#1
Which of the following is a key objective of financial management?
Maximizing shareholder wealth
ExplanationFinancial management aims to maximize returns to shareholders.
#2
What does NPV stand for in capital budgeting?
Net Present Value
ExplanationNPV calculates the present value of cash inflows and outflows.
#3
What is the primary goal of capital budgeting?
To evaluate and select long-term investment projects
ExplanationCapital budgeting aids in selecting profitable long-term investments.
#4
Which of the following is NOT a method used in capital budgeting?
Profit and Loss Statement (P&L)
ExplanationThe Profit and Loss Statement is not a capital budgeting method.
#5
What does the term 'cost of capital' refer to in financial management?
The cost of equity and debt financing for a business
ExplanationIt's the cost of obtaining funds for a business through equity and debt.
#6
Which of the following is a capital budgeting technique that accounts for the time value of money?
Net Present Value
ExplanationNPV considers future cash flows discounted to their present value.
#7
What is the discount rate in NPV analysis?
Rate at which future cash flows are discounted
ExplanationIt's the rate used to discount future cash flows to their present value.
#8
In capital budgeting, what does IRR stand for?
Internal Rate of Return
ExplanationIRR calculates the rate at which NPV equals zero.
#9
Which of the following factors is NOT considered in capital budgeting decisions?
Interest rates on short-term loans
ExplanationInterest rates on short-term loans are not pertinent in capital budgeting.
#10
What is the primary goal of capital budgeting in financial management?
To evaluate long-term investment opportunities
ExplanationIt aims to assess and select viable long-term investments.
#11
Which of the following is a limitation of using the Payback Period method?
It ignores cash flows beyond the payback period
ExplanationThe method disregards cash flows occurring after the payback period.
#12
What is the formula to calculate Net Present Value (NPV) of a project?
NPV = Present Value of Cash Inflows - Initial Investment
ExplanationNPV is the difference between present value of inflows and initial investment.
#13
Which capital budgeting technique considers the payback period and the time value of money?
Net Present Value (NPV)
ExplanationNPV incorporates both payback period and time value of money.
#14
What is the main advantage of the Internal Rate of Return (IRR) method?
It considers all cash flows over the project's life.
ExplanationIRR accounts for all cash flows throughout the project's duration.
#15
In capital budgeting, what does the profitability index (PI) indicate?
The present value of cash inflows per dollar of initial investment
ExplanationPI shows the value generated per dollar of initial investment.