Question 1

Which method of investment appraisal has been found in surveys to be the least popular with Australian businesses?

Accepted Answer

A) Net Present Value. 
B) Accounting rate of return. 
C) Internal rate of return. 
D) Payback. 
A) Net Present Value. 
B) Accounting rate of return. 
C) Internal rate of return. 
D) Payback.

Question 2

Which of the following statements is incorrect?

Accepted Answer

A) It may be very difficult to quantify all factors that impact on an investment decision. 
B) Investment decisions are made easier as cash forecasts are always correct. 
C) The validity of assumptions made in relation to an investment proposal may influence the final decision. 
D) The results from using an investment appraisal method is only one input into the final decision. 
A) It may be very difficult to quantify all factors that impact on an investment decision. 
B) Investment decisions are made easier as cash forecasts are always correct. 
C) The validity of assumptions made in relation to an investment proposal may influence the final decision. 
D) The results from using an investment appraisal method is only one input into the final decision.

Question 3

The following data was given for three projects being considered by Manosteel Ltd. Only one project can be accepted due to funding limitations. $\begin{array}{llcc}
\text { Project } & \text { IRR } & \text { NPV } & \text { Payback } \
\text { A } & 16 \% & \$ 18,000 & 7 \mathrm{yrs} \
\mathrm{B} & 18 \% & \$ 100,000 & 5 \mathrm{yrs} \
\mathrm{C} & 15 \% & \$ 95,000 & 10 \mathrm{yrs}
\end{array}$ Which project is the best given that Manosteel's required rate of return is 14%?

Accepted Answer

A) Project A. 
B) Project B. 
C) Project C. 
D) All projects should be accepted, as all have a positive Net Present Value and an Internal Rate of Return greater than the required rate of return. 
A) Project A. 
B) Project B. 
C) Project C. 
D) All projects should be accepted, as all have a positive Net Present Value and an Internal Rate of Return greater than the required rate of return.

Question 4

To calculate the Accounting Rate of Return, it is necessary to determine annual profit. Annual profit is calculated on a/an:

Accepted Answer

A) market value basis. 
B) cash basis. 
C) accrual basis. 
D) current cost basis. 
A) market value basis. 
B) cash basis. 
C) accrual basis. 
D) current cost basis.

Question 5

If the net present value analysis of a project resulted in a positive value and the company did not accept the project, it could be assumed that:

Accepted Answer

A) qualitative factors outweigh the benefit of the investment. 
B) the net initial investment cannot be recovered. 
C) the return is greater than that required by the company. 
D) all of the above. 
A) qualitative factors outweigh the benefit of the investment. 
B) the net initial investment cannot be recovered. 
C) the return is greater than that required by the company. 
D) all of the above.

Question 6

Container Ltd, a manufacturing firm, is considering investing $110,000 in a new mainframe computer. It is estimated that net cash flow per year will be $30,000 and the computer will have a 10-year useful life and zero residual value. The machine will be depreciated on a straight-line basis. What is the accounting rate of return?

Accepted Answer

A) 10.55%. 
B) 30.0%. 
C) 22.72%. 
D) 15.86%. 
A) 10.55%. 
B) 30.0%. 
C) 22.72%. 
D) 15.86%.

Question 7

What is the main disadvantage of the Internal Rate of Return method?

Accepted Answer

A) it ignores the scale of projects, which could lead to wrong decision-making. 
B) it is difficult for management to incorporate it into decision-making. 
C) it is too simplistic. 
D) all of the above. 
A) it ignores the scale of projects, which could lead to wrong decision-making. 
B) it is difficult for management to incorporate it into decision-making. 
C) it is too simplistic. 
D) all of the above.

Question 8

What is the assessment method widely used in practice which enables managers to screen investment projects to determine which projects can recoup their investment outlay the fastest?

Accepted Answer

A) internal rate of return method. 
B) accounting rate of return method. 
C) payback method. 
D) net present value method. 
A) internal rate of return method. 
B) accounting rate of return method. 
C) payback method. 
D) net present value method.

