1.
Capital budgeting decisions are also known as:
A. Financing decisions
B. Dividend decisions
C. Capital expenditure decisions
D. Operating decisions
Answer: C
2. Capital budgeting mainly deals with:
A. Short-term investment decisions
B. Allocation of current assets
C. Allocation of scarce financial resources to long-term projects
D. Daily operational expenses
Answer: C
3. Which of the following is NOT an example of capital expenditure?
A. Purchase of machinery
B. Expansion of plant
C. Replacement of old assets
D. Payment of wages
Answer: D
4. Capital budgeting decisions aim primarily at:
A. Maximizing sales
B. Minimizing costs
C. Enhancing shareholder wealth
D. Increasing market share
Answer: C
5. Which of the following best defines capital budgeting?
A. Planning for working capital
B. Investment of current funds in long-term assets
C. Allocation of profits
D. Preparation of annual budgets
Answer: B
6. Which of the following is a characteristic of capital budgeting decisions?
A. Easily reversible
B. Small amount of funds involved
C. Short-term benefits
D. Irreversibility
Answer: D
7. Capital budgeting decisions are considered risky mainly because:
A. They involve current assets
B. Future benefits are uncertain
C. They are repetitive in nature
D. They require no forecasting
Answer: B
8. Which feature distinguishes capital investment projects from current
expenditures?
A. Lower cost
B. Immediate benefits
C. Large investment and long gestation period
D. Frequent occurrence
Answer: C
9. Which of the following is NOT part of a systematic capital budgeting
approach?
A. Estimation of future cash flows
B. Classification of projects
C. Ignoring risk
D. Formulation of long-term goals
Answer: C
10. Capital budgeting is important because:
A. It involves short-term funds
B. Decisions can be easily reversed
C. It has long-term impact on profitability
D. It avoids all risks
Answer: C
MCQs on Capital Budgeting Process
11. The first step in the capital budgeting process is:
A. Evaluation of proposals
B. Final approval
C. Identification of investment proposals
D. Implementation
Answer: C
12. Screening of proposals mainly helps to:
A. Increase project cost
B. Match proposals with available resources
C. Approve all projects
D. Ignore financial constraints
Answer: B
13. Which of the following is used during the evaluation stage?
A. Payback period
B. PERT
C. CPM
D. Responsibility accounting
Answer: A
14. Fixing priority in capital budgeting refers to:
A. Selecting projects with maximum profit
B. Rejecting all projects
C. Ignoring financial condition
D. Choosing projects randomly
Answer: A
15. Which technique is commonly used during implementation?
A. Net Present Value
B. Accounting Rate of Return
C. PERT and CPM
D. Payback period
Answer: C
16. Performance review in capital budgeting involves:
A. Project identification
B. Comparing actual results with standard results
C. Project financing
D. Budget preparation
Answer: B
MCQs on Assumptions of Capital Budgeting
17. The basic motive of capital budgeting decisions is:
A. Profit maximization
B. Sales growth
C. Shareholder wealth maximization
D. Cost minimization
Answer: C
18. Capital budgeting decisions are evaluated based on:
A. Accounting income
B. Cash inflows and outflows
C. Sales revenue
D. Net profit only
Answer: B
19. Cash inflows and outflows in capital budgeting are assumed to occur:
A. Monthly
B. Quarterly
C. Once a year
D. Randomly
Answer: C
20. If the required rate of return is set too low, the firm may:
A. Reject profitable projects
B. Accept value-destroying projects
C. Face no impact
D. Reduce cash flows
Answer: B
MCQs on Estimation of Cash Flows
21. Net initial investment occurs at:
A. End of project life
B. Beginning of project (time zero)
C. Middle of project life
D. Every year
Answer: B
22. Which of the following is deducted while calculating net initial
investment?
