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.

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Capital Budgeting or Capital Investment Decisions MCQs | Page 4 of 7

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Q31.
What does a higher rate of return indicate in the Rate of Return methods?

a.

Lower project worthiness

b.

Better project

c.

Discrimination against projects with substantial cash inflows

d.

Lack of indication of the liquidity position of the firm

Discuss
Answer: (b).Better project Explanation:In the Rate of Return methods, a higher rate of return indicates a better project.
Q32.
What is the criterion for accepting a project in the Rate of Return methods?

a.

Equal to the pre-determined cut-off rate of return

b.

Lower than the pre-determined cut-off rate of return

c.

Higher than the pre-determined cut-off rate of return

d.

Irrelevant to the pre-determined cut-off rate of return

Discuss
Answer: (a).Equal to the pre-determined cut-off rate of return Explanation:In the Rate of Return methods, a project is accepted if the rate of return is equal to the pre-determined cut-off rate of return.
Q33.
What does the Discounted Cash Flow (DCF) Method discount to find the net present value of inflows?

a.

Cash inflows

b.

Cash outflows

c.

Future value of money

d.

Present value of money

Discuss
Answer: (a).Cash inflows Explanation:The Discounted Cash Flow (DCF) Method discounts cash inflows to find the net present value of inflows.
Q34.
What does the Net Present Value (NPV) method confirm under the Modigliani and Merton Miller assumptions?

a.

Only projects that decrease shareholders' value are accepted

b.

Only projects that increase shareholders' value are accepted

c.

Shareholders' value is irrelevant to project acceptance

d.

NPV is not applicable under these assumptions

Discuss
Answer: (b).Only projects that increase shareholders' value are accepted Explanation:Under the Modigliani and Merton Miller assumptions, the Net Present Value (NPV) method confirms that only projects that increase shareholders' value are accepted.
Q35.
How is the Net Present Value (NPV) of a project calculated?

a.

NPV of Project = ∑ (Cash Flow at the end of the year / (1 + discount rate)^time to expiration) - Initial investment

b.

NPV of Project = ∑ (Initial investment / (1 + discount rate)^time to expiration) - Cash Flow at the end of the year

c.

NPV of Project = ∑ (Cash Flow at the end of the year * (1 + discount rate)^time to expiration) - Initial investment

d.

NPV of Project = ∑ (Initial investment * (1 + discount rate)^time to expiration) - Cash Flow at the end of the year

Discuss
Answer: (a).NPV of Project = ∑ (Cash Flow at the end of the year / (1 + discount rate)^time to expiration) - Initial investment Explanation:The Net Present Value (NPV) of a project is calculated as the sum of the present values of all cash flows (both positive and negative) over the life of the project using the formula mentioned in option a.
Q36.
What does a positive Net Present Value indicate according to NPV rules?

a.

The project is acceptable

b.

The project is avoidable

c.

The project has alternatives

d.

The project is not applicable

Discuss
Answer: (a).The project is acceptable Explanation:According to NPV rules, if the Net Present Value is positive, the project is acceptable.
Q37.
What does Net Present Value (NPV) represent in terms of compensation for time and risks?

a.

Compensation for time only

b.

Compensation for risks only

c.

Compensation for time and risks

d.

No compensation

Discuss
Answer: (c).Compensation for time and risks Explanation:Net Present Value (NPV) represents the net benefit over and above the compensation for time and risks.
Q38.
What must the evaluator examine in relation to cost of capital and NPV?

a.

Future cost of capital

b.

Past cost of capital

c.

Predicted cost of capital during the period of revenue generation

d.

Fixed cost of capital

Discuss
Answer: (c).Predicted cost of capital during the period of revenue generation Explanation:The evaluator must examine the prevalent or predicted cost of capital in the market during the period of revenue generation.
Q39.
What is one of the major aspects to keep in mind when preparing an expected cash flow estimate for a project?

a.

NPV rule is expressed in terms of accounting data

b.

Accounting data is irrelevant to NPV calculations

c.

NPV rule is expressed explicitly in terms of cash flows, not accounting data

d.

Cash flows are not relevant to NPV calculations

Discuss
Answer: (c).NPV rule is expressed explicitly in terms of cash flows, not accounting data Explanation:One of the major aspects to keep in mind when preparing an expected cash flow estimate for a project is that the NPV rule is expressed explicitly in terms of cash flows, not accounting data.
Q40.
Which accounting data, with historical aspects, is of little use for forecasting cash inflows?

a.

Earnings before interest and taxes (EBIT)

b.

Earnings before interest, taxes, depreciation, and amortization ( EBITDA )

c.

Revenue

d.

Net income

Discuss
Answer: (b).Earnings before interest, taxes, depreciation, and amortization ( EBITDA ) Explanation:Earnings before interest, taxes, depreciation, and amortization ( EBITDA ) with historical aspects is of little use for forecasting cash inflows.
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