APM PMQ Business Case and Investment Appraisal
Exam Questions And Answers
Define the accounting rate of return (ARR) - ANSWER A measure examining the
profitability of an investment. Mainly informs you what % of the initial investment you'll
get back each year over the lifetime of the deliverable.
Calculated as: Average annual incremental income (i.e. total income / # years benefits
are spread across) / Initial investment
Normally expressed as a percentage of an initial investment
What are the advantages and disadvantages of the accounting rate of return? -
ANSWER Advantages:
- Yields a % for comparison between projects or options
- Can be discounted (if required).
- Does not need cash flow timing to calculate
- Draws upon all financial data
Disadvantages:
- Does not yield a single figure for profitability
- Does not normally take into account the time value of money - Yields an average -
does not allow for timing.
What is Net Present Value (NPV)? - ANSWER The sum of the present values of
expected future cash flows from an investment, minus the cost of that investment.
It is a single figure, higher is better.
A positive NPV means that the combined present value of all future cash flows (e.g.
year 1 return, year 2 return) exceeds the present value of cash outflows (e.g. your
investment).
It is calculated using a discount factor which accounts for the time value of money
, What are the advantages and disadvantages of the NPV? - ANSWER Advantages
- Takes into account the time value of money
- It expressed all future cash flows in today's values, which enables direct comparison of
options.
- Allows for inflation and escalation
- Looks at whole project
- Yields a single figure for profitability
Disadvantages
- More complex to calculate
- Heavily reliant on an accurate selection of the discount rate to be employed.
What are the advantages and disadvantages of the internal rate of return (IRR)? -
ANSWER Advantages
- Takes into account the time value of money
- No discount factor required in the result (but is required for the calculation) - Can
directly compare with the cost of capital
Disadvantages
- Complex, difficult to do without a spreadsheet
- IRR can yield negative or multiple solutions, for non-standard cash flows.
Internal Rate of Return (IRR) - ANSWER IRR uses forecasted income to give us the
rate of growth a project is expected to generate expressed as a percentage. Higher is
better.
It's used in capital budgeting to decide which projects or investments to undertake and
which to forgo.
It represents the discount rate at which the NPV = 0.
It can directly be compared with inflation or other projects.
Information management is the.... - ANSWER the collection, storage, dissemination,
archiving and destruction of information. It enables teams and stakeholders to use their
time, resource and expertise effectively to make decisions and to fulfill their roles.
What are the five stages of information management? - ANSWER CSDAD
Exam Questions And Answers
Define the accounting rate of return (ARR) - ANSWER A measure examining the
profitability of an investment. Mainly informs you what % of the initial investment you'll
get back each year over the lifetime of the deliverable.
Calculated as: Average annual incremental income (i.e. total income / # years benefits
are spread across) / Initial investment
Normally expressed as a percentage of an initial investment
What are the advantages and disadvantages of the accounting rate of return? -
ANSWER Advantages:
- Yields a % for comparison between projects or options
- Can be discounted (if required).
- Does not need cash flow timing to calculate
- Draws upon all financial data
Disadvantages:
- Does not yield a single figure for profitability
- Does not normally take into account the time value of money - Yields an average -
does not allow for timing.
What is Net Present Value (NPV)? - ANSWER The sum of the present values of
expected future cash flows from an investment, minus the cost of that investment.
It is a single figure, higher is better.
A positive NPV means that the combined present value of all future cash flows (e.g.
year 1 return, year 2 return) exceeds the present value of cash outflows (e.g. your
investment).
It is calculated using a discount factor which accounts for the time value of money
, What are the advantages and disadvantages of the NPV? - ANSWER Advantages
- Takes into account the time value of money
- It expressed all future cash flows in today's values, which enables direct comparison of
options.
- Allows for inflation and escalation
- Looks at whole project
- Yields a single figure for profitability
Disadvantages
- More complex to calculate
- Heavily reliant on an accurate selection of the discount rate to be employed.
What are the advantages and disadvantages of the internal rate of return (IRR)? -
ANSWER Advantages
- Takes into account the time value of money
- No discount factor required in the result (but is required for the calculation) - Can
directly compare with the cost of capital
Disadvantages
- Complex, difficult to do without a spreadsheet
- IRR can yield negative or multiple solutions, for non-standard cash flows.
Internal Rate of Return (IRR) - ANSWER IRR uses forecasted income to give us the
rate of growth a project is expected to generate expressed as a percentage. Higher is
better.
It's used in capital budgeting to decide which projects or investments to undertake and
which to forgo.
It represents the discount rate at which the NPV = 0.
It can directly be compared with inflation or other projects.
Information management is the.... - ANSWER the collection, storage, dissemination,
archiving and destruction of information. It enables teams and stakeholders to use their
time, resource and expertise effectively to make decisions and to fulfill their roles.
What are the five stages of information management? - ANSWER CSDAD
