#1
What does the Payback Period measure?
The time taken to recoup the initial investment
ExplanationPayback Period assesses how long it takes to recover the initial investment.
#2
Which of the following is NOT a capital budgeting technique?
Return on Investment (ROI)
ExplanationROI is a measure of investment profitability but not a capital budgeting technique.
#3
What is the primary objective of capital budgeting?
Maximize shareholder wealth
ExplanationCapital budgeting aims to increase the value of the firm for shareholders.
#4
What does the term 'capital budgeting' refer to?
Budgeting for long-term investment projects
ExplanationCapital budgeting involves allocating funds to long-term investment opportunities.
#5
Which of the following factors is NOT considered in the calculation of Net Present Value (NPV)?
Payback period
ExplanationNPV calculation focuses on cash flows' present values, not on the time taken to recover the initial investment.
#6
Which of the following factors is NOT considered in the calculation of Internal Rate of Return (IRR)?
Payback period
ExplanationIRR calculation focuses on discounting cash flows to determine their present value, not on the time taken to recover the initial investment.
#7
What is Net Present Value (NPV) in investment appraisal?
The present value of cash inflows minus the present value of cash outflows
ExplanationNPV calculates the current value of future cash flows, considering the time value of money.
#8
Which of the following methods considers the time value of money in investment appraisal?
Internal Rate of Return (IRR)
ExplanationIRR discounts future cash flows to present value to assess project profitability.
#9
Which of the following is a disadvantage of using the Payback Period as an investment appraisal method?
It ignores cash flows after the payback period
ExplanationPayback Period overlooks cash flows occurring after the initial investment is recovered.
#10
Which of the following is NOT considered a cash flow in investment appraisal?
Depreciation
ExplanationDepreciation is a non-cash expense and not considered in cash flow analysis.
#11
What is the formula for calculating the Net Present Value (NPV)?
NPV = Present Value of Cash Inflows - Present Value of Cash Outflows
ExplanationNPV measures the difference between the present value of cash inflows and outflows.
#12
What is the primary purpose of using the Internal Rate of Return (IRR) method in capital budgeting?
To compare the profitability of different projects
ExplanationIRR helps in selecting projects by comparing their returns.
#13
What does the Profitability Index (PI) measure?
The ratio of net present value to initial investment
ExplanationPI assesses the value created per unit of investment.
#14
What is the Discounted Payback Period in capital budgeting?
The time taken for the sum of discounted cash flows to equal the initial investment
ExplanationDiscounted Payback Period evaluates the time needed to recover the discounted initial investment.
#15
What is the formula for calculating the Accounting Rate of Return (ARR)?
(Average Annual Profit / Initial Investment) * 100%
ExplanationARR measures average annual profit as a percentage of the initial investment.
#16
What is the difference between the Net Present Value (NPV) and the Internal Rate of Return (IRR) methods?
Both NPV and IRR consider the timing of cash flows.
ExplanationBoth methods account for the timing of cash flows but differ in their approach to assessing project profitability.