Exam 4: The Decision-Making Process for Investment Appraisal

The payback period of a project that costs £10,000 initially and promises after- tax cash inflows of £3,000 each year for the next three years is 3.33 years.

The payback period of a project that costs €1,000 initially and promises after- tax cash inflows of €3,000 each year for the next three years is 0.333 years.

A firm is evaluating a proposal which has an initial investment of €35,000 and has cash flows of €10,000 in year 1, €20,000 in year 2, and €10,000 in year 3. The payback period of the project is

Which of the following are the three first stages of the investment process?

Comparing net present value and internal rate of return

The major weakness of payback period in evaluating projects is that it cannot specify the appropriate payback period in light of the wealth maximisation goal.

When the net present value is negative, the internal rate of return is the cost of capital.

Which three of the following are drawbacks of using the accounting rate of return?

Which three of the following are the main attractions of using payback as an appraisal tool?

Which of the following options best describes payback?

Which of the following statements is false?

A firm is evaluating two independent projects utilizing the internal rate of return technique. Project X has an initial investment of €80,000 and cash inflows at the end of each of the next five years of €25,000. Project Z has a initial investment of €120,000 and cash inflows at the end of each of the next four years of €40,000. The firm should

What is the payback and average accounting rate of return of the following project?

Which three of the following accurately relate to the use of the accounting rate of return?

Payback is considered an unsophisticated capital budgeting because it

The measures the amount of time it takes the firm to recover its initial investment.

Which of the following methods is most suitable for analysing projects?

Which of the following reasons is most likely to cause a firm to founder?

Which of the following is the most popular method of project appraisal

Which of the following best reflects practice in appraisal and acceptance of projects?