#1
Which of the following is a key step in capital budgeting?
Forecasting sales revenue
ExplanationCritical for estimating future cash flows.
#2
What does the payback period represent in capital budgeting?
The time it takes to recover the initial investment
ExplanationIndicates investment recovery timeframe.
#3
Which capital budgeting method ignores cash flows beyond the payback period?
Payback period
ExplanationFocuses solely on investment recovery timeframe.
#4
What does the term 'sunk cost' refer to in capital budgeting?
Costs that have been incurred and cannot be recovered
ExplanationIrrecoverable historical expenses.
#5
Which of the following is NOT a capital budgeting technique?
Operating income approach
ExplanationNot a method for investment appraisal.
#6
What is the Net Present Value (NPV) of a project if its NPV is zero?
The project is not viable
ExplanationZero NPV indicates project's unviability.
#7
What does the profitability index measure in capital budgeting?
The ratio of discounted benefits to costs
ExplanationEvaluates project's benefits against costs.
#8
What is the Internal Rate of Return (IRR) of a project?
The discount rate at which the NPV of a project equals zero
ExplanationRate making project's NPV zero.
#9
Which of the following cash flow estimation methods adjusts for potential inaccuracies in sales forecasts?
Sensitivity analysis
ExplanationAssesses impact of forecast errors.
#10
Which factor is typically ignored in the calculation of the accounting rate of return?
Discount rate
ExplanationNot a factor in ARR calculation.
#11
Which capital budgeting technique takes into account the time value of money?
Net present value
ExplanationConsiders present value of future cash flows.
#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?
Internal rate of return
ExplanationRate making NPV zero.