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24:[["$","$L33",null,{"feature":"flashcards"}],"$L34",["$","$L35",null,{"href":"/a-level/business/eduqas/investment-appraisal/flashcards","label":"Investment appraisal","subjectCode":"a_level_business__eduqas","surface":"flashcards"}],["$","$L36",null,{"runner":["$","div",null,{"className":"min-h-0 flex-1 overflow-hidden bg-background","children":["$","$L37",null,{"decks":[{"id":"d827bc15-0104-4f25-9bd3-c564a9ec7433","title":"Investment appraisal Flashcards","topicId":"4d4d4e29-2790-5733-9fc6-1c8abae76242","topicSlug":"investment-appraisal","cards":[{"id":"9ad20c6b-6eb5-4b0c-89f6-a71b5c7a217d","cardType":"cloze","points":null,"front":"Investment appraisal tests whether a proposed investment is [ ].","back":"Investment appraisal tests whether a proposed investment is financially worthwhile.","mcqOptions":[{"text":"financially worthwhile","correct":true,"explanation":"Investment appraisal assesses whether the expected financial benefits of a proposed investment justify its costs and risks, making the investment financially worthwhile."},{"text":"strategically beneficial","correct":false,"explanation":"Investment appraisal may consider strategic or operational effects, but its central purpose is to establish whether the proposed investment is financially worthwhile."},{"text":"immediately profitable","correct":false,"explanation":"An investment can be worthwhile even if it does not immediately increase sales. The appraisal tests whether it is financially worthwhile over the relevant period."},{"text":"certain to succeed","correct":false,"explanation":"Investment appraisal uses forecasts and therefore cannot guarantee success. It tests whether the proposal is financially worthwhile based on expected returns and costs."}]},{"id":"78e148a0-d9ff-4560-87a0-4a7c65632544","cardType":"basic","points":3,"front":"Why do capital investment decisions need careful appraisal?","back":"

Expensive to carry out.
Hard to reverse once made.
Based on uncertain forecasts.

","mcqOptions":[{"text":"

Expensive to carry out.
Hard to reverse once made.
Based on uncertain forecasts.

","correct":true,"explanation":"Capital investment decisions require careful appraisal because they are expensive, difficult to reverse, and depend on uncertain forecasts about future costs and returns."},{"text":"

Cheap to carry out.
Hard to reverse once made.
Based on certain forecasts.

","correct":false,"explanation":"Capital investments are usually expensive, but they are not generally cheap, difficult to reverse, and based on certain forecasts. The correct reasons are expense, irreversibility, and uncertainty."},{"text":"

Expensive to carry out.
Easy to reverse once made.
Based on uncertain forecasts.

","correct":false,"explanation":"Capital investments often involve uncertain forecasts and high costs, but they are usually hard rather than easy to reverse once resources have been committed."},{"text":"

Expensive to carry out.
Hard to reverse once made.
Based on certain forecasts.

","correct":false,"explanation":"Capital investments are expensive and difficult to reverse, but future cash flows cannot usually be predicted with certainty. Forecast uncertainty is a key reason for appraisal."}]},{"id":"b38b0bf9-3860-4133-b02a-5c62058fbdc1","cardType":"cloze","points":null,"front":"A net cash flow is cash inflows [ ] over a period.","back":"A net cash flow is cash inflows minus cash outflows over a period.","mcqOptions":[{"text":"minus cash outflows","correct":true,"explanation":"Net cash flow measures the net movement of cash by subtracting cash outflows from cash inflows over the period being analysed."},{"text":"plus cash outflows","correct":false,"explanation":"Adding cash outflows would produce a total rather than a net cash flow. Net cash flow is calculated by subtracting cash outflows from cash inflows."},{"text":"divided by cash outflows","correct":false,"explanation":"Cash inflows are not divided by outflows when calculating net cash flow. The calculation subtracts cash outflows from cash inflows."},{"text":"multiplied by cash outflows","correct":false,"explanation":"Cash outflows are not multiplied by inflows in this calculation. Net cash flow is the difference between cash inflows and cash outflows."}]},{"id":"7fd95d4b-9e8c-418d-b24a-8051a41e9858","cardType":"basic","points":2,"front":"Which appraisal methods use cash flow, and which uses profit?","back":"

Payback and NPV use cash flows.
ARR uses profit.

