|
| Project A (N$) | Project B (N$) |
| Initial capital expenditure | 50 000 | 50 000 |
| Profit (loss) year 1 | 25 000 | 10 000 |
| 2 | 20 000 | 10 000 |
| 3 | 15 000 | 14 000 |
| 4 | 10 000 | 26 000 |
| Estimated resale value at end of year 4 | 10 000 | 10 000 |
Notes:
- Depreciation is accounted for on a straight-line method basis
- The cost of capital is ten percent
Determine the average annual rate of return on average capital invested for project A to the nearest whole number
2, When comparing 2 mutually exclusive projects using NPV the general rule is
a.
Choose all projects with a positive NPV
b.
Divide NPV by the duration of the projects and choose the higher
c.
Divide the NPV by the amount of the investments and choose the higher
d.
Accept the project with the greater NPV
3, Real cash flows are:
a.
The cash flows that we expect to happen
b.
The cash flows that happen adjusted for changes in prices
c.
The cash flows that happen
d.
Discounted cash flows
5. Which of the following is relevant for an investment decision involving a machine?
a.
Costs relating to visits already made to the manufacturer of the machine
b.
Overhead costs relating to the existing building in which the machine will be housed
c.
Estimated maintenance costs
d.
Depreciation of the machine
5. Soft capital rationing exists where:
a.
The company imposes its own rules on managers as regards the amount they can invest
b.
It is difficult for the company to go to the capital markets
c.
Banks are unwilling to lend
d.
Companies have a poor credit rating
1 Answer