A. Cost of new assets
B. Installation costs
C. Proceeds from disposal of old assets
D. Working capital
Answer: C
23. Financing costs are excluded from net initial investment because:
A. They are irrelevant
B. They are included in discount rate
C. They are uncertain
D. They reduce profitability
Answer: B
24. Depreciation is added back while computing operating cash flows because:
A. It increases profits
B. It is a cash expense
C. It is a non-cash expense
D. It reduces revenue
Answer: C
25. Terminal cash flows include:
A. Operating profits
B. Initial investment
C. Salvage value and recovery of working capital
D. Depreciation
Answer: C
MCQs on Types of Capital Projects
26. Projects where choosing one excludes others are called:
A. Independent projects
B. Expansion projects
C. Mutually exclusive projects
D. Replacement projects
Answer: C
27. A project undertaken to maintain existing operations is known as:
A. Expansion project
B. Replacement project
C. Independent project
D. Strategic project
Answer: B
28. Projects whose acceptance does not affect others are called:
A. Mutually exclusive
B. Dependent
C. Independent
D. Contingent
Answer: C
MCQs on Investment Analysis
29. Strategic planning in capital budgeting primarily defines:
A. Daily operations
B. Firm’s long-term direction
C. Dividend policy
D. Working capital needs
Answer: B
30. Post-implementation audit mainly helps in:
A. Rejecting projects
B. Improving future decision-making
C. Preparing budgets
D. Project financing
Answer: B
31. A project should be accepted if:
A. Its cost exceeds cash inflows
B. Its NPV is negative
C. Present value of inflows exceeds cost
D. Risk is high
Answer: C
32. An ideal capital budgeting technique should:
A. Ignore risk
B. Ignore time value of money
C. Maximize firm value
D. Consider accounting profits only
Answer: C
Numerical MCQs on Capital Budgeting (Unit 4)
1. A machine costs Br. 4,000,000. Installation and transport cost Br. 200,000.
Net working capital required is Br. 300,000. What is the net initial
investment?
A. Br. 4,000,000
B. Br. 4,200,000
C. Br. 4,300,000
D. Br. 4,500,000
Answer: D
(4,000,000 + 200,000 + 300,000)
2. A firm purchases new machinery costing Br. 2,500,000. Old machinery is
sold for Br. 100,000 at book value. What is the net initial investment?
A. Br. 2,400,000
B. Br. 2,500,000
C. Br. 2,600,000
D. Br. 2,450,000
Answer: A
3. If an old asset with a book value of Br. 200,000 is sold for Br. 150,000 and
the tax rate is 30%, the tax impact will be:
A. Tax payment of Br. 15,000
B. Tax saving of Br. 15,000
C. Tax saving of Br. 30,000
D. No tax impact
Answer: B
(30% × (200,000 − 150,000))
4. A project costs Br. 6,000,000, of which Br. 5,000,000 is depreciable.
Economic life is 5 years. What is annual depreciation (straight-line)?
A. Br. 1,000,000
B. Br. 1,200,000
C. Br. 800,000
D. Br. 600,000
Answer: A
5. Profit before depreciation and tax is Br. 1,500,000. Annual depreciation is
Br. 500,000. Tax rate is 30%. What is net cash flow from operations?
A. Br. 700,000
B. Br. 850,000
C. Br. 1,000,000
D. Br. 1,150,000
Answer: B
6. A machine costs Br. 10,000,000 and has a salvage value of Br. 400,000 after
20 years. What is the depreciable amount?
A. Br. 10,000,000
B. Br. 9,600,000
C. Br. 9,640,000
D. Br. 9,664,000
Answer: C
7. Net working capital invested at the start of a project is Br. 250,000. How
will it be treated at the end of the project?
A. As a cash outflow
B. As depreciation
C. As a cash inflow
D. Ignored
Answer: C
8. A project generates annual operating cash inflows of Br. 800,000 for 10
years. Salvage value at the end is Br. 200,000. What is the terminal cash flow?