","mcqOptions":[{"text":"

Payback and NPV use cash flows.
ARR uses profit.

","correct":true,"explanation":"Payback and NPV evaluate the timing and value of cash flows, whereas ARR uses accounting profit, including relevant non-cash items such as depreciation."},{"text":"

Payback and ARR use cash flows.
NPV uses profit.

","correct":false,"explanation":"ARR is based on accounting profit, not cash flow, while payback and NPV use cash flows. Confusing ARR with payback causes this reversal."},{"text":"

NPV and ARR use cash flows.
Payback uses profit.

","correct":false,"explanation":"NPV uses discounted cash flows and payback uses cash inflows, while ARR uses accounting profit. Profit and cash flow are therefore incorrectly assigned here."},{"text":"

Payback uses profit.
NPV and ARR use cash flows.

","correct":false,"explanation":"Payback and NPV do not use accounting profit. ARR uses profit, whereas both payback and NPV are cash-flow-based appraisal methods."}]},{"id":"97830a65-c64c-4b3f-b32c-75a54592b69e","cardType":"basic","points":2,"front":"Why can profit differ from cash flow in investment appraisal?","back":"Profit can include non-cash costs such as depreciation.","mcqOptions":[{"text":"Profit can include non-cash costs such as depreciation.","correct":true,"explanation":"Depreciation reduces accounting profit but does not involve a current cash payment, so profit can differ from the cash flow generated by an investment."},{"text":"Profit can include cash inflows such as depreciation.","correct":false,"explanation":"Depreciation is a non-cash cost that reduces profit, not a cash inflow. This is why profit may differ from cash flow in investment appraisal."},{"text":"Profit can include cash costs such as depreciation.","correct":false,"explanation":"Depreciation is normally treated as a non-cash cost rather than a cash cost. Its inclusion in profit creates a difference from cash flow."},{"text":"Profit can exclude non-cash costs such as depreciation.","correct":false,"explanation":"Depreciation does not increase profit; it is an accounting expense that reduces it without a corresponding cash payment, creating the difference from cash flow."}]},{"id":"f0b39a8a-9e61-41c0-b0aa-7d231dcf3afd","cardType":"cloze","points":null,"front":"The [ ] means £1 today is usually worth more than £1 in the future.","back":"The time value of money means £1 today is usually worth more than £1 in the future.","mcqOptions":[{"text":"time value of money","correct":true,"explanation":"The time value of money recognises that money available today can earn a return, so it is generally more valuable than the same nominal amount received later."},{"text":"opportunity cost of capital","correct":false,"explanation":"The opportunity cost of capital concerns the return forgone by investing elsewhere. The principle that money today is worth more than money later is the time value of money."},{"text":"purchasing power effect","correct":false,"explanation":"Inflation can reduce future purchasing power, but the broader investment principle described here is the time value of money, which includes earning potential over time."},{"text":"discount rate effect","correct":false,"explanation":"The discount rate is used to calculate present values, but the underlying principle that £1 today is worth more than £1 later is the time value of money."}]},{"id":"61fde4c1-e597-492d-87c8-72e1ed7e3bcc","cardType":"basic","points":1,"front":"For uneven annual cash flows, what is the payback period formula?","back":"Payback = $\\text{full years before recovery} + \\frac{\\text{amount still to recover}}{\\text{cash inflow in recovery year}}$.","mcqOptions":[{"text":"Payback = $\\text{full years before recovery} + \\frac{\\text{amount still to recover}}{\\text{cash inflow in recovery year}}$.","correct":true,"explanation":"For uneven cash flows, payback includes the complete years recovered and then the unrecovered amount divided by the inflow received in the recovery year."