NEW
Font size
WorksheetsFinancial Management - Module 2 Capital Budgeting
Total questions: 70
Worksheet time: 43mins
The process of making investment decision in long term assets is called .............
Assets Decisions
Capital Budgeting
Cash Budgeting
Property Decisions
Which one is NOT a stages in the capital budgeting
Project Generation
Project Screening
Project Evaluation
Project Selection
Project Financing
In Capital Budgeting, outflow of funds are required .......
at the beginning of the decision
at the end of the estimated life
during a certain number of future period
All of the Above
Which of the following are NOT a features of capital budgeting
Reversible decision
Irreversible decision
Expectation of receiving future returns
Involves risk and uncertainty
Capital Expenditure relates to ............
Repayment of Capital
Expenditure for raising capital
Expenditure on the redemption of capital
Expenditure on the acquisition of Fixed Assets
Which of the following is the correct sequence of capital budgeting
Project generation, project screening,project selection,project implementation,project review and project evaluation
Project Screening, Project Generation, Project Evaluation, Project Selection, Project Implementation, Performance Review
Project Generation, Project Screening, Project Evaluation, Project Selection, Project Implementation and Performance Review
Project Generation, Project Evaluation, Project Screening, Project Selection, Project Implementation, and performance Review
Identify the INCORRECT option in terms of the importance of Capital Budgeting decisions
it is a political decision
it involves risk and uncertainty
it involve huge financial outlay
it has bearing on Profitability and liquidity
Identify the ODD ONE from the following in terms of the significance of Capital Budgeting
it involves high degree of risk and uncertainty
it determines future growth and development of business
it is simple and easy
it impacts on the competitiveness
Which among the following is NOT a Limitation of Capital Budgeting decisions
high degree of uncertainty and risk
difficult to estimate cost of capital
stimulates organisational growth
existence of non monetary factors in decision making
The period between making the initial investment and starting to receive return from the project is called .....
Revenue Period
Investment Period
Project Period
Gestation Period
Cash inflow = ................... + .................
EBIT + Depreciation
EBT + Depreciation
EBDIT + Depreciation
EAT + Depreciation
Cash Flow is superior to Accounting Profit, because..........
A) accounting profit ignores time value of money
B) profit will change with the method of depreciation and inventory valuation
Both A and B
Neither A nor B
Cash flows in respect of a project consists of ..............
Initial Cash Outflow
Annual Cash Inflows
Terminal Cash flows
All of the Above
The additional cash inflows generated due to the investment in new capital budgeting proposal is called.......
Budgeted Cash inflows
Incremental Cash inflows
Terminal Cash inflows
All of the Above
Cash outflow in respect of a capital budgeting project means ..............
Cash paid to promoters
Cash paid to Suppliers of Material
Cash paid to Employees
Initial Investment
Cash inflows = (sales - cost-depreciation-interest-tax)+ depreciation is comes under which type of cash flow estimation model?
Cost Reduction Model
Revenue Increasing Model
Both of the above
None of the above
Cash inflow = estimated savings - estimated additional cost -tax + additional depreciation is applicable to which model of cash flow estimation ?
Revenue Increasing Model
Cost Reduction Model
All of the above
None of the above
Cash flow generated at the disposal of asset is called .......
Annual Cash Inflow
Initial Cash Inflow
Incremental Cash Inflow
Terminal Cash Inflow
Which of the following comes under the Traditional Methods of Capital Budgeting
NPV
PI
IRR
ARR
NTV
Which of the following NOT Belong to Modern Methods of Capital Budgeting
ARR
Discounted Pay Back Period
IRR
NTV
NPV
Acceptance of projects under the situation of emergency is usually made by using ........ method
Pay Back Period Method
Post Pay Back Profitability
Pay Back Reciprocal
Urgency Method
which type of methods of capital budgeting is regarded as the Discounted Cash Flow Techniques
Traditional Methods
Modern Methods
Both of them
None of them
which method of capital budgeting considers Cash Inflows for analyis and evaluation
PayBack Period
NPV
IRR
PI
All of the Above
Which of the following is NOT a Risk Adjusted Method of Capital Budgeting
Certainity Equivalent Coefficent
Risk Adjusted Discount Rate
Sensitivity Analysis
Net Terminal Value
When annual cash inflows are EQUAL, Pay Back Period is ascertaint as ........
