#1
Which capital budgeting technique does not consider the time value of money?
Net Present Value (NPV)
Internal Rate of Return (IRR)
Payback Period
Profitability Index (PI)
#2
What is the main limitation of the Payback Period method in capital budgeting?
It does not consider the time value of money
It is complex to calculate
It relies on subjective discount rates
It only focuses on profitability
#3
What is the primary advantage of using the Profitability Index (PI) method in capital budgeting?
It accounts for the time value of money
It provides a quick assessment of project profitability
It considers payback period
It uses a fixed discount rate
#4
What is the main drawback of relying solely on the Payback Period method for investment decisions?
It ignores the time value of money
It is time-consuming to calculate
It is not widely accepted
It considers too many factors
#5
What does the term 'capital rationing' mean in the context of capital budgeting?
Allocating capital efficiently across all available projects
Restricting the total amount of capital available for investment
Prioritizing projects based on their profitability
Evaluating the payback period of each project
#6
What does the Net Present Value (NPV) method indicate about an investment project?
Whether the project is profitable
The time it takes to recover the initial investment
The percentage return on investment
The risk associated with the project
#7
In capital budgeting, what does the Internal Rate of Return (IRR) represent?
The discount rate that makes the NPV zero
The total cash inflows over the project's life
The payback period of the project
The accounting rate of return
#8
Which discount rate is commonly used in the Net Present Value (NPV) method?
Risk-free rate
Market interest rate
Cost of capital
Inflation rate
#9
What does a positive Net Present Value (NPV) indicate about an investment project?
The project is not profitable
The project is profitable
The project has a short payback period
The project has a high internal rate of return
#10
In capital budgeting, what does the term 'mutually exclusive projects' mean?
Projects that are dependent on each other
Projects that cannot be undertaken simultaneously
Projects with similar cash flows
Projects with shared resources
#11
What is the formula for calculating Payback Period?
Initial Investment / Annual Cash Flow
Initial Investment - Annual Cash Flow
Initial Investment * Annual Cash Flow
Initial Investment / Net Present Value
#12
Which capital budgeting technique considers the profitability relative to the investment required?
Payback Period
Profitability Index (PI)
Net Present Value (NPV)
Internal Rate of Return (IRR)
#13
In the context of capital budgeting, what does the term 'sunk cost' refer to?
Costs that can be recovered
Costs already incurred and cannot be recovered
Future costs of the project
Opportunity costs
#14
Which capital budgeting technique is most suitable for evaluating projects with uneven cash flows?
Net Present Value (NPV)
Payback Period
Profitability Index (PI)
Internal Rate of Return (IRR)
#15
What does the Modified Internal Rate of Return (MIRR) address that the Internal Rate of Return (IRR) does not?
Time value of money
Discount rate
Reinvestment rate
Initial investment