Practice Test

Q1) Long-term decisions are called as Show Answer

Q2) Capital budgeting decisions involve huge amount of risk due to Show Answer

Q3) Payback period is Show Answer

Q4) For capital budgeting decisions Show Answer

Q5) ARR method Show Answer

Q6) N.P.V method is Show Answer

Q7) P. I. is the proportion between Show Answer

Q8) In accept-reject decisions Show Answer

Q9) In determination of cash outflow Show Answer

Q10) The method which does not consider investments profitability is Show Answer

Q11) The following affects PV of an investment Show Answer

Q12) The IRR is the same as Show Answer

Q13) The most reliable method for financing capital budgeting decisions is Show Answer

Q14) M. Ltd. is considering acquiring a plant. The purchase price is Rs.12,36,100. The company believes that the net cash inflow of Rs.3,09,025 will be generated every year. The plant will have to be replaced in eight years. The payback period Show Answer

Q15) P. Ltd. is adding a new product line which requires an investment of Rs.14,54,000. The life of the project will be 10 years and will generate cash inflow of Rs.3,10,000 for the first year, Rs.2,80,000 for the second year ands Rs.2,40,000 for each year thereafter for eight years. The payback period is. Show Answer

Q16) P. Ltd. is adding a new product line which requires an investment of Rs.14,54,000. The life of the project will be 10 years and will generate cash inflow of Rs.3,10,000 for the first year, Rs.2,80,000 for the second year ands Rs.2,40,000 for each year thereafter for eight years. The ARR is Show Answer

Q17) Cost of project A is as 2,72,0000 and offers eight annual net cash inflows of Rs.60,000. The expected rate of return is 14%. The NPV will be Show Answer

Q18) NPV of project A, B, C & D is Rs.25,000; Rs.38,000; Rs.32,000 and Rs.35,000 respectively.The most profitable project is Show Answer

Q19) P.I is the proportion between Show Answer

Q20) PV of cash inflow of a project is Rs.2,38,000 and investment is Rs.2,00,000. The PI is Show Answer

Q21) Cash Outflow is Rs.10,00,000. Net cash inflow per year is Rs.3,05,450. Discount factor is 14%. Life is 5 years, scrap value Rs.1,00,000. P. V. of Annuity of Re.1 for 5 years is 3.433. P.V. of Re 1 at 14% at the end of 5 years is. 0.519. The NPV is Show Answer

Q22) Cost of machine Rs. 48,000. Residual Value Rs.0. Annual net Cash Inflow Rs. 13,000 Estimated life 5 years. The ARR is Show Answer

Q23) B2B Machine costs Rs.2,40,000. Annual net cash inflow Rs.60,000. Life 6 years, Annual depreciation is : Show Answer

Q24) B2B Machine costs Rs.2,40,000. Annual net cash inflow Rs.60,000. Life 6 years. ARR is : Show Answer

Q25) The cost of a project is Rs.50,000. Tax rate is 55% Depreciation is provided on straight line basis. The inflow before tax and depreciation is
Years 1 2 3 4 5
Profit 10000 10000 15000 15000 25000
Cash inflow is Show Answer

Q26) A Ltd. is thinking to purchase one equipment costing Rs.2,50,000 with a scrap value of Rs.15,000 at the end of five years.The working capital requirement is Rs.20,000. The cash inflow is
Years 1 2 3 4 5
Rs. 1,25000 1,50,000 1,87,000 1,80,000 1,12,500
Depreciation under straight line method. Tax Rate 40%. The cash inflow in the 5th year is Show Answer

Q27) A Ltd. is thinking to purchase one equipment costing Rs.2,50,000 with a scrap value of Rs.15,000 at the end of five years. The working capital requirement is Rs.20,000. the cash inflow is
Years 1 2 3 4 5
Rs. 1,25000 1,50,000 1,87,000 1,80,000 1,12,500
Depreciation under straight line method. Tax Rate 40%. The cash outflow Show Answer

