Capital Budgeting Decision Models Quiz

What is the primary focus of the payback period model?

• Market share growth

• Profit maximization

• Long-term investment

• Cost recovery

Which of the following is a significant weakness of the payback period model?

• It ignores cash flows after the payback period

• It considers the time value of money

• It requires extensive data

• It is too complex to calculate

What does a positive net present value (NPV) indicate?

• The project will break even

• The project has high risk

• The project is not worth pursuing

• The project adds value to the firm

What does the profitability index (PI) measure?

• The average return on investment

• The time taken to recover costs

• The ratio of benefits to costs

• The total cash inflows

Which decision model is considered economically sound?

• Discounted Payback Period

• Net Present Value (NPV)

• Payback Period

• Internal Rate of Return (IRR)

What is a key characteristic of long-term budgeting decisions?

• Involve smaller sums of money

• Focus on immediate cash flow

• Involve longer time horizons

• Require less information

What is the main flaw of the discounted payback period?

• It is too complex to calculate

• It ignores cash flows after the payback

• It requires extensive data

• It does not consider time value of money

In capital budgeting, what does the term 'hurdle rate' refer to?

• The average market return

• The rate of inflation

• The minimum acceptable rate of return

• The maximum acceptable rate of return

Which of the following is NOT a decision model discussed?

• Return on Investment (ROI)

• Discounted Payback Period

• Net Present Value (NPV)

• Payback Period

What does the term 'cash flow' refer to in capital budgeting?

• The total revenue generated

• The net profit after taxes

• The movement of cash in and out of a project

• The initial investment amount