#1
What is Capital Budgeting?
A process of analyzing and selecting long-term investment projects
ExplanationSelection of long-term investments.
#2
Which of the following is NOT a capital budgeting technique?
Cost of Goods Sold (COGS)
ExplanationNot a method for investment evaluation.
#3
Which of the following is NOT a component of capital budgeting?
Project financing
ExplanationNot part of capital budgeting components.
#4
What is the objective of capital budgeting?
To allocate financial resources to long-term investments
ExplanationAllocation of resources for long-term investments.
#5
Which of the following factors is NOT considered in capital budgeting?
Market share
ExplanationExclusion from capital budgeting considerations.
#6
What does the Payback Period measure?
The time it takes to recoup the initial investment
ExplanationTime to recover initial investment.
#7
Which of the following is a disadvantage of the Internal Rate of Return (IRR) method?
It may result in multiple rates of return
ExplanationPotential for multiple returns.
#8
What is the Discounted Payback Period?
The time it takes for a project's cumulative discounted cash flows to equal its initial investment
ExplanationDuration for discounted cash flows to cover initial investment.
#9
Which of the following is a capital budgeting decision criterion that considers both the size and timing of cash flows?
Net Present Value (NPV)
ExplanationEvaluating cash flows' size and timing.
#10
What does the Profitability Index (PI) indicate?
The ratio of net present value to initial investment
ExplanationRatio of NPV to initial investment.
#11
What is the purpose of sensitivity analysis in capital budgeting?
To analyze the impact of uncertainty in project variables on NPV or IRR
ExplanationAssessing variable impact on NPV or IRR.
#12
What is the main objective of sensitivity analysis in capital budgeting?
To analyze how sensitive a project's NPV is to changes in its sales volume, cost, or other factors
ExplanationExamining NPV sensitivity to variable changes.
#13
What is the Modified Internal Rate of Return (MIRR) method?
A method that adjusts the IRR to reflect the timing of cash flows
ExplanationIRR adjustment for cash flow timing.
#14
Which of the following is a non-discounted cash flow technique?
Payback Period
ExplanationEvaluation without discounting cash flows.
#15
What is the primary limitation of the Net Present Value (NPV) method?
It relies on accurate estimates of future cash flows
ExplanationDependency on precise cash flow estimates.
#16
Which of the following is a characteristic of a mutually exclusive project?
The acceptance of one project precludes the acceptance of another
ExplanationInability to undertake multiple projects simultaneously.
#17
What does the Modified Internal Rate of Return (MIRR) address?
It addresses the issue of multiple IRRs
ExplanationResolution of multiple IRR problem.