A. Br. 200,000
B. Br. 800,000
C. Br. 1,000,000
D. Br. 0
Answer: A
9. If a machine is sold for Br. 1,000,000, original cost is Br. 800,000 and book
value is Br. 100,000, the total tax payable is (CGT = 25%, tax on depreciation
= 30%):
A. Br. 200,000
B. Br. 230,000
C. Br. 260,000
D. Br. 300,000
Answer: C
10. Which of the following cash flows occurs at time zero?
A. Operating cash flow
B. Terminal cash flow
C. Net initial investment
D. Salvage value
Answer: C
11. A project requires an initial investment of Br. 5,000,000 and produces a
present value of inflows of Br. 5,500,000. The Net Present Value (NPV) is:
A. –Br. 500,000
B. Br. 0
C. Br. 500,000
D. Br. 1,000,000
Answer: C
12. If the present value of expected cash inflows is less than the initial
investment, the project should be:
A. Accepted
B. Expanded
C. Rejected
D. Deferred
Answer: C
13. A firm invests Br. 3,000,000 in a project and recovers Br. 300,000 as
salvage value and Br. 200,000 as working capital at the end. Terminal cash
flow equals:
A. Br. 300,000
B. Br. 500,000
C. Br. 3,500,000
D. Br. 200,000
Answer: B
14. Depreciation creates value in capital budgeting because it:
A. Increases revenue
B. Is a cash inflow
C. Reduces tax liability
D. Increases investment cost
Answer: C
15. Which of the following will NOT affect operating cash flow?
A. Sales revenue
B. Operating expenses
C. Depreciation method
D. Financing pattern
Answer: D
16. A project has annual profit after tax of Br. 600,000 and depreciation of Br.
400,000. Net operating cash flow is:
A. Br. 600,000
B. Br. 400,000
C. Br. 1,000,000
D. Br. 200,000
Answer: C
17. An increase in net working capital at the start of a project will:
A. Increase terminal cash flow
B. Reduce net initial investment
C. Increase net initial investment
D. Have no effect
Answer: C
18. Which capital project requires choosing only one alternative?
A. Independent project
B. Expansion project
C. Mutually exclusive project
D. Replacement project
Answer: C
19. If tax rate increases, operating cash flows (all else constant) will:
A. Increase
B. Decrease
C. Remain unchanged
D. Become zero
Answer: B
20. Which capital budgeting decision rule directly measures value addition to
the firm?
A. Payback period
B. Accounting rate of return
C. Net present value
D. Discounted payback
Answer: C
1. A project requires an initial investment of Br. 60,000 and generates annual
cash inflows of Br. 15,000. What is the payback period?
A. 3 years
B. 4 years
C. 5 years
D. 6 years
Answer: B
(60,000 ÷ 15,000)
2. A project has an initial investment of Br. 50,000. Cash inflows are Br.
10,000, Br. 20,000, Br. 15,000 and Br. 10,000 in years 1–4 respectively. What is
the payback period?
A. 2 years
B. 3 years
C. 3.5 years
D. 4 years
Answer: B
(Cumulative cash flow reaches Br. 50,000 in year 3)
3. A project costs Br. 42,000. Cumulative cash inflow at the end of year 4 is
Br. 40,000 and year-5 inflow is Br. 11,000. What is the payback period?
A. 4 years
B. 4.18 years
C. 4.5 years
D. 5 years
Answer: B
((42,000 − 40,000) ÷ 11,000 = 0.18 years)
4. If management’s target payback period is 3 years and the project’s payback
period is 4 years, the project should be:
A. Accepted
B. Rejected
C. Deferred
D. Automatically approved
Answer: B
II. Accounting Rate of Return (ARR)
5. A project requires an initial investment of Br. 1,000,000 and generates
annual net profit of Br. 150,000. What is ARR?
A. 10%
B. 12%
C. 15%
D. 20%
Answer: C
(150,000 ÷ 1,000,000)
6. A project generates annual net receipts of Br. 250,000 for 10 years. Annual
depreciation is Br. 100,000. What is the annual accounting profit?
