Deck 22: Present Value and Investment Appraisal

Question 1

Which of the following options is not a factor which might a company might want to consider before making a decision on potential projects?

A) Level of uncertainty regarding cash flows
B) The ability to service interest payments
C) General liquidity of the company
D) That the project can go ahead without needing to borrow money

Answer 1

That the project can go ahead without needing to borrow money

Question 2

What is the cost to a company that takes out a loan of 80,000 Emirati Dirham (AED) over 5 years (with no immediate repayment) at an interest rate of 8% and a discount rate of 6% (to the nearest AED)?

A) AED 7,837
B) AED 7,934
C) AED 7,995
D) AED 8,012

Answer 2

AED 7,837

Question 3

What is the Present Value of 50,000 Chinese Yuan (CNY) payable in 5 years' time at a discount rate of 4% (to the nearest CNY)?

A) CNY 40,411
B) CNY 40,653
C) CNY 40,856
D) CNY 41,096

Answer 3

CNY 41,096

Question 4

What is the Present Value of a car available for €10,000 deposit plus two further payments of €8,000 and a discount rate of 8% (to the nearest €)?

A) €22,368
B) €23,867
C) €24,266
D) €25,907

Question 5

Estimates for a new project suggest that at a discount rate of 12% the project returns and NPV of $12,000 and at a discount rate of 15% the project returns an NPV of -$3,000. Estimate the IRR using the formula method (1 decimal place).

A) 12.4%
B) 12.6%
C) 12.8%
D) 13.0%

Question 6

What is the name of the investment appraisal technique that consists of totalling the discounted cash flows for a project?

A) Net Mean Value
B) Net Discounted Cash Flow
C) Net Present Cash Flow
D) Net Present Value

Question 7

Which of the following statements comparing IRR and NPV is TRUE?

A) The NPV gives results in discounted money terms
B) The NPV fails to discount cash flows and therefore has limited accuracy
C) The NPV requires accurate estimation of discount factor
D) The IRR result accounts for differences in the magnitude of projects

Question 8

Which of the following options is not a characteristic of a capital investment?

A) Set of cash inflows and outflows
B) An initial outlay of money
C) Income from share ownership
D) A resettlement figure (optional)

Question 9

What is another term for the Internal Rate of Return?

A) Earnings
B) Profit
C) Yield
D) Dividend

Question 10

Which of the following options is the CORRECT interpretation of a project appraisal that returns a Net Present Value of £3,500?

A) The project earns £3,500 more than the discount rate
B) The project earns £3,500 less than the discount rate
C) The project has a total cost of £3,500
D) The project has a total profit of £3,500