7. Decision Making

Capital Investment — Quiz

Test your understanding of capital investment with 5 practice questions.

Practice Questions

Question 1

Which investment appraisal technique is most appropriate for comparing projects of different sizes or durations, as it provides a relative measure of profitability?

Question 2

A project has an initial investment of $$ \$80,000 $ and is expected to generate annual cash inflows of $ \$25,000 $ for 5 years. If the cost of capital is $ 8\% $, what is the Net Present Value (NPV) of the project? (Discount factors: Year 1: $ 0.926 $, Year 2: $ 0.857 $, Year 3: $ 0.794 $, Year 4: $ 0.735 $, Year 5: $ 0.681 $$)

Question 3

What is a primary disadvantage of the Net Present Value (NPV) method when comparing projects?

Question 4

Which of the following scenarios would most likely lead to a project being accepted based on the Payback Period method?

Question 5

A company is considering an investment with an initial cost of $$ \$150,000 $. It is expected to generate annual accounting profits of $ \$20,000 $$ for 10 years. Calculate the Accounting Rate of Return (ARR) for this project.