basics of capital budgeting evaluating cash flows

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In capital budgeting, positive net present value results in

In capital budgeting, positive net present value results in
  • A. negative economic value added
  • B. positive economic value added
  • C. zero economic value added
  • D. percent economic value added
  • Correct Answer: Option B

An initial cost is $6000 and probability index is 5.6 then present value of cash flows will be

An initial cost is $6000 and probability index is 5.6 then present value of cash flows will be
  • A. $25,000
  • B. $28,000
  • C. $33,600
  • D. $30,000
  • Correct Answer: Option C

A type of project whose cash flows would not depend on each other is classified as

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
  • Correct Answer: Option B

In independent projects evaluation, results of internal rate of return and net present value lead to

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
  • Correct Answer: Option C

* set of projects or set of investments usually maximize firm value is classified as

* set of projects or set of investments usually maximize firm value is classified as
  • A. optimal capital budget
  • B. minimum capital budget
  • C. maximum capital budget
  • D. greater capital budget
  • Correct Answer: Option A

In capital budgeting, a negative net present value results in

In capital budgeting, a negative net present value results in
  • A. zero economic value added
  • B. percent economic value added
  • C. negative economic value added
  • D. positive economic value added
  • Correct Answer: Option C

An uncovered cost at start of year is $300, full cash flow during recovery year is $650 and prior years to full recovery is 4 then payback would be

An uncovered cost at start of year is $300, full cash flow during recovery year is $650 and prior years to full recovery is 4 then payback would be
  • A. 3.46 years
  • B. 2.46 years
  • C. 5.46 years
  • D. 4.46 years
  • Correct Answer: Option D

In calculation of internal rate of return, an assumption states that received cash flow from project must

In calculation of internal rate of return, an assumption states that received cash flow from project must
  • A. be reinvested
  • B. not be reinvested
  • C. be earned
  • D. not be earned
  • Correct Answer: Option A

A project which have one series of cash inflows and results in one or more cash outflows is classified as

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 cash flow
  • D. normal costs
  • Correct Answer: Option B

Situation in which one project is accepted while rejecting another project in comparison is classified as

Situation in which one project is accepted while rejecting another project in comparison is classified as
  • A. present value consent
  • B. mutually exclusive
  • C. mutual project
  • D. mutual consent
  • Correct Answer: Option B

In capital budgeting, two projects who have cost of capital as 12% is classified as

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
  • Correct Answer: Option A

An uncovered cost at start of year is $200, full cash flow during recovery year is $400 and prior years to full recovery is 3 then payback would be

An uncovered cost at start of year is $200, full cash flow during recovery year is $400 and prior years to full recovery is 3 then payback would be
  • A. 5 years
  • B. 3.5 years
  • C. 4 years
  • D. 4.5 years
  • Correct Answer: Option B

An increase in marginal cost of capital and capital rationing are two arising complications of

An increase in marginal cost of capital and capital rationing are two arising complications of
  • A. maximum capital budget
  • B. greater capital budget
  • C. optimal capital budget
  • D. minimum capital budget
  • Correct Answer: Option C

Project whose cash flows are less than capital invested for required rate of return then net present value will be

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
  • Correct Answer: Option A

In capital budgeting, an internal rate of return of project is classified as its

In capital budgeting, an internal rate of return of project is classified as its
  • A. external rate of return
  • B. internal rate of return
  • C. positive rate of return
  • D. negative rate of return
  • Correct Answer: Option B

A modified internal rate of return is considered as present value of costs and is equal to

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
  • Correct Answer: Option C

In alternative investments, constant cash flow stream is equal to initial cash flow stream in approach which is classified as

In alternative investments, constant cash flow stream is equal to initial cash flow stream in approach which is classified as
  • A. greater annual annuity method
  • B. equivalent annual annuity
  • C. lesser annual annuity method
  • D. zero annual annuity method
  • Correct Answer: Option B

A discount rate which equals to present value of TV to project cost present value is classified as

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. existed internal rate of return
  • D. relative rate of return
  • Correct Answer: Option B

Other factors held constant, greater project liquidity is because of

Other factors held constant, greater project liquidity is because of
  • A. less project return
  • B. greater project return
  • C. shorter payback period
  • D. greater payback period
  • Correct Answer: Option C

Initial cost is $5000 and probability index is 3.2 then present value of cash flows is

Initial cost is $5000 and probability index is 3.2 then present value of cash flows is
  • A. $8,200
  • B. $16,000
  • C. 0.0064
  • D. $1,562.50
  • Correct Answer: Option B
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