Pelmette Oxbow is appraising a potential new product which will involve the purchase of new production machinery. The company has just paid for a market research survey to gauge likely public interest in the project.

Which one of the following statements is correct?

For capital investment appraisal purposes the expenditure on the market research survey is classified as a:

Which one of the following formulae shows the correct approach to calculating Accounting Rate of Return?

Which one of the following formulae shows the value of €100 invested now at a rate of 10% for 2 years?

Which investment appraisal technique calculates the discount rate which, applied to expected cash flows, produces a net present value of zero?

Which one of the following statements is correct?

At the end of year 5, €3000 invested now at time 0, at an annual interest rate of 12%, will be worth (to the nearest €):

Which one of the following statements is correct?

The discounting factor for an investment over 6 years at 18% is (to 4 decimal places):

Assuming a constant discount rate of 8% the present value of €3315 receivable at the end of year 6 is (to the nearest €):

Assuming a constant discount rate of 16% the present value of €58 270 receivable at the end of year 9 is (to the nearest €):

A project has the following projected cash inflows and outflows:

<

		€
time 0		200 000
time 1	cash inflow	160 000
time 2	cash inflow	180 000

The relevant discount factor is 7%.

What is the net present value of the project (to the nearest €)?

A project has the following projected cash inflows and outflows:

		€
time 0	cash outflow	60 600
time 1	<cash inflow	35 000
time 2	cash inflow	35 000
time 3	cash inflow	12 000

The relevant discount factor is 8%

What is the present value of the project (to the nearest €)?

A project has the following projected cash inflows and outflows:

		€
time 0	cash outflow	50 000
time 1	cash outflow	60 000
time 4	cash inflow	135 000

The relevant discount factor is 11%

What is the present value of the project (to the nearest €)?

A project has the following projected cash inflows and outflows:

		€
time 0	cash outflow	60 000
time 2	cash inflow	50 000
time 6	cash inflow	80 000

The relevant discount factor is 8%

What is the net present value of the project (to the nearest €)?

Which is the missing phrase in the following sentence?

A weakness of the ________ method of investment appraisal is that it cannot be used where the pattern of cash flows is irregular, with a mixture of cash inflows and cash outflows.

Which of the following statements are correct?

A. The payback method of investment appraisal takes no account of the time value of money.
B. The internal rate of return method of investment appraisal takes no account of the time value of money.

The following net present values have been calculated at a range of interest rates for a project:

Interest rate	NPV
	€
12%	16 227
14%	9400
16%	2240
18%	(5957)

Using linear interpolation, what is the best estimate of the internal rate of return of this project (calculated to two decimal places)?

The following net present values have been calculated at a range of interest rates for a project:

Interest rate	NPV
	€
10%	16 550
12%	4275
14%	(6620)

Using linear interpolation, what is the best estimate of the internal rate of return of this project (calculated to two decimal places)?

Which one of the following statements is correct?

The discount rate applicable to a particular business organisation is often referred to as its:

Which one of the following statements is correct?

IRR is the discount rate which, when applied to the expected cash flows from a project:

The directors of Dave’s Fashions are currently appraising four possible capital investment opportunities.

The projects produce the following ratios of cash flows to initial investment:

Project A	1.35
Project B	1.62
Project C	1.55
Project D	0.96

Which of the following statements are correct?

A. Project B produces the highest positive ratio of cash flows to initial investment.
B. The net present value of Project D is a negative figure.

The management accountant of Enn Corporation has produced the following schedule showing the net present value of cash flows associated with a proposed investment project:

	Discounted cash flow (€)
time 0	-600 000
time 1	+136 630
time 2	+277 260
time 3	+322 664
TOTAL NET PRESENT VALUE OF PROJECT	+136 554

What is the ratio of cash flows to initial investment in the project (to two decimal places)?

The directors of Godfrey and Glamorgan are currently considering the replacement of part of their production line. Relevant data for machine Z are as follow:

Initial investment at time 0

€600 000

Net cash inflows from machine	€
Year 1	210 000
Year 2	220 000
Year 3	200 000
Year 4	150 000

Which one of the following statements is correct?

The payback period for the proposed investment is (to the nearest month):

The directors of Boggust and Berlin are currently appraising a proposed investment in a machine. Relevant information is as follows:

Initial investment at time 0

€400 000

Net cash inflows from machine	€
Year 1	136 000
Year 2	117 000
Year 3	100 000
Year 4	76 000
Year 5	40 000

Which one of the following statements is correct?

The payback period for the proposed investment is (to the nearest month):

The financial director of Hooper Staithes is currently appraising a proposed investment in a new building. Relevant information about projected cash flows is as follows:

Initial investment at time 0

€550 000

Net cash inflows from building	€
Year 1	25 000
Year 2	60 000
Year 3	102 000
Year 4	131 000
Year 5	107 000
Year 6	98 000
Year 7	77 000
Year 8	62 000

Which one of the following statements is correct?

The payback period for the proposed investment is (to the nearest month)?

The directors of Ovoid Pendragon are currently appraising a proposed investment which will involve a cash outflow at time 0 of €132 000. The projected cash inflow arising from the project in year 1 is €36 000. This is expected to increase at a compound rate of 10% in years 2 to 4.

What is the payback period of the project to the nearest month?

The directors of Bobcat and Blister are currently appraising a proposed investment which will involve a cash outflow at time 0 of €97 200. The projected cash inflow arising from the project in year 1 is €28 000. The cash inflow is expected to rise by 9% in year 2, to remain at the same level as year 2 in year 3, and then to fall back to €25 200 in each of years 4 and 5.

What is the payback period of the project to the nearest month?

Burroughs Benstead is planning an immediate investment (i.e. at time 0) of €500 000 in machinery. The project in which the machinery will be used is planned to last exactly 5 years. At the end of this period, the machinery will be scrapped, and is not expected to retain any residual value. The company’s policy is to depreciate machinery on the straight line basis over its estimated useful life.

Cash flows arising from the project, before taking depreciation into account, are projected to be as follow:

Year 1	€168 000
Year 2	€238 000
Year 3	€242 000
Year 4	€227 000
Year 5	€204 000

What is the accounting rate of return on this project?

Morgana Fitzhoward is planning an investment in a machine of €400 000 at time 0. It is projected that cash flows arising from this investment will be €168 000 in year 1, €238 000 in year 2, and €242 000 in year 3.
The company’s cost of capital is 14%.

What is the net present value of the project (to the nearest €)?

Pillforth Proust is planning to invest €250 000 in a machine. The company estimates that the residual value of the machine at the end of year 4 will be €50 000, at which time it will be sold. A policy of straight line depreciation will be applied.

Cash flows arising from the investment, before taking depreciation into account, are estimated as follow:

Year 1	€95 000
Year 2	€116 000
Year 3	€107 000
Year 4	€84 000

What is the accounting rate of return on this investment (to one decimal place)?

Smedworth & Formby is considering the investment of €250 000 in a machine at time 0. It is estimated that the machine will produce cash inflows of €125 000 in year 1, €116 000 in year 2, and €107 000 in year 3. The company’s cost of capital is 9%.

What is the net present value of the investment (to the nearest €)?

Skuse and Mayworth is considering the investment of €136 000 in a new piece of machinery. Budgeted cash inflows from the project, before taking depreciation into account, are as follow:

Year 1	€62 000
Year 2	€58 000
Year 3	€26 000

The company’s policy is to depreciate machinery on the reducing balance basis at a rate of 25% each year. In the case of this investment, it is assumed that the machine would be sold for its residual value at the end of year 3.

What is the accounting rate of return on this investment (to one decimal place)?