Cambridge International A Level · Business (9609)

Investment appraisal (A Level): Practice Questions

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

8 questions14 marksFree, no account

Question 1

1 mark

Which of the following is a qualitative factor that a board of directors should consider when deciding whether to invest in a new automated production facility?

Question 2

1 mark

A firm is deciding whether to invest in a new automated production line (Project A) or upgrade its existing human-operated machinery (Project B). Project A has a higher NPV but will result in significant redundancies and a loss of traditional craftsmanship. Choosing Project B based on these concerns is an example of prioritizing which factor?

Question 3

1 mark

A company calculates that a new expansion project has an Accounting Rate of Return (ARR) of \(11\%\). The current market interest rate for business loans is \(14\%\). From a strictly financial perspective, why should the company likely reject this project?

Question 4

1 mark

Which of the following is a qualitative factor that a board of directors should consider when appraising a high-cost automation project?

Question 5

1 mark

Which of the following best explains why the Net Present Value (NPV) method is often considered superior to the Accounting Rate of Return (ARR)?

Question 6

2 marks

Identify two qualitative factors that might influence a business manager's decision to invest in a new automated production line.

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Question 7

2 marks

State two reasons why a business needs to perform investment appraisal before committing to a long-term project.

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Question 8

5 marks

A company is comparing two projects. Project X has a shorter payback period, but Project Y has a higher Net Present Value (NPV). Evaluate why the company might still choose Project X if they are facing a liquidity crisis.

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