#1
Which capital budgeting technique does not consider the time value of money?
Payback Period
ExplanationIgnores time value of money, focuses on recouping initial investment.
#2
Which capital budgeting technique considers the cash flows over the entire life of the project?
Net Present Value (NPV)
ExplanationEvaluates present value of all cash flows, accounting for time value of money.
#3
Which capital budgeting technique accounts for both the size and timing of cash flows?
Net Present Value (NPV)
ExplanationConsiders both magnitude and timing, discounted for present value.
#4
Which capital budgeting technique is also known as the discounted cash flow method?
Net Present Value (NPV)
ExplanationEvaluates cash flows by discounting for present value.
#5
Which capital budgeting technique gives equal weight to all cash flows regardless of timing?
Payback Period
ExplanationTreats all cash flows equally, irrespective of timing.
#6
Which capital budgeting technique is preferred when comparing mutually exclusive projects?
Net Present Value (NPV)
ExplanationFavors projects with higher present value of cash flows.
#7
Which capital budgeting technique can result in multiple IRRs?
Internal Rate of Return (IRR)
ExplanationCan have multiple rates of return leading to complexities.
#8
Which capital budgeting technique assumes reinvestment at the project's hurdle rate?
Internal Rate of Return (IRR)
ExplanationAssumes reinvestment at the project's internal rate of return.
#9
Which capital budgeting technique is criticized for ignoring cash flows beyond the payback period?
Payback Period
ExplanationLimited focus on early cash flows, ignores long-term profitability.
#10
Which capital budgeting technique assumes that cash inflows are reinvested at the cost of capital?
Net Present Value (NPV)
ExplanationAssumes reinvestment at the project's cost of capital.
#11
Which capital budgeting technique may not rank mutually exclusive projects consistently when the projects differ significantly in scale?
Internal Rate of Return (IRR)
ExplanationScale differences can cause ranking inconsistencies.
#12
Which capital budgeting technique may not be suitable for evaluating projects with unconventional cash flow patterns?
Internal Rate of Return (IRR)
ExplanationChallenges unconventional cash flow assessments.
#13
Which capital budgeting technique adjusts for the risk associated with the project's cash flows?
Profitability Index (PI)
ExplanationConsiders risk by evaluating cash flows relative to investment.
#14
Which capital budgeting technique is the most comprehensive in considering both timing and magnitude of cash flows?
Net Present Value (NPV)
ExplanationComprehensive analysis of both cash flow timing and magnitude.
#15
Which capital budgeting technique may not provide a clear decision when projects have different scales?
Profitability Index (PI)
ExplanationMay be unclear when projects vary significantly in scale.