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

Accepted Answer

This scenario describes the Pareto Improvement principle, where a change benefits at least one party without making any other party worse off, especially after compensation. This leads to an increase in social welfare because the overall well-being of society improves when the gainers can fully compensate the losers and still retain some benefit.

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

Accepted Answer

B

Question 3

If inflation occurs, investment will be
A)More profitable
B)Less profitable
C)More difficult
D)None of the above

Accepted Answer

Inflation generally reduces the real returns on investments, making them less profitable because the purchasing power of the returns diminishes.

Question 4

Air pollution can be termed as a
A)Social benefit
B)Social cost
C)Social security measure
D)All of the above

Accepted Answer

Air pollution is considered a social cost because it negatively impacts public health, the environment, and the economy, affecting society as a whole.

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

Accepted Answer

When the net present value (NPV) is greater than zero, it indicates that the project's returns exceed its costs, making it financially viable and typically leading to the project being accepted.

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

Accepted Answer

The payback period is the time it takes for an investment to generate an amount of income or cash equivalent to the cost of the investment, thus recovering the initial cost.

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

Accepted Answer

The correct term for the number of years required to recover the initial cost of an investment is "Payback period."

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

Accepted Answer

The answer of Internal rate of return is also identified...

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

Accepted Answer

The lower the rate of interest, the higher the present value of the project because future cash flows are discounted at a lower rate, making them more valuable in present terms.

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

Accepted Answer

The Internal Rate of Return (IRR) is the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero. It equilibrates the cost of capital goods and the expected future returns, making it the correct answer.

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

Accepted Answer

The internal rate of return (IRR) is a metric used to evaluate the profitability of potential investments. A negative IRR indicates that the present value of future cash flows is less than the initial investment, meaning the investor loses money.

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

Accepted Answer

The net present value (NPV) is a measure used to assess the profitability of an investment or project. If the NPV is more than one, it indicates that the present value of the project's cash flows is greater than the present value of its costs, suggesting the project is expected to generate a profit and therefore may be accepted.

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

Accepted Answer

The answer of The reason that finding the present value...

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

Accepted Answer

When interest rates rise, the present value of future earnings falls because the discount rate used to calculate present value increases, making future earnings less valuable in today's terms.

Question 15

Projects with __________ are preferred
A)Lower payback period
B)Normal payback period
C)Higher payback period
D)Any of the above

Accepted Answer

Projects with a lower payback period are preferred because they allow investors to recover their initial investment sooner, reducing the risk and improving the liquidity of the investment.

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

Accepted Answer

The cost of capital refers to the return a company needs to achieve in order to justify the cost of a capital project, such as issuing bonds or taking out a loan. It is essentially the rate of return that could have been earned by putting the same money into a different investment with equal risk. Thus, it is the normally expected return on the capital.

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

Accepted Answer

Net present values (NPV) are calculated by discounting the future net incomes by the cost of capital, reflecting the current value of those future earnings.

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

Accepted Answer

The answer of Under Net present value criterion, a project...

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

Accepted Answer

The IRR criterion for project acceptance states that a project should be accepted if its IRR is greater than the cost of capital. This implies that the project is expected to generate a return higher than the cost of financing it, thereby adding value to the firm.

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

Accepted Answer

The answer of The project is accepted of
A)the profitability index...

Quiz 6: Key Concepts in Investment and Economic Analysis

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

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

If inflation occurs, investment will be

Air pollution can be termed as a

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

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

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

Internal rate of return is also identified as the

In an investment project, the lower the rate of interest

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

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

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

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

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

Projects with __________ are preferred

___________ on capital is called 'Cost of capital'.

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

Under Net present value criterion, a project is approved if

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

The project is accepted of