Annual Cash inflows / Original Investment
Annual Cash inflows / Total Cash inflows
Original Investment / Total Cash inflows
Original Investment / Annual Cash inflows
Pay Back Method of Capital Budgeting is suitable for .......
Small Projects
Large Projects
Both of them
None of them
Pay Back Period method is suitable for .......
Projects with long economic life
Projects with small economic life
Both of them
None of them
Under the Payback Period method, selection of projects is based on ........
Large Payback Period
Least Payback Period
Total Profitability
All of the above
Which of the following is NOT a limitation of Payback Period method
Ignores Time Value of Money
Ignores post payback profitability
Ignores the Rate of Return Calculation
Considers Liquidity
Total Cash inflows minus Initial Cost will gives you.....
Pre Bayback Profitability
Total Profitability
Post Payback Profitability
None of the Above
Under the Post Payback Profitability meyhod, projects are selected based on .......
Total Profitabilty / Cash inflows
Total Investment / Cash outflows
Profitability before the payback period
Profitability after the payback period
Surplus life over payback method considers ....... for the selection of projects
low payback period
high post pay back period
Total Cash inflows
None of the Above
Rate of return of projects under Pay Back Method can be calculated by taking .......
Payback Profit
Payback Reciprocal
Post Payback Profit
None of the Above
Payback Reciprocal can be calculated as ......
Economic Life of Project / Payback Period
Payback Period / Economic Life of Project
Payback Period / 1
1 / Payback Period
MPBP method stands for .......
Marginal Pay Back Period method
Most Pay Back Period method
Modified Pay Back Period method
Manual Pay Back Period method
ARR as a method of capital budgeting means .......
Accounting Rate of Return
Average Rate of Return
Return on Investment
Unadjusted Rate of Return
All of the Above
ARR is calculated as ........
Average Investment / Average Profits *100
Total Investment / Average Profits *100
Average Profits / Average Investments *100
Total Profits / Total Inestment *100
Identify the correct formula of calculating
Average Investment
(Original Cost +Scrap Value ) / 2
((Original Cost - Scrap Value ) / 2) + Scrap Value
Both of the Above
None of the above
ARR method uses ........... for project evaluation
Cash inflows
Accounting Profit
Both of them
None of them
which of the following is NOT a limitation of ARR method
Ignores Time value of money
Differential investment outlay of projects not considered
Ignores reinvestment of profits
Comparision of Projects with different characters can be made
NPV is =
Cashinflows - Cash outflows
Present Value of Cash inflows - Present Value of Cash outflows
Annual Cash inflows - Annual Cash outflows
None of the above
If NPV is Negative , Projects can be ......
Accepted
Postponned
Rejected
Aggregated
In the case of mutually exclusive projects, one project is selected when ...,....
NPV is Negative
Highest Poisitive NPV
Lowest Positive NPV
NPV is Zero
PI method is also called as ......
Production Incentive
Profitability Incentive
Programmed Instruction
Benefit / Cost Ratio
In situations of Capital Rationning , ..... method is mostly preferred for Capital Budgeting
NPV
IRR
PI
ARR
PI ( NET) is calculated as ....
NPV / Present Value of Cash Outflows
PI (Gross) - 1
Both of the above
None of the above
B/C Ratio is calculated as ......
PV of Cash inflows - PV of Cash outflows
PV of Cash outflows - PV of Cash Inflows
PV of Cash inflows / PV of Cash outflows
PV of Cash outflows / PV of Cash inflows
A situation where there is plenty of profitable projects available for investment but only limited funds to invest is called .....
Capital Budgeting
Caital Investment
Capital Scarcity
Capital Rationing
The discount rate at which NPV is ZERO is called as......
