Q.1 What is the primary purpose of project appraisal in economics?
To attract investors
To evaluate project feasibility
To increase government revenue
To create employment
Explanation - Project appraisal is mainly conducted to determine whether a project is viable, sustainable, and worth investing in.
Correct answer is: To evaluate project feasibility
Q.2 Which of the following is NOT a type of project appraisal?
Financial appraisal
Technical appraisal
Cultural appraisal
Economic appraisal
Explanation - Project appraisal is usually categorized into financial, economic, technical, and environmental types; cultural appraisal is not a standard type.
Correct answer is: Cultural appraisal
Q.3 Cost-Benefit Analysis (CBA) primarily involves:
Measuring profits only
Comparing social costs and benefits
Assessing technical feasibility
Studying consumer behavior
Explanation - CBA evaluates both social and private costs and benefits to decide whether a project should be undertaken.
Correct answer is: Comparing social costs and benefits
Q.4 In project appraisal, the discount rate is used to:
Adjust inflation
Convert future values to present values
Measure profitability
Set interest rates
Explanation - Discount rates are applied to calculate the present value of future costs and benefits, making them comparable.
Correct answer is: Convert future values to present values
Q.5 Net Present Value (NPV) is positive when:
Costs exceed benefits
Benefits exceed costs in present terms
The project is technically feasible
Government approves funding
Explanation - NPV becomes positive when the present value of benefits outweighs the present value of costs, indicating project viability.
Correct answer is: Benefits exceed costs in present terms
Q.6 Which of these is a limitation of Cost-Benefit Analysis?
It considers social impacts
It ignores shadow pricing
It is time-consuming and subjective
It measures opportunity costs
Explanation - CBA can be lengthy and involves subjective judgments, especially when valuing non-market benefits.
Correct answer is: It is time-consuming and subjective
Q.7 The Internal Rate of Return (IRR) is defined as:
The rate at which NPV equals zero
The rate of inflation
The interest charged by banks
The profit margin of a project
Explanation - IRR is the discount rate at which the Net Present Value of a project becomes zero.
Correct answer is: The rate at which NPV equals zero
Q.8 Which technique is often used alongside CBA to rank projects?
SWOT analysis
Payback period
Cost-effectiveness analysis
Regression analysis
Explanation - Cost-effectiveness analysis is used when benefits are difficult to quantify in monetary terms but can be measured in other ways.
Correct answer is: Cost-effectiveness analysis
Q.9 Shadow pricing in CBA refers to:
The use of official market prices
The estimation of true economic value
The cost of borrowing capital
The impact of inflation
Explanation - Shadow prices reflect the real value of goods and services when market prices are distorted or unavailable.
Correct answer is: The estimation of true economic value
Q.10 Which of the following is an example of intangible benefits in project appraisal?
Increased sales revenue
Reduced pollution
Lower transport cost
Higher output
Explanation - Intangible benefits are non-monetary, such as improved health, environment, or reduced pollution.
Correct answer is: Reduced pollution
Q.11 Social Cost-Benefit Analysis differs from financial analysis mainly because it:
Ignores externalities
Focuses on private gains
Accounts for social impacts and externalities
Uses only accounting profits
Explanation - SCBA includes externalities and societal impacts, unlike financial analysis which focuses on private returns.
Correct answer is: Accounts for social impacts and externalities
Q.12 Which organization first popularized SCBA in development projects?
World Bank
IMF
WTO
UNESCO
Explanation - The World Bank widely applied SCBA in its development project evaluations to assess social impacts.
Correct answer is: World Bank
Q.13 Payback period measures:
The time needed to recover initial investment
The profitability of a project
The opportunity cost of capital
The inflation-adjusted return
Explanation - Payback period indicates how long it takes for cumulative returns to equal the initial project investment.
Correct answer is: The time needed to recover initial investment
Q.14 Which of the following is NOT a step in project appraisal?
Identification of objectives
Estimation of costs and benefits
Political campaigning
Risk analysis
Explanation - Political campaigning is unrelated to appraisal; the process focuses on evaluating feasibility, costs, and risks.
Correct answer is: Political campaigning
Q.15 Economic appraisal differs from financial appraisal because it:
Focuses on market profitability
Focuses on economic welfare and externalities
Uses accounting measures only
Does not consider opportunity costs
Explanation - Economic appraisal evaluates a project’s broader economic impact, while financial appraisal focuses on private gains.
Correct answer is: Focuses on economic welfare and externalities
Q.16 What is sensitivity analysis used for in project appraisal?
To assess market demand
To test results under changing assumptions
To estimate inflation impact
To reduce cost overruns
Explanation - Sensitivity analysis evaluates how project outcomes change if assumptions about costs or benefits vary.
Correct answer is: To test results under changing assumptions
Q.17 Which of these best describes externalities in project appraisal?
Hidden costs borne by society
Taxes on investment
Unexpected profits
Government subsidies
Explanation - Externalities are costs or benefits that affect third parties and are not reflected in market prices.
Correct answer is: Hidden costs borne by society
Q.18 The benefit-cost ratio (BCR) is acceptable when it is:
Greater than 1
Equal to 1
Less than 1
Negative
Explanation - A BCR above 1 indicates that benefits exceed costs, making the project economically viable.
Correct answer is: Greater than 1
Q.19 Which factor is most important in choosing a social discount rate?
Government subsidies
Opportunity cost of capital
Tax rates
Political stability
Explanation - The social discount rate reflects the opportunity cost of capital when public resources are invested.
Correct answer is: Opportunity cost of capital
Q.20 Which appraisal focuses on whether resources are available and adequate for the project?
Financial appraisal
Technical appraisal
Economic appraisal
Social appraisal
Explanation - Technical appraisal examines the availability of resources, skills, and technology needed for implementation.
Correct answer is: Technical appraisal
Q.21 Which is a direct financial benefit of a project?
Improved health
Job creation
Increased revenue
Cleaner environment
Explanation - Revenue generation is a direct financial benefit, while others are social or indirect benefits.
Correct answer is: Increased revenue
Q.22 Why is inflation considered in project appraisal?
It affects cost and benefit values over time
It increases employment
It reduces discount rates
It improves BCR
Explanation - Inflation impacts the real value of money, altering project costs and benefits in the long run.
Correct answer is: It affects cost and benefit values over time
Q.23 The first step in cost-benefit analysis is usually:
Risk assessment
Identifying project objectives
Discounting cash flows
Calculating IRR
Explanation - Defining objectives is essential before evaluating costs, benefits, and feasibility of a project.
Correct answer is: Identifying project objectives
Q.24 Which of these is a criticism of IRR?
It does not consider time value of money
It may give multiple rates for non-conventional cash flows
It is harder to calculate than NPV
It ignores future benefits
Explanation - Projects with changing signs in cash flow may result in multiple IRRs, creating confusion in decision-making.
Correct answer is: It may give multiple rates for non-conventional cash flows
Q.25 Which of these is considered an environmental cost in project appraisal?
Construction expenses
Loss of biodiversity
Wages paid to workers
Transport costs
Explanation - Environmental costs include ecological damage such as biodiversity loss, which needs valuation in CBA.
Correct answer is: Loss of biodiversity