These are ACCA F2 (MA/FMA) Management Accounting MCQs for Part-D of the Syllabus “Budgeting”.

These multiple-choice questions (MCQs) are designed to help ACCA F2 (MA) students to better understand the exam format. We aim to instill in students the habit of practicing online for their CBE exams. By doing so, students can reduce exam stress and prepare more effectively.

INFORMATION ABOUT THESE MCQs Test

Course: ACCA – Associations of Chartered Certified Accountants
Fundamental Level: Knowledge, FIA – Foundation in Accounting
Subject: Management Accounting
Paper: F2 – MA/FMA
Chapter: Capital expenditure budgeting, and Methods of project appraisal
Chapter Number: 12 of the Practice and Exam Kit
Syllabus Area: D – Budgeting
Questions Type: CBE MCQs
Exam Section Type: Section A

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Number of the Questions

There are 4 Questions in this F2 MCQ Test that cover Chapter 12a; Capital expenditure budgeting of ACCA F2 (MA/FMA) Management Accounting Module.

Time

This MCQs test is not time-bound. Take your time and solve them without stress. Pay proper attention and focus. Do not rush or hesitate.

Result

Students will get their F2 CBE MCQ result after they finish the entire test. They will also be able to see the score in percentage, correct and incorrect answers, as well as explanations for the incorrect questions.

Types of Questions

MCQs: Choose one from the given options.
Multiple choice: Choose all answers that seem correct or incorrect, as per the requirement of the question. Keep your eye on the wording “(select all those which are correct/ or incorrect)”.
Dropdown: Select from the list provided.
Type numbers: Type your answer in numbers as per the requirement of the question.

Keywords

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1 votes, 5 avg

F2 - Chapter 12 - Part A - MCQs

Course: ACCA - FIA
Subject: F2 (MA/FMA) Management Accounting
Chapter: 12 - Capital expenditure budgeting, and Methods of project appraisal
Syllabus Area: D - Budgeting
Exam Section: Section A
Questions type: MCQs
Time: No Time Limit

INSTRUCTIONS

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1 / 27

An investment project has a positive net present value (NPV) of $7,222 when its cash flows are discounted at the cost of capital of 10% per year. Net cash inflows from the project are expected to be $18,000 per year for five years. The cumulative discount (annuity) factor for five years at 10% is 3.791.

What is the investment at the start of the project?

$75,460

$82,778

$61,016

$68,238

2 / 27

An investment project has the following discounted cash flows ($'000):

Year		Discount rate
	0%	10%	20%
0	(90)	(90)	(90)
1	30	27.3	25.0
2	30	24.8	29.8
3	30	22.5	17.4
4	30	20.5	14.5
	30	5.1	(12.3)

The required rate of return on investment is 10% per year.

What is the discounted payback period of the investment project?

3.0 years

Less than 3.0 years

Between 3.0 years and 4.0 years

More than 4.0 years

3 / 27

A project has an initial outflow of $12,000 followed by six equal annual cash inflows, commencing in one year's time. The payback period is exactly four years. The cost of capital is 12% per year.

What is the project's net present value (to the nearest $)?

–$5,926

–$3,778

$333

–$2,899

4 / 27

If the interest rate is 8%, what would you pay for a perpetuity of $1,500 starting in one year's time? (to the nearest $)

$_______

5 / 27

A sum of money was invested for 10 years at 7% per year and is now worth $2,000.

What was the original amount invested (to the nearest $)?

$14,048

$1,026

$1,017

$3,937

6 / 27

If a single sum of $12,000 is invested at 8% per year with interest compounded quarterly, what is the amount to which the principal will have grown by the end of year three? (approximately)

$9,528

$30,924

$15,117

$15,219

7 / 27

A machine has an investment cost of $60,000 at time 0. The present values (at time 0) of the expected net cash inflows from the machine over its useful life are:

Discount rate	Present value of cash inflows
10%	$64,600
15%	$58,200
20%	$52,100

What is the internal rate of return (IRR) of the machine investment?

Between 15% and 20%

Between 10% and 15%

Below 10%

Over 20%

8 / 27

A building society adds interest monthly to investors' accounts even though interest rates are expressed in annual terms. The current rate of interest is 6% per year. An investor deposits $1,000 on 1 January.

How much interest will have been earned by 30 June? (to two decimal places)

$_______

9 / 27

Which is worth most, at present values, assuming an annual rate of interest of 8%?

$1,200 in exactly one year from now

$1,800 in exactly four years from now

$1,400 in exactly two years from now

$1,600 in exactly three years from now

10 / 27

A project requiring an investment of $1,200 is expected to generate returns of $400 in years 1 and 2 and $350 in years 3 and 4. If the NPV = $22 at 9% and the NPV = –$4 at 10%, what is the IRR for the project?

