QUESTION: 61

A company is considering four mutually exclusive projects. There are three possible future demand conditions but the company has no idea of the probability of each of these demand
conditions occurring. The forecast net present values (NPVs) of each of the four projects, under each of the three possible future demand conditions, are as follows.

Which investment would be selected using the maximin criterion?

Investment A
Investment B
Investment C
Investment D

Answer(s): C

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QUESTION: 62

A company is considering two mutually exclusive projects, an analysis of which is given below:

The company's cost of capital is 12%.

Assuming an objective of maximising shareholders' wealth, which project would be recommmended?

Project B because it has the higher net present value.
Project B because it has the shorter payback period.
Project A because it has the higher accounting rate of return.
Project A because it has the higher internal rate of return.

Answer(s): A

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QUESTION: 63

Which THREE of the following conditions are required for a sustained learning curve to apply?

Labor intensive production
Continuous production
A complex production process
Frequent machine maintenance
Continuous product development
Frequent staff rotation

Answer(s): A,B,C

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QUESTION: 64

A company has a maximum of $2 million to invest and has identified four viable projects, E, F, G and H.

The initial investment for each of the projects is the maximum amount that can be invested in the project, but any amount up to the maximum can be invested. The projects are divisible.

The projects have been evaluated using net present value, as below. All figures are $ millions.

In which project should the company invest $2 million?

Project E
Project F
Project G
Project H

Answer(s): B

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