Lesson 5.6.1
5.6.1 Investment appraisal Quiz: OCR Business, Unit 5
20 questions
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Lesson 5.6.1, Investment appraisal: 20 multiple choice questions for the OCR Business (H431), Unit 5: Accounting and finance, written with Revision Ninja.
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The 20 questions
-
What does the payback period method of investment appraisal calculate?
- Time to recover
- Total net profit
- Discounted cash flow
- Average annual profit
-
An investment costs £100,000 and generates £25,000 net cash flow annually. What is payback?
- 3 years
- 4 years
- 5 years
- 2.5 years
-
How is Average Rate of Return (ARR) expressed when evaluating an investment proposal?
- As a percentage
- In years
- As a ratio
- In pounds
-
A £50,000 project yields total profit of £20,000 over 4 years. What is the ARR?
- 25%
- 10%
- 8%
- 40%
-
Which investment appraisal technique explicitly accounts for the time value of money?
- Net Present Value
- Break-even analysis
- Average rate return
- Payback period
-
Why does a pound received in five years have less value than a pound today?
- Higher tax
- Opportunity cost
- Lower demand
- Increased output
-
A project has a Net Present Value of minus £15,000. What decision should be made?
- Accept project
- Reject project
- Delay 1 year
- Increase outlay
-
Which of the following is a qualitative factor influencing an investment appraisal decision?
- Average profit
- Payback period
- Discounted cash flow
- Environmental impact
-
What type of data do payback period and ARR rely upon exclusively?
- Qualitative data
- Anecdotal data
- Subjective data
- Quantitative data
-
Why might a business with severe liquidity problems prefer the payback period method?
- Focuses on cash
- Discounts future value
- Measures total profit
- Ignores cash flow
-
What is a major limitation of using the payback period method alone?
- Ignores later cash
- Ignores cash flows
- Expressed as percentage
- Too complex
-
What is the first step in calculating the Average Rate of Return?
- Subtract residual value
- Multiply by discount
- Divide by outlay
- Calculate total profit
-
A project has present value inflows of £120,000 and cost £100,000. What is the NPV?
- £1.20
- -£20,000
- £220,000
- £20,000
-
If interest rates rise, what happens to the discount factors used in NPV calculations?
- They increase
- They decrease
- They reach zero
- They remain constant
-
Two projects have positive NPVs. Which project should a profit-maximising business choose?
- Lowest outlay
- Highest positive NPV
- Lowest ARR
- Shortest payback
-
Replacing workers with robots improves ARR but harms staff morale. What issue is this?
- Qualitative conflict
- Favourable variance
- Negative cash flow
- Under-capacity
-
What is the primary purpose of carrying out formal investment appraisal?
- Set monthly budgets
- Calculate tax liabilities
- Manage working capital
- Evaluate capital projects
-
What technique tests how an investment outcome changes when key variables vary?
- Ratio analysis
- Variance analysis
- Sensitivity analysis
- Break-even analysis
-
What figure is commonly used as the discount rate when calculating NPV?
- Profit margin
- Current ratio
- Cost of capital
- Inflation rate
-
What is a key drawback of the Average Rate of Return method?
- Ignores total profit
- Expressed in pounds
- Focuses on cash
- Ignores cash timing
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