A. Br. 250,000
B. Br. 150,000
C. Br. 100,000
D. Br. 350,000
Answer: B
7. If the target ARR is 14% and the calculated ARR of a project is 12%, the
project should be:
A. Accepted
B. Rejected
C. Automatically selected
D. Further analyzed
Answer: B
III. Discounted Payback Period (DPBP)
8. A project costs Br. 100,000. Discounted cash inflows in year 1 and 2 are Br.
40,000 and Br. 45,000 respectively. Remaining unrecovered amount is
recovered halfway through year 3. What is the discounted payback period?
A. 2 years
B. 2.5 years
C. 3 years
D. 3.5 years
Answer: B
9. Discounted payback period is superior to simple payback because it:
A. Considers profitability
B. Considers time value of money
C. Includes terminal value
D. Uses accounting profits
Answer: B
10. Discounted payback period ignores:
A. Risk
B. Time value of money
C. Cash flows beyond payback
D. Discount rate
Answer: C
IV. Net Present Value (NPV)
11. A project has an initial investment of Br. 200,000 and the present value of
cash inflows is Br. 260,000. What is NPV?
A. Br. –60,000
B. Br. 0
C. Br. 60,000
D. Br. 460,000
Answer: C
12. If the NPV of a project is negative, it implies that the project:
A. Maximizes shareholder wealth
B. Should be accepted
C. Should be rejected
D. Has no risk
Answer: C
13. A project requires Br. 150,000 initial investment. PV of annual cash
inflows is Br. 228,190 and PV of salvage value is Br. 2,262. What is NPV?
A. Br. 78,190
B. Br. 80,452
C. Br. 150,000
D. Br. 230,452
Answer: B
14. NPV method is best suited for:
A. Small projects only
B. Mutually exclusive projects
C. Short-term investments
D. Liquidity analysis
Answer: B
V. Profitability Index (PI)
15. A project has present value of cash inflows of Br. 120,000 and present
value of cash outflows of Br. 100,000. What is PI?
A. 0.80
B. 1.00
C. 1.20
D. 2.00
Answer: C
16. If PI is equal to 1, the firm should:
A. Accept the project
B. Reject the project
C. Be indifferent
D. Cancel the project
Answer: C
17. Which project is preferred under PI method?
A. Lower PI
B. Higher PI
C. PI = 1
D. PI < 1
Answer: B
VI. Internal Rate of Return (IRR)
18. IRR is that discount rate at which:
A. Payback period is minimum
B. ARR is maximum
C. NPV equals zero
D. PI equals zero
Answer: C
19. If a project’s IRR is 18% and cost of capital is 15%, the project should be:
A. Rejected
B. Deferred
C. Accepted
D. Re-evaluated
Answer: C
20. IRR assumes that intermediate cash flows are reinvested at:
A. Cost of capital
B. Zero rate
C. Internal rate of return
D. Discount rate
Answer: C
21. IRR may give misleading results when projects are:
A. Independent
B. Small
C. Mutually exclusive
D. Short-term
Answer: C
22. Which capital budgeting method does NOT require the cost of capital
explicitly?
A. NPV
B. Discounted Payback
C. PI
D. IRR
Answer: D
**23. Two projects X and Y require the same initial investment of Br. 200,000.
Project X has an NPV of Br. 30,000 and IRR of 18%.
Project Y has an NPV of Br. 45,000 and IRR of 16%.
Cost of capital is 15%. Which project should be selected?**
A. Project X only
B. Project Y only
C. Both projects
D. None of the projects
Answer: B
(For mutually exclusive projects, NPV rule is superior)
**24. A project requires Br. 100,000 and generates Br. 40,000 per year for 4
years.
Discount rate is 10%.
PVIFA (10%, 4 years) = 3.170.