},{"text":"Payback = $\\text{full years before recovery} + \\frac{\\text{amount still to recover}}{\\text{total cash inflow}}$.","correct":false,"explanation":"Dividing by the total cash inflow ignores that the final fraction of a year is recovered using the specific inflow in the recovery year."},{"text":"Payback = $\\text{full years before recovery} + \\frac{\\text{amount still to recover} \\times \\text{cash inflow in recovery year}}{1}$.","correct":false,"explanation":"The unrecovered amount must be divided by the recovery-year inflow, not multiplied by it. Multiplication would produce the wrong time proportion."},{"text":"Payback = $\\text{full years before recovery} + \\frac{\\text{cash inflow in recovery year}}{\\text{amount still to recover}}$.","correct":false,"explanation":"The remaining amount is divided by the recovery-year inflow to find the fraction of that year needed. Reversing the fraction gives an incorrect payback period."}]},{"id":"9ae8b5bb-5e22-4d90-a2d2-042ecd4f70d5","cardType":"basic","points":2,"front":"A project costs £260,000. Years 1-2 inflows total £160,000; Year 3 inflow is £120,000. What is the payback period?","back":"2 years 10 months.","mcqOptions":[{"text":"2 years 10 months.","correct":true,"explanation":"After two years, £160,000 has been recovered, leaving £100,000. This is five-sixths of the £120,000 Year 3 inflow, or 10 months, giving 2 years 10 months."},{"text":"2 years 5 months","correct":false,"explanation":"The remaining £100,000 is not five-twelfths of the Year 3 inflow. Dividing £100,000 by £120,000 gives five-sixths of a year, which equals 10 months."},{"text":"3 years 2 months","correct":false,"explanation":"Payback occurs during Year 3 because £160,000 is recovered in the first two years and only £100,000 remains. The project does not need to reach Year 4."},{"text":"2 years 2 months","correct":false,"explanation":"Subtracting the full Year 3 inflow from the cost incorrectly suggests recovery before the end of Year 3. Only five-sixths of Year 3 is needed, giving 2 years 10 months."}]},{"id":"c6ffcc27-8f0d-4636-ba31-0a87f5818b9d","cardType":"basic","points":2,"front":"What does a shorter payback period usually suggest?","back":"Lower risk and better liquidity.","mcqOptions":[{"text":"Lower risk and better liquidity.","correct":true,"explanation":"A shorter payback period means the initial investment is recovered sooner, reducing exposure to uncertainty and making cash available earlier for bills, debts or further investment."},{"text":"Higher risk and poorer liquidity.","correct":false,"explanation":"This reverses the usual interpretation. Recovering the investment sooner generally indicates lower risk and better liquidity because the business has less capital tied up for a prolonged period."},{"text":"Higher profitability and better efficiency.","correct":false,"explanation":"Payback measures the speed of recovering the initial investment, not overall profitability or operational efficiency. A shorter payback usually suggests lower risk and better liquidity."},{"text":"Lower profitability and higher gearing.","correct":false,"explanation":"Payback does not directly measure profitability or gearing. A shorter period normally suggests lower risk and better liquidity because the investment is recovered more quickly."}]},{"id":"65e413ec-c3d4-407a-903f-e4c95d9a92d6","cardType":"basic","points":2,"front":"Which two key limitations does payback have?","back":"

