Lesson 3.7.8

3.7.8 Analysing strategic options: investment appraisal Quiz: AQA Business, Unit 7

20 questions

Written by Revision Ninja · Last reviewed 11 October 2026

In partnership with Revision Ninja

Lesson 3.7.8, Analysing strategic options: investment appraisal: 20 multiple choice questions for the AQA Business (7132), Unit 7: Analysing the strategic position of a business, written with Revision Ninja.

Host it live on the board and students join with a game code on their own devices, or revise alone with Free Play. The answers are revealed in the game.

Host this setFree Play

The 20 questions

  1. What does the payback period method of investment appraisal calculate?

    • Discounted cash flow
    • Total profit earned
    • Investment recovery time
    • Percentage return rate

  2. How is Average Rate of Return expressed in investment appraisal?

    • As a percentage
    • As a cash value
    • In months of payback
    • As an index number

  3. Net Present Value evaluates an investment by considering which key factor?

    • Historical asset cost
    • Time value of money
    • Immediate tax rebates
    • Direct competitor output

  4. A project costs 50,000 pounds and returns 20,000 pounds a year in cash flow. What is the payback period?

    • 2.5 years
    • 0.4 years
    • 2 years
    • 3 years

  5. A project costs 120,000 pounds and returns 30,000 pounds a year. What is the payback period?

    • 0.25 years
    • 12 years
    • 3 years
    • 4 years

  6. A project costs 60,000 pounds and earns an average annual profit of 12,000 pounds. What is the ARR?

    • 5%
    • 12%
    • 20%
    • 72%

  7. A project costs 200,000 pounds and makes total profit of 80,000 pounds over four years. What is the ARR?

    • 2.5%
    • 10%
    • 40%
    • 25%

  8. A project costs 100,000 pounds and produces cash of 60,000 pounds at the end of each of two years. Using a 10% discount rate, what is the NPV to the nearest 10 pounds?

    • About 40,000 pounds
    • About minus 4,130 pounds
    • About 4,130 pounds
    • About 104,130 pounds

  9. What is the financially correct decision for a project with a negative net present value?

    • Delay the project
    • Lower discount rate
    • Accept the project
    • Reject the project

  10. Which main drawback is associated with the payback method of investment appraisal?

    • Ignores initial outlay
    • Uses accounting profit
    • Ignores later cash
    • Ignores interest rates

  11. What is a major limitation of using average rate of return for investment appraisal?

    • Ignores initial cost
    • Ignores time value
    • Ignores total profit
    • Ignores life span

  12. Which factor should lead a business to increase the discount rate used in NPV?

    • Higher project risk
    • Higher initial outlay
    • Shorter payback period
    • Lower interest rates

  13. A project costs 90,000 pounds and returns 30,000 pounds, 40,000 pounds and 50,000 pounds in years one, two and three. What is the payback period?

    • 2.4 years
    • 1.8 years
    • 2.0 years
    • 3.0 years

  14. Why might a business choose a lower NPV project with a shorter payback period?

    • Higher profit margin
    • Higher total return
    • Lower capital cost
    • Lower liquidity risk

  15. Which of the following is a non-financial factor influencing an investment decision?

    • Net present value
    • Environmental impact
    • Payback period
    • Average return rate

  16. What technique assesses how changes in cash flow forecasts affect a project's NPV?

    • Ratio analysis
    • Sensitivity analysis
    • Break-even analysis
    • Trend analysis

  17. What does a high sensitivity of NPV to sales forecasts indicate about a project?

    • High guaranteed return
    • High project risk
    • Short payback period
    • Low capital cost

  18. What key advantage does net present value have over average rate of return?

    • Uses accounting profit
    • Easier to calculate
    • Considers time value
    • Ignores timing

  19. Why might net present value calculations produce an inaccurate investment decision?

    • Excludes capital costs
    • Inaccurate forecast data
    • Ignores discount rates
    • Ignores future cash

  20. Which investment appraisal method is preferred by a business experiencing severe liquidity problems?

    • Average return rate
    • Net present value
    • Payback period
    • Internal rate

All AQA Business quizzes