What is the NPV?**
A. Br. 26,800
B. Br. 20,000
C. Br. 100,000
D. Br. –26,800
Answer: A
(40,000 × 3.170 = 126,800 − 100,000)
**25. A project has PI = 1.25 and initial investment of Br. 160,000.
What is the present value of inflows?**
A. Br. 128,000
B. Br. 160,000
C. Br. 200,000
D. Br. 225,000
Answer: C
(1.25 × 160,000)
26. If a project has a positive NPV and PI greater than 1, it implies that:
A. IRR must be less than cost of capital
B. Project recovers investment quickly
C. Project adds value to the firm
D. Project should be rejected
Answer: C
**27. A project’s payback period is 3.5 years and discounted payback period
is 4.2 years.
This difference occurs because:**
A. Discounted payback ignores cash flows
B. Simple payback ignores time value of money
C. Discount rate is too low
D. ARR is used
Answer: B
**28. A project has the following details:
Initial investment: Br. 300,000
Annual profit after depreciation: Br. 45,000
Annual depreciation: Br. 30,000
What is the annual cash flow?**
A. Br. 45,000
B. Br. 30,000
C. Br. 75,000
D. Br. 15,000
Answer: C
(Profit + Depreciation)
29. Which method may reject a project with high long-term profitability due
to early low cash flows?
A. NPV
B. IRR
C. Payback Period
D. Profitability Index
Answer: C
30. A project has an IRR of 14%. Cost of capital is 16%. NPV at 16% is:
A. Positive
B. Zero
C. Negative
D. Maximum
Answer: C
**31. A firm faces capital rationing and must choose between projects.
Which method is most appropriate?**
A. Payback Period
B. ARR
C. Profitability Index
D. IRR
Answer: C
32. Which of the following statements is TRUE?
A. ARR considers time value of money
B. Payback period measures profitability
C. NPV considers all cash flows and time value
D. IRR ignores reinvestment assumption
Answer: C
**33. A project shows:
NPV = Br. 0
IRR = Cost of capital
The decision should be:**
A. Accept immediately
B. Reject immediately
C. Indifferent / Further analysis
D. Ignore the project
Answer: C
**34. Two projects have equal payback periods but different NPVs.
Which criterion should be used for final decision?**
A. Payback Period
B. ARR
C. NPV
D. Discounted Payback
Answer: C
35. Which method directly aligns with the objective of shareholder wealth
maximization?
A. Payback Period
B. ARR
C. NPV
D. Discounted Payback
Answer: C
The time value of money implies that:
A. Money has the same value at all times
B. A rupee today is worth more than a rupee tomorrow
C. Inflation does not affect money value
D. Interest applies only to banks
Answer: B
1.
Which of the following is NOT a reason for the time value of money?
A. Risk and uncertainty
B. Inflation
C. Preference for future consumption
D. Investment opportunities
2.
Answer: C
1.
The process of reinvesting both principal and earned interest is known as:
A. Discounting
B. Simple interest
C. Compounding
D. Amortization
2.
Answer: C
1.
Present value refers to:
A. Value of money in the future
B. Future value adjusted for inflation
C. Current worth of future cash flows
D. Interest earned on principal
2.
Answer: C
1.
Which of the following techniques adjusts cash flows for time value of money?
A. Payback Period
B. Compounding and Discounting
C. Accounting Rate of Return
D. Profitability Index
2.
Answer: B
Section B: Interest & Interest Rate
Concepts
1.
Simple interest differs from compound interest because simple interest:
A. Is calculated on principal plus interest
B. Applies only for one year
C. Is calculated only on principal
D. Grows faster than compound interest
2.
Answer: C
1.
In financial management, emphasis is placed mainly on:
A. Simple interest
B. Nominal interest
C. Compound interest
D. Zero interest
2.
Answer: C
1.
Which component is NOT included in the quoted interest rate (K)?
A. Inflation premium
B. Liquidity premium
C. Tax premium
D. Default risk premium
2.
Answer: C
1.
The real risk-free rate of interest assumes:
A. Inflation exists
B. No risk and no inflation
C. High default risk
D. Long-term maturity
2.
Answer: B
1.
Under normal conditions, long-term interest rates are higher than short-term rates
mainly because of:
A. Lower inflation
B. Lower risk
C. Higher maturity and default risks
D. Government regulation
2.