Question 9

Manosteel Ltd is considering the purchase of a new machine for $100,000. It is to be depreciated on a straight-line basis and is estimated to have no residual value at the end of a useful life of 10 years. The tax rate is 30 per cent. What will be the annual cash tax saving in relation to depreciation expense?

Accepted Answer

A) $3,000. 
B) $100. 
C) $300. 
D) $10,000. 
A) $3,000. 
B) $100. 
C) $300. 
D) $10,000.

Question 10

Which method for appraising investments is regarded as the 'superior' method?

Accepted Answer

A) NPV 
B) ARR 
C) PP 
D) IRR 
A) NPV 
B) ARR 
C) PP 
D) IRR

Question 11

Depreciation is not included in Net Present Value analysis because it is:

Accepted Answer

A) a non-cash item. 
B) an historic cost. 
C) a fixed cost. 
D) a variable cost. 
A) a non-cash item. 
B) an historic cost. 
C) a fixed cost. 
D) a variable cost.

Question 12

The statement that is a disadvantage of the payback method of investment evaluation is:

Accepted Answer

A) It disregards the time value of money. 
B) It disregards the post payback period cash flows. 
C) It is based on cash flows. 
D) Both A and B. 
A) It disregards the time value of money. 
B) It disregards the post payback period cash flows. 
C) It is based on cash flows. 
D) Both A and B.

Question 13

Relevant cash flows for investment decisions are:

Accepted Answer

A) expected cash flows that will not differ between alternatives. 
B) actual cash flows that differ between alternatives. 
C) expected cash flows that will differ between alternatives. 
D) actual cash flows that do not differ between alternatives. 
A) expected cash flows that will not differ between alternatives. 
B) actual cash flows that differ between alternatives. 
C) expected cash flows that will differ between alternatives. 
D) actual cash flows that do not differ between alternatives.

Question 14

Timothy Moore, Managing Director of Tiles Ltd, has received a report from his Finance Manager recommending four investment projects for his approval. However, the firm has only sufficient funds to invest in one project. The firm's rate of return is 6%. The Accounting Rate of Return for each project is: A - 12%, B - 9%, C - 13%, D - 15%. Short will select:

Accepted Answer

A) Project A. 
B) Project B. 
C) Project C. 
D) Project D. 
A) Project A. 
B) Project B. 
C) Project C. 
D) Project D.

Question 15

Projects can have multiple internal rates of return due to:

Accepted Answer

A) all positive cash flows. 
B) all negative cash flows. 
C) both positive and negative cash flows at different points during its life. 
D) none of the above. 
A) all positive cash flows. 
B) all negative cash flows. 
C) both positive and negative cash flows at different points during its life. 
D) none of the above.

Question 16

It is important to get investment decisions right for which of the following reasons?

Accepted Answer

A) Large amounts of resources are often involved. 
B) They may affect the business for many years. 
C) They can be difficult and/or expensive to 'bail-out' of once started. 
D) All of the above. 
A) Large amounts of resources are often involved. 
B) They may affect the business for many years. 
C) They can be difficult and/or expensive to 'bail-out' of once started. 
D) All of the above.

Question 17

Which of the following is not a method for appraising potential investments?

Accepted Answer

A) Payback method. 
B) Return on assets. 
C) Accounting rate of return. 
D) Net present value. 
A) Payback method. 
B) Return on assets. 
C) Accounting rate of return. 
D) Net present value.

Question 18

What discount rate should be used in Net Present Value assessments?

Accepted Answer

A) the weighted average cost of capital of the business. 
B) the government bond rate. 
C) the specific cost of capital associated with funding a particular project. 
D) the expected rate of return required by ordinary shareholders. 
A) the weighted average cost of capital of the business. 
B) the government bond rate. 
C) the specific cost of capital associated with funding a particular project. 
D) the expected rate of return required by ordinary shareholders.

Question 19

Gardall Ltd, a printing business, intends purchasing a new computerised printing machine for $900,000. The annual cash flows from the new machine are expected to be $150,000 per year. The machine has an eight-year useful life. The payback period is:

Accepted Answer

A) 8 years. 
B) 5.33 years. 
C) 5 years. 
D) 6 years. 
A) 8 years. 
B) 5.33 years. 
C) 5 years. 
D) 6 years.

