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WorksheetsMonthly Test - MA (Capital Budgeting)
Total questions: 35
Worksheet time: 45mins
Annual Cost Saving ₹4,00,000; Useful life 4 years; Cost of the Project ₹11,42,000. The Payback period would be-
2 years 8 months
2 years 11 months
3 years
1 year 10 months
In mutually exclusive projects, projects which are selected for comparison must have
Positive net present
negative net present value
zero net present value
none of the above
In a single projects situation, results of internal rate of return and net present value lead to
cash flow decision
cost decision
same decisions
different decisions
The discount rate which forces net present values to become zero is classified as -
Positive rate of return
negative rate of return
external rate of return
internal rate of return
Payback period in which an expected cash flows are discounted with the help of project cost of capital is classified as -
discounted cash flows
discounted rate of return
discounted payback period
discounted project cost
Number of years forecasted to recover an original investment is classified as -
Investment period
Forecasted period
Original period
Payback period
In proper capital budgeting analysis, we evaluate incremental -
Accounting income
Cash flow
Earnings
Operating profit
The term mutually exclusive investments mean:
Choose only the best investments
The elite investment opportunities will get chosen
The Selection of one investment precludes the selection of an alternative
are no investment options available
Which of the following variables is not known in Internal Rate of Return?
Initial Cash Flows
Discount Rate
Terminal Inflows
Life of the Project
Cost of Capital refers to -
Floatation Cost
Dividend
Required Rate of Return
None of the above
If interest or compounding is done on other than an annual basis, adjust by:
dividing the number of years by the number of compounding periods
multiplying the number of years by the number of compounding periods
dividing the interest rate by the number of compounding period
multiplying the years and dividing the interest rate by the number of compounding periods
The capital budgeting decision involves the planning of expenditures for projects with a life of at least:
one year
five years
ten years
fifteen years
The value in five years of a stream of payments received over the five-year period is known as:
future value of annuity
present value of annuity
compound sum
present value of single amount
Under the payback period:
We compute the time required to recoup the original investment
There is no consideration of inflows after the cut off period
The time value of money is ignored
all of the above are correct
15 All of the following are widely used methods for evaluating capital expenditures except -
Payback period
Internal rate of return
Net present value
Weighted average cost of capital
The basic discount rate used in net present value analysis is:
the internal rate of return
the cost of common equity
the net discount rate
the cost of capital to the firm
The value today of a stream of payments received over the five-year period is known as:
Future value of annuity
Present value of annuity
Compound sum
Present value of single amount
The internal rate of return method:
does not consider inflows after the cut-off period
calculates the interest rate that equates outflows with subsequent inflows
determines the time required to recoup the initial investment
determines whether future benefits justify current expenditures
A series of consecutive cash flows of equal amounts is known as:
a present value
a compound sum
a present sum
an annuity
To an investor, the most desirable compounding period is:
Annually
semi-annually
monthly
daily
An increase in the discount rate will:
Increase the present value of future cash flows.
reduce the present value of future cash flows.
have no effect on net present value.
Compensate for reduced risk.
A project whose acceptance prevents the acceptance of another project is known as:
a dependent
an independent project
a mutually exclusive project
a rational project
A project whose acceptance requires the acceptance of another project is known as:
an independent project
a dependent project
an essential project
a contingent project
Consider the following data on a proposed investment:
Investment required: $160,000
Annual cash inflows: $40,000
Life of the investment: 6 years
Salvage value: 0
Discount rate: 10%
Based on the above data, what is the payback period of the proposed investment project?
0.25 years
3 years
4 years
5 years
Consider the following data on a proposed investment:
Investment required: $160,000
Annual cash inflows: $40,000
Life of the investment: 6 years
Salvage value: 0
Discount rate: 10%
Based on the above data, what is the discounted payback period of the proposed investment project?
3 years
4 years
6 years and 4 months
5 years and 5 months
Consider the following data on a proposed investment:
Investment required: $160,000
Annual cash inflows: $40,000
Life of the investment: 6 years
Salvage value: 0
Discount rate: 10%
Based on the above data, what is the NPV of the proposed investment project?
174210
14200
174120
None
Consider the following data on a proposed investment:
Investment required: $160,000
Annual cash inflows: $40,000
Life of the investment: 6 years
Salvage value: 0
Discount rate: 10%
Based on the above data, what is the Internal Rate of Return of the proposed investment project?
10%
12.50%
13.50%
15.50%
If the interest rate is 8%, what would you pay for the perpetuity of $1500 starting in one year’s time?
18000
18750
17000
15000
A machine has an investment cost of $60,000 at time 0. The present value (at time 0) of the expected net cash inflows from the machine over the useful life are:
Discount Rate Present Value of Cash inflows
10% $64,600
15% $58,200
20% $52,100
What is the internal rate of return of the investment?
below 10%
Between 10% and 15%
Between 15% and 20%
Above 20%
An investment project has a positive net present value (NPV) of $7,222 when its cash flows are discounted at the cost of capital of 10% per year. Net cash inflows from the project are expected to be $18,000 per year for five years. The cumulative discount (annuity) factor for five years at 10% is 3.791.
What is the initial investment at the start of the project?
$61,016
$68,238
$75,460
$82,778
An investor is to receive an annuity of $21,500 for six years commencing at the end of year 1. It has a present value of $99,390. What is the rate of interest (to the nearest whole percent)?
5%
9%
8%
10%
Which one is worst, at present values, assuming an annual rate of interest of 9%?
$1500 in exactly one year from now
$1700 in exactly two years from now
$1800 in exactly three years from now
$1900 in exactly four years from now
Prices for a product starts at Rs.1000 and increases by 3% every month. What will be the price of the product after 1 year?
1200
1268
1425
1360
If the prices for the good increases by 2% every month, what is the effective annual percentage increase in the prices after 1 year.
26.80%
36%
42.57%
38.42%
Calculate the IRR for a project having following cash flows:
Year 0 - (800,000)
Year 1 - 250,000
Year 2 - 250,000
Year 3 - 400,000
Year 4 - 300,000
Year 5 - 200,000
Year 6 - 50,000
10%
20%
25%
23%
