Finance for Non-Finance Managers Investment Decision Making 2

Question 1

Internal Rate of Return (IRR) is best described as:

Accepted Answer

The discount rate at which a project's NPV equals zero

Answer

The minimum return required by investors

Answer

The average annual profit divided by initial investment

Answer

The percentage of revenue reinvested in the business

Question 2

If a project's IRR exceeds the company's required rate of return (hurdle rate), the project should:

Accepted Answer

Be accepted

Answer

Be rejected

Answer

Be deferred indefinitely

Answer

Be reviewed by external auditors

Question 3

Discounting cash flows means:

Accepted Answer

Converting future cash flows to their equivalent value today

Answer

Reducing cash flows to account for inflation only

Answer

Offering payment discounts to customers

Answer

Reducing the budget for a project midway through

Question 4

What is opportunity cost in investment decision making?

Accepted Answer

The return foregone by choosing one investment over the next best alternative

Answer

The cost of lost opportunities due to poor advertising

Answer

The total cost of a missed budget target

Answer

The expense of hiring external consultants

Question 5

Which of the following describes a sunk cost?

Accepted Answer

A cost already incurred and not recoverable regardless of the decision

Answer

A future cost that depends on the decision made

Answer

A variable cost that changes with output

Answer

A cost that can be saved by canceling a project

Question 6

The Accounting Rate of Return (ARR) is calculated as:

Accepted Answer

Average annual profit divided by average investment

Answer

Total cash inflows divided by total cash outflows

Answer

Net present value divided by initial investment

Answer

Free cash flow divided by total revenue