Capital Budgeting or Capital Investment Decisions MCQs

Welcome to our comprehensive collection of Multiple Choice Questions (MCQs) on Capital Budgeting or Capital Investment Decisions, a fundamental topic in the field of IC 89 Management Accounting. Whether you're preparing for competitive exams, honing your problem-solving skills, or simply looking to enhance your abilities in this field, our Capital Budgeting or Capital Investment Decisions MCQs are designed to help you grasp the core concepts and excel in solving problems.

In this section, you'll find a wide range of Capital Budgeting or Capital Investment Decisions mcq questions that explore various aspects of Capital Budgeting or Capital Investment Decisions problems. Each MCQ is crafted to challenge your understanding of Capital Budgeting or Capital Investment Decisions principles, enabling you to refine your problem-solving techniques. Whether you're a student aiming to ace IC 89 Management Accounting tests, a job seeker preparing for interviews, or someone simply interested in sharpening their skills, our Capital Budgeting or Capital Investment Decisions MCQs are your pathway to success in mastering this essential IC 89 Management Accounting topic.

Note: Each of the following question comes with multiple answer choices. Select the most appropriate option and test your understanding of Capital Budgeting or Capital Investment Decisions. You can click on an option to test your knowledge before viewing the solution for a MCQ. Happy learning!

So, are you ready to put your Capital Budgeting or Capital Investment Decisions knowledge to the test? Let's get started with our carefully curated MCQs!

Capital Budgeting or Capital Investment Decisions MCQs | Page 3 of 7

Discover more Topics under IC 89 Management Accounting

Q21.
What characterizes R&D Projects?

a.

Small amount of investments in most Indian companies

b.

Compliance with statutory requirements

c.

Huge capital budgets and systematic evaluation

d.

Simplified and easier capital budgeting

Discuss
Answer: (c).Huge capital budgets and systematic evaluation Explanation:R&D Projects involve huge capital budgets requiring systematic evaluation and analysis for ROI, although traditionally, they involve comparatively small amounts of investments in most Indian companies.
Q22.
What is the primary consideration in the Pay-back Method for evaluating a capital project?

a.

Net Present Value Index

b.

Internal Rate of Return

c.

Length of time to recover the initial investment

d.

Discounted Cash Flow

Discuss
Answer: (c).Length of time to recover the initial investment Explanation:The primary consideration in the Pay-back Method for evaluating a capital project is the length of time required to recover the initial investment or outlay on the project.
Q23.
How is the payback period calculated?

a.

Dividing the initial investment by the total cash inflows

b.

Subtracting the total cash inflows from the initial investment

c.

Adding the total cash inflows to the initial investment

d.

Multiplying the initial investment by the total cash inflows

Discuss
Answer: (a).Dividing the initial investment by the total cash inflows Explanation:The payback period is calculated by dividing the initial investment by the total cash inflows.
Q24.
What does a shorter payback period indicate in the Pay-back Method?

a.

Lower project worthiness

b.

Higher project worthiness

c.

No impact on project worthiness

d.

Equal project worthiness

Discuss
Answer: (b).Higher project worthiness Explanation:In the Pay-back Method, a shorter payback period indicates higher project worthiness or desirability.
Q25.
What is the primary advantage of the Pay-back Method?

a.

Requires hidden assumptions and tedious calculations

b.

Emphasizes on liquidity

c.

Complex in concept and application

d.

Considers cash inflows directly

Discuss
Answer: (d).Considers cash inflows directly Explanation:The primary advantage of the Pay-back Method is that it is clear in concept, simple in application, and considers cash inflows directly.
Q26.
What criterion does the Pay-back Method emphasize?

a.

Liquidity

b.

Net Present Value Index

c.

Internal Rate of Return

d.

Discounted Cash Flow

Discuss
Answer: (a).Liquidity Explanation:The Pay-back Method emphasizes liquidity as it considers cash inflows directly.
Q27.
What is a limitation of the Pay-back Method?

a.

It considers the time value of money in pay-back calculation

b.

It provides a measure of recovery period, not profitability position

c.

It indicates the liquidity position of the firm as a whole

d.

It includes cash inflows beyond the pay-back period

Discuss
Answer: (b).It provides a measure of recovery period, not profitability position Explanation:A limitation of the Pay-back Method is that it provides a measure of the recovery period but not the profitability position of the project.
Q28.
What is one of the limitations of the Pay-back Method that the discounted payback period aims to overcome?

a.

Failure to consider the time value of money

b.

Discrimination against projects with substantial cash inflows in later years

c.

Ignoring cash inflows beyond the pay-back period

d.

Lack of indication of the liquidity position of the firm

Discuss
Answer: (a).Failure to consider the time value of money Explanation:One of the limitations of the Pay-back Method is the failure to consider the time value of money. The discounted payback period aims to overcome this limitation.
Q29.
What is calculated in the Simple Rate of Return method?

a.

Average profits / Initial investment

b.

Profits after Tax (PAT) / Book value of investments

c.

Average profits / Average book value of fixed assets

d.

Initial investment / Average profits

Discuss
Answer: (b).Profits after Tax (PAT) / Book value of investments Explanation:In the Simple Rate of Return method, the rate of return is calculated as Profits after Tax (PAT) divided by the Book value of investments.
Q30.
How is the rate of return calculated in the Rate of Return on Average Investment Method?

a.

Average profits / Initial investment

b.

Profits after Tax (PAT) / Book value of investments

c.

Average profits / Average book value of fixed assets

d.

Initial investment / Average profits

Discuss
Answer: (c).Average profits / Average book value of fixed assets Explanation:In the Rate of Return on Average Investment Method, the rate of return is calculated as Average profits divided by the Average book value of fixed assets.
Page 3 of 7