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3.8 True or False Quiz

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  • Unit 3 - Finance/
  • 3.8 Investment appraisal/
  • 3.8 True or False Quiz

Unit 3.8 True or False Quiz - Investment appraisal (some HL only)

To test your understanding of this topic (Investment appraisal), answer the following true or false questions. 

No.StatementTrue or False?
1.The payback period estimates the length of time for the cash inflows from an investment to recover the initial project cost.

True

2.Investment appraisal is a means of assessing whether an investment project is worthwhile or not.

True

3.The period over which the investment is expected to earn profit is required to calculate the average rate of return (ARR) for a project.

True

4.The formula to calculate the payback period is: Annual cash flow from investment ÷ initial investment cost × 100.

False

5.An advantage of the payback period is that it allows a firm to examine if it will break even on the purchase of an asset before it becomes technologically obsolete.

True

6.An advantage of the payback method of investment appraisal is that contribution per month is likely to be constant during a project.

False

7.A disadvantage of the payback period method of investment appraisal is that it ignores the overall profitability of an investment.

True

8.Before pursuing a project, qualitative investment appraisal should also be considered.

True

9.An advantage of the payback period method of investment appraisal is that managers can easily understand the results.

True

10.An advantage of the average rate of return (ARR) investment appraisal method is that managers can see profitability predictions for projects.

True

11.Average annual profit is calculated by: (Total returns – Initial outlay) divided by the years of usage. This is then used to calculated the ARR.

True

12.A disadvantage of the payback period method of investment appraisal is that it cannot be used to compare different investment projects with different costs.

False

13.The average rate of return calculated by the formula: Average annual revenue divided by the Initial investment cost.

False

14.A disadvantage of average rate of return (ARR) is that a project’s useful life span (or a guess) is needed before any calculations can be made.

True

15.In an investment appraisal, the acronym NPV stand for Net Present Value. (HL only)

True

16.The payback method of investment appraisal is harder to calculate than the net present value method. (HL only)

False

17.Net present value (NPV) indicates the value of the return from an investment project expressed in today’s value. (HL only)

True

18.Depreciation doesn’t directly affect the payback period. (HL only)

True

19.The net present value of an investment is calculated using a discount factor (the opposite to a compound interest rate figure). (HL only)

True

20.Total present values – original cost of investment is used to calculate the net present value (NPV). (HL only)

True

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