Ignores cash flows after payback.
Ignores the time value of money.

","mcqOptions":[{"text":"

Ignores cash flows after payback.
Ignores the time value of money.

","correct":true,"explanation":"Payback considers only how quickly the initial cost is recovered. It disregards later cash flows and, unless discounted payback is used, treats money received at different times equally."},{"text":"

Ignores cash flows before payback.
Ignores the initial investment cost.

","correct":false,"explanation":"Payback specifically compares pre-payback cash flows with the initial investment cost, so neither is ignored. Its key limitations are ignoring post-payback cash flows and the time value of money."},{"text":"

Ignores accounting profit after payback.
Ignores the average rate of return.

","correct":false,"explanation":"Payback is based on cash flows rather than accounting profit, and it is not designed to calculate ARR. Its main omissions are post-payback cash flows and the time value of money."},{"text":"

Ignores cash flows in early years.
Ignores the size of the initial outlay.

","correct":false,"explanation":"Early cash flows and the initial outlay are central to calculating payback. The method instead fails to consider cash flows after payback and the time value of money."}]},{"id":"cf48139b-5c16-4e80-8473-8e69de8b250b","cardType":"basic","points":1,"front":"What is the ARR formula?","back":"ARR = $\\frac{\\text{average annual profit}}{\\text{initial investment}} \\times 100$.","mcqOptions":[{"text":"ARR = $\\frac{\\text{average annual profit}}{\\text{initial investment}} \\times 100$.","correct":true,"explanation":"ARR measures the average annual accounting profit as a percentage of the initial investment, allowing the project’s expected return to be compared with targets or other investments."},{"text":"ARR = $\\frac{\\text{total profit}}{\\text{initial investment}} \\times 100$.","correct":false,"explanation":"Using total profit fails to convert the return into an annual average. ARR divides average annual profit by the initial investment and then multiplies by 100."},{"text":"ARR = $\\frac{\\text{average annual cash flow}}{\\text{initial investment}} \\times 100$.","correct":false,"explanation":"This substitutes cash flow for accounting profit, confusing ARR with cash-based appraisal. ARR uses average annual profit divided by the initial investment, multiplied by 100."},{"text":"ARR = $\\frac{\\text{initial investment}}{\\text{average annual profit}} \\times 100$.","correct":false,"explanation":"This inverts the ratio, producing the investment required per unit of profit rather than its return. ARR places average annual profit above initial investment."}]},{"id":"fbea36f6-0d2a-4384-82e9-fd763a22a505","cardType":"basic","points":2,"front":"A project costs £260,000 and its total profit over 4 years is £100,000. What is ARR?","back":"9.6%.","mcqOptions":[{"text":"9.6%.","correct":true,"explanation":"Average annual profit is £100,000 divided by 4, giving £25,000. Dividing £25,000 by £260,000 and multiplying by 100 gives approximately 9.6%."},{"text":"38.5%.","correct":false,"explanation":"This divides total four-year profit by the investment without finding average annual profit. Dividing £100,000 by 4 first gives the correct ARR of approximately 9.6%."},{"text":"6.0%.","correct":false,"explanation":"This results from dividing by an incorrect investment base. Average annual profit is £25,000, which divided by the £260,000 initial investment gives approximately 9.6%."},{"text":"10.4%.","correct":false,"explanation":"This comes from reversing or rounding parts of the calculation incorrectly. The £25,000 average annual profit divided by £260,000, then multiplied by 100, gives 9.6%."}]},{"id":"15c9c81a-975b-4652-b3eb-c42dbb972fd4","cardType":"basic","points":1,"front":"Why is ARR useful for comparing projects with target returns or interest rates?","back":"It expresses return as a percentage.","mcqOptions":[{"text":"It expresses return as a percentage.","correct":true,"explanation":"Expressing return as a percentage puts ARR in the same form as target rates and interest rates, making direct comparison between projects and benchmarks straightforward."},{"text":"It expresses return as a cash amount.","correct":false,"explanation":"A cash amount is difficult to compare across differently sized investments or with an interest rate. ARR is useful because it expresses return as a percentage."},{"text":"It expresses return as a payback period.","correct":false,"explanation":"A payback period measures how long recovery takes rather than the rate of return. ARR supports comparison by expressing accounting return as a percentage."},{"text":"It expresses return as a present value.","correct":false,"explanation":"Present value is produced by discounted cash flow methods, not ARR. ARR is comparable with target returns and interest rates because it is stated as a percentage."}]},{"id":"b8c71733-f64d-4828-971f-8bd1c468fc38","cardType":"basic","points":2,"front":"Why might ARR not show whether a business can pay bills or repay a loan?","back":"It uses accounting profit, not cash flow.","mcqOptions":[{"text":"It uses accounting profit, not cash flow.","correct":true,"explanation":"Accounting profit includes non-cash adjustments and does not show when cash is received or paid. ARR therefore cannot directly reveal whether cash is available for bills or loan repayments."