Q28) ______are very risky Show Answer

Q29) Capital budgeting decisions are ________ Show Answer

Q30) Reversal of capital budgeting decisions is very __ Show Answer

Q31) Depreciation is added to ____to get cash inflow Show Answer

Q32) Cash inflow should be _____ but_____. Show Answer

Q33) Increase in working capital requirements _____ _cash outlay Show Answer

Q34) Scrap value _______cash inflow in the last year. Show Answer

Q35) Pay back period is the period required to recover back the ____ Show Answer

Q36) The Project with _________pay back period should be selected. Show Answer

Q37) The project with higher Accounting Rate should be______ Show Answer

Q38) While calculating ARR average profit ______ should be considered. Show Answer

Q39) NPV method considers _____of money. Show Answer

Q40) The project with lower NPV should be______ Show Answer

Q41) The project with negative NPV indicates that the ______ is not covered Show Answer

Q42) Capital budgeting decisions are important because they involve ______ Show Answer

Q43) Payback period does not consider _____of money Show Answer

Q44) Capital budgeting decisions are long term investment decisions. Show Answer

Q45) Capital budgeting decisions need not be taken carefully. Show Answer

Q46) Long term decisions involve heavy risk. Show Answer

Q47) Long term decisions can be easily reversed. Show Answer

Q48) Cost of investment is a part of cash outlay. Show Answer

Q49) Depreciation should be added back to NP after tax to get cash inflow. Show Answer

Q50) The amount of scrap valued should be added to the cash inflow of last year. Show Answer

Q51) Working capital requirement should be added to cash outlay and it should be added to cash inflow. Show Answer

Q52) Capital budgeting decisions are very easy to take. Show Answer

Q53) The project with longer payback period should be selected. Show Answer

Q54) The project with higher accounts rate of return should be selected Show Answer

Q55) Payback period method does not consider time value of money. Show Answer

Q56) NPV method considers time value. Show Answer

Q57) The project with higher NPV should be selected. Show Answer

Q58) Profitability index is the proportion between present value of cash inflow and present value of cash outflow. Show Answer

Q59) IRR is the best method of evaluating capital budgeting projects. Show Answer

Q60) NPV is the best method of evaluating capital budgeting projects. Show Answer

Q61) The cost of capital of new project is 18%. Two competing projects X and Y having IRR of 17% and 16% respectively project X has higher IRR. Hence it should be accepted. Show Answer

Q62) Depreciation is a non cash cost Show Answer

Q63) Payback period is calculated by dividing cash outlay by uniform cash inflow per year. Show Answer

Q64) Which factor is given utmost importance under payback period method? Show Answer

Q65) A proper capital expenditure decision will ______ of a company Show Answer

Q66) Equity shareholders are eligible for dividend _____. Show Answer

Q67) The cash inflows on account of operations are presumed to have been reinvested at that cut-off rate in case of Show Answer

Q68) Out of the total profits of a company, a part is retained and reinvested or reemployed in the business, this process is called ______. Show Answer

Q69) What is the source of funding capital expenditure? Show Answer

Q70) Which of the following is not the feature of the debenture? Show Answer

Q71) Which one of the following is a source of short-term finance? Show Answer

Q72) NPV of a machine Show Answer

Q73) The rate at which the net present value is zero. Show Answer

Q74) The capital expenditure decisions are Show Answer

Q75) Which of the following is the only advantage of debenture issue? Show Answer

Q76) Capital Budgeting is the process decisions making for ______. Show Answer

Q77) Net Present value is based on Show Answer

Q78) As per ____ proiect which yieldsthe highest rate of return is selected. Show Answer

Q79) A cumulative preference share is one Show Answer

Q80) If the annual cash flows are not constant, the payback period is calculated by taking _____. Show Answer

Q81) Under accounting rate of return method _____ is taken into account. Show Answer

Q82) Investment = Show Answer

Q83) The period taken by a project to recover the initial investment is called ____. Show Answer

Q84) Which is the permanent source of capital of the company? Show Answer

Q85) The rate of dividend on equity capital is ___ Show Answer

Q86) In payback period, the project with ____ is recommended for investment. Show Answer

Q87) Shareholders are paid, ____ and debenture holders are paid _____. Show Answer

Q88) The term average profit refers to Show Answer

Q89) Which of the following is a feature of equity capital? Show Answer

Q90) The expendituer incurred on fixed assets are expected to give return over _____ Show Answer