Capital Budgeting

  1. Capital Budgeting is a part of:
    1. Investment Decision
    2. Working Capital Management
    3. Marketing Management
    4. Capital Structure
  2. Capital Budgeting deals with:
    1. Long-term Decisions
    2. Short-term Decisions
    3. Both (a) and (b)
    4. Neither (a) nor (b)
  3. Which of the following is not used in Capital Budgeting?
    1. Time Value of Money
    2. Sensitivity Analysis
    3. Net Assets Method
    4. Cash Flows
  4. Capital Budgeting Decisions are:
    1. Reversible
    2. Irreversible
    3. Unimportant
    4. All of the above
  5. Which of the following is not incorporated in Capital Budgeting?
    1. Tax-Effect
    2. Time Value of Money
    3. Required Rate of Return
    4. Rate of Cash Discount
  6. Which of the following is not a capital budgeting decision?
    1. Expansion Programme
    2. Merger
    3. Replacement of an Asset
    4. Inventory Level
  7. A sound Capital Budgeting technique is based on:
    1. Cash Flows
    2. Accounting Profit
    3. Interest Rate on Borrowings
    4. Last Dividend Paid
  8. Which of the following is not a relevant cost in Capital Budgeting?
    1. Sunk Cost
    2. Opportunity Cost
    3. Allocated Overheads
    4. Both (a) and (c) above
  9. Capital Budgeting Decisions are based on:
    1. Incremental Profit
    2. Incremental Cash Flows
    3. Incremental Assets
    4. Incremental Capital
  10. Which of the following does not effect cash flows proposal?
    1. Salvage Value
    2. Depreciation   Amount
    3. Tax   Rate Change
    4. Method of Project Financing
  11. Cash Inflows from a project include:
    1. Tax Shield of Depreciation
    2. After-tax Operating Profits
    3. Raising of Funds
    4. Both (a) and (b)
  12. Which of the following is not true with reference capital budgeting?
    1. Capital budgeting is related to asset replacement decisions
    2. Cost   of   capital   is equal to minimum required return
    3. Existing investment in a project is not treated as sunk cost
    4. Timing of cash flows is relevant.
  13. Which of the following is not followed in capital budgeting?
    1. Cash flows Principle
    2. Interest Exclusion Principle
    3. Accrual Principle
    4. Post-tax Principle
  14. Depreciation is incorporated in cash flows because it:
    1. Is unavoidable cost
    2. Is a cash flow
    3. Reduces Tax liability
    4. Involves an outflow
  15. Which of the following is not true for capital budgeting?
    1. Sunk costs are ignored
    2. Opportunity costs are excluded
    3. Incremental cash flows are considered
    4. Relevant cash flows are considered
  16. Which of the following is not applied in capital budgeting?
    1. Cash flows be calculated in incremental terms
    2. All costs and benefits are measured on cash basis
    3. All accrued costs and revenues be incorporated
    4. All benefits are measured on after-tax basis.
  17. Evaluation of Capital Budgeting Proposals is based on Cash Flows because:
    1. Cash Flows are easy to calculate
    2. Cash Flows are suggested by SEBI
    3. Cash is more important than profit
    4. None of the above
  18. Which of the following is not included in incremental A flows?
    1. Opportunity Costs
    2. Sunk  Costs
    3. Change  in   Working Capital
    4. Inflation effect
  19. A proposal is not a Capital Budgeting proposal if it:
    1. is related to Fixed Assets
    2. brings long-term benefits
    3. brings short-term benefits only
    4. has very large investment
  20. In Capital Budgeting, Sunk cost is excluded because it is:
    1. of small amount
    2. not incremental
    3. not reversible
    4. All of the above
  21. Savings in respect of a cost is treated in capital budgeting as:
    1. An Inflow
    2. An Outflow
    3. Nil
    4. None of the above.
  22. Risk in Capital budgeting implies that the decision-maker knows___________of the cash flows.
    1. Variability
    2. Probability
    3. Certainty
    4. None of the above
  23. In Certainty-equivalent approach, adjusted cash flows are discounted at:
    1. Accounting Rate of Return
    2. Internal Rate of Return
    3. Hurdle Rate
    4. Risk-free Rate
  24. Risk in Capital budgeting is same as:
    1. Uncertainty of Cash flows
    2. Probability of Cash flows
    3. Certainty of Cash flows
    4. Variability of Cash flows
  25. Which of the following is a risk factor in capital budgeting?
    1. Industry specific risk factors
    2. Competition risk factors
    3. Project specific risk factors
    4. All of the above
  26. In Risk-Adjusted Discount Rate method, the normal rate of discount is:
    1. Increased
    2. Decreased
    3. Unchanged
    4. None  of  the above
  27. In Risk-Adjusted Discount Rate method, which one is adjusted?
    1. Cash flows
    2. Life of the proposal
    3. Rate of discount
    4. Salvage value
  28. NPV of a proposal, as calculated by RADR real CE Approach will be:
    1. Same
    2. Unequal
    3. Both (a) and (b)
    4. None of (a) and (b)
  29. Risk of a Capital budgeting can be incorporated
    1. Adjusting the Cash flows
    2. Adjusting the Discount Rate
    3. Adjusting the life
    4. All of the above
  30. Which element of the basic NPV equation is adjusted by the RADR?
    1. Denominator
    2. Numerator
    3. Both
    4. None
  31. In CE Approach, the CE Factors for different years are:
    1. Generally increasing
    2. Generally decreasing
    3. Generally same
    4. None of the above
  32. Which of the following is correct for RADR?
    1. Accept a project if NPV at RADR is negative
    2. Accept a project if IRR is more than RADR
    3. RADR is overall cost of capital plus risk-premium
    4. All of the above
  33. In Payback Period approach to risk the target payback period is
    1. Not   adjusted
    2. Adjusted upward
    3. Adjusted downward
    4. B or C
  34. In Sensitivity Analysis, the emphasis is on assessment of sensitivity of
    1. Net Economic Life
    2. Net Present Value
    3. Both (a) and (b)
    4. None of (a) and (b)
  35. Most Sensitive variable as given by the Sensitivity Analysis should be:
    1. Ignored
    2. Given Least important
    3. Given the maximum importance
    4. None of the above
  36. Expected Value of Cashflow, EVCF, is:
    1. Certain to occur
    2. Most likely Cashflows
    3. Arithmetic Average Cashflow
    4. Geometric Average Cashflow
  37. Concept of joint probability is used in case of:
    1. Independent Cashflows
    2. Uncertain Cashflows
    3. Dependent Cashflows
    4. Certain Cashflows
  38. Decision-tree approach is used in:
    1. Proposals with longer life
    2. Sequential decisions
    3. Independent Cashflows
    4. Accept-Reject Proposal


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