Accounting Multiple Choice Question – 27 July 2023

Discounting methods have been used to evaluate an investment project over a three year life.

The project will produce annual net inflows of £2M.

£500,000 of the initial investment can be recovered at the end of the third year.

Discount factors at 10 % are:

• Year 1 – factor 0.91
• Year 2 – factor 0.83
• Year 3 – factor 0.75

What is the present value of project cash inflows?

Select ONE answer:

1. £4.98M
2. £5.36M
3. £5.48M
4. £6.38M

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Not correct
2. Correct – Y1 £2M * 0.91 = £1.82M + Y2 £2M * 0.83 = £1.66M + Y3 £2M * 0.75 = £1.5M + IV £0.5M * 0.75 = £0.375M == > £5.36M
3. Not correct
4. Not correct

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