## MCQ on Capital Budgeting | Financial and Strategic Management MCQs for CS Executive and Other Competitive Exams

MCQ on Capital Budgeting: Check the below Financial and Strategic Management MCQ on Capital Budgeting with Answers Pdf free download. Financial and Strategic Management MCQ on Capital Budgeting Questions for Financial and Strategic Management with Answers were prepared based on the latest exam pattern. We have provided Financial and Strategic Management MCQ on Capital Budgeting with Answers to help students understand the concept very well. Students should practice CS Executive MCQ on Capital Budgeting Questions with Answers based on the latest syllabus.

## MCQ on Capital Budgeting

1. Which of the following represents the amount of time that it takes for a capital budgeting project to recover its initial cost?
(A) Maturity period
(B) Payback period