Question

Which statement is incorrect

a)Initial investment is a cash outflows required by a company to start a project

b)Decrease in rental income is a cost in an annual cash flows cost and benefit analysis

c)Increase in salary is a benefit in an annual cash flows of cost and benefit analysis

d)Terminal cash flows will occur only at the project’s termination.

Which statement is incorrect regarding the importance of capital investment appraisal *

a)The goal of the firm is maximizing shareholders wealth by increase the share price of the firm

b)The firm may have limited resources available for re-investment thus, efficient decision is crucial under scarce resources condition

c)Wrong decision on capital investment is very costly because a firm may obtain borrowing to provide fund for its investment

d)Capital investment appraisal aims to allocate fund available into project that give highest possible risk

Answer 1

1. Option (c) is the answer

"Increase in salary is a benefit in an annual cash flows of cost and benefit analysis", is incorrect statement. Rather increase in salary is a cost in an annual cash flow of cost and benefit analysis.

2. Option (d) is the answer

"Capital investment appraisal aims to allocate fund available into project that give highest possible risk", is incorrect statement. Rather the project should give lowest possible risk and lowest possible returns.