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Chapter 21 - Muliple-choice questions

1. When discounted cash flow techniques are used, depreciation is:
   1.   ?    treated as a negative cash flow
   2.   ?    treated as positive cash flow
   3.   ?    ignored
   4.   ?    discounted
2. The main disadvantage of discounted cash flow techniques is that:
   1.   ?    they do not take account of the time value of money
   2.   ?    they do not take account of the entire life of the project
   3.   ?    it is difficult to determine the interest rate at which cash flows are discounted
   4.   ?    the residual value of assets is ignored
3. If 10% is considered the appropriate interest rate, but the project has a negative NPV, it means:
   1.   ?    a lower interest rate should be selected
   2.   ?    a higher interest rate should be selected
   3.   ?    the investment project is worth undertaking
   4.   ?    the investment project is not worth undertaking
4. Using an 18% interest rate, the present value of £753 to be received in 10 years’ time is:
   1.   ?    £380
   2.   ?    £243
   3.   ?    £144
   4.   ?    £83
5. A project requires a capital investment of £20,000 and is expected to generate net cash inflows of £10,000 in year 1 and £20,000 in year 2. Using an interest rate of 10%, the NPV is:
   1.   ?    £25,610
   2.   ?    £24,390
   3.   ?    £9,090
   4.   ?    £5,610
6. Using the same data and the same interest rate of 10%, the discounted payback period is:
   1.   ?    1 year
   2.   ?    1.33 years
   3.   ?    1.5 years
   4.   ?    1.66 years