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1 point
Which of the following is one of the assumptions of PERT?
Total project completion time follows a normal probability distribution.
Activity times are dependent and correlated.
Project completion time follows a skewed chi-square distribution.
Activity times are known with certainty.
1 point
In a PERT network, the earliest (activity) start time is the:
earliest time that an activity can be finished without delaying the entire project.
latest time that an activity can be started without delaying the entire project.
earliest time that an activity can start without violation of precedence requirements.
latest time that an activity can be finished without delaying the entire project.
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1 point
The time by which activity completion time can be delayed without affecting the start of succeeding activities, is known as:
Interfering float.
Total float
Duration
Free float
1 point
Discount rate which forces net present values to become zero is classified as
positive rate of return
negative rate of return
external rate of return
internal rate of return
1 point
The discount factor used to appraise capital investment decisions is a measure of:
The current high street interest rate
The opportunity cost of capital of the business
The current inflation rate
The opportunity cost of capital of all businesses in the same industry
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1 point
Which of the following statements concerning the payback period, is not true?
The payback period is simple to calculate and understand.
The payback period measures the time that a project will take to generate enough cash flows to cover the initial investment.
The payback period ignores cash flows after the payback point has been reached.
It takes account of the time value of money.
1 point
NPTEL Ltd is considering two possible projects but can only raise enough funds to proceed with one of them. Investment appraisal techniques have been used and the following results found:
Which of the following is the most logical interpretation of the results?
Project W should be selected as it gives the longest payback period.
Project W should be selected because it will yield the highest NPV.
Project X should be selected because it will yield the lowest NPV
The ARR is the most meaningful investment appraisal technique and hence Project W should be selected.
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1 point
NPTEL Ltd is considering undertaking a project, which will involve an initial outlay of £300,000. The project has the following cash flows associated with it:
If a discount rate of 10% is used to calculate the NPV of the project, which of the following statements is correct? (Assume the cash flows arise at the end of each year.)
The project will yield a positive NPV of £65.5k and have a payback period of 2 years and 3 months.
The project will yield a positive NPV of £65.5k and have a payback period of 2 years and 9 months.
The project will yield a positive NPV of £365.5k and have a payback period of 2 years and 3 months.
The project will yield a positive NPV of £365.5k and have a payback period of 2 years and 9 months.
1 point
Tata Industry is considering a new project that develops a new iron pigment, PRISTINE. The company has estimated that the project’s NPV is Rs.3 million, but this does not consider that the new pigment will reduce the revenues received on its existing pigment products. Specifically, the company estimates that if it develops PRISTINE the company will lose Rs. 500,000 in after-tax cash flows during each of the next 10 years because of the cannibalization of its existing products. Tata Industry’s WACC is 10 percent. What is the net present value (NPV) of undertaking PRISTINE after considering externalities?
Rs. 2,927,716.00
Rs. 3,000,000.00
Rs. (-72,283.55)
Rs. 2,807,228.00
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1 point
NPTEL Ltd. is considering two mutually exclusive projects. Project A has an internal rate of return (IRR) of 12 percent, while Project B has an IRR of 14 percent. The two projects have the same risk, and when the cost of capital is 7 percent the projects have the same net present value (NPV). Assume each project has an initial cash outflow followed by a series of inflows. Given this information, which of the following statements is most correct?
If the cost of capital is 13 percent, Project B’s NPV will be higher than Project A’s NPV.
If the cost of capital is 9 percent, Project B’s NPV will be higher than Project A’s NPV.
If the cost of capital is 9 percent, Project B’s modified internal rate of return (MIRR) will be less than its IRR.
All of the statements above are correct.