E4 Investment appraisal: risk, simulation and rationing

Written by Saad Rahman (ACCA)

اے سی سی اے · ایکسپرٹیز لیول میں نیا · 8 سوالات

نام: ____________________   تاریخ: ____________

1. NPVs of +$50,000 (p 0.3), +$20,000 (0.5) and -$40,000 (0.2) are expected. What is the expected NPV?

   • A $17,000
   • B $10,000
   • C $-8,000
   • D $30,000

2. In the same project (NPVs of +$50,000, +$20,000 and -$40,000 with probabilities 0.3, 0.5 and 0.2), what is the probability of a negative NPV?

   • A 30%
   • B 50%
   • C 80%
   • D 20%

3. What does simulation do in investment appraisal?

   • A Repeats the appraisal many times using random values for uncertain variables
   • B Fixes all variables at their average
   • C Replaces the discount rate
   • D Avoids probabilities

4. Which is a disadvantage of simulation?

   • A It is free
   • B It needs probability distributions that may be hard to estimate
   • C It cannot show risk
   • D It uses only one variable

5. A risk-adjusted discount rate for a risky project is:

   • A The cost of capital less a premium
   • B The cost of capital plus a premium
   • C The inflation rate
   • D Zero

6. Project A has NPV $30,000 for $100,000 and project B has NPV $25,000 for $50,000. What is the profitability index of B?

   • A 0.50
   • B 2.00
   • C 0.30
   • D 0.83

7. Project A has NPV $30,000 for $100,000 and project B has NPV $25,000 for $50,000. Both are divisible and $120,000 is available. What is the best total NPV?

   • A $46,000
   • B $25,000
   • C $55,000
   • D $30,000

8. For indivisible projects under capital rationing, how should they be compared?

   • A By payback only
   • B By testing combinations of whole projects
   • C By cost only
   • D By the profitability index only