Deck 6: Key Concepts in Investment and Economic Analysis

Question 1

If any policy change benefits any one section of the society (gainers) to such an extent that it is better off even after the payment of compensation to the other sections of the society (losers) out of the benefits received, then that change leads to

A)decrease in social welfare
B)Neither decrease nor increase in social welfare
C)increase in social welfare
D)None of the above

Answer 1

increase in social welfare

Question 2

Who among the following economist accepted growth of GNP as a criterion of Social Welfare

A)Nicholas Kaldor
B)Adam Smith
C)Jeremy Bentham
D)Ohlin

Answer 2

Adam Smith

Question 3

If inflation occurs, investment will be

A)More profitable
B)Less profitable
C)More difficult
D)None of the above

Answer 3

Less profitable

Question 4

Air pollution can be termed as a

A)Social benefit
B)Social cost
C)Social security measure
D)All of the above

Question 5

If the net present value is greater than zero, then the project is

A)Accepted
B)Rejected
C)Neither accepted nor rejected
D)Postponed

Question 6

The period of time required to recover initial cost of investment is called

A)Payback period
B)Annual average rate of return
C)Internal rate of return
D)Net present value

Question 7

The number of years required to recover initial cost of investment is called

A)Recover period
B)Take-back period
C)Payback period
D)Annual average rate of return

Question 8

Internal rate of return is also identified as the

A)Price and location criteria
B)Physical and location criteria
C)Price and physical criteria
D)None of the above

Question 9

In an investment project, the lower the rate of interest

A)No significant change in the value of the project
B)The lower the present value of the project
C)The higher the present value of the project
D)None of the above

Question 10

The rate of discount which equilibrates the cost of capital good s and the expected future returns from the capital good is known as

A)Internal rate of return
B)Net present value
C)Average annual rate of return
D)None of the above

Question 11

If the internal rate of return (IRR) is negative, then the investor

A)Loses money
B)Gains money
C)Neither gains nor loses money
D)None of the above

Question 12

If the net present value (NPV) is more than one, then the project may be

A)Accepted
B)Rejected
C)Accepted or rejected
D)All of the above

Question 13

The reason that finding the present value of a future sum of money requires us to discount it, is that:

A)Waiting involves risk
B)We don't know when we shall receive it
C)Inflation will reduce its purchasing power
D)Waiting deprives us of its use

Question 14

If interest rates rise, the present value of any future earnings is bound to:

A)Suffer from inflation
B)Increase in risk
C)Rise
D)Fall

Question 15

Projects with __________ are preferred

A)Lower payback period
B)Normal payback period
C)Higher payback period
D)Any of the above

Question 16

___________ on capital is called 'Cost of capital'.

A)Lower expected return
B)Normally expected return
C)Higher expected return
D)None of the above

Question 17

The values of the future net incomes discounted by the cost of capital are called

A)future income
B)Internal rate of return
C)Net present values
D)Discounted capital cost

Question 18

Under Net present value criterion, a project is approved if

A)Its net present value is positive
B)The funds are unlimited
C)Both (A) and (B
D)None of the above

Question 19

The internal Rate of Return (IRR) criterion for project acceptance, under theoretically infinite funds is: accept all projects which have

A)IRR equal to the cost of capital
B)IRR greater than the cost of capital
C)IRR less than the cost of capital
D)None of the above

Question 20

The project is accepted of

A)the profitability index is equal to one
B)The funds are unlimited
C)the profitability index is greater than one
D)Both (B) and (C

Question 21

Where capital availability is unlimited and the projects are not mutually exclusive, for the same cost of capital, following criterion is used

A)Net present value
B)Internal Rate of Return
C)Profitability Index
D)All of the above

Question 22

A project is accepted when

A)Net present value is greater than zero
B)Profitability index will be greater than unity
C)Internal Rate of Return will be greater than cost of capital
D)Any of the above