Multiple Choice Questions (MCQ) on Capital Budgeting

Multiple Choice Questions (MCQ) on Capital Budgeting

1-The span of time within which the investment made for the project will be recovered by the net returns of the project is known as

(A) Period of return

(B) Payback period

(C) Span of return

(D) None of the above

 

2-Projects with __________ are preferred

(A) Lower payback period

(B) Normal payback period

(C) Higher payback period

(D) Any of the above

 

3-___________ on capital is called ‘Cost of capital’.

(A) Lower expected return

(B) Normally expected return

(C) Higher expected return

(D) None of the above

 

4-The values of the future net incomes discounted by the cost of capital are called

(A) Average capital cost

(B) Discounted capital cost

(C) Net capital cost

(D) Net present values

 

5-Under Net present value criterion, a project is approved if

(A) Its net present value is positive

(B) The funds are unlimited

(C) Both (A) and (B)

(D) None of the above

 

6-The internal Rate of Return (IRR) criterion for project acceptance, under theoretically infinite funds is: accept all projects which have

(A) IRR equal to the cost of capital

(B) IRR greater than the cost of capital

(C) IRR less than the cost of capital

(D) None of the above

 

7-Which of the following criterion is often preferred

(A) Net present value

(B) Profitability index

(C) Internal Rate of Return

(D) All of the above

 

8-The project is accepted of

(A) if the profitability index is equal to one

(B) The funds are unlimited

(C) If the profitability index is greater than one

(D) Both (B) and (C)

 

9-Where capital availability is unlimited and the projects are not mutually exclusive, for the same cost of capital, following criterion is used

(A) Net present value

(B) Internal Rate of Return

(C) Profitability Index

(D) Any of the above

 

10-A project is accepted when

(A) Net present value is greater than zero

(B) Internal Rate of Return will be greater than cost of capital

(C) Profitability index will be greater than unity

(D) Any of the above

 

11-With limited finance and a number of project proposals at hand, select that package of projects which has

(A) The maximum net present value

(B) Internal rate of return is greater than cost of capital

(C) Profitability index is greater than unity

(D) Any of the above

 

12-A project may be regarded as high risk project when

(A) It has smaller variance of outcome but a high initial investment

(B) It has larger variance of outcome and high initial investment

(C) It has smaller variance of outcome and a low initial investment

(D) It has larger variance of outcome and low initial investment

 

13-Following is (are) the method(s) for adjustment of risks

(A) Risk-adjusted Discounting Rate

(B) Risk Equivalence Coefficient Method

(C) Both (A) and (B)

(D) None of the above

 

ANSWERS:

1-(B), 2-(A), 3-(B), 4-(D), 5-(C), 6-(B), 7-(C), 8-(D), 9-(D), 10-(D), 11-(A), 12-(A), 13-(C)