Capital Budgeting MCQs MCQs 1-10 1. A project costs $16,000.The estimated annual cash inflows during its 3 year life are $8,000, $7,000 and $6,000 respectively. What will be the pay-back period? (a) 2 years (b) 2.5 years (c) 3 years (d) 4 years Continue >> 2. To estimate an unknown number that lies between two known numbers is knows as ___________? (a) Capital rationing (b) Capital budgeting (c) Interpolation (d) Amortization Continue >> 3. Decision criterion with respect to profitability index to accept project if? (a) Profitability index is equal to or less than 1 (b) Profitability index is greater than 1 (c) Profitability index is less than or equal to 1 (d) Profitability index is greater than 10 Continue >> 4. ____________ of a project is the sum of all present values of all cash inflows minus present value of outflows? (a) Pay Back Period (b) Internal Rate of Return (c) Benefit Cost Ratio (d) NPV Continue >> 5. If you have to judge a project from its NPV, you will select the one with the______________? (a) Highest NPV (b) Lowest NPV (c) NPV cannot judge the project (d) Information is not enough Continue >> 6. Criteria that measures how quickly project will return its original investment is? (a) Accounting rate of return (b) Payback period (c) Internal rate of return (d) Benefit cost ratio Continue >> 7. Capital budgeting is the process of identifying analyzing and selecting investments project whose returns are expected to extend beyond ____________________? (a) 3 years (b) 2 years (c) 1 year (d) Months Continue >> 8. Indifference criteria when BCR (Benefit Cost Ratio)? (a) BCR > 1 (b) BCR = 1 (c) BCR < 1 (d) None of above Continue >> 9. Criterion for IRR (Internal Rate of Return)? (a) Accept IRR > Cost of capital (b) Accept IRR < Cost of capital (c) Accept IRR = Cost of capital (d) none of the above Continue >> 10. Process that involves decision making with respect to investment in fixed asset? (a) Valuation (b) Breakeven analysis (c) Capital budgeting (d) Material management decision Continue >> PLAY AGAIN !