Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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1.
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A
real cash flow is: a. | A cash flow expressed in future price
levels | c. | A cash flow
based upon current estimates | b. | A cash flow based upon the best future
expectations | d. | A cash flow
projection based upon current price levels | | | | |
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2.
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If a
nominal rate of return is 8 per cent and the rate of inflation is 3 per cent then the real rate of
return is: a. | 5 per
cent | c. | 11.24 per
cent | b. | 4.85 per
cent | d. | 1.049 per
cent | | | | |
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3.
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A
real cash flow should be projected as follows: a. | By ignoring price changes
altogether | c. | By projecting
using specific price increases and then discounting using the rate of
inflation | b. | By projecting using general inflation and then discounting
using the rate of inflation | d. | By inflating
expected prices using GDP and then deflating using the RPI | | | | |
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4.
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A
project has an outlay of 100, and promises cash flows of 40, 60, 50 and 30. What is the
profitability index for this project assuming a cost of capital of 8 per cent? a. | 1.8777 | c. | 0.5022 | b. | 1.5022 | d. | 0.8345 | | | | |
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5.
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A
project has a profitability index of 0.20 and a cost of capital of 8 per cent. What is the
maximum rate it should be prepared to pay to secure money market finance to invest in this
project. The project's internal rate of return is 16 per cent. a. | 16 per
cent | c. | 20 per
cent | b. | 8 per
cent | d. | 28 per
cent | | | | |
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