#1
Which of the following is a capital budgeting technique?
SWOT analysis
Break-even analysis
Net present value (NPV)
Market segmentation
#2
What does the payback period measure in capital budgeting?
Profitability of a project
Time required to recover the initial investment
Discounted cash flows
Market share of a company
#3
Which discount rate is commonly used in the net present value (NPV) method?
Risk-free rate
Cost of debt
Weighted average cost of capital (WACC)
Inflation rate
#4
What is the main advantage of the internal rate of return (IRR) method in capital budgeting?
Easy to understand and calculate
Considers the time value of money
Considers all cash flows of a project
Always results in a unique solution
#5
What is the accounting rate of return (ARR) in capital budgeting?
The rate of return based on discounted cash flows
The rate of return based on accounting profits
The rate of return based on market trends
The rate of return based on project size
#6
How does sensitivity analysis contribute to capital budgeting decisions?
By analyzing the impact of uncertainties on project outcomes
By assessing the historical performance of projects
By calculating the payback period of projects
By evaluating the profitability index of projects
#7
What is the primary focus of the replacement project analysis in capital budgeting?
Assessing the market potential of the project
Evaluating the cost of replacing outdated equipment
Estimating the payback period of the project
Determining the optimal project size
#8
What role does the salvage value play in the net present value (NPV) calculation?
It represents the market value of the project's output.
It is deducted from the initial investment to determine cash inflows.
It is added to the final cash inflows of the project.
It is used to calculate the payback period of the project.
#9
Which capital budgeting technique considers the time value of money and provides a dollar value for the expected profitability of a project?
Internal Rate of Return (IRR)
Payback Period
Net Present Value (NPV)
Profitability Index (PI)
#10
In capital budgeting, what does the term 'mutually exclusive projects' mean?
Projects with similar cash flows
Projects that cannot be undertaken simultaneously
Projects with high risk
Projects with guaranteed profitability
#11
What is the primary drawback of the payback period as a capital budgeting criterion?
Ignores the time value of money
Complex to calculate
Subjective nature of decision-making
Involves extensive data analysis
#12
How does the profitability index (PI) differ from the net present value (NPV) method?
PI considers the time value of money, while NPV does not.
PI is expressed as a percentage, while NPV is in monetary terms.
PI relies on discounted cash flows, while NPV uses undiscounted cash flows.
PI is only applicable to mutually exclusive projects, while NPV can be used for any project.
#13
What is the concept of cannibalization in the context of capital budgeting?
A project that generates high profits
The impact of a new project on sales of existing products
The use of internal funds for project financing
The transfer of funds between projects
#14
In the context of capital budgeting, what is the significance of the risk-adjusted discount rate?
It accounts for the impact of inflation on project cash flows.
It adjusts the discount rate based on the perceived risk of the project.
It represents the average cost of capital for the project.
It is used to calculate the accounting rate of return.
#15
What is the formula for calculating the profitability index (PI) in capital budgeting?
(Net Cash Flows / Initial Investment) * (1 + Discount Rate)
Net Present Value / Initial Investment
Initial Investment / Net Present Value
(Net Present Value + Initial Investment) / Discount Rate
#16
How does the post-audit process contribute to improving capital budgeting decisions?
By evaluating project performance after completion
By comparing projects based on accounting profits
By analyzing market trends before project initiation
By estimating the payback period before project approval