},{"text":"It uses cash flow, not accounting profit.","correct":false,"explanation":"This reverses the distinction: ARR is calculated from accounting profit rather than cash flow. Profit does not necessarily indicate whether sufficient cash is available when payments fall due."},{"text":"It uses sales revenue, not total profit.","correct":false,"explanation":"ARR uses average annual accounting profit, not sales revenue. Its liquidity limitation arises because profit can differ from actual cash available to pay bills or repay borrowing."},{"text":"It uses initial investment, not annual revenue.","correct":false,"explanation":"Although initial investment appears in the ARR formula, this does not explain the liquidity problem. ARR may misrepresent payment capacity because it uses accounting profit rather than cash flow."}]},{"id":"2de0cd03-3392-4469-9d0b-fa601a5ad753","cardType":"cloze","points":null,"front":"ARR treats £50,000 in Year 1 the same as £50,000 in Year 5, so it ignores the [ ].","back":"ARR treats £50,000 in Year 1 the same as £50,000 in Year 5, so it ignores the timing of returns.","mcqOptions":[{"text":"timing of returns","correct":true,"explanation":"ARR gives profits received in different years equal weight. It therefore ignores the timing of returns and does not account for the greater value of earlier returns."},{"text":"size of returns","correct":false,"explanation":"ARR does incorporate the size of profits when calculating average annual profit. Treating equal amounts in Years 1 and 5 identically instead shows that it ignores the timing of returns."},{"text":"risk of returns","correct":false,"explanation":"ARR does not directly adjust for risk, but the example specifically highlights when returns occur. Equal treatment of Years 1 and 5 means it ignores the timing of returns."},{"text":"source of returns","correct":false,"explanation":"The source of profit is not the issue illustrated by the two years. ARR treats earlier and later profits equally, so the missing consideration is the timing of returns."}]},{"id":"12081b14-2957-4fb3-a804-02f8804306e9","cardType":"basic","points":1,"front":"Why is DCF used when calculating NPV?","back":"It converts future cash flows into present values.","mcqOptions":[{"text":"It converts future cash flows into present values.","correct":true,"explanation":"DCF discounts future cash flows to their value today, reflecting the time value of money. These present values can then be compared with the initial cost to calculate NPV."},{"text":"It converts future cash flows into accounting profits.","correct":false,"explanation":"Discounting does not turn cash flows into accounting profit. DCF applies discount factors to future cash flows to express them as present values for the NPV calculation."},{"text":"It converts future cash flows into future values.","correct":false,"explanation":"Compounding produces future values, whereas NPV requires discounting in the opposite direction. DCF converts future cash flows into present values so they are comparable today."},{"text":"It converts future cash flows into percentage returns.","correct":false,"explanation":"Percentage returns are associated with measures such as ARR or IRR, not the purpose of DCF in NPV. DCF converts future cash flows into present values."}]},{"id":"a9052f40-5bed-4028-ae36-f64a802a72fb","cardType":"cloze","points":null,"front":"A [ ] converts future cash flow into present value; the [ ] represents required return, cost of capital or risk.","back":"A discount factor converts future cash flow into present value; the discount rate represents required return, cost of capital or risk.","mcqOptions":[{"text":"A discount factor converts future cash flow into present value; the discount rate represents required return, cost of capital or risk.","correct":true,"explanation":"The discount factor is the multiplier applied to a future cash flow to find its present value. The discount rate determines that factor and reflects the return required from the investment."},{"text":"A discount rate converts future cash flow into present value; the discount factor represents required return, cost of capital or risk.","correct":false,"explanation":"This reverses the two concepts. The discount factor converts a future cash flow into present value, while the discount rate represents the required return, cost of capital or risk."},{"text":"A payback period converts future cash flow into present value; the rate of return represents required return, cost of capital or risk.","correct":false,"explanation":"A payback period measures how long an investment takes to recover its initial cost, while a rate of return measures profitability. Discount factors and discount rates perform the stated NPV functions."},{"text":"A cash-flow forecast converts future cash flow into present value; the payback period represents required return, cost of capital or risk.","correct":false,"explanation":"A cash-flow forecast estimates future receipts and payments, while the payback period measures recovery time. Present-value conversion uses a discount factor derived from the relevant discount rate."}]},{"id":"8285e267-4907-48ab-9fd8-d46b6bb6c966","cardType":"basic","points":2,"front":"How do you calculate NPV once discount factors are given?","back":"

