Exam-style Questions: Budgeting, Costing and Investment

1. a) What is meant by Net Present Value in relation to investment appraisal?

b) The following are net cashflows from three projects, A, B and C, which have an initial investment of £40,000:

Using investment appraisal methods with which you are familiar, state which of the projects above you would recommend.

Give reason for your answer.

(Marks available: 10)

Answer

Answer outline and marking scheme for question: 1

Give yourself marks for mentioning any of the points below:

a) Net present value is the present value of future income from an investment project, less the cost.

(5 marks)

b) Payback method. B is fastest.

Return on investment. A is best.

NPV. B is best

B is the best choice.

(5 marks)

(Marks available: 10)