been reached.
b. It ignores the actual timing of cash flows.
c. It is useful measure of the speed with which a project will pay back its initial costs.
d. It takes no account of the time value of money.
Type: multiple choice question
Title: Chapter 15 Question 04
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?
a. £224
b. £251
c. £159
d. £179
Type: multiple choice question
Title: Chapter 15 Question 05
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.
a. £3,116
b. £2,988
c. £3,276
d. £3,148
Type: multiple choice question
Title: Chapter 15 Question 06
6) Alternative projects, M and N, have been evaluated and the following results found:
Project M | Project N | |
Payback period | 3.1 years | 3.5 years |
Accounting rate of return | 17% | 21% |
Net present value | £385,000 | £481,000 |
Which of the following is the most valid reason for choosing to undertake project N?
a. Project N has a longer payback period than project M
b. Project N will yield the highest accounting rate of return.
c. Project N will yield the highest NPV.
d. Project N will give rise to greater cash flows than project M.
Type: multiple choice question
Title: Chapter 15 Question 07
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:
Project X | Project Y | |
Year 1 | £100k | £300k |
Year 2 | £200k | £200k |
Year 3 | £300k | £200k |
Year 4 | £400k | £300k |
Total cash inflows | £1 million | £1 million |
Which of the following is not true?
a. Project X has a payback period of 3 years.
b. Project Y has a payback period of 2.5 years.
c. Project X will always yield a higher NPV than project Y.
d. Project Y will always yield a higher NPV than project X.
Type: multiple choice question
Title: Chapter 15 Question 08
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:
Project X | |
Year 1 | £100k |
Year 2 | £200k |
Year 3 | £300k |
Year 4 | £400k |
What is the NPV of project X if a 12% discount rate is used?
a. A positive NPV of £118k
b. A negative NPV of £118k
c. A positive NPV of £200k
d. A positive NPV of £718k
Type: multiple choice question
Title: Chapter 15 Question 09
9) Which of the following statements concerning the IRR is true?
a. The IRR does not take account of the time value of money.
b. The IRR does not take account of the all the project cash flows.
c. The IRR is the sum of the discounted cash flows of a project.
d. The IRR is the discount rate that, when applied to a project's cash flows, gives an NPV of zero.
Type: multiple choice question
Title: Chapter 15 Question 10
10) What does the accounting rate of return measure?
a. The total profits expected from the project, expressed as a percentage of the average annual investment in the project.
b. The total profits expected from the project, expressed as a percentage of the initial outlay.
c. The average annual expected profit expressed as a percentage of the average funds invested in it.
d. The average annual expected profit expressed as a percentage of the initial outlay.
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Smart Accounting 4e | Test Bank Knowles
By Cathy Knowles, Mary Carey