WorksheetsSECTION A - TIME VALUE OF MONEY (TVM)
Total questions: 30
Worksheet time: 15mins
The process of converting present value into future value is called:
Discounting
Compounding
Amortization
Depreciation
If ₹5,000 is invested at 12% annual compound interest, the value after 2 years is:
₹6,000
₹6,272
₹6,500
₹5,800
Present value is:
Value of future cash flows discounted at an appropriate rate
Value of future cash flows compounded
Depreciated value
Sunk cost
You need ₹1,00,000 after 4 years. If interest rate is 10%, how much should you invest today?
₹80,000
₹70,000
₹75,131
₹68,000
Future value of an ordinary annuity is _____ that of an annuity due:
Equal to
Cannot be compared
Less than
Greater than
If discount rate increases, present value will:
Become zero
Increase
Remain same
Decrease
A cash flow of ₹20,000 received after 3 years discounted at 8% has PV equal to:
₹14,900
₹16,000
₹18,000
₹15,876
6. If discount rate increases, present value will:
Remain same
Decrease
Increase
Become zero
7. A cash flow of ₹20,000 received after 3 years discounted at 8% has PV equal to:
₹14,900
₹16,000
₹18,000
₹15,876
8. Cost of capital represents:
Minimum return required by investors
Maximum return a company expects
Operating cost
Fixed asset cost
9. The cost of equity using CAPM is:
rf + β (rm − rf)
D1 / P0 + g
rf − β (rm − rf)
(Debt + Equity) / Total capital
10. The after-tax cost of debt is:
kd × (1 − tax rate)
kd × (1 + tax rate)
kd only
kd / (1 − tax rate)
11. A company issues shares at ₹100, pays dividend of ₹8 expected to grow @ 5%. Cost of equity (DDM) =
5%
11%
8%
13%
12. If debt is ₹4,00,000 and equity is ₹6,00,000, the weight of debt in WACC is:
40%
60%
50%
30%
13. A company’s beta = 1.2, risk-free rate = 6%, market return = 12%. Cost of equity =
6%
13.2%
12%
10.5%
14. Which component generally has the highest cost?
Retained earnings
Equity capital
Preference capital
Debt
15. Which method considers the time value of money?
Accounting profit
Payback period
ARR
NPV
16. A project costs ₹50,000 and generates ₹12,500 annually. Payback period =
6 years
5 years
4 years
3 years
If Net Present Value is greater than zero, the decision for the project should be:
Reject due to risk premium
Accept because value is created
Ignore to avoid bias
Defer until rate falls
Internal Rate of Return is the discount rate at which:
PV of inflows exceeds costs
Profit is maximized globally
NPV becomes exactly zero
Discount rate reaches minimum
Profitability Index is defined as:
Cash inflows minus cash outflows
PV of inflows times discount rate
Outflows divided by inflows measure
Present value of inflows divided by outflows
Sunk costs in capital budgeting are best described as:
Opportunity costs of capital
Future costs to be financed
Irrelevant to current decisions
Recoverable expenditures later
Mutually exclusive projects imply that:
Both must be rejected
Both can be implemented
Only one may be chosen
None can be selected ever
When the Profitability Index exceeds 1, the project should be:
Deferred for reanalysis
Rejected for consistency
Accepted as value added
Indifferent to selection
A project pays ₹40,000 annually for 3 years with an initial outlay of ₹1,00,000. What is the simple payback period?
2.5 years of recovery
3.0 years exactly
1.0 year immediately
4.0 years overall
Working capital equals which of the following expressions?
Current assets plus current liabilities
Current assets minus current liabilities
Fixed assets plus current liabilities
Fixed assets minus current liabilities
Excess working capital most likely leads to which outcome?
Lower liquidity for the business
Idle funds tied up in operations
High profitability for shareholders
Higher risk from leverage increases
Permanent working capital refers to what?
Seasonal needs during peak periods
Extra funds required occasionally
Minimum level always required
Cash reserved for emergencies
Factoring primarily involves which activity?
Selling inventory to wholesalers
Selling receivables to a third party
Borrowing working capital from banks
Issuing equity shares to investors
If current assets equal ₹1,20,000 and current liabilities equal ₹70,000, what is the current ratio?
0.5 times
1.7 times
2.0 times
1.2 times