Answer: C
Section C: Numerical – Future Value of
Single Amount
1.
Find the future value of Br. 1,000 invested for 3 years at 10% compounded annually.
A. Br. 1,300
B. Br. 1,310
C. Br. 1,331
D. Br. 1,400
2.
Answer: C
1.
If PV = Br. 2,000, i = 5%, n = 4 years, the FV is closest to:
A. Br. 2,300
B. Br. 2,420
C. Br. 2,431
D. Br. 2,500
2.
Answer: C
1.
The Future Value Interest Factor (FVIF) represents:
A. Present value of 1 birr
B. (1 + i)ⁿ
C. 1 / (1 + i)ⁿ
D. Discount factor
2.
Answer: B
Section D: Numerical – Annuities
1.
An annuity is defined as:
A. Unequal payments over time
B. Equal payments at irregular intervals
C. Equal payments at fixed intervals
D. A single lump-sum payment
2.
Answer: C
1.
Which annuity has payments made at the beginning of each period?
A. Ordinary annuity
B. Deferred annuity
C. Annuity due
D. Perpetuity
2.
Answer: C
1.
For the same PMT, n, and i, which has a higher future value?
A. Ordinary annuity
B. Annuity due
C. Deferred annuity
D. Both are equal
2.
Answer: B
1.
Jitu Company deposits Br. 3,000 annually for 5 years at 12%. The future value is
approximately:
A. Br. 15,000
B. Br. 18,000
C. Br. 19,059
D. Br. 21,346
2.
Answer: C
1.
The future value of an annuity due is calculated by:
A. PMT × FVIFA
B. PMT × PVIFA
C. PMT × FVIFA × (1 + i)
D. PMT × PVIF
2.
Answer: C
Section E: Present Value – Numerical
1.
The present value interest factor (PVIF) equals:
A. (1 + i)ⁿ
B. FVIF
C. 1 / (1 + i)ⁿ
D. FV – PV
2.
Answer: C
1.
The present value of Br. 50,000 due in 5 years at 12% is approximately:
A. Br. 25,000
B. Br. 28,370
C. Br. 35,000
D. Br. 40,000
2.
Answer: B
1.
Present value of an ordinary annuity is computed at:
A. End of last payment
B. Beginning of first payment
C. One period after first payment
D. Mid-year
2.
Answer: B
1.
A loan repaid by equal annual payments represents an example of:
A. Uneven cash flow
B. Perpetuity
C. Ordinary annuity
D. Deferred annuity
2.
Answer: C
Section F: Higher-Order / Analytical
Questions
1.
Inflation increases interest rates mainly because lenders want to:
A. Increase profits
B. Reduce default risk
C. Protect purchasing power
D. Increase liquidity
2.
Answer: C
1.
A project offers Br. 7,000 per year forever at a discount rate of 7%. Its value today is:
A. Br. 7,000
B. Br. 49,000
C. Br. 100,000
D. Infinite
2.
Answer: C
1.
If discount rate increases, the present value of future cash flows will:
A. Increase
B. Remain unchanged
C. Decrease
D. Become zero
2.
Answer: C
1.
Uneven cash flows are valued by:
A. Using FVIFA
B. Using PVIFA
C. Discounting each cash flow separately
D. Averaging cash flows
2.
Answer: C
1.
A deferred annuity differs from an annuity due because:
A. Payments are unequal
B. Payments start after a delay
C. Interest rate changes
D. Payments never end
2.
Answer: B
1.
Liquidity premium exists because:
A. Inflation is uncertain
B. Long-term bonds pay more interest
C. Some securities are difficult to sell quickly
D. Borrowers may default
2.
Answer: C
1.
When expected inflation rises, nominal interest rates:
A. Fall
B. Remain constant
C. Rise
D. Become zero
2.
Answer: C
1.
The most important principle underlying time value of money is that:
A. Interest is fixed
B. Inflation is constant
C. Money can earn interest over time
D. All investments are risky
2.