Multiply each cash flow by its discount factor.
Subtract initial investment after adding present values.

","mcqOptions":[{"text":"

Multiply each cash flow by its discount factor.
Subtract initial investment after adding present values.

","correct":true,"explanation":"Multiplying each cash flow by the relevant discount factor converts it to present value. Adding those present values and deducting the initial investment produces the project’s net present value."},{"text":"

Divide each cash flow by its discount factor.
Add initial investment after adding present values.

","correct":false,"explanation":"Dividing by discount factors applies the conversion in the wrong direction, and adding the investment treats an outflow as an inflow. Cash flows are multiplied before the initial investment is subtracted."},{"text":"

Multiply each cash flow by its discount factor.
Add initial investment after adding present values.

","correct":false,"explanation":"Multiplication correctly finds present values, but the initial investment is a cash outflow and must be subtracted. Adding it would overstate NPV by treating the project’s cost as a benefit."},{"text":"

Add each cash flow to its discount factor.
Subtract initial investment after adding cash flows.

","correct":false,"explanation":"Adding a discount factor to a cash flow confuses a multiplier with a monetary amount. Each cash flow must be multiplied by its factor, then the initial investment must be subtracted."}]},{"id":"0268fb21-353b-4371-9491-f72a70ac3465","cardType":"basic","points":1,"front":"A project’s total present value is £282,730 and its initial investment is £260,000. What is its NPV?","back":"£22,730.","mcqOptions":[{"text":"£22,730.","correct":true,"explanation":"NPV equals total present value minus the initial investment. Therefore, £282,730 - £260,000 gives a positive NPV of £22,730."},{"text":"£2,730.","correct":false,"explanation":"This results from an arithmetic place-value error when subtracting the initial investment. The correct calculation is £282,730 - £260,000, giving £22,730."},{"text":"-£22,730.","correct":false,"explanation":"This subtracts the total present value from the investment, reversing the required order and sign. NPV is £282,730 - £260,000, so it equals positive £22,730."},{"text":"£542,730.","correct":false,"explanation":"This adds the present value and initial investment instead of treating the investment as an outflow. Subtracting £260,000 from £282,730 gives the correct NPV of £22,730."}]},{"id":"9125e21f-d987-438c-b6c6-4e2f2673c28e","cardType":"basic","points":3,"front":"How should you interpret a positive, zero and negative NPV?","back":"

Positive: adds value after required return.
Zero: just meets required return.
Negative: fails to cover required return.

","mcqOptions":[{"text":"

Positive: adds value after required return.
Zero: just meets required return.
Negative: fails to cover required return.

","correct":true,"explanation":"NPV measures value after allowing for the required return. A positive result exceeds that return, zero exactly meets it, and a negative result falls short of it."},{"text":"

Positive: fails to cover required return.
Zero: just meets required return.
Negative: adds value after required return.

","correct":false,"explanation":"This reverses the meanings of positive and negative NPV. Positive NPV adds value after the required return, zero meets it, and negative NPV fails to cover it."},{"text":"

Positive: adds value after required return.
Zero: fails to cover required return.
Negative: just meets required return.

","correct":false,"explanation":"Zero NPV does not mean the project makes no return; it means the project exactly earns the required return. A negative NPV, rather than zero, fails to cover that return."},{"text":"

Positive: just meets required return.
Zero: adds value after required return.
Negative: fails to cover required return.

","correct":false,"explanation":"A positive NPV exceeds rather than merely meets the required return. Zero NPV just meets it, while a negative NPV fails to generate the required return."}]},{"id":"25ea0fbf-a7d5-4c96-80f3-eed60f6af3d2","cardType":"basic","points":3,"front":"Why is NPV often the strongest financial appraisal method?","back":"

Uses cash flows.
Includes the whole project life.
Recognises the time value of money.

","mcqOptions":[{"text":"

Uses cash flows.
Includes the whole project life.
Recognises the time value of money.

","correct":true,"explanation":"NPV uses project cash flows across the investment’s complete life and discounts them to reflect when money is received or paid. This gives a comprehensive measure of value creation."},{"text":"

Uses accounting profit.
Includes the payback period only.
Ignores the time value of money.

","correct":false,"explanation":"Accounting profit includes non-cash items, the payback period ignores later flows, and treating money equally ignores timing. NPV instead uses cash flows, the whole project life and discounting."},{"text":"

Uses cash flows.
Includes the early project years.
Ignores the time value of money.

","correct":false,"explanation":"Focusing only on early cash flows describes payback-style reasoning, not NPV. NPV includes all cash flows throughout the project and recognises their timing through discounting."},{"text":"

Guarantees accurate forecasts.
Eliminates investment uncertainty.
Predicts the exact future outcome.