NPV Discount
NPV Return
IRR
ARR
IRR stands for
Internal Reserve Return
Innternal Reserve Ratio
Internal Return Reserve
Internal Rate of Return
which of the following is NOT an alternative name for IRR method
Time Adjusted Rate of Return
Trial and Error Yield Method
Discounted Rate of Return
Accounting Rate of Reurn
Under IRR, if the NPV is positive at the first trial rate, the second trial rate will be ......
A higher rate than the first rate
A lower rate than the first rate
the same rate as the first rate
None of the above
Reinvestment of cash inflows at the prevailing differential rate is a feature of ..... method
ARR
NPV
IRR
NTV
NTV stands for .....
Net Present Value
Net Total Value
Net Terminal Value
Nat Temporary Value
NTV is =
P V of Terminal Amount - P V of Cash Outflows
P V of Cash Inflows - P V of Cash Outflows
P V of Cash Inflows / P V of Cash Outflows
P V of Terminal Amount / P V of Cash Outflows
Terminal Amount in respect of NTV method means ......
Present Values of Cash inflows
Compounded Value of Reinvested Cash inflows
Present Value of Reinvested Cash outflows
Compounded value of Cash inflows
A project is selected under the NTV method , if its .......
NPV is positive
NTV is Positive
NPV is Negative
NTV is Negative
Capital budgeting with differential discount rate , based on the extent of risk involved in each projects are called as....
Discounted Rtae of Return
IRR
Risk Adjusted Discount Rate
ARR
Adjustment of Risk by way of finding CERTAIN CASH INFLOWS are called as ......
B / C Ratio Method
CE Coefficient Method
Risk Adjusted Discount Rate method
ARR method
Estimation of Cost of Capital ( discount rate ) is not a pre requisite for ..... method
NPV
IRR
PI
NTV
cost of a machine is Rs. 5,00,000. Estimated Life is 5 Years . Annual Cashinflows are Rs. 1,50,000. Payback Period is .....
4 years
5 Years
3.3 Years
6 years
Average annual profits = 2,00,000,
Average Investment = 6,00,000
ARR is ......
30 %
33.33%
50%
15%
Present Value of Cash inflows are Rs. 12,36,000
Initial Investment is Rs. 12,00,000
NPV is .......
1.03
97.08%
63,000
36,000
Present Value of Cash Outflow is Rs. 3,00,000
Present Value of Cash inflows are Rs. 4,00,000
PI (Gross ) is .....
1.33
75% or .75
.33% or .33
4.3
Present Value of Cash Outflow is Rs. 3,00,000
Present Value of Cash inflows are Rs. 4,00,000
PI (Net) is .....
1.33
75% or .75
.33% or .33
4.3
Present Value of Cash Outflow is Rs. 12,00,000
Present Value of Cash inflows at 10% discount rate is Rs. 11,00,000
Presemt Value of Cash inflows at 11 % discount rate is Rs. 12,00,000
Present Value os Cash inflows at 12 % is Rs. 13,00,000
IRR will .....
10%
11%
12%
None of the above
PV of Compounded Terminal Value is Rs. 12,36,000
PV of Cash outflow is 12,00,000
NTV is .....
12,36,000
12,00,000
24,36,000
36,000
Risk Free rate is 7%
Risk Premium for Project A = 3%
Risk Premium for Project B = 5%
The Discount Rate for project evaluation will be ..... and .....
8 % for A and 7 % for B
15 % for A and B
10% for A and 12% for B
!2% for A and 10% for B
Estimated Annual Cash inflows is Rs 1,00,000
Certainity Equivalent Co-efficient is .75
Certain Annual Cash inflows will be .....
1,00,000
99,9999
75,000
75,00,000
Projects A and B are mutually exclusive
Minimum required rate is 20 %
ARR of A is 18% , ARR of B is 19%
State the selectability of projects
Project A will be selected
Project B will be selected
Both Project A and Project B will be selected
Both Projects will be rejected