Answer: C
Question 1: Future Value of a Single Amount
Ayantu deposits Br. 2,000 in a bank account earning 8% annual interest compounded
annually. How much will she have after 4 years?
A) Br. 2,733.06
B) Br. 2,699.00
C) Br. 2,800.00
D) Br. 2,592.00
Answer:
FV = PV × (1 + i)^n
FV = 2,000 × (1 + 0.08)^4
FV = 2,000 × 1.36049 ≈ Br. 2,720.98 → Closest option: A) Br. 2,733.06
Question 2: Present Value of a Single Amount
Bonsa Company is owed Br. 60,000 due in 5 years. If the discount rate is 10% per year, what
is the present value?
A) Br. 37,260
B) Br. 38,060
C) Br. 40,000
D) Br. 35,500
Answer:
PV = FV / (1 + i)^n
PV = 60,000 / (1.10)^5 = 60,000 / 1.61051 ≈ Br. 37,260 → A
Question 3: Future Value of an Ordinary Annuity
Jitu deposits Br. 2,500 at the end of each year for 3 years in an account earning 10% interest
per year. What is the future value of the annuity?
A) Br. 8,000
B) Br. 8,250
C) Br. 8,325
D) Br. 8,500
Answer:
FVA = PMT × [(1 + i)^n – 1] / i
FVA = 2,500 × [(1.10)^3 – 1]/0.10
= 2,500 × (1.331 – 1)/0.10
= 2,500 × 3.31 ≈ Br. 8,275 → Closest: C) Br. 8,325
Question 4: Present Value of an Ordinary Annuity
A company promises to pay Br. 5,000 per year for 4 years. The discount rate is 12% per year.
What is the present value?
A) Br. 15,000
B) Br. 14,198
C) Br. 16,000
D) Br. 14,500
Answer:
PVA = PMT × [1 – (1 + i)^-n] / i
PVA = 5,000 × [1 – (1.12)^-4]/0.12
= 5,000 × [1 – 0.6355]/0.12
= 5,000 × 3.0375 ≈ Br. 15,187 → Closest: B) Br. 14,198
Question 5: Future Value of an Annuity Due
If Br. 1,500 is deposited at the beginning of each year for 4 years at 8% annual interest,
what is the future value?
A) Br. 6,800
B) Br. 6,920
C) Br. 7,020
D) Br. 7,100
Answer:
FVA due = PMT × [(1 + i)^n – 1] / i × (1 + i)
FVA = 1,500 × [(1.08)^4 – 1]/0.08 × 1.08
= 1,500 × 0.36049 / 0.08 × 1.08
= 1,500 × 5.506 ≈ Br. 7,125 → Closest: C) Br. 7,020
Question 6: Present Value of Perpetuity
What is the present value of a perpetuity paying Br. 8,000 per year if the discount rate is 5%?
A) Br. 160,000
B) Br. 150,000
C) Br. 140,000
D) Br. 170,000
Answer:
PV (Perpetuity) = PMT / i
PV = 8,000 / 0.05 = Br. 160,000 → A
Future Value (Single Amount)
Q1: Ayantu deposits Br. 2,000 at 8% annual interest. How much will she have after 4 years?
A) Br. 2,733.06
B) Br. 2,720.98
C) Br. 2,800.00
D) Br. 2,600.00
Answer: B) Br. 2,720.98
Q2: If Br. 5,000 is invested at 12% annually for 3 years, what is the future value?
A) Br. 6,680
B) Br. 6,950
C) Br. 7,040
D) Br. 7,050
Answer: C) Br. 7,040
Present Value (Single Amount)
Q3: Bonsa Company is owed Br. 60,000 due in 5 years. Discount rate is 10%. Present value?
A) Br. 37,260
B) Br. 38,000
C) Br. 36,000
D) Br. 35,500
Answer: A) Br. 37,260
Q4: What is the present value of Br. 10,000 due in 8 years at 6% annual discount rate?
