#1
Which of the following is a financial decision-making technique primarily concerned with determining the economic feasibility of a project?
Net present value (NPV)
ExplanationAssesses economic feasibility by discounting future cash flows.
#2
What does the payback period represent in financial decision-making?
The time it takes to recover the initial investment
ExplanationTime taken to recoup the initial investment.
#3
Which of the following financial decision-making techniques discounts future cash flows to their present value?
Net present value (NPV)
ExplanationDiscounts future cash flows to present value.
#4
What is the primary advantage of using net present value (NPV) as a financial decision-making technique?
It accounts for the time value of money
ExplanationConsiders the time value of money in evaluations.
#5
In financial decision-making, what does the term 'opportunity cost' refer to?
The cost of foregone alternatives
ExplanationCost incurred due to choosing one alternative over another.
#6
Which financial decision-making technique assesses how changes in one variable affect the outcome?
Sensitivity analysis
ExplanationEvaluates the impact of variable changes on outcomes.
#7
In capital budgeting, what does the internal rate of return (IRR) represent?
The discount rate at which the net present value (NPV) is zero
ExplanationThe rate where NPV equals zero.
#8
Which financial decision-making technique helps determine the time it takes to recover the initial investment?
Payback period
ExplanationCalculates the time for investment recovery.
#9
What does the term 'discount rate' represent in financial decision-making?
The interest rate used to calculate future cash flows
ExplanationRate used to discount future cash flows.
#10
What is the main limitation of using the payback period as a financial decision-making tool?
It ignores the time value of money
ExplanationFails to consider the time value of money.
#11
Which financial decision-making technique accounts for the uncertainty by evaluating multiple possible outcomes?
Monte Carlo simulation
ExplanationConsiders uncertainty through multiple outcome evaluation.
#12
Which financial decision-making technique evaluates the impact of various assumptions and estimates on project outcomes?
Sensitivity analysis
ExplanationAssesses impact of assumptions on outcomes.
#13
What does the profitability index (PI) indicate in financial decision-making?
The ratio of discounted benefits to discounted costs
ExplanationIndicates the ratio of discounted benefits to costs.
#14
What does the profitability index (PI) indicate when it's equal to 1?
The project's NPV is zero
ExplanationNPV of the project equals zero.
#15
What does the term 'terminal value' represent in financial decision-making?
The value of a project at the end of its forecast period
ExplanationValue of project at forecast period's end.