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Return to Accounting: A Smart Approach 4e Student Resources
Chapter 15 Multiple-choice questions
Investment Appraisal Techniques
*
not completed
.
The accounting rate of return is measured as follows:
Average annual profit expressed as a percentage of the total funds invested in the project.
correct
incorrect
Average annual profit expressed as a percentage of the average funds invested in the project.
correct
incorrect
Total profits expressed as a percentage of the average funds invested in the project.
correct
incorrect
Total profits expressed as a percentage of the total funds invested in the project.
correct
incorrect
*
not completed
.
The cash inflows and (outflows) associated with a project are as follows:
The payback period for this project would be:
2 years and 3 months.
correct
incorrect
2 years and 6 months.
correct
incorrect
3 years.
correct
incorrect
2 years.
correct
incorrect
*
not completed
.
Natt Ltd is considering undertaking a project that would yield annual profits (after depreciation) of £68,000 for 5 years. The initial outlay of the project would be £800,000 and the project's assets would have a residual value of £50,000 at the end of the project.
What would be the accounting rate of return for this project?
16%
correct
incorrect
8.5%
correct
incorrect
8.0%
correct
incorrect
9.1%
correct
incorrect
*
not completed
.
What is the present value of £520,000 expected to be received in three years' time, if the business concerned requires a return of 10% on sums invested? Answers are given to the nearest £'000.
£692k
correct
incorrect
£432k
correct
incorrect
£473k
correct
incorrect
£390k
correct
incorrect
*
not completed
.
Windsor Ltd is considering a project, which will involve the following cash inflows and (out)flows:
What will be the NPV (net present value) of this project if a discount rate of 15% is used?
+£60.8k
correct
incorrect
-£60.8k
correct
incorrect
+£240k
correct
incorrect
+460.8k
correct
incorrect
*
not completed
.
Which of the following statements concerning the NPV is
not
true?
The NPV technique takes account of the time value of money.
correct
incorrect
The NPV of a project is the sum of all the discounted cash flows associated with a project.
correct
incorrect
The NPV technique takes account of all the cash flows associated with a project.
correct
incorrect
If two competing projects are being considered, the one expected to yield the lowest NPV should be selected.
correct
incorrect
*
not completed
.
Macchu Ltd is about to undertake a project and has computed the NPV of the project using a variety of discount rates:
What is the approximate IRR of this project?
20%
correct
incorrect
17.5%
correct
incorrect
15%
correct
incorrect
22.5%
correct
incorrect
*
not completed
.
Bond Ltd is considering two possible projects but can only raise enough funds to proceed with one of them. Investment appraisal techniques have been used and the following results found:
Which of the following is the most logical interpretation of the results?
Project W should be selected as it gives the longest payback period.
correct
incorrect
Project W should be selected because it will yield the highest NPV.
correct
incorrect
Project X should be selected because it will yield the lowest NPV
correct
incorrect
The ARR is the most meaningful investment appraisal technique and hence Project W should be selected.
correct
incorrect
*
not completed
.
Which of the following statements concerning the payback period, is
not
true?
The payback period is simple to calculate and understand.
correct
incorrect
The payback period measures the time that a project will take to generate enough cash flows to cover the initial investment.
correct
incorrect
The payback period ignores cash flows after the payback point has been reached.
correct
incorrect
It takes account of the time value of money.
correct
incorrect
*
not completed
.
Bean Ltd is considering undertaking a project, which will involve an initial outlay of £300,000. The project has the following cash flows associated with it:
If a discount rate of 10% is used to calculate the NPV of the project, which of the following statements is correct? (Assume the cash flows arise at the end of each year.)
The project will yield a positive NPV of £65.5k and have a payback period of 2 years and 3 months.
correct
incorrect
The project will yield a positive NPV of £65.5k and have a payback period of 2 years and 9 months.
correct
incorrect
The project will yield a positive NPV of £365.5k and have a payback period of 2 years and 3 months.
correct
incorrect
The project will yield a positive NPV of £365.5k and have a payback period of 2 years and 9 months.
correct
incorrect
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