If the market rate of interest is 18% and the general rate of inflation is 12%, the real rate of interest is:
5.4%
6%
10%
15%
Real cash flows are:
The cash flows that actually happen
The cash flows that we expect to happen
The cash flows that actually happen adjusted for changes in prices
Discounted cash flows
If the money cash flow after one year is £280 and the change in the level of general prices during the year was 8%, the real cash flow was:
£224
£259
£288
£302
The rule for discounting is:
Use either real cash flows and real interest rates or money cash flows and money interest rates
Use actual cash flows and real interest rates
Use real cash flows and actual interest rates
Use today's interest rate and the cash flow that actually takes place
Which of the following does NOT impact on investment appraisal?
Capital allowances
Tax liabilities arising from the profits of the project
Tax effects of financing the project
The marginal tax rates of individual investors
A company finances a project by borrowing from the bank. The NPV of the project will be:
The same as it would have been had it been internally funded
Less than it would have been had it been internally funded
More it would have been had it been internally funded
It isn't possible to say whether it would have been more or less had it been internally funded
Which of the following is relevant for an investment decision involving a machine?
Depreciation of the machine
Overhead costs relating to the existing building in which the machine will be housed
Estimated maintenance costs
Costs relating to visits already made to the manufacturer of the machine
A company agrees to pay for maintenance of a machine on a contract that adjusts the payment in line with inflation. The payment just made was £5,000. The market discount rate is 12% and it is estimated that inflation will be 4%. The present value of the payment in two years time will be:
£3,985
£4,310
£4,662
£5,408
A company owns a machine that cost £20,000 and is now on the books at depreciated value of £10,000. It can be used on a project for two years at which time it will be worth £2,000. Alternatively it could be sold for £5,000 immediately. Assuming the project cash flows are £4,000 at the end of year 1 and £2,000 at the end year 2 (ignoring the scrap value) and the discount rate is 12%, what is the NPV of the project?
- £4,240
£165
£1,760
£3,760
A company currently has 4 products that each take up ¼ of the factory space. The factory costs £3m a year to run. The net cash flows of the products are as follows: Alpha £1m, Beta £1.5m, Gamma £2m, Delta £2.5m. A new product, Epsilon, is being considered. It will produce a net cash flow of £1.75m. For the purposes of deciding whether or not to start producing Epsilon, what will the cost of space be?