ACMB333 - T3

What is the primary objective of capital budgeting?

• Maximize short-term profit

• Maximize shareholder wealth

• Reduce operational costs

• Minimize capital investment

What does a mutually exclusive project imply?

• Both projects can be executed simultaneously

• Acceptance of one project prevents the acceptance of another

• Projects have no impact on one another

• The project is repeated periodically

Which of the following is a complexity of capital expenditure?

• Capital budgeting

• Sensitivity analysis

• Financial reporting

• Inventory turnover

What is the formula for calculating the profitability index (PI)?

• PI = Cash inflows / Discount rate

• PI = Present value of cash flows / Investment outlay

• PI = Investment outlay / Present value of cash flows

• PI = Net profit / Investment outlay

Which of the following is NOT a project classification in capital budgeting?

• Replacement decision

• Depreciation project

• Expansion decision

• Independent project

What does the Weighted Average Cost of Capital (WACC) consider?

• Only equity financing

• Debt and equity financing

• Variable costs only

• Debt, equity and liability

In sensitivity analysis, managers adjust:

• Tax rates

• Market share

• Key investment variables

• Shareholder dividends

Capital expenditure decisions are usually reversible without any financial loss.

• True

• False

Uncertainty in capital expenditure decisions arises because future events cannot be predicted with certainty.

• True

• False

Opportunity costs are ________ in capital budgeting decisions.