Investment Appraisal

17 Questions | By Ipaqliew | Updated: Dec 12, 2022 | Attempts: 816

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ACCA F9 PAPER

Questions and Answers

1.

A machine which cost $20,000 was sold after 5 years for $5,000 and by this time tax allowable depreciation of $17,000 had been claimed. Rate of tax is 30%. What is the cash flow arising as a result of tax implications on the sale of the machine?
- A.
  
  $600 Inflow
- B.
  
  $600 Outlow
- C.
  
  C $2,000 Outflow
- D.
  
  $2,000 Inflow
2.

Which one do you like?
- A.
  
  Option 1
- B.
  
  Option 2
- C.
  
  Option 3
- D.
  
  Option 4
3.

The IRR method ignores the relative size of investments, True or False?
- A.
  
  True
- B.
  
  False
4.

Which ONE of the following is included in the cash flows when setermining the net present value of a project?
- A.
  
  Depreciation charges for the equipment
- B.
  
  Research costs
- C.
  
  Disposals value of the equipment
- D.
  
  Interest payments
5.

Using a cost of capital of 9%, the NPV of a project turned out to be $4,300. Using a rate of 12%, the NPV of the project is ($2,230). What is the IRR of the projects?
- A.
  
  13.97%
- B.
  
  15.23%
- C.
  
  10.97%
- D.
  
  10%
6.

A company is considering a project which will earn cash flows of $60,000 in Year 1 and $80,000 in Year 2 but will require capital investment of $100,000 today. What is the NPV of the project if the cost of capital is 15%?
- A.
  
  $112,665
- B.
  
  $12,665
- C.
  
  $21,739
- D.
  
  $5,860
7.

The rate of return is 12%. Cash inflow in the second year is $50,000 and in the third year $40,000. What is the present value of these future returns?
- A.
  
  $11,388
- B.
  
  $118,917
- C.
  
  $71,375
- D.
  
  $68,330
8.

The Fisher formula is : (1+i)=(1+_r)(1+h). What does the letter ‘h’ stand for in this formula?
- A.
  
  Real rate of interest
- B.
  
  Rate of inflation
- C.
  
  Nominal rate of interest
- D.
  
  Money rate of interest
9.

If the cash flows are expressed in terms of the actual number of dollars that will be received or paid on the futures dates, we use the real rate for discounting. True or False
- A.
  
  True
- B.
  
  False
10.

Where there are conventional cash flows IRRs are possible, True or False
- A.
  
  True
- B.
  
  False
11.

A cash outlay or receipt that occurs at the beginning of the time period is taken to occur at:
- A.
  
  The start of this year
- B.
  
  The end of this year
- C.
  
  The end of last year
- D.
  
  Year 0
12.

A company is considering the following project. Cost of asset:$100,000, Estimated life:4 years and Profit before depreciation is $125,000 over the 4 years. Capital asset is depreciated by 25% of its cost each year. What is the ROCE (based on average investment)?
- A.
  
  15%
- B.
  
  12%
- C.
  
  13%
- D.
  
  12.5%
13.

ABC Ltd requires a return of 3% per year. ABC Ltd is located in a country where inflation is expected to be 8% per annum. What nominal rate of return is required by ABC Ltd to get a real return of 3%?
- A.
  
  11.24%
- B.
  
  4.85%
- C.
  
  4.63%
- D.
  
  10.24%
14.

Which one do you like?
- A.
  
  Option 1
- B.
  
  Option 2
- C.
  
  Option 3
- D.
  
  Option 4
15.

What is the present value of $100,000 cash inflows per annum in perpetuity when the organisation’s cost of capital is 15%?
- A.
  
  $714,286
- B.
  
  $666,666
- C.
  
  $86,957
- D.
  
  $625,000
16.

A machine has annual running costs of $50,000 and is producing output which is selling for $20,000, If this machine is now diverted to produce a special order worth $30,000, what would be the relevant cost?
- A.
  
  $80,000
- B.
  
  $50,000
- C.
  
  20,000
- D.
  
  $30,000
17.

Revenue expenditure may be incurred to maintain the earning capacity of existing non-current assets, True or False?
- A.
  
  True
- B.
  
  False