Question 5 to 25

5. A project manager is dealing with a venture that has achieved the end of planning phase. The work scope has been consented to and conclusive cost gauges have been finished for the venture. The aggregate assessed cost of the venture is $100,000. It is sensible to expect that the venture won't cost over which of the following value?
A. $100,000
B. $110,000
C. $125,000
D. $175,000

6. Your association is thinking about running a venture which will involve a speculation of $1,000,000. The item from the venture is determined to make incomes of $250,000 in the primary year after the end of the venture and of $420,000 in each of the two after years. What is valid for the net present estimation of the venture over the three years cycle at a rebate rate of 10%?
A. The net present value is positive, which makes the project attractive.
B. The net present value is positive, which makes the project unattractive.
C. The net present value is negative, which makes the project attractive.
D. The net present value is negative, which makes the project unattractive.

7. In independent projects evaluation, results of internal rate of return and net present value lead to:
A. Cash flow decision
B. Cost decision
C. Same decisions
D. Different decisions.

8. Projects which are mutually exclusive but different on scale of production or time of completion then the:
A. External return method
B. Net present value of method
C. Net future value method
D. Internal return method

9. Graph which is plotted for projected net present value and capital rates is called:
A. net loss profile
B. net gain profile
C. net future value profile
D. net present value profile

10. A point where profile of net present value crosses horizontal axis at plotted graph indicates project:
A. Costs
B. Cash flows
C. Internal rate of return
D. External rate of return

Windsor Ltd is considering a project, which will involve the following cash inflows and (out) flows:
Rs. ‘000
Initial Outlay
(400)
After 1 Year
40
After 2 Years
300
After 3 Years
300
What will be the NPV (net present value) of this project if a discount rate of 15% is used?
A. +Rs. 60.8k
B. -Rs. 60.8k
C. +Rs. 240k
D. +460.8k
12. Which of the following statements concerning the NPV is not true?
A. The NPV technique takes account of the time value of money
B. The NPV of a project is the sum of all the discounted cash flows associated with a project
C. The NPV technique takes account of all the cash flows associated with a project
D. If two competing projects are being considered, the one expected to yield the lowest NPV should be selected

13. Kappa Ltd is about to undertake a project and has computed the NPV of the project using a variety of discount rates:

Discount rate used

NPV

10%

Rs. 130K

15%

Rs. 50K

20%

Rs. -50K

What is the approximate IRR of this project?

A. 20%

B. 17.5%

C. 15%

D. 22.5%

14. EFG 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:
Project W
Project X
Payback Period
3.8 Years
2.8 Years
Accounting Rate of Return
16%
14%
Net Present Value
Rs. 880,000
Rs. 610,000

Which of the following is the most logical interpretation of the results?
A. Project W should be selected as it gives the longest payback period
B. Project W should be selected because it will yield the highest NPV
C. Project X should be selected because it will yield the lowest NPV
D. The ARR is the most meaningful investment appraisal technique and hence Project W should be selected.

15. The accounting rate of return is measured as follows:
A. Average annual profit expressed as a percentage of the total funds invested in the project
B. Average annual profit expressed as a percentage of the average funds invested in the project
C. Total profits expressed as a percentage of the average funds invested in the project
D. Total profits expressed as a percentage of the total funds invested in the project

16. XYZ Ltd is thinking about undertaking a venture that would return yearly benefits (after devaluation) of Rs. 68,000 for a long time. The underlying expense of the venture would be Rs. 800,000 and the venture's assets would have a residual value of Rs. 50,000 toward the end of the venture. What might be the accounting rate of return for this venture?
A. 16%
B. 8.5%
C. 8.0%
D. 9.1%

17. Which of the following statements concerning the payback period, is not true?
A. The payback period is simple to calculate and understand
B. The payback period measures the time that a project will take to generate enough cash flows to cover the initial investment
C. The payback period ignores cash flows after the payback point has been reached
D. It takes account of the time value of money

19. Which of the following statements is true?
A. Investments that pay back in five years or less should always be accepted
B. Investments that have a positive net present value should always be accepted
C. Investments that have a positive net present value should be considered for acceptance
D. Investments that yield a positive internal rate of return should be accepted

20. The net present value method and the internal rate of return method will always yield the same decision when:

A. A single project is evaluated

B. Mutually exclusive projects are evaluated

C. A limited number of projects must be selected from a large number of opportunities

D. All of the above are correct

21. In cases where capital must be rationed, a firm should rank projects according to their:
A. Net present values
B. Internal rates of return
C. Profitability indexes
D. External rates of return

22. Assume that the risk-free rate is 5% and that the rate of return on a balanced portfolio of common stocks is 9%. If a firm has a beta coefficient of 2, then its risk premium is:
A. 18%
B. 10%
C. 8%
D. 4%

23. In comparing two investment alternatives, the difference between the net present values of the two alternatives obtained using the total-cost approach will be:
A. Less than the net present value obtained using the incremental cost approach
B. The same as the net present value obtained using the incremental cost approach
C. Greater than the net present value obtained using the incremental cost approach
D. Indeterminable

24. Which of the following reasons might result in the NPV and internal rate of return criteria conflicting as to which of two projects (A or B) to support?
A. The NPV curves for the respective projects (A and B) do not intersect above the horizontal axis
B. The NPV curves for the respective projects (A and B) do intersect above the horizontal axis
C. The NPV curves for the respective projects (A and B) do intersect below the horizontal axis
D. The NPV curves for the respective projects (A and B) do not intersect below the horizontal axis

25. A profitability index (PI) of 0.92 for a project means that __________.

A. The project's costs (cash outlay) are (is) less than the present value of the project's benefits

B. The project's NPV is greater than zero

C. The project's NPV is greater than 1

D. The project returns 92 cents in present value for each current dollar invested (cost)