#1
Which capital budgeting technique considers the time value of money?
Payback Period
Net Present Value (NPV)
Internal Rate of Return (IRR)
Accounting Rate of Return (ARR)
#2
Which of the following is a disadvantage of using the Internal Rate of Return (IRR) as a capital budgeting technique?
Ignores the time value of money
Complex calculations
Subject to reinvestment rate assumptions
Easy to manipulate
#3
In capital budgeting, what does the Modified Internal Rate of Return (MIRR) address that the Internal Rate of Return (IRR) does not?
Incorporates the time value of money
Ignores reinvestment rate assumptions
Focuses on accounting net income
Simplifies calculations
#4
What is the primary advantage of the Profitability Index (PI) as a capital budgeting metric?
Simple calculations
Incorporates the time value of money
Focuses on accounting net income
Considers project size
#5
What does the term 'Crossover Rate' represent in the context of capital budgeting?
The rate at which projects break even
The discount rate at which two projects have equal NPV
The payback period for a project
The accounting rate of return for a project
#6
What does the Payback Period measure in capital budgeting?
Profitability of an investment
Time required to recover the initial investment
Discounted cash flows
Rate of return on investment
#7
Which capital budgeting technique uses the accounting net income to calculate the rate of return?
Net Present Value (NPV)
Internal Rate of Return (IRR)
Payback Period
Profitability Index (PI)
#8
What does the term 'Mutually Exclusive Projects' mean in the context of capital budgeting?
Projects that cannot be implemented simultaneously
Projects with similar cash flows
Projects with independent cash flows
Projects with equal payback periods
#9
Which capital budgeting technique is most suitable for evaluating projects of different sizes?
Net Present Value (NPV)
Internal Rate of Return (IRR)
Profitability Index (PI)
Payback Period
#10
What is the primary drawback of using the Accounting Rate of Return (ARR) as a capital budgeting technique?
Ignores cash flows
Subject to subjective judgments
Complex calculations
Does not consider the time value of money
#11
What is the main drawback of the Payback Period as a capital budgeting technique?
Ignores the time value of money
Complex calculations
Difficult to understand
Subjective decision-making
#12
In capital budgeting, what does the Profitability Index (PI) measure?
Time required to recover the initial investment
Discounted cash flows
Return on investment relative to the initial cost
Rate of return on investment
#13
What is the primary focus of the Net Present Value (NPV) calculation in capital budgeting?
Profitability of an investment
Time required to recover the initial investment
Discounted cash flows
Rate of return on investment
#14
How does the Profitability Index (PI) differ from the Payback Period as a capital budgeting metric?
Considers the time value of money
Ignores cash inflows
Based on accounting net income
Focuses on project size
#15
What is the formula for calculating the Net Present Value (NPV) of a project?
NPV = Initial Investment / Discount Rate
NPV = Future Cash Flows / (1 + Discount Rate)^n
NPV = Cash Inflows - Cash Outflows
NPV = Present Value of Cash Inflows - Initial Investment