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NPV and Capital Budgeting Insights

The document contains 15 multiple choice questions related to capital budgeting, payback period calculation, interpolation, NPV, IRR, accounting standards, funds flow statement, leverage, and capital budgeting decision criteria. The questions cover topics like identifying the payback period of a project with given annual cash inflows, the definition of interpolation, criteria for accepting projects based on profitability index or IRR, identification of NPV as the net present value, selection of projects based on highest NPV, payback period as a measure of return on investment, capital budgeting process involving investments with returns extending beyond 3 years, indifference point for BCR, treatment of taxation provision per accounting standards, applications of funds in funds flow statement, significance

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4K views5 pages

NPV and Capital Budgeting Insights

The document contains 15 multiple choice questions related to capital budgeting, payback period calculation, interpolation, NPV, IRR, accounting standards, funds flow statement, leverage, and capital budgeting decision criteria. The questions cover topics like identifying the payback period of a project with given annual cash inflows, the definition of interpolation, criteria for accepting projects based on profitability index or IRR, identification of NPV as the net present value, selection of projects based on highest NPV, payback period as a measure of return on investment, capital budgeting process involving investments with returns extending beyond 3 years, indifference point for BCR, treatment of taxation provision per accounting standards, applications of funds in funds flow statement, significance

Uploaded by

vasundhra
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
  • Financial Examination Questions

1. A project costs $16,000.

The estimated
annual cash inflows during its 3 year life are
$8,000, $7,000 and $6,000 respectively.
What will be the pay-back period?
(a) 2 years

(b) 2.5 years

(c) 3 years

(d) 4 years

2. To estimate an unknown number that lies


between two known numbers is knows as
___________?
(a) Capital rationing

(b) Capital budgeting

(c) Interpolation

(d) Amortization

3. Decision criterion with respect to


profitability index to accept project if?
(a) Profitability index is equal to or less than 1

(b) Profitability index is greater than 1

(c) Profitability index is less than or equal to 1

(d) Profitability index is greater than 10


4. ____________ of a project is the sum of
all present values of all cash inflows minus
present value of outflows?
(a) Pay Back Period

(b) Internal Rate of Return

(c) Benefit Cost Ratio

(d) NPV

5. If you have to judge a project from its NPV,


you will select the one with
the______________?
(a) Highest NPV

(b) Lowest NPV

(c) NPV cannot judge the project

(d) Information is not enough

6. Criteria that measures how quickly project


will return its original investment is?
(a) Accounting rate of return

(b) Payback period

(c) Internal rate of return

(d) Benefit cost ratio

7. Capital budgeting is the process of


identifying analyzing and selecting
investments project whose returns are
expected to extend beyond
____________________?
(a) 3 years

(b) 2 years

(c) 1 year

(d) Months

8. Indifference criteria when BCR (Benefit


Cost Ratio)?
(a) BCR > 1

(b) BCR = 1

(c) BCR < 1

(d) None of above

9. Criterion for IRR (Internal Rate of Return)?


(a) Accept IRR > Cost of capital

(b) Accept IRR < Cost of capital

(c) Accept IRR = Cost of capital

(d) none of the above

10. Process that involves decision making with


respect to investment in fixed asset?
(a) Valuation

(b) Breakeven analysis


(c) Capital budgeting

(d) Material Management Decision

11.    As per accounting standard AS3, provision for taxation should be
treated as

a. As a current liability


b. As an appropriation of profits
c. Either a or b
d. None of the above

12. Which of the following are applications of funds?

a. Payment of dividend on share capital


b. Payment of tax
c. Increase in working capital
d. All of the above

13. Funds Flow Statement is also known as

a. Statement of Funds Flow


b. Statement of Sources and Application of Funds
c. Statement of Sources and Uses of Funds
d. All of the above

14.  Funds Flow Statement holds significance for  

a. Shareholders
b. Financiers
c. Government
d. All of the above

15. the measure of business risk is ___

a .operating leverage
b. financial leverage

c. total leverage

d. working capital leverage

16.

1. A project costs $16,000.The estimated annual cash inflows during its 3 year life are $8,000, $7,000 and $6,000 respectiv
4. ____________ of a project is the sum of all present values of all cash inflows minus present value of outflows? (a) Pay
investments project whose returns are expected to extend beyond ____________________? (a) 3 years (b) 2 years (c) 1 year (d
(c) Capital budgeting (d) Material Management Decision 11.    As per accounting standard AS3, provision for taxation shoul
b. financial leverage c. total leverage d. working capital leverage 16.

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