Which of the following is a key step in capital budgeting?
Determining the cost of equity
Forecasting sales revenue
Estimating variable costs
Calculating depreciation expense
#2
What does the payback period represent in capital budgeting?
The time it takes to recover the initial investment
The time value of money
The cost of capital
The net present value of a project
#3
Which capital budgeting method ignores cash flows beyond the payback period?
Net Present Value
Accounting rate of return
Payback period
Internal Rate of Return
#4
What does the term 'sunk cost' refer to in capital budgeting?
Costs that have been incurred and cannot be recovered
The initial investment in a project
The cost of capital
The depreciation expense
#5
Which of the following is NOT a capital budgeting technique?
Sensitivity analysis
Payback period
Accounting rate of return
Operating income approach
#6
What is the Net Present Value (NPV) of a project if its NPV is zero?
The project's internal rate of return equals the discount rate
The project is not viable
The project's cash flows equal the initial investment
The project earns the cost of capital
#7
What does the profitability index measure in capital budgeting?
The project's payback period
The ratio of discounted benefits to costs
The project's accounting rate of return
The project's net present value
#8
What is the Internal Rate of Return (IRR) of a project?
The discount rate at which the NPV of a project equals zero
The total cash flow generated by a project
The accounting rate of return on investment
The payback period of a project
#9
Which of the following cash flow estimation methods adjusts for potential inaccuracies in sales forecasts?
Bottom-up approach
Top-down approach
Sensitivity analysis
Accounting rate of return
#10
Which factor is typically ignored in the calculation of the accounting rate of return?
Initial investment
Cash flows after tax
Depreciation expense
Discount rate
#11
Which capital budgeting technique takes into account the time value of money?
Accounting rate of return
Payback period
Net present value
Profitability index
#12
In capital budgeting, what is the term for the rate at which the present value of expected cash inflows equals the present value of expected cash outflows?