Question 1

If the interest rate is 8%,receiving $10 000 in 3 years' time is equivalent to receiving what amount today?

Accepted Answer

A)   $10 000
B)   $7 938
C)   $3 880
D)   $9 2559 B

Question 2

Which of the following statements is true with regards to the cash flows used in the net present value method?

Accepted Answer

A)   The net cash inflows for each period may have a positive or negative value.
B)   The final net cash inflow includes any salvage value that may be gained by selling the investment.
C)   All expected cash flows throughout the investment period are considered in the NPV calculation.
D)   All the statements are true. D

Question 3

Making an investment decision also requires consideration of:

Accepted Answer

A)   any taxation impacts.
B)   social responsibilities.
C)   available monetary and human resources.
D)   All of the above require consideration. D

Question 4

When an entity invests solely to replace worn out equipment they also often end up incorporating new technology.This is considered as:

Accepted Answer

A)   a necessity in the replacement decision.
B)   irrelevant because if the old equipment was satisfactory then no improvement is necessary.
C)   a bonus for the entity.
D)   a waste of money because more advanced equipment is often more expensive.

Question 5

An advantage of the NPV method is that:

Accepted Answer

A)   it relies on the use of an appropriate discount factor for the circumstances.
B)   optimum outcomes are achieved simply by ranking projects according to their NPVs.
C)   only cash flows are taken into account, so it is not affected by changes to accounting rules and standards.
D)   all of the options are advantages of the NPV method.

Question 6

Cash flow analysis for investment decision making can be further complicated by the effect of _______________.

Accepted Answer

The answer of Cash flow analysis for investment decision making...

Question 7

Discounted cash flow techniques recognise that:

Accepted Answer

A)   $1 received in the future is worth less than $1 received today.
B)   $1 received in the future is worth more than $1 received today.
C)   $1 received in the future is equal to $1 received today.
D)   none of the above options is correct

Question 8

The decision rule for the internal rate of return method of investment decision making is that projects will be accepted for rates that are:

Accepted Answer

A)   equal to zero.
B)   positive.
C)   above the industry average.
D)   above the entity's required rate of return.

Question 9

Social and environment factors have become important concerns for a/an (increasing/decreasing)_________________number of investments.

Accepted Answer

The answer of Social and environment factors have become important...

Question 10

After an investment decision is made,the next step is:

Accepted Answer

A)   the process of physically implementing the project.
B)   the planning process.
C)   the replacement process.
D)   arranging finance.

Question 11

A disadvantage of the NPV method is that:

Accepted Answer

A)   the actual return in terms of the percentage of the investment outlay is not revealed.
B)   the timing of cash flows is not considered.
C)   it does not take into account all of the expected cash flows.
D)   all of the options are disadvantages of the NPV method.

Question 12

The ___________ (shorter/longer)a payback period is,the greater the risk.

Accepted Answer

The answer of The ___________ (shorter/longer)a payback period is,the greater...

Question 13

A disadvantage of the internal rate of return method is that it can conflict with the _________ _______________ _________ method rankings.

Accepted Answer

The answer of A disadvantage of the internal rate of...

Question 14

Which of the following is least likely to build customer loyalty?

Accepted Answer

A)   Reward for past service.
B)   Product or service always available when required.
C)   Fast response times.
D)   Completing supply contracts within the time parameters.

Question 15

A company is evaluating an investment proposal using the payback period method.Cash inflows are expected to be $80 000 in year 1,$120 000 in year 2,$150 000 in year 3,and $180 000 in year 4.The initial investment required is $380 000.Assuming even cash inflows throughout each year,the payback period is:

Accepted Answer

A)   3 years.
B)   3.17 years.
C)   3.34 years.
D)   3.47 years.

Question 16

The accounting rate of return is calculated as average _____________ divided by average_____________.

Accepted Answer

The answer of The accounting rate of return is calculated...

Question 17

The dividend imputation scheme means investors in companies that pay income tax are able to claim back which of the following against their dividend income?

Accepted Answer

A)   tax expenses.
B)   tax credits.
C)   tax debits.
D)   the full amount of dividend income.

Question 18

A disadvantage of the internal rate of return method of investment analysis is that:

Accepted Answer

A)   the actual rate of percentage return is not revealed.
B)   it ignores the scale of projects so it does not focus on the generation of absolute wealth.
C)   the time value of money is ignored.
D)   it ignores all cash flow after a certain period.

Question 19

The internal rate of return of a project is the rate that leads to a net present value that is:

Accepted Answer

A)   as low as will be accepted by management.
B)   high enough for management to accept.
C)   the highest of all investments being considered.
D)   equal to zero.

Question 20

The investment decision rule for net present value calculations is to invest:

Accepted Answer

A)   in the project with the lowest NPV.
B)   in the project with the lowest discount rate.
C)   in the project with the highest discount rate.
D)   in the project with the highest positive NPV.

Exam 12: Capital Investment