Week 4 – Capital Budgeting Technique
1. Which one of the following is the causal method in demand forecasting?
a. Delphi Method
b. Trend projection
c. Moving average method
d. Econometric method
Ans: D
2. Which one of the following is not a Quantitative method?
a. Trend projection
b. Exponential smoothening method
c. Moving average method
d. Consumption level method
Ans: D
3. What one of the following is having the Cobb-Douglas relationship
a. 𝑌𝑡 = 𝑎 + 𝑏𝑡
b. 𝑌𝑡 = 𝑎𝑒 𝑏𝑡
c. 𝑌𝑡 = 𝑎𝑡 𝑏
d. 𝑌𝑡 = 𝑎0 + 𝑎1 𝑡 + 𝑎2 𝑡 2 … 𝑎𝑛 𝑡 𝑛
Ans: C
4. What is the formula for Return on Equity?
a. (𝐸𝐵𝐼𝑇 − 𝑇𝑎𝑥)/𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡
b. (𝐸𝐴𝑇 − 𝑃𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑡𝑖𝑎𝑙 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑)/𝐸𝑞𝑢𝑖𝑡𝑦
c. 𝐸𝐵𝐼𝑇/𝑆𝑎𝑙𝑒𝑠
d. 𝐸𝐴𝑇/𝑆𝑎𝑙𝑒𝑠
Ans: B
5. Which one of the following is the correct formula for IRR?
a. IRR = 𝑟𝑛 + (𝑁𝑃𝑉1 )/[𝑁𝑃𝑉2 − 𝑁𝑃𝑉1 ]
b. IRR = 𝑟1 + (𝑁𝑃𝑉𝑛 )/[𝑁𝑃𝑉𝑛 − 𝑁𝑃𝑉1 ]
c. IRR = 𝑟0 + (𝑁𝑃𝑉0 )/[𝑁𝑃𝑉1 − 𝑁𝑃𝑉0 ]
d. IRR = 𝑟0 − (𝑁𝑃𝑉0 )/[𝑁𝑃𝑉1 − 𝑁𝑃𝑉0 ]
Ans: C
6. How investment decision is different from financing decisions?
a. Investment decisions take place in the real market while financing decisions take
place in the capital market.
b. Investment decisions take place in the capital market while financing decisions take
place in the real market.
c. There are few opportunities for investment decisions compared to financial decisions.
d. The financial market is more efficient compared to the capital market.
Ans: A
7. Which are true for Debt?
a. Debt has a fixed maturity.
b. Debt has an indefinite life.
c. Interest paid to creditors is a tax-deductible payment.
d. Interest paid is not a tax-deductible payment.
A. a and c
B. b and d
C. a and d
D. b and c
Ans: A
8. When do we prefer more equity?
a. The corporate tax rate applicable is high
b. Business risk exposure is low
c. Business risk exposure is high
d. The assets of the project are mostly tangible
Ans: C
9. What is the advantage of equity capital?
a. Sale of equity shares to outsiders dilutes the control of existing owners.
b. The cost of equity capital is highest
c. Long-term source of finance
d. Short-term source of finance
Ans: C
10. _____ pattern exists when the series fluctuates according to some seasonal factors
a. Historical
b. Trend
c. Seasonal
d. Trend + Seasonal
Ans: C