Capital Budgeting Decisions Quiz
Test your knowledge on capital budgeting decisions with questions on NPV, IRR, Payback Period, and more. Check your understanding now!
#1
Which of the following is a primary method used in capital budgeting decisions?
Payback period
Marketing strategy
Employee training
Office renovation
#2
What does the term 'discount rate' refer to in capital budgeting?
The interest rate at which future cash flows are discounted
The rate of return on shareholders' equity
The rate at which inventory is sold
The rate at which dividends are paid
#3
Which capital budgeting technique focuses on the time required to recover the initial investment?
Net Present Value (NPV)
Profitability index method
Accounting rate of return
Payback period
#4
What is the Net Present Value (NPV) method used for in capital budgeting?
To determine the shortest payback period
To assess a project's profitability
To calculate the accounting rate of return
To analyze consumer behavior
#5
Which of the following factors is NOT considered in capital budgeting decisions?
Inflation rate
Opportunity cost of capital
Sunk costs
Market competition
#6
What is the Internal Rate of Return (IRR) method primarily used for in capital budgeting?
To assess liquidity position
To measure investment risk
To calculate the rate at which the project's NPV is zero
To determine the production capacity
#7
Under which capital budgeting technique would you select a project if its profitability index is greater than 1?
Net Present Value (NPV)
Payback period
Accounting rate of return
Profitability index method
#8
Which of the following is an advantage of using the Net Present Value (NPV) method in capital budgeting?
It is easy to understand and calculate
It accounts for the time value of money
It focuses on short-term profitability
It does not require discounting cash flows
#9
Which capital budgeting method is also known as the 'benefit-cost ratio'?
Payback period
Net Present Value (NPV)
Profitability index method
Internal Rate of Return (IRR)
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