#1
Which of the following is a primary method used in capital budgeting decisions?
Payback period
ExplanationMeasures the time required to recover initial investment.
#2
What does the term 'discount rate' refer to in capital budgeting?
The interest rate at which future cash flows are discounted
ExplanationRate used to discount future cash flows to present value.
#3
Which capital budgeting technique focuses on the time required to recover the initial investment?
Payback period
ExplanationEmphasizes time taken to recoup initial investment.
#4
What is the Net Present Value (NPV) method used for in capital budgeting?
To assess a project's profitability
ExplanationEvaluates project's profitability by discounting cash flows.
#5
Which of the following factors is NOT considered in capital budgeting decisions?
Market competition
ExplanationExternal market dynamics are not directly factored in.
#6
What is the Internal Rate of Return (IRR) method primarily used for in capital budgeting?
To calculate the rate at which the project's NPV is zero
ExplanationDetermines the rate of return where NPV equals zero.
#7
Under which capital budgeting technique would you select a project if its profitability index is greater than 1?
Profitability index method
ExplanationIndicates projects with positive value relative to investment.
#8
Which of the following is an advantage of using the Net Present Value (NPV) method in capital budgeting?
It accounts for the time value of money
ExplanationTakes into account the value of money over time.
#9
Which capital budgeting method is also known as the 'benefit-cost ratio'?
Profitability index method
ExplanationCompares benefits to costs of investment.