MCQ Test 1 on Capital Budgeting and Cost Benefit Analysis

MCQ If the net initial investment is $985000 and returned working capital is $7500 then average
investment over five years is

1. $596,300
2. $485,300
3. $496,250
4. $486,250

MCQ If the initial investment is $765000 and the payback period is 4.5 years then increase in
future cash flows is

1. $5,645,000
2. $6,442,500
3. $3,442,500
4. $5,442,500

MCQ The categories of cashflows includes

1. net initial investment

2. cash flow from operations after paying taxes
3. cash flow from terminal disposal after paying taxes
4. all of above

MCQ If the net initial investment is $6850000 and the uniform increase in yearly cashflows is
$2050000 then payback period is

1. 3.34 years
2. 4.34 years
3. 5.34 years
4. 6.34 years

MCQ The net initial investment is divided by uniform increase in future cashflows to calculate

1. discounting period
2. investment period
3. payback period
4. earning period

C
MCQ If the nominal rate is 26% and the inflation rate is 12% then the real rate is

1. 13.75%
2. 11.65%
3. 12.50%
4. 13.50%

MCQ The concept which explains that a money received in present time is more valuable than
money received in future is classifeid as

1. lead value of money

2. storage value of money
3. time value of money
4. cash value of money

MCQ If the payback period is 4 years and the uniform increase in cashflows per year is
$2750000 then the net initial investment is

1. $10,511,000
2. $12,105,000
3. $1,100,000
4. $11,000,000

MCQ If the real rate is 16% and the inflation rate is 8% then the nominal rate of return is

1. 27.28%
2. 25.28%
3. 22.28
4. 21.28

MCQ The method which calculates the time to recoup initial investemnt of project in form of
expected cash flows is classified as

1. net value cash flow method

2. payback method
3. single cash flow method
4. lean cash flows methods

B
MCQ The vertically upward dimension of cost analysis is also called

1. project dimension
2. accounting-period dimension
3. back-flush accounting dimension
4. lean accounting dimension

MCQ The rate of return to cover risk of investment and decrease in purchasing power as a result
of inflation is classified as

1. nominal rate of return

2. accrual accounting rate of return
3. real rate of return
4. required rate of return

MCQ he process of making long term decisions for investment of capital in projects is classified
as

1. lead budgeting
2. lean budgeting
3. capital budgeting
4. relevant budgeting

MCQ The dimensions of analysis of cost includes

1. horizontally across dimension

2. horizontally upward dimension
3. vertically upward dimension
4. both a and c

MCQ The capital budgeting method to analyze information of financials includes

1. internal rate of return

2. accrual accounting rate of return
3. net present value
4. all of above

D
MCQ The payback period is multiplied to constant increase in yearly future cash flows to
calculate

1. cash value of money

2. net initial investment
3. net future value
4. time value of money

MCQ The rate of return which is made up of risk free element and business risk element is
classifeid as

1. nominal rate of return

2. accrual accounting rate of return
3. real rate of return
4. required rate of return

MCQ The sum of returned working capital and net initial investment is divided by 2 to calculate

1. increase in operating income

2. average investment over five years
3. average capital invested
4. average rate of return

MCQ The project's expected monetary loss or monetary gain by discounting all cash outflows
and inflows using required rate of return is classified as

1. net present value

2. net future value
3. net discounted value
4. net recorded cash value

MCQ The rate of return required to cover the risk of investment in absence of inflation is
classified as

1. real rate of return

2. required rate of return
3. nominal rate of return
4. None of above

A
MCQ The method which divides annual income earned from a project by capital invested to
calculate

1. accrual accounting rate of return

2. returned working capital
3. increase in expected average annual
4. decrease in expected average annual

MCQ The horizontally across dimension of cost analysis is also called

1. project dimension
2. accounting-period dimension
3. back-flush accounting dimension
4. lean accounting dimension

MCQ According to net present value, the projects that would be acceptable must have

1. negative net present value

2. zero net present value
3. positive net present value
4. both b and c

MCQ The cashflows method used by net present value method and internal rate of return are

1. vertical cashflows
2. discounted cashflows
3. lean cashflows
4. future cashflows

MCQ The working capital cash outflow, cash outflow to buy machine and cas inflow from
disposa of machine are examples of

1. cash flow from operations

2. terminal disposal of investment
3. net initial investment
4. average return on investment

C
MCQ The decrease in purchasing power of any monetary unit such as euro, dollars etc is
classified as

1. net investment parity

2. inflation
3. purchasing parity
4. buying parity

MCQ If increase in average after-tax operating income is $885000 per year and the net initial
investment is $35750000

1. 2.475% per year

2. 4.475% per year
3. 3.475% per year
4. 2.475% per year