Investment Analysis Flashcards
7 cards from real CCA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Investment Analysis flashcards as text
What is a shadow carbon price in corporate investment appraisal?
Answer: A hypothetical cost per tonne applied to project emissions when evaluating investments
A shadow price is a notional carbon cost used in decision-making without an actual cash transfer.
How does an internal carbon fee differ from a shadow carbon price?
Answer: An internal fee involves actual charges to business units, often funding reduction projects
Internal carbon fees move real money internally, whereas shadow prices only adjust appraisal calculations.
A project has an NPV of -$50,000 without carbon revenue and the present value of its discounted abated tonnes is 10,000 tCO2e. What is its breakeven carbon price?
Answer: $5/tCO2e
$50,000 / 10,000 discounted tonnes = $5 per tonne makes NPV equal zero.
Increasing the discount rate used in appraisal generally has what effect on long-lived emissions-reduction projects?
Answer: It reduces their NPV because distant savings are discounted more heavily
Higher discount rates shrink the present value of benefits that occur far in the future.
When two mutually exclusive abatement projects rank differently by NPV and IRR, which criterion is generally preferred?
Answer: NPV, because it measures absolute value added
NPV directly measures wealth created and avoids IRR's scale and reinvestment-rate issues.
A project's profitability index is 1.25. What does this indicate?
Answer: The present value of inflows is 125% of the initial investment
PI = PV of future cash flows / initial investment; values above 1 indicate positive NPV.
Given a 7% nominal discount rate and 2% inflation, what is the approximate real discount rate?
Answer: 4.9%
Real rate = (1.07/1.02) - 1 ≈ 4.9%.