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Investment Appraisal and Calculation Quiz

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Investment Appraisal and Calculation Quiz

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Questions and Answers

What is the primary purpose of financial ratio analysis?

To analyze non-financial matters and priorities

To provide legal protection against copying creations or inventions

To determine the return on investments (correct)

To reveal the historical accounts of a firm

Which financial ratio measures a business's profitability based on direct costs?

GPM = gross profit/sales revenue *100 (correct)

Current ratio

Return on investments ratio

NPM = NPBIT/sales revenue*100

What are the limitations of final accounts mentioned in the text?

They provide legal protection against copying creations or inventions

They do not reveal anything about the firm's non-financial matters or priorities

They reflect the current year or future performance of the firm

Human resource is not considered in the analysis (correct)

Why is net profit margin (NPM) calculated before interest and tax?

To analyze the performance based on factors that can be controlled Signup and view all the answers

What is the main advantage of using the future value formula for investment appraisal?

It allows for easy calculation and comparison of different investment options. Signup and view all the answers

What is the limitation of using the future value formula for investment appraisal?

It ignores the timing of net cash flows, leading to forecasting errors when considering seasonal factors. Signup and view all the answers

What is the purpose of using a discount factor in investment appraisal?

To convert future net cash flows into their present value. Signup and view all the answers

In investment appraisal, what does a positive net present value (NPV) indicate?

The investment will generate returns greater than the cost of investment. Signup and view all the answers

Why is budgeting important for Quay’s Hair Salon Inc based on the given information?

To ensure better coordination of the salon Signup and view all the answers

What is the purpose of preparing financial statements for businesses?

To assess the performance of the business Signup and view all the answers

What does investment appraisal refer to based on the given information?

Calculating the financial costs and benefits of an investment decision Signup and view all the answers

Why do businesses adjust the value of assets at the end of their operations?

To accurately represent the performance of the business Signup and view all the answers