Capital Budgeting Techniques

Which of the following capital budgeting techniques ignores time value of money? (a)  

• Internal Rate of Return
• Payback period
• Net Present Value
• Profitability index

Which of the following capital budgeting techniques are used under "capital rationing"conditions? (a)  

• Net present value
• Internal rate of return
• Payback period
• Profitability index

If the Net Present Value (NPV) is positive, the investment project must be rejected. (a)  

• TRUE
• FALSE

Capital budgeting techniques are used to evaluate the firm's fixed asset investments which provide the basis for the firm's earning power and value. (a)  

• TRUE
• FALSE

The purchase of additional physical facilities, such as additional property or a new factory, is an example of a capital expenditure. (a)  

• TRUE
• FALSE

 A capital expenditure is an outlay of funds invested only in fixed assets that is expected to produce benefits over a period of time less than one year. (a)  

• TRUE
• FALSE

Match the following:

• This method is used to know how much time it will take to recover the investment.

• Discounted Payback Period

• It is an accounting technique to measure profit expected from an investment.

• Accounting Rate of Return (ARR)

• It defines how much you will earn per dollar.

• Net Present Value (NPV)

• Same as payback period method. Only difference is that it considers discounted cash flows.

• Payback Period

• It is the sum of all future discounted cash-flow less initial investment.

• Profitability Index

It is the process of evaluating and selecting long-term investments projects that will ultimately maximize the firm’s goal of maximizing owner’s wealth.  (a)  

• Financial Modeling
• Capital Budgeting
• Financial Banking
• Accounting