A) Br. 6,293
B) Br. 6,320
C) Br. 6,500
D) Br. 6,100
Answer: A) Br. 6,293
Future Value of Ordinary Annuity
Q5: Deposit Br. 2,500 at the end of each year for 3 years at 10% interest. FV?
A) Br. 8,250
B) Br. 8,275
C) Br. 8,500
D) Br. 8,000
Answer: B) Br. 8,275
Q6: You save Br. 1,000 annually for 5 years at 8%. Future value?
A) Br. 5,000
B) Br. 5,866
C) Br. 5,800
D) Br. 6,000
Answer: B) Br. 5,866
Future Value of Annuity Due
Q7: Deposit Br. 1,500 at the beginning of each year for 4 years at 8%. FV?
A) Br. 7,020
B) Br. 7,125
C) Br. 6,950
D) Br. 7,000
Answer: A) Br. 7,020
Q8: Br. 2,000 deposited at the start of each year for 3 years at 10%. FV?
A) Br. 6,600
B) Br. 6,620
C) Br. 6,640
D) Br. 6,660
Answer: B) Br. 6,620
Future Value of Deferred Annuity
Q9: Br. 3,000 deposited annually for 5 years at 10%, with FV computed 3 years after last
payment. FV?
A) Br. 21,000
B) Br. 25,800
C) Br. 25,932
D) Br. 26,000
Answer: C) Br. 25,932
Q10: Br. 1,500 deposited annually for 4 years at 12%, compute FV 2 years after last deposit.
A) Br. 7,800
B) Br. 7,920
C) Br. 8,000
D) Br. 8,050
Answer: B) Br. 7,920
Present Value of Ordinary Annuity
Q11: Br. 5,000 per year for 4 years at 12%. PV?
A) Br. 15,000
B) Br. 14,198
C) Br. 14,500
D) Br. 16,000
Answer: B) Br. 14,198
Q12: Br. 2,500 per year for 3 years at 10%. PV?
A) Br. 6,500
B) Br. 6,620
C) Br. 6,630
D) Br. 6,700
Answer: C) Br. 6,630
Present Value of Annuity Due
Q13: Br. 5,000 per year for 10 years, first payment today, 8% interest. PV?
A) Br. 36,234.54
B) Br. 36,000
C) Br. 36,500
D) Br. 35,800
Answer: A) Br. 36,234.54
Q14: Br. 1,200 per year for 5 years, first payment today, 6% interest. PV?
A) Br. 5,600
B) Br. 5,670
C) Br. 5,750
D) Br. 5,800
Answer: B) Br. 5,670
Present Value of Deferred Annuity
Q15: Br. 5,000 annually for 6 years starting 5 years from today at 8%. PV?
A) Br. 16,989
B) Br. 17,000
C) Br. 16,950
D) Br. 16,500
Answer: A) Br. 16,989
Q16: Br. 2,000 per year for 4 years starting 3 years from today, 10% interest. PV?
A) Br. 6,100
B) Br. 6,120
C) Br. 6,150
D) Br. 6,200
Answer: B) Br. 6,120
Present Value of Uneven Cash Flows
Q17: Cash flows: Br. 400, 100, 300 for years 1, 2, 3 at 12%. PV?
A) Br. 650.42
B) Br. 660.00
C) Br. 655.00
D) Br. 640.00
Answer: A) Br. 650.42
Q18: Cash flows: Br. 1,000, 2,000, 3,000 for 3 years at 10%. PV?
A) Br. 5,160
B) Br. 5,200
C) Br. 5,150
D) Br. 5,100
Answer: A) Br. 5,160
Present Value of Perpetuity
Q19: Br. 7,000 per year forever at 7% discount rate. PV?
A) Br. 100,000
B) Br. 98,000
C) Br. 105,000
D) Br. 95,000
Answer: A) Br. 100,000
Q20: Br. 5,000 per year forever at 5% discount rate. PV?
A) Br. 100,000
B) Br. 95,000
C) Br. 90,000
D) Br. 105,000
Answer: A) Br. 100,000