Question 20

If you banked $27,778 today at an interest rate of 20%, in two years' time you would have:

Accepted Answer

A) $40,000. 
B) $36,000. 
C) $33,334. 
D) $27,778. 
A) $40,000. 
B) $36,000. 
C) $33,334. 
D) $27,778.

Which method of investment appraisal has been found in surveys to be the least popular with Australian businesses?

Which of the following statements is incorrect?

The following data was given for three projects being considered by Manosteel Ltd. Only one project can be accepted due to funding limitations. Project IRR NPV Payback A 16\% \ 18,000 7 18\% \ 100,000 5 15\% \ 95,000 10 Which project is the best given that Manosteel's required rate of return is 14%?

To calculate the Accounting Rate of Return, it is necessary to determine annual profit. Annual profit is calculated on a/an:

If the net present value analysis of a project resulted in a positive value and the company did not accept the project, it could be assumed that:

What is the main disadvantage of the Internal Rate of Return method?

What is the assessment method widely used in practice which enables managers to screen investment projects to determine which projects can recoup their investment outlay the fastest?

Which method for appraising investments is regarded as the 'superior' method?

Depreciation is not included in Net Present Value analysis because it is:

The statement that is a disadvantage of the payback method of investment evaluation is:

Relevant cash flows for investment decisions are:

Projects can have multiple internal rates of return due to:

It is important to get investment decisions right for which of the following reasons?

Which of the following is not a method for appraising potential investments?

What discount rate should be used in Net Present Value assessments?

Gardall Ltd, a printing business, intends purchasing a new computerised printing machine for $900,000. The annual cash flows from the new machine are expected to be $150,000 per year. The machine has an eight-year useful life. The payback period is:

If you banked $27,778 today at an interest rate of 20%, in two years' time you would have:

Introduction to Accounting

Measuring and Reporting Financial Position

Measuring and Reporting Financial Performance

Introduction to Limited Companies

Regulatory Framework for Companies

Measuring and Reporting Cash Flows

Corporate Social Responsibility and Sustainability Accounting

Analysis and Interpretation of Financial Statements

Cost-Volume-Profit Analysis and Relevant Costing

Full Costing

Budgeting

The Management of Working Capital

Financing the Business

Filters

Exam 12: Capital Investment Decisions

Which method of investment appraisal has been found in surveys to be the least popular with Australian businesses?

Which of the following statements is incorrect?

To calculate the Accounting Rate of Return, it is necessary to determine annual profit. Annual profit is calculated on a/an:

If the net present value analysis of a project resulted in a positive value and the company did not accept the project, it could be assumed that:

What is the main disadvantage of the Internal Rate of Return method?

What is the assessment method widely used in practice which enables managers to screen investment projects to determine which projects can recoup their investment outlay the fastest?

Which method for appraising investments is regarded as the 'superior' method?

Depreciation is not included in Net Present Value analysis because it is:

The statement that is a disadvantage of the payback method of investment evaluation is:

Relevant cash flows for investment decisions are:

Projects can have multiple internal rates of return due to:

It is important to get investment decisions right for which of the following reasons?

Which of the following is not a method for appraising potential investments?

What discount rate should be used in Net Present Value assessments?

Gardall Ltd, a printing business, intends purchasing a new computerised printing machine for $900,000. The annual cash flows from the new machine are expected to be $150,000 per year. The machine has an eight-year useful life. The payback period is:

If you banked $27,778 today at an interest rate of 20%, in two years' time you would have:

Introduction to Accounting

Measuring and Reporting Financial Position

Measuring and Reporting Financial Performance

Introduction to Limited Companies

Regulatory Framework for Companies

Measuring and Reporting Cash Flows

Corporate Social Responsibility and Sustainability Accounting

Analysis and Interpretation of Financial Statements

Cost-Volume-Profit Analysis and Relevant Costing

Full Costing

Budgeting

The Management of Working Capital

Financing the Business

Filters