T.Y B.COM
SEMESTER - 5
FINANCIAL MANAGEMENT
(FM)
MCQs: CAPITAL BUDGETING
A. present value consent
B. mutually exclusive
C. mutual project
D. mutual consent
2. First step in calculation of net present value is to find out
(a) present value of equity
(b) future value of equity
(c) present value cash flow
(d) future value of cash flow
3. If two independent projects having hurdle rate then both projects should
A. be accepted
B. not be accepted
C. have capital acceptance
D. have return rate acceptance
4. Present value of future cash flows is divided by an initial cost of project to calculate
A. negative index
B. exchange index
C. project index
D. profitability index
5. In capital budgeting, two projects who have cost of capital as 12% is classified as
A. hurdle rate
B. capital rate
C. return rate
D. budgeting rate
6. Cash flow which starts negative then positive than again positive cash flow is classified as
A. normal costs
B. non-normal costs
C. non-normal cash flow
D. normal cash flow
7. In estimating value of cash flows, compounded future value is classified as its
A. terminal value
B. existed value
C. quit value
D. relative value
8. In capital budgeting, a technique which is based upon discounted cash flow is classified as
A. net present value method
B. net future value method
C. net equity budgeting method
D. net capital budgeting method
9. An initial cost is Rs. 6000 and probability index is 5.6 then present value of cash flows will be
A. Rs. 25,000
B. Rs. 28,000
C. Rs. 33,600
D. Rs. 30,000
10. Cash inflows are revenues of project and are represented by
A. hurdle number
B. relative number
C. negative numbers
D. positive numbers
11. Sum of discounted cash flows is best defined as
A. technical equity
B. project net present value
C. equity net present value
D. equity future value
12. Project whose cash flows are less than capital invested for required rate of return then net present value will be
A. negative
B. zero
C. positive
D. independent
13. A type of project whose cash flows would not depend on each other is classified as
A. project net gain
B. independent projects
C. dependent projects
D. net value projects
14. Net present value, profitability index, payback and discounted payback are methods to
A. evaluate cash flow
B. evaluate projects
C. evaluate budgeting
D. evaluate equity
15. A project whose cash flows are more than capital invested for rate of return then net present value will be
A. positive
B. independent
C. negative
D. zero
16. In mutually exclusive projects, project which is selected for comparison with others must have
A. higher net present value
B. lower net present value
C. zero net present value
D. all of above
17. In capital budgeting, positive net present value results in
A. negative economic value added
B. zero economic value added
C. positive economic value added
D. percent economic value added
18. In capital budgeting, an internal rate of return of project is classified as its
A. external rate of return
B. positive rate of return
C. internal rate of return
D. negative rate of return
19. In independent projects evaluation, results of internal rate of return and net present value lead to
A. cash flow decision
B. cost decision
C. same decisions
D. different decisions
20. In internal rate of returns, discount rate which forces net present values to become zero is classified as
A. positive rate of return
B. external rate of return
C. negative rate of return
D. internal rate of return
21. projects which are mutually exclusive but different on scale of production or time of completion then the
A. external return method
B. net future value method
C. net present value of method
D. internal return method
22. A modified internal rate of return is considered as present value of costs and is equal to
A. PV of hurdle rate
B. FV of hurdle rate
C. PV of terminal value
D. FV of terminal value
23. set of projects or set of investments usually maximize firm value is classified as
A. optimal capital budget
B. minimum capital budget
C. greater capital budget
D. maximum capital budget
24. Modified rate of return and modified internal rate of return with exceed cost of capital if net present value is
A. positive
B. negative
C. zero
D. one
25. Payback period in which an expected cash flows are discounted with help of project cost of capital is classified as
A. discounted payback period
B. discounted cash flows
C. discounted project cost
D. discounted rate of return
26. In capital budgeting, a negative net present value results in
A. zero economic value added
B. negative economic value added
C. percent economic value added
D. positive economic value added
27. Number of years forecasted to recover an original investment is classified as
A. payback period
B. forecasted period
C. original period
D. investment period
28. A discount rate which equals to present value of TV to project cost present value is classified as
A. negative internal rate of return
B. modified internal rate of return
C. relative rate of return
D. existed internal rate of return
29. Project whose cash flows are sufficient to repay capital invested for rate of return then net present value will be
A. negative
B. independent
C. positive
D. zero
30. Present value of future cash flows is Rs. 2000 and an initial cost is Rs.1100 then profitability index will be
A. 55%
B. 1.82
C. 0.55
D. 1.82%
31. Profitability index in capital budgeting is used for
A. negative projects
B. relative projects
C. evaluate projects
D. earned projects
32. In calculation of internal rate of retum, an assumption states that received cash flow from project must
A. be reinvested
B. not be reinvested
C. be earned
D. not be earned
33. An internal rate of return in capital budgeting can be modified to make it representative of
A. relative outflow
B. relative inflow
C. relative cost
D. relative profitability
34. Situation in which firm limits expenditures on capital is classified as
A. optimal rationing
B. capital rationing
C. marginal rationing
D. transaction rationing
35. Initial cost is Rs. 5000 and probability index is 3.2 then present value of cash flows is
A. Rs. 8,200
B. Rs. 16,000
C. Rs. 0.0064
D. Rs. 1,562.50
36. A project which have one series of cash inflows and results in one or more cash outflows is classified as
A. abnormal costs
B. normal cash flows
C. abnormal cosh flow
D. normal costs
37. Cash outflows are costs of project and are represented by
A. negative numbers
B. relative numbers
C. positive numbers
D. hurdle numbers
38. If net present value is positive then profitability index will be
A. greater than two
B. equal to
C. less than one
D. greater than one
39. Cash flows occurring with more than one change in sign of cash flow are classified as
A. non-normal cash flow
B. normal cash flow
C. normal costs
D. non-normal costs
40. Life that maximizes net present value of an asset is classified as
A. minimum life
B. present value life
C. economic life
D. transaction life
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