#1
Which of the following is a method used in capital budgeting to evaluate the profitability of an investment?
Net Present Value (NPV)
Simple Payback Period
Average Accounting Return
All of the above
#2
What is the payback period of an investment?
The time it takes for the investment to earn back its initial cost
The total time span of the investment's lifecycle
The time it takes for the investment to achieve maximum profitability
The time it takes for the investment to double its initial cost
#3
Which of the following is NOT a primary capital budgeting method?
Net Present Value (NPV)
Internal Rate of Return (IRR)
Earnings Per Share (EPS)
Payback Period
#4
What is the primary objective of capital budgeting?
To maximize shareholder wealth
To increase company revenues
To minimize company expenses
To maximize market share
#5
Which of the following factors is typically considered when estimating cash flows in capital budgeting?
Historical financial data
Future market trends
Government regulations
All of the above
#6
What does the Internal Rate of Return (IRR) represent in capital budgeting?
The discount rate that makes the net present value of a project zero
The time it takes to recover the initial investment in a project
The average rate of return on an investment over its lifespan
The total profit generated by a project
#7
In capital budgeting, what does the term 'sunk cost' refer to?
The cost of acquiring an asset
The cost of capital for financing a project
A cost that has already been incurred and cannot be recovered
The expected future costs associated with a project
#8
What is the formula for calculating Net Present Value (NPV) of an investment?
NPV = Initial Investment / Discount Rate
NPV = Cash Inflows - Cash Outflows
NPV = Sum of Present Values of Cash Inflows - Initial Investment
NPV = Sum of Future Values of Cash Inflows - Initial Investment
#9
What does the profitability index (PI) measure in capital budgeting?
The ratio of discounted cash inflows to initial investment
The percentage increase in profits due to an investment
The rate of return on investment
The total profit generated by an investment
#10
What is the formula for calculating the accounting rate of return (ARR) on an investment?
ARR = (Net Profit / Initial Investment) * 100
ARR = (Net Profit / Average Investment) * 100
ARR = (Net Profit / Present Value of Cash Inflows) * 100
ARR = (Net Profit / Total Cash Inflows) * 100
#11
Which of the following capital budgeting techniques considers the time value of money?
Payback Period
Accounting Rate of Return
Profitability Index
Discounted Payback Period
#12
Which of the following factors is NOT considered in capital budgeting analysis?
Risk
Time Value of Money
Market Share
Inflation
#13
What is the main drawback of using the payback period as a capital budgeting technique?
It ignores the time value of money
It is difficult to calculate
It does not consider profitability
It requires complex mathematical formulas
#14
What is the main advantage of the Internal Rate of Return (IRR) method in capital budgeting?
It considers all cash flows over the project's lifespan
It is easy to understand and calculate
It ignores the time value of money
It only considers cash flows up to the payback period
#15
What is the formula for calculating the profitability index (PI) when cash flows are uniform?
PI = Present Value of Cash Inflows / Initial Investment
PI = Discount Rate / Net Present Value
PI = Initial Investment / Present Value of Cash Inflows
PI = Net Present Value / Discount Rate