The payback method for the measurement of return on investment
Gives a correct picture of profitability
Underemphasises liquidity
Does not measure the discounted rate of return
Takes into account the cash inflows after the recovery of investments
Correct Answer :
C. Does not measure the discounted rate of return
Related Questions
A balance sheet for a chemical plant shows its financial condition at any given date. It does not contain the __________ of the plant.
Current asset
Current liability
Long term debt
Profit
Which of the following is not a component of working capital?
Raw materials is stock
Finished products in stock
Transportation facilities
Semi-finished products in the process
Which of the following relationship is not correct is case of a chemical process plant?
Manufacturing cost = direct product cost + fixed charges + plant overhead costs
General expenses = administrative expenses + distribution & marketing expenses
Total product cost = manufacturing cost + general expenses
Total product cost = direct production cost + plant overhead cost
__________ of depreciation calculation accounts for the interest on investment.
Straight line method
Declining balance
Both (A) and (B)
Neither (A) nor (B)
Fixed capital investment of a chemical plant is the total amount of money needed to supply the necessary plant and manufacturing facilities plus the working capital for operation of the facilities. Which of the following components of fixed capital investment requires minimum percentage of it?
Electrical installation cost
Equipment installation cost
Cost for piping
Equipment insulation cost
Personnel working in the market research group is responsible for the job of
Equipment selection
Product evaluation
Equipment design
Cost estimation
Pick out the wrong statement.
Gross margin = net income - net expenditure
Net sales realisation (NSR) = Gross sales - selling expenses
At breakeven point, NSR is more than the total production cost
Net profit = Gross margin - depreciation - interest
For a typical project, the cumulative cash flow is zero at the
End of the project life
Breakeven point
Start up
End of the design stage
Equipment installation cost in a chemical process plant ranges from __________ percent of the purchased equipment cost.
10 to 20
35 to 45
55 to 65
70 to 80
A machine has an initial value of Rs. 5000, service life of 5 years and final salvage value of Rs. 1000. The annual depreciation cost by straight line method is Rs.
300
600
800
1000
The amount of compounded interest during 'n' interest periods is
p[(1+i)n - 1)]
p(1 + i)n
p(1 - i)n
p(1 + in)
Profit is equal to revenue minus
Book value
Total cost
Operating cost
None of these
Which of the following elements is not included in the scope of market analysis?
Competition from other manufactures
Product distribution
Opportunities
Economics
Pick out the wrong statement.
Gross revenue is that total amount of capital received as a result of the sale of goods or service
Net revenue is the total profit remaining after deducting all costs excluding taxes
The ratio of immediately available cash to the total current liabilities is known as the cash ratio
Consolidated income statement based on a given time period indicates surplus capital and shows the relationship among total income, costs & profit over the time interval
__________ taxes are based on gross earnings.
Property
Excise
Income
Capital gain
An investment of Rs. 1000 is carrying an interest of 10% compounded quarterly. The value of the investment at the end of five years will be
1000 (1 + 0.1/4)20
1000 (1 + 0.1)20
1000 (1 + 0.1/4)5
1000 (1 + 0.1/2)5
Manufacturing cost in a chemical company does not include the
Fixed charges
Plant overheads
Direct products cost
Administrative expenses
The ratio of gross annual sales to the fixed capital investment is termed as the __________ ratio.
Cash reserve
Capital
Turnover
Investment
Nominal and effective interest rates are equal, when the interest is compounded
Quarterly
Semi-annually
Annually
In no case, they are equal
Total product cost of a chemical plant does not include the __________ cost.
Market survey
Operating labour, supervision and supplies
Overhead and utilities
Depreciation, property tax and insurance
Pick out the wrong statement.
Debt-equity ratio of a chemical company describes the lenders contribution for each rupee of owner's contribution i.e., debt-equity ratio = total debt/net worth
Return on investment (ROI) is the ratio of profit before interest & tax and capital employed (i.e. net worth + total debt)
Working capital = current assets + current liability
Turn over = opening stock + production closing stock
Which of the following is not a component of the working capital for a chemical process plant?
Product inventory
In-process inventory
Minimum cash reserve
Storage facilities
If an amount R is paid at the end of every year for 'n' years, then the net present value of the annuity at an interest rate of i is
R [{(1 + i)n - 1}/ i ]
R [{(1 + i)n - 1}/ i (1 + i)n]
R(1 + i)n
R/(1 + i)n
Direct costs component of the fixed capital consists of
Contingencies
Onsite and offsite costs
Labour costs
Raw material costs
The ratio of working capital to total capital investment for most chemical plants (except for nonseasonal based products) is in the range of __________ percent.
0.1 to 1
1 to 2
10 to 20
50 to 60
The value of a property decreases __________ with time in straight line method of determining depreciation.
Linearly
Non-linearly
Exponentially
Logarithmically
Functional depreciation of an equipment is the measure of decrease in its value due to its
Ageing
Wear and tear
Obsolescence
Breakdown or accident
Following the six-tenth factor rule, if a loglog plot of capacity of the equipment vs. cost of the equipment is made, then a straight line is obtained, whose slope is equal to
0.1
0.6
0.2
0.8
Construction expenses are roughly __________ percent of the total direct cost of the plant.
2
10
30
50
Fixed charges for a chemical plant does not include the
Interest on borrowed money
Rent of land and buildings
Property tax, insurance and depreciation
Repair and maintenance charges