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Exam 15: Capital Investment Decisions

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Question 21

Multiple Choice

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A project has the following projected cash inflows and outflows: The relevant discount factor is 7%. What is the net present value of the project (to the nearest £) ?

A) £97 958
B) £177 287
C) £106 748
D) £107 360

E) A) and B)
F) A) and C)

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Question 22

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Which investment appraisal technique calculates the discount rate which, applied to expected cash flows, produces a net present value of zero?

A) Accounting rate of return
B) External rate of return
C) Internal rate of return
D) Capital rationing

E) A) and D)
F) A) and B)

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Question 23

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Which one of the following statements is correct? IRR is the discount rate which, when applied to the expected cash flows from a project:

The directors of Boggust and Berlin Limited are currently appraising a proposed investment in a machine.Relevant information is as follows Which one of the following statements is correct? The payback period for the proposed investment is (to the nearest month) :

A project has the following projected cash inflows and outflows: The relevant discount factor is 8% What is the present value of the project (to the nearest £) ?

A project has the following projected cash inflows and outflows: The relevant discount factor is 11% What is the present value of the project (to the nearest £) ?

The following net present values have been calculated at a range of interest rates for a project: Using linear interpolation, what is the best estimate of the internal rate of return of this project (calculated to two decimal places) ?

Which is the missing phrase in the following sentence? A weakness of the ____ method of investment appraisal is that it cannot be used where the pattern of cash flows is irregular, with a mixture of cash inflows and cash outflows.

The management accountant of Enn Corporation Limited has produced the following schedule showing the net present value of cash flows associated with a proposed investment project: What is the ratio of cash flows to initial investment in the project (to two decimal places) ?

Pelmette and Oxbow Limited is appraising a potential new product which will involve the purchase of new production machinery.The company has just paid for a market research survey to gauge likely public interest in the project. Which one of the following statements is correct? For capital investment appraisal purposes the expenditure on the market research survey is classified as a: