Mirchawala’s Hub Of Accountancy:
MA2:Managing Cost and Finances:
Capital Investment Appraisal:
Question#1:
A capital investment project require expenditure of $90,000 in year 0 followed by cash inflow of $30,000
at the end of each of the four years of projects’s life.
What is the payback period of the investment project?
A. 1 year
B. 2 years
C. 3 years
D. 4 years
Question#2:
What is the value after three years of $100 invested now at a compound rate of interest of 6% per
annum $_______ (to the nearest $)?
Question#3:
Are the following statements about the project correct?
Yes No
The IRR is below 10%
The project is viable if the cost of capital is below 10%
Question#4:
Discounted cash flow analysis is being applied to a project with the following results:
Rate of interest (% per annum) Net present value ($)
13 9,362
19 (2,015)
Using the above results what is the best approximation of the internal rate of return of the project?
A. 14.1%
B. 13.8%
C. 20.6%
D. 17.9%
Question#5:
A business is considering a project requiring an investment of $200,000 now and with estimated cash
inflow of $23,000 per annum in perpetuity. The first cash inflow of would be received in one year’s time.
The cost of capital is 10% per annum.
What is the net present value of investment?
A. $2,300
B. $30,000
C. $3,000
From The Desk Of Sir Ahmed Shafi: Page 1
Mirchawala’s Hub Of Accountancy:
D. $20,000
Question#6:
A capital investment project require expenditure of $120,000 in year 0 followed by cash inflow of
$30,000 at the end of each of the four years of projects’s life.
What is the payback period of the investment project?
A. 1 year
B. 2 years
C. 3 years
D. 4 years
Question#7:
Jerry is currently considering an Investment that gives a positive net present value of $3,664 at 15%. At a
discount rate of 20% it has a negative net present value of $21,451
What is the internal rate of return of this Investment ?
A. 15.7%
B. 16.0%
C. 19.3%
D. 19.9%
Question#8:
A new machine costing $100,000 has an estimated realisable value of $25,000 after five years. The
expected profit from Investment in the machine is $25,000 per year, net of straight-line depreciation.
What is the payback period?
A. 4.0 years
B. 3.0 years
C. 1.875 years
D. 2.5 years
Question#9:
An Investment made now would yield $15,972 in three years if compound interest is earned at an
annual rate of 10%.
What is the amount of the Investment now?
A. $12,000
B. $13,200
C. $10,909.10
D. $11,643.59
Question#10:
What is the effective annual rate of interest of 4.3% compounded every six months?
A. 8.60%
B. 8.78%
C. 9.25%
D. 10.88%
Question#11:
An investment project has net present values as follows:
At a discount rate of 5%. $69,700 positive
At a discount rate of 14%. $16,000 positive
At a discount rate of 20%. $10,500 negative
Using the above figures, what is the BEST approximation of the internal rate of return of the
investment project?
A. 17.6%
B. 17.9%
From The Desk Of Sir Ahmed Shafi: Page 2
Mirchawala’s Hub Of Accountancy:
C. 18.0%
D. 22.7%
Question#12:
Top Co’s accountant has worked out the following NPVs for an investment in machinery. Use the data
below to work out the internal rate of return for the investment.
NPV at 5% $350
NPV at 10% $(1,750)
IRR of investment is _______%
Question#13:
A company is considering investing $100,000 now to receive five annual sums of $25,000, commencing
in a year’s time. The company has a cost of capital of 10%. The annuity factor for 10% over 5 years is
3.791.
Calculate the net present value of the investment $________
Question#14:
A company will receive $5,000 per year for next 6 years with first amount received immediately
Interest rate is 10%
What will be the present value____?
Question#15:
What is the present value of $5,000 in perpetuity at a discount rate of 10%?
A. $500
B. $5,500
C. $4,545
D. $50,000
Question#16:
A capital investment project requires an initial investment sum. The investment returns are expected to
be a constant amount in each year of the life of the investment?
How is the payback period for the investment calculated?
A. Investment sum/net cash inflow per annum
B. Investment sum/net profit per annum
C. (Investment sum + residual value) net cash inflow per annum
D. (Investment sum + residual value)/ net profit per annum
Question#17:
What is the present value of ten annual payment of $700 discounted at 8% per annum, with the first
payment being made immediately ?
A. $4,697
B. $4,723
C. $4,435
D. $5,073
Question#18:
A company is considering a project from which it will receive $5,000 per year for next 11 years at the
investment of $45,000.Interset rate is 12%.
The net present value of the project will be______?
Question#19:
A business is considering a project requiring an investment of $200,000 now and with estimated cash
inflows of $23,000 per annum in perpetuity. The first cash inflow would be received in one year's time.
The cost of capital is 10% per annum.
What is the net present value of the investment?
A. $2,300
From The Desk Of Sir Ahmed Shafi: Page 3
Mirchawala’s Hub Of Accountancy:
B. $3,000
C. $20,000
D. $30,000
Question#20:
The effective annual rate of interest of 2.1% compounded every three months is _______%(round to
two decimal places)
From The Desk Of Sir Ahmed Shafi: Page 4
