Financial Management MCQ
Capital Budgeting MCQ
Multiple Choice Questions and Answers
1 . Capital budgeting is also known as:
- Investment decisions making
- Planning capital expenditure
- Both of the above
- None of the above.
Answer :- Both of the above
2 . Capital budgeting decisions are of:
- Long term nature
- Short term nature
- Both of the above
- None of the above.
Answer :- Long term nature
3 . Which of the following statement is not true for capital budgeting?
- Capital budgeting decisions are irreversible in nature.
- Capital budgeting decisions affect the future stability of the firm.
- Business expansion decision in a capital expenditure decisions.
- Sunk cost is a relevant cost in capital budgeting.
Answer :- Sunk cost is a relevant cost in capital budgeting.
4. Which of the following statements are false?
- Cash flows and accounting profit are same.
- Cash flows are profit before depreciation but after tax.
- Net Present value method is based on cash flows.
- Average rate of return method is based on cash flows.
Answer :- Average rate of return method is based on cash flows.
5. Which of the following is not a capital budgeting decision?
- Expansion Programme
- Acquisition of long term assets
- Replacement of an existing Asset
- Inventory control.
Answer :- Inventory control
6. Which one of the following methods of capital budgeting is based on cash flows?
- Payback period
- NPV
- Profitability index
- All of the above
Answer :- All of the above
7. Capital Budgeting Decisions are based on:
- Incremental Cash Flows
- Incremental Profit
- Incremental Assets
- Decremental Assets.
Answer :- Incremental Cash Flows
8. Which of the following is not a relevant cost in Capital Budgeting?
- Sunk Cost
- Opportunity Cost
- Allocated Overheads
- Both (a) and (c) above.
Answer :- Both (a) and (c) above.
9. Which of the following is not followed in capital budgeting?
- Cash flows Principle
- Interest Exclusion Principle
- Accrual Principle
- Post-tax Principle.
Answer :- Accrual Principle
10. Which of the following is not true for capital budgeting?
- Sunk costs are ignored
- Opportunity costs are excluded
- Incremental cash flows are considered
- Relevant cash flows are considered.
Answer :- Opportunity costs are excluded
11. Which of the following is not used in Capital Budgeting?
- Payback period
- NPV
- Net Assets Method
- Profitability Index
Answer :- Net Assets Method
12. Which of the following is not incorporated in Capital Budgeting?
- Tax-Effect
- Time Value of Money
- Required Rate of Return
- Rate of Cash Discount.
Answer :- Rate of Cash Discount.
13. Which of the following is true for a capital budgeting decision?
- Payback period method measures true profitability.
- Internal rate of return method is also known as time adjusted rate of return.
- Capital budgeting and capital rationing are same.
- Rate of return method takes into account the time value of money.
Answer :- Internal rate of return method is also known as time adjusted rate of return.
14. Which of the following method takes in account the time value of money?
- Payback period method
- Accounting rate of return method
- Net present value method
- All of the above.
Answer :- Net present value method
15. Which of the following method of capital budgeting does not take into account the profit of the entire life of the project?
- Payback period method
- Accounting rate of return method
- Net present value method
- Profitability index
Answer :- Payback period method
16. Capital Budgeting is a part of:
- Investment Decision
- Working Capital Management
- Marketing Management
- Capital Structure.
Answer :- Investment Decision
17. A sound method of capital budgeting is based on:
- Accounting profit
- Cash flows
- All of the above
- None of the above
Answer :- Cash flows
18. Approximately, IRR is inverse of:
- Payback period
- NPV
- Adjusted Accounting Rate of Return
- None of the above
Answer :- Adjusted Accounting Rate of Return
19. If NPV is positive, the IRR will be â€“
- Positive
- K = K
- K < R
- None of these
Answer :- K < R
20. The rate of discount at which NPV of a project becomes zero is also known as :
- Average Rate of Return
- Internal Rate of Return
- Alternative Rate of Return
- None of the above
Answer :- Internal Rate of Return
21. Match the following:
a)Â Â Â ARR b)Â Â Â Pay-back method c)Â Â Â Â NPV d)Â Â Â IRR |
1)Average profit / Average Investment 2)Investment/Annual cash inflow 3)Present value of Cash inflow-Present value of Cash outflow 4)Yield on investment |
22. Discounted cash flow criteria for investment appraisal do not include:
- Net present value
- Benefit-cost ratio
- Accounting rate of return
- Internal rate of return
Answer :- Benefit-cost ratio
23. Consider the following steps in the process of Capital Budgeting:
Identification of investment proposals.
2)Â Â Â Â Fixing priorities.
3)Â Â Â Â Evaluation of various proposals.
4)Â Â Â Â Selection and preparation of Capital Budgets.
5)Â Â Â Â Implementation.
6)Â Â Â Â Performance Review.
Which of the sequence of these steps is correct?
- 1, 2, 3, 4, 5, 6
- 2, 1, 3, 4, 5, 6
- 1, 3, 2, 4, 5, 6
- 1, 4, 3, 2, 5, 6
Answer :- 1, 2, 3, 4, 5, 6
24. Depreciation is incorporated in cash flows because it:
- Is unavoidable cost
- Is a cash flow
- Reduces Tax liability
- Involves an outflow.
Answer :- Reduces Tax liability
25. Evaluation of Capital Budgeting Proposals is based on Cash Flows because:
- Cash Flows are easy to calculate
- Cash Flows are suggested by SEBI
- Cash is more important than profit
- None of the above.
Answer :- Cash is more important than profit