FM D Investment appraisal

Written by Mahnoor Sheikh (ACCA)

اے سی سی اے · مالیاتی انتظام · 10 سوالات

نام: ____________________ تاریخ: ____________

A project has a positive NPV. What does this mean?
- A It will pay back in one year
- B It has no risk
- C It is expected to add to shareholder wealth at the cost of capital
- D It reduces profit
A real rate of 5 percent and inflation of 3 percent give what money (nominal) rate?
- A 8.00%
- B 2.00%
- C 8.15%
- D 15.00%
Which discount rate should be used with money (nominal) cash flows?
- A The inflation rate
- B The money (nominal) cost of capital
- C Zero
- D The real cost of capital
A real project has cash flows of $40,000 a year for 3 years and costs $100,000. The real cost of capital is 5 percent. What is the NPV, to the nearest dollar?
- A $108,930
- B $20,000
- C $8,930
- D $-8,930
An asset costing $100,000 gets a 25 percent allowance in year 1 and the tax rate is 30 percent. What is the year 1 tax saving?
- A $30,000
- B $25,000
- C $2,500
- D $7,500
Machine A has an EAC of $6,309 and machine B has an EAC of $5,630. Which should be chosen and why?
- A B, because it has the lower equivalent annual cost
- B A, because it lasts longer
- C A, because it costs more
- D Neither
Under single-period capital rationing with divisible projects, how are projects ranked?
- A By NPV alone
- B By profitability index (NPV per unit of capital)
- C By payback
- D By cost
Which of these is a limitation of sensitivity analysis?
- A It uses probabilities
- B It considers all variables at once
- C It is too complicated
- D It looks at one variable at a time and gives no probabilities
A lease or buy decision should discount the cash flows at:
- A The after-tax cost of debt
- B Zero
- C The cost of equity
- D The risk-free rate
Which of these is a limitation of payback?
- A It is hard to calculate
- B It uses discounting
- C It looks at profit only
- D It ignores cash flows after the payback period

جوابی کلید

1. C, 2. C, 3. B, 4. C, 5. D, 6. A, 7. B, 8. D, 9. A, 10. D

A positive NPV means the return is higher than the required return.
1.05 x 1.03 - 1 = 8.15%.
Real cash flows go with the real rate.
40,000 x 2.7232 = 108,930. NPV = 8,930.
25,000 x 30% = 7,500.
The lowest EAC is chosen.
The index gives the most NPV per unit of scarce capital.
It shows how much a variable can change before the decision changes.
The lease is a form of borrowing.
Discounted payback deals with the time value of money.