Questions:

1. What is the "Discount rate", explain its essence.

Answer: The discount rate refers to the rate of converting the expected income of
the future limited period into the present value. The capitalization rate and capitalization
rate or reduction rate usually refer to the ratio of converting the future indefinite expected
income into the present value. The discount rate of fixed assets purchased by installment is
essentially the necessary rate of return of the supplier. The discount rate is the rate of return
under specific conditions, indicating the level of return on the asset to obtain such return. In
the case of a certain income, the higher the rate of return, the higher the appreciation rate of
unit assets, and the lower the value of assets owned by the owner. Therefore, the higher the
rate of return, the lower the asset appraisal value.

2. Define the indicator "Internal rate of return".

Answer: Internal rate of return, IRR: The sum of the discounted values of the cash
flows of the investment project in each year is the net present value of the project.
When the net present value is zero, the discount rate is the internal rate of return of
the project

The internal rate of return is the rate of return when the present value of cash flow generated
by an investment in the future is exactly equal to the investment cost, considering the time
value. It is the rate of return that an investment aspires to achieve. The larger the index, the
better. Generally, the project is feasible when the internal rate of return is equal to or greater
than the benchmark rate of return. The sum of the discounted cash flows of the investment
project in each year is the net present value of the project, and the discount rate when the
net present value is zero is the internal rate of return of the project. In the economic
evaluation of the project, according to the different levels of analysis, the internal rate of
return can be divided into financial internal rate of return (FIRR) and economic internal rate
of return (EIRR).

3. Define the indicator "Payback period".

Answer: Payback period refers to the time it takes for the cash inflow caused by the
investment to accumulate to the same amount as the investment. It represents the
years required to recover the investment. The shorter the payback period, the more
favorable the project is. Payback period includes static payback period and dynamic
payback period. 1. The static payback period is calculated as a one-time expenditure of the
original investment. Payback period when the annual net cash flow is equal=original
investment amount/annual net cash flow; If the cash inflow is not equal every year, or the
original investment is invested in several years, the following formula can be established,
and the payback period (n)=original investment amount/annual net cash flow;
4. Define the indicator "Profitability index".

Answer: Profitability index is also called "benefit/cost ratio". After the initial investment,
the ratio between the present value of all expected future cash flows and the initial
investment. The calculation method is: present value of future cash flow/initial investment. It
is used to measure the value created by each unit of money invested. If the index is greater
than 1, the net present value of the investment is positive; if it is less than 1, the net present
value of the investment is negative. The index does not consider the impact of project
size on profitability, but when there are many optional projects but limited funds, the
index can be used to preliminarily rank the projects. Generally, resources should be
allocated to the project with the highest index.

5. Define the indicator "Net present value".

Answer: NPV refers to the difference between the present value of future capital
(cash) inflow (income) and the present value of future capital (cash) outflow
(expenditure), which is the basic indicator of NPV method in project evaluation. The
net present value of future capital inflows and outflows shall be determined after the present
value coefficient of each period of the expected discount rate is converted into the present
value. This expected discount rate is determined by the lowest rate of return on investment
of the enterprise, which is the lowest acceptable limit for enterprise investment.

Tests:

1. The payback period of a project can be a criterion of:

√a) profitability of the project.

b) liquidity of investments.

c) the volume of products sold.

2. The efficiency ratio of investments is calculated as:

a) the ratio of the amount of investments to the amount of profit from investments.

b) the ratio of the amount of investment to the volume of production.

√c) the ratio of the amount of profit from capital investments to the amount of capital
investments.
3. The discount rate shows:

a) the risk of receiving money in the future.

b) the probability of losing money.

√c) the rate of return of the project.

4. Net present value can be a criterion for:

√a) feasibility of the project.

b) liquidity of investments.

c) the volume of products produced.

5. The internal rate of return is equal to:

a) the loan rate at which the net present income from the project is zero.

b) discount rate at which the net present income from the project is maximum.

√c) the discount rate at which the net present value of the project is zero.

d) the loan rate at which the net present income from the project is maximized.

6. The discount factor is used in the case of:

a) calculation of the future value of cash;

b) increasing the amount of cash;

√c) calculation of the amount of future cash flows brought to the next period.

7. The indicators of investment efficiency assessment do not include:

a) payback period;

√b) rate of return

c) profitability index;

d) net present income;

e) discount factor.
8. If the comparison of mutually exclusive project options by NPV and IRR leads to
the opposite result, preference should be given to the results of the analysis:

√a) internal rate of return (IRR);

b) by net present value (NPV);

c) by cash flow;

d) payback period.

9. Which indicator can be used in assessing the level of investment risk associated
with liquidity:

a) yield index;

√b) risk premium;

c) payback period;

d) internal rate of return.

10. Discounting of income is:

a) determination of its real value in the assessment of inflation;

b) summing up the income from investments for all years;

√c) estimation of the present value of future income taking into account the
borrowing interest rate;

d) distribution of investment income over all years.

11. Under the same conditions, but with different terms of implementation, a higher
discount rate is taken for the project:

a) with a longer term;

b) with a shorter term;

√c) where the discount rate does not depend on the project implementation period;

d) no correct answer.
12. An investment project is considered profitable if:

a) the net present income exceeds the initial investment;

b) the internal rate of return is less than the weighted average cost of capital of the
project;

c) net present income is equal to zero;

d) the return on investment index is greater than zero;

√e) the return on investment index is greater than one.