Finance for Non-Finance Managers Investment Decision Making 3

Question 1

What is the weighted average cost of capital (WACC)?

Accepted Answer

The blended cost of all sources of capital, weighted by their proportion

Answer

The average interest rate on all company loans

Answer

The minimum return required on equity investments only

Answer

The average cost of raw materials

Question 2

Which of the following is a qualitative factor in investment decisions?

Accepted Answer

Impact on employee morale and company reputation

Answer

Net present value of the project

Answer

Internal rate of return

Answer

Payback period

Question 3

Mutually exclusive projects are projects where:

Accepted Answer

Choosing one project means the other cannot also be chosen

Answer

Both projects can be undertaken simultaneously

Answer

Projects share the same cash flows

Answer

Neither project requires capital approval

Question 4

A profitability index (PI) greater than 1.0 indicates:

Accepted Answer

The project creates value and should be considered

Answer

The project should be rejected

Answer

The project has no risk

Answer

The IRR equals the discount rate

Question 5

Why is sensitivity analysis important in investment appraisal?

Accepted Answer

It shows how the project's viability changes when assumptions vary

Answer

It eliminates uncertainty from financial projections

Answer

It guarantees project approval from stakeholders

Answer

It reduces the cost of capital

Question 6

Which statement about the NPV method is TRUE?

Accepted Answer

NPV provides an absolute dollar measure of value created

Answer

NPV ignores the time value of money

Answer

NPV cannot be used for projects with irregular cash flows

Answer

NPV is always lower than the IRR method's result