Capital Rationing

  1. In capital budgeting, the term Capital Rationing implies:
    1. That no retained earnings available
    2. That limited funds are available for investment
    3. That no external funds can be raised
    4. That no fresh investment is required in current year
  2. Feasibility Set Approach to Capital Rationing can be applied in:
    1. Accept-Reject Situations
    2. Divisible Projects
    3. Mutually Exclusive Projects
    4. None of the above
  3. In case of divisible projects, which of the following can be used to attain maximum NPV?
    1. Feasibility   Set   Approach
    2. Internal   Rate   of   Return
    3. Profitability Index Approach
    4. Any of the above
  4. In case of the indivisible projects, which of the following may not give the optimum result?
    1. Internal Rate of Return
    2. Profitability Index
    3. Feasibility Set Approach
    4. All of the above
  5. Profitability Index, when applied to Divisible Projects, impliedly assumes that:
    1. Project cannot be taken in   parts
    2. NPV is linearly proportionate to part of   the   project taken up
    3. NPV is additive in nature
    4. Both (b) and (c)
  6. If   there is no inflation during a period,   then   the Money Cashflow would be equal to:
    1. Present Value
    2. Real Cashflow
    3. Real Cashflow + Present Value
    4. Real Cashflow - Present Value
  7. The Real Cashflows must be discounted to get the present value at a rate equal to:
    1. Money Discount Rate
    2. Inflation Rate
    3. Real Discount Rate
    4. Risk free rate of interest
  8. Real rate of return is equal to:
    1. Nominal Rate × Inflation Rate
    2. Nominal Rate ÷ Inflation Rate
    3. Nominal Rate -   Inflation   Rate
    4. Nominal   Rate   + Inflation Rate
  9. If the Real rate of return is 10%  and  Inflation   s   Money Discount Rate is:
    1. 14.4%
    2. 2.5%
    3. 25%
    4. 14%
  10. If the Money Discount Rate is 19% and Inflation Rate is 12%, then the Real Discount Rate is:
    1. 7%
    2. 5%
    3. 5.70%
    4. 6.25%
  11. Money Discount Rate if equal to:
    1. (1 + Inflation Rate) (1 + Real Rate)-1
    2. (1 + Inflation Rate) 4- (1 + Real Rate)-1
    3. (1 + Real Rate) 4- (1 + Inflation Rate)-1
    4. (1 + Real Rate) + (1 + Inflation Rate)-1
  12. Real Discount Rate is equal to:
    1. (1 + Inf. Rate) (1 + Money D Rate)-1
    2. (1 + Money D Rate) + (1 + Inf. Rate)-1
    3. (1 + Money D Rate) 4- (1 + Inf. Rate)-1
    4. (1 + Money D Rate) - (1 + Inf. Rate)-1
  13. Which of the following cannot be true?
    1. Inflation   Rate > Money   Dis.   Rate
    2. Real   Dis.   Rate < Money Dis. Rate
    3. Inflation Rate < Real Dis. Rate
    4. Inflation Rate = Real Dis. Rate
  14. Money Cash flows should be adjusted for:
    1. Only   Inflation   Effect
    2. Only   Time   Value   of   Money
    3. None of (a) and (b)
    4. Both of (a) and (b)
  15. EAV should be used in case of:
    1. Divisible Projects
    2. Repetitive Projects
    3. One-off   Investments
    4. Indivisible Projects
  16. EAV is Equal to:
    1. NPV × PVAF(r,n)
    2. NPV + PVAF(r,n)
    3. NPV ÷ PVAF(r,n)
    4. NPV-PVAF(r,n)
  17. If a project has positive NPV, its EAV is
    1. Equal to NPV
    2. More than NPV
    3. Less than NPV
    4. Any of the above
  18. Two mutually exclusive projects with different economic lives can be compared on the basis of
    1. Internal Rate of Return
    2. Profitability Index
    3. Net Present Value
    4. Equivalent Annuity Value

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