","correct":false,"explanation":"NPV does not guarantee accurate forecasts or remove uncertainty; its output depends on estimated cash flows and the discount rate. Its strength comes from comprehensive, discounted cash-flow analysis."}]},{"id":"767d52fa-09f1-4989-9062-20c8f938c467","cardType":"basic","points":2,"front":"Why can a positive NPV still be misleading?","back":"Forecast sales, costs or discount rate may be unrealistic.","mcqOptions":[{"text":"Forecast sales, costs or discount rate may be unrealistic.","correct":true,"explanation":"NPV is only as reliable as its assumptions. Overstated sales, understated costs or an unsuitable discount rate can produce a positive figure even when the investment is unattractive."},{"text":"Historic sunk costs, depreciation or book value may be unrealistic.","correct":false,"explanation":"Past sunk costs should not determine whether forecast future benefits create value, and depreciation is non-cash. A positive NPV is misleading when forecast sales, costs or the discount rate are unrealistic."},{"text":"Forecast share capital, dividends or retained profit may be unrealistic.","correct":false,"explanation":"Share capital and retained profit concern sources of finance, while dividends are distributions to owners. NPV reliability instead depends on realistic forecast sales, costs and discount rates."},{"text":"Forecast market share, labour turnover or capacity utilisation may be unrealistic.","correct":false,"explanation":"Market share, labour turnover and capacity utilisation may inform wider analysis, but they are not the core NPV assumptions identified here. Unrealistic sales, costs or discount rates can distort NPV."}]},{"id":"82a28151-8f09-4511-a9b6-ca4f2def633a","cardType":"cloze","points":null,"front":"A [ ] factor is numerical evidence; a [ ] factor is non-numerical evidence.","back":"A quantitative factor is numerical evidence; a qualitative factor is non-numerical evidence.","mcqOptions":[{"text":"A quantitative factor is numerical evidence; a qualitative factor is non-numerical evidence.","correct":true,"explanation":"Quantitative evidence is expressed numerically, such as costs or forecast returns. Qualitative evidence concerns non-numerical considerations, such as employee morale, strategic fit or brand reputation."},{"text":"A qualitative factor is numerical evidence; a quantitative factor is non-numerical evidence.","correct":false,"explanation":"This swaps the definitions. Quantitative factors provide numerical evidence, whereas qualitative factors describe non-numerical issues such as reputation, employee morale or strategic suitability."},{"text":"A internal factor is numerical evidence; a external factor is non-numerical evidence.","correct":false,"explanation":"Internal and external classify evidence by its source, not by whether it is numerical. Numerical evidence is quantitative, while non-numerical evidence is qualitative."},{"text":"A financial factor is numerical evidence; a operational factor is non-numerical evidence.","correct":false,"explanation":"Financial and operational describe subject areas rather than the fundamental numerical distinction. Evidence expressed in numbers is quantitative, while evidence based on non-numerical judgement is qualitative."}]},{"id":"d010eb3a-8ef6-4702-88c8-b60d405e4b5d","cardType":"basic","points":3,"front":"What non-financial judgement should a business add before recommending an investment?","back":"

Strategic fit and practicality.
Stakeholder impacts, such as jobs or training.
External factors, such as inflation or interest rates.

","mcqOptions":[{"text":"

Strategic fit and practicality.
Stakeholder impacts, such as jobs or training.
External factors, such as inflation or interest rates.

","correct":true,"explanation":"A recommendation should extend beyond the calculated return by assessing alignment with strategy, feasibility, effects on stakeholders and changes in the external environment that could affect success."},{"text":"

Net present value and profitability.
Payback period, such as months or years.
Financial returns, such as ARR or IRR.

","correct":false,"explanation":"These are financial appraisal measures rather than non-financial judgements. The recommendation should additionally examine strategic fit and practicality, stakeholder impacts and relevant external factors."},{"text":"

Discount factors and calculations.
Accounting figures, such as profit or revenue.
Historic results, such as previous cash flows.

","correct":false,"explanation":"These items repeat calculations and historical accounting data rather than adding broader judgement. A sound recommendation considers strategic practicality, stakeholder effects and external conditions alongside the financial appraisal."},{"text":"

Current profit and liquidity.
Cash balances, such as receipts or payments.
Short-term returns, such as monthly revenue.

","correct":false,"explanation":"These are all short-term financial indicators, so they do not provide the requested non-financial assessment. Strategic fit, stakeholder effects and external influences should be considered before recommending investment."}]}]}],"examCountdown":{"examDate":"2027-05-13","paperLabel":"Component 1"},"heading":"Investment appraisal","title":"Investment appraisal Flashcards","topbar":{"backHref":"/a-level/business/eduqas/flashcards"},"topicSidebar":"$L38"}]}],"topicId":"4d4d4e29-2790-5733-9fc6-1c8abae76242","walled":"$L39"}],"$L3a","$L3b"]