#1
Which of the following is NOT a method of evaluating capital budgeting projects?
Net Present Value (NPV)
Internal Rate of Return (IRR)
Payback Period
Return on Investment (ROI)
#2
What does the payback period represent in capital budgeting?
The time it takes to recover the initial investment
The time it takes to double the initial investment
The time it takes to achieve a certain return on investment
The time it takes to calculate the net present value
#3
Which of the following factors is NOT considered in capital budgeting analysis?
Initial investment cost
Expected inflation rate
Expected future cash flows
Market share of the company
#4
What does the term 'sunk cost' refer to in capital budgeting?
The initial investment required for a project
Costs that have already been incurred and cannot be recovered
The projected cash flows of a project
The expected return on investment of a project
#5
What is the formula for calculating Net Present Value (NPV)?
Initial Investment / Future Cash Flows
Future Cash Flows - Initial Investment
Initial Investment - Future Cash Flows
Future Cash Flows / Initial Investment
#6
What does the term 'discount rate' refer to in capital budgeting?
The rate at which future cash flows are discounted to their present value
The rate at which future cash flows are inflated to their future value
The rate at which initial investment costs are discounted
The rate at which the project's profitability is evaluated
#7
Which capital budgeting technique takes into account the time value of money?
Payback Period
Accounting Rate of Return (ARR)
Net Present Value (NPV)
Profitability Index (PI)
#8
What does the profitability index (PI) indicate about a project?
The absolute profit of the project
The ratio of the present value of future cash flows to the initial investment
The payback period of the project
The rate of return on the project
#9
Which capital budgeting technique uses the accounting rate of return to evaluate projects?
Net Present Value (NPV)
Internal Rate of Return (IRR)
Payback Period
Accounting Rate of Return (ARR)
#10
What is the primary drawback of using the payback period as a capital budgeting technique?
It does not consider the time value of money
It is difficult to calculate
It cannot be used for long-term projects
It ignores the initial investment cost
#11
Which capital budgeting technique focuses on the accounting profit relative to the initial investment?
Net Present Value (NPV)
Payback Period
Accounting Rate of Return (ARR)
Profitability Index (PI)
#12
What does the profitability index (PI) equal when the net present value (NPV) is zero?
1
0
Less than 1
Greater than 1
#13
Which capital budgeting technique assumes that cash flows are reinvested at the project's internal rate of return?
Payback Period
Net Present Value (NPV)
Internal Rate of Return (IRR)
Accounting Rate of Return (ARR)
#14
Which of the following is a disadvantage of using the profitability index (PI) as a capital budgeting criterion?
It ignores the time value of money
It is difficult to calculate
It may lead to incorrect investment decisions in certain situations
It only considers the initial investment cost
#15
Which of the following capital budgeting techniques is least affected by changes in the discount rate?
Net Present Value (NPV)
Internal Rate of Return (IRR)
Payback Period
Accounting Rate of Return (ARR)
#16
Which of the following statements about the profitability index (PI) is true?
A PI greater than 1 indicates a desirable project
A PI less than 1 indicates a desirable project
A PI equal to 1 indicates a desirable project
A PI greater than 2 indicates a desirable project
#17
Which of the following is a limitation of the Payback Period as a capital budgeting technique?
It ignores the timing of cash flows
It considers the time value of money
It is difficult to calculate
It accounts for project risk