10.85%

9.85%

9.15%

10.15%

11 / 27

What is the present value of ten annual payments of $700, the first paid immediately and discounted at 8%, giving your answer to the nearest $?

$1,050

$4,697

$4,435

$5,073

12 / 27

Diamond Co has a payback period limit of three years and is considering investing in one of the following projects. Both projects require an initial investment of $800,000. Cash inflows accrue evenly throughout the year.

Project Alpha

Project Beta

Year	Cash inflow	Year	Cash inflow
	$		$
1	250,000	1	250,000
2	250,000	2	350,000
3	400,000	3	400,000
4	300,000	4	200,000
5	200,000	5	150,000
6	50,000	6	150,000

The company's cost of capital is 10%.

What is the discounted payback period of Project Alpha?

Between 5 and 6 years

Between 1 and 2 years

Between 3 and 4 years

Between 4 and 5 years

13 / 27

A capital investment project has an initial investment followed by constant annual returns.

How is the payback period calculated?

(Initial investment – residual value) ÷ annual net cash inflow

(Initial investment – residual value) ÷ annual profit

Initial investment ÷ annual profit

Initial investment ÷ annual net cash inflow

14 / 27

A one-year investment yields a return of 15%. The cash returned from the investment, including principal and interest, is $2,070.

What is the interest?

$300

$250

$270

$310.50

15 / 27

House prices rise at 2% per calendar month.

What is the annual rate of increase correct to one decimal place?

26.8%

12.7%

12.2%

24.0%

16 / 27

Project Alpha

Project Beta

Year	Cash inflow	Year	Cash inflow
	$		$
1	250,000	1	250,000
2	250,000	2	350,000
3	400,000	3	400,000
4	300,000	4	200,000
5	200,000	5	150,000
6	50,000	6	150,000

The company's cost of capital is 10%.

What is the non-discounted payback period of Project Beta?

2 years and 5 months

2 years and 4 months

2 years and 2 months

2 years and 6 months

17 / 27

Which of the following accurately defines the internal rate of return (IRR)?

The average annual profit from an investment expressed as a percentage of the investment sum

The rate (%) at which discounted net profits from an investment are zero

The discount rate (%) at which the net present value of the cash flows from an investment is zero

The net present value of the cash flows from an investment discounted at the required rate of return

18 / 27

What is the effective annual rate of interest of 2.1% compounded every three months?

8.40%

10.87%

8.67%

6.43%

19 / 27

A bank offers depositors a nominal 4% pa, with interest payable quarterly.

What is the effective annual rate of interest?

4.06%

1.025%

20 / 27

An investor is to receive an annuity of $19,260 for six years commencing at the end of year 1. It has a present value of $86,400.

What is the rate of interest (to the nearest whole percent)?

11%

21 / 27

The net present value of an investment at 12% is $24,000, and at 20% is –$8,000.

What is the internal rate of return of this investment?

_____ %

(State your answer to the nearest whole percent.)

22 / 27

In decision making, costs which need to be considered are said to be relevant costs. Which of the following are characteristics associated with relevant costs?

Future costs
Unavoidable costs
Incremental costs
Differential costs

(i) and (ii) only

All of them

(i), (iii) and (iv) only

(i) and (iii) only

23 / 27

You are currently employed as a Management Accountant in an insurance company. You are contemplating starting your own business. In considering whether or not to start your own business, what would your current salary level be?

An irrelevant cost

An opportunity cost

An incremental cost

A sunk cost

24 / 27

A machine owned by a company has been idle for some months but could now be used on a one year contract which is under consideration. The net book value of the machine is $1,000. If not used on this contract, the machine could be sold now for a net amount of $1,200. After use on the contract, the machine would have no saleable value and the cost of disposing of it in one year's time would be $800.

What is the total relevant cost of the machine to the contract?

$_______

25 / 27

Which of the following would be part of the capital expenditure budget?

Purchase of a new factory premises
Replacement of existing machinery
Refurbishment of existing factory premises
Purchases of raw materials

(iii) and (iv) only

(i) and (ii) only

(i), (ii) and (iii) only

(ii) and (iv) only

26 / 27

How much should be invested now (to the nearest $) to receive $24,000 per year in perpetuity if the annual rate of interest is 5%?

$480,000

$1,200

$25,200

$120,000

27 / 27

An investor has the choice between two investments. Investment Exe offers interest of 4% per year compounded semi-annually for a period of three years. Investment Wye offers one interest payment of 20% at the end of its four-year life.

What is the annual effective interest rate offered by the two investments?

Investment Exe 4.00%, Investment Wye 4.66%

Investment Exe 4.04%, Investment Wye 5.00%

Investment Exe 4.04%, Investment Wye 4.66%

Investment Exe 4.00%, Investment Wye 5.00%