Calculating ReTurn On Investment

1. Which of the following might be considered a significant capital expenditure?

a campaign to increase customer awareness of a new product.

development of a new product.

renovation of an outdated factory.

the acquisition of another smaller corporation.

the purchase of a vehicle for employee travel.

->all of the above.

Score: 1 of 1

2. You are interested in buying a piece of equipment that should cost your business $10,000. The piece of equipment should last 5 years. You estimate the annual cash flow to be $2200. The required rate of return is 6%. Using the payback method, you can tell that

->this project could be worth exploring.

this project will have a sufficient return on investment to pursue.

this project should definitely be rejected.

the required rate of return is totally unrealistic.

Score: 1 of 1

3. You are interested in buying a piece of equipment that should cost your business $10,000. The piece of equipment should last 5 years. You estimate the annual cash flow to be $2200. The required rate of return is 6%. Using the net present value method

->1+i=1.06

1+i=4.5

1+i=1.5

1+i=1.08

Score: 1 of 1

4. What are two factors involved in establishing a required rate of return?

Present Value and Future Value

->Opportunity cost and cost of capital

Company stability and type of investment

Opportunity cost and hurdle rate

Score: 1 of 1

5. The principle of time value of money says that:

A dollar in your hand today is worth less than a dollar you expect tomorrow

->A dollar in your hand today is worth more than a dollar you expect tomorrow

Money has no potential earning capacity

Money will continue to be valued and desired

Score: 1 of 1

6. You are interested in buying a piece of equipment that should cost your business $10,000. The piece of equipment should last 5 years. You estimate the annual cash flow to be $2200. Using the IRR method

->could bias you toward a quick-payback project with a high-percentage return.

requires simpler calculations than the payback method.

is normally a more reliable method than NPV.

would tell you that the rate of return is $1,000.

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