This quiz works best with JavaScript enabled. Home > Finance > Corporate Finance > Capital Budgeting > Capital Budgeting – Quiz 2 🏠 Homepage 📘 Download PDF Books 📕 Premium PDF Books Capital Budgeting Quiz 2 (30 MCQs) Quiz Instructions Select an option to see the correct answer instantly. 1. Investment in Equipment Replacement is also called A) Non Measurable Profit Investment. B) Non Profit Investment. C) Replacement Investment. D) Expansion Investment. Show Answer Correct Answer: C) Replacement Investment. 2. You must know all the cash flows of an investment project to compute its A) NPV, IRR, PI and discount payback period. B) NPV, IRR, PI, payback period and discount payback period. C) NPV, IRR, PI. D) NPV, accounting rate of return, IRR, PI. Show Answer Correct Answer: B) NPV, IRR, PI, payback period and discount payback period. 3. In payback method analysis, an investment is rejected if the payback period is ..... the required period of time. A) Less than. B) Greater than. C) Equal to. D) None of above. Show Answer Correct Answer: B) Greater than. 4. The time value of money is explicitly recognized through the process of A) Interpolating. B) Discounting. C) Budgeting. D) Annuitizing. Show Answer Correct Answer: B) Discounting. 5. With regard to a capital investment, net cash inflow is equal to the A) Cost savings resulting from the investment. B) Sum of all future revenues from the investment. C) Net increase in cash receipts over cash payments. D) Net increase in cash payments over cash receipts. Show Answer Correct Answer: C) Net increase in cash receipts over cash payments. 6. Opening a new distribution network, generally is an investment proposal put forward by the department A) Production. B) Finance. C) R & D. D) Marketing. Show Answer Correct Answer: D) Marketing. 7. Planning and managing a firm's long term investments and projects Long term assets Invest in projects worth more than they cost A) Book rate of return. B) Capital Budgeting. C) Payback period. D) Net Present Value (NPV). Show Answer Correct Answer: B) Capital Budgeting. 8. The payback capital budgeting technique considers (Time Value of Money, Income over entire life of project) A) Yes No. B) Yes Yes. C) No No. D) No Yes. Show Answer Correct Answer: C) No No. 9. In payback method analysis, an investment is rejected if the payback period is ..... some specified period of time. A) Less than. B) Greater than. C) Equal to. D) None of the above. Show Answer Correct Answer: B) Greater than. 10. Which of the following expenditures is not considered a capital investment? A) Building construction costs. B) Cost of buying a new machine. C) Research and Development Costs. D) Machine installation costs. Show Answer Correct Answer: C) Research and Development Costs. 11. The interest rate used to find the present value of a future cash flow is the A) Cutoff rate. B) Prime rate. C) Discount rate. D) Internal rate of return. Show Answer Correct Answer: C) Discount rate. 12. Investment for Equipment Replacement is also called A) Expansion Investment. B) Replacement Investment. C) Non Measurable Profit Investment. D) Non Profit Investment. Show Answer Correct Answer: B) Replacement Investment. 13. What is not an Investment Valuation Criteria A) Discounted Cash Flows. B) Average Return On Investment. C) Payback Method. D) Present Tenses. Show Answer Correct Answer: D) Present Tenses. 14. The strength of the Profitability Index concept is A) Requires estimate of cost of capital. B) May not give value-maximizing decisions for mutually exclusive projects. C) Provides only relative profitability. D) Tells whether firm value is increased. Show Answer Correct Answer: D) Tells whether firm value is increased. 15. Determine the payback period for a RM20, 000 project that is expected to return RM6, 000 for the first two years and RM3, 000 for years 3 through 5. A) 4.5 years. B) 4.67 years. C) 5 years. D) 3.5 years. Show Answer Correct Answer: B) 4.67 years. 16. A set of projects in which the acceptance of one project means that the others cannot be accepted A) Replacement Decision. B) Expansion Decision. C) Independent Projects. D) Mutually Exclusive Projects. Show Answer Correct Answer: D) Mutually Exclusive Projects. 17. Although it ignores the time value of money, what is the most common method used in practice for capital budgeting? A) Payback. B) Internal rate of return. C) Accounting rate of return. D) Net present value. Show Answer Correct Answer: A) Payback. 18. Which of the following adjustments should NOT be made when computing free cash flow from Incremental earnings? A) Adding depreciation. B) Adding all non-cash expenses. C) Subtracting increases in Net Working Capital. D) Subtracting depreciation expenses from taxable earnings. Show Answer Correct Answer: D) Subtracting depreciation expenses from taxable earnings. 19. Full name of the acronym IRR A) Internal Returning of Rate. B) Internal Rate of Return. C) Internal Rating of Return. D) Internal Return of Rate. Show Answer Correct Answer: B) Internal Rate of Return. 20. The after-tax net present value of a project is affected by A) Tax-deductible cash flows. B) Non-tax-deductible cash flows. C) Accounting accruals. D) All of the above. Show Answer Correct Answer: D) All of the above. 21. Which of the following is not an element of Capital? A) Loans to Banks. B) Saham / Equity. C) Account ReceivableSurat. D) Debt/Bond. Show Answer Correct Answer: C) Account ReceivableSurat. 22. The Mie Aceh Sigli restaurant was quite busy with customers, so the owner decided to rent another shop next to the shop currently occupied. This decision includes the type of investment A) New Product. B) Replacement. C) Expansion. D) Exploration. Show Answer Correct Answer: C) Expansion. 23. The weakness of the Payback Method is one of them A) Does not take into account the time value of money. B) It is quite simple to choose investment proposals. C) Can be used to value two investment projects. D) None of above. Show Answer Correct Answer: A) Does not take into account the time value of money. 24. This is a form of analysis defined by calculating how long it will take for the asset to "earn back" the money you invested in purchasing it. A) Tax accounting. B) Payback method analysis. C) Net present value. D) Internal rate of return. Show Answer Correct Answer: B) Payback method analysis. 25. The present value of an asset's future cash flows equal its initial outlay A) Payback. B) Net Present Value. C) Modified Internal Rate of Return. D) Internal Rate of Return. Show Answer Correct Answer: D) Internal Rate of Return. 26. Potential problems in using the IRR as a capital budgeting technique include A) The timing problem. B) Multiple IRRs. C) The scale problem. D) All of the above. Show Answer Correct Answer: D) All of the above. 27. The following is NOT a principle to consider when calculating cash flows for NPV & IRR A) The final cash flows must be after-tax. B) Include all opportunity costs. C) Ignore allocated costs. D) Include accounting entries e.g. depreciation. Show Answer Correct Answer: D) Include accounting entries e.g. depreciation. 28. For a profitable company, an increase in the rate of depreciation on a specific project could A) Decrease the project's net present value. B) Increase the project's payback period. C) Increase the project's profitability index. D) Increase the project's internal rate of return. Show Answer Correct Answer: D) Increase the project's internal rate of return. 29. The following are the disadvantages of the payback period, except A) Ignoring cash flows after the answer payback period. B) Not paying attention to the time value of money. C) Easy to calculate. D) Ignore the flowers. Show Answer Correct Answer: C) Easy to calculate. 30. Capital Budgeting is considered as A) A Concept of Capital. B) An Investment Concept. C) An Expansion Concept. D) None of above. Show Answer Correct Answer: B) An Investment Concept. ← PreviousNext →Related QuizzesCorporate Finance QuizzesFinance QuizzesCapital Budgeting Quiz 1Capital Budgeting Quiz 3 🏠 Back to Homepage 📘 Download PDF Books 📕 Premium PDF Books