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 –
- 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) ARR b) Pay-back method c) NPV d) 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) Fixing priorities.
3) Evaluation of various proposals.
4) Selection and preparation of Capital Budgets.
5) Implementation.
6) 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