Pearson Edexcel A Level · Business (9BS0)

Investment appraisal: Practice Questions

5 multiple-choice questions marked as you go, and 3 written questions with worked solutions. All on Investment appraisal.

8 questions15 marksFree, no account

Question 1

1 mark

Which of the following is a primary limitation of using the simple payback period method for investment appraisal?

Question 2

1 mark

Which of the following statements best describes the effect of an increase in the discount rate (interest rate) on a project's Net Present Value (NPV) calculation?

Question 3

1 mark

A company is evaluating an investment. The Simple Payback Period is 2 years. The ARR is 25%. However, the NPV is negative. What is the most plausible explanation for this discrepancy?

Question 4

1 mark

Which of the following is a primary limitation of the Average Rate of Return (ARR) method of investment appraisal?

Question 5

1 mark

Calculate the Net Present Value (NPV) for a project with an initial outlay of \(£80,000\) and a single cash inflow of \(£100,000\) at the end of Year 1, given a discount factor of \(0.909\) for Year 1.

Question 6

2 marks

A business is considering an investment with an initial cost of \(£50,000\). The expected annual cash inflows are \(£15,000\) for the next four years. Calculate the simple payback period for this investment.

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Question 7

3 marks

A project has an initial outlay of \(£100,000\) and is expected to generate a total profit of \(£40,000\) over its 5-year life. Calculate the Average Rate of Return (ARR) for this project.

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Question 8

5 marks

Discuss one major limitation of relying solely on quantitative investment appraisal techniques like ARR and NPV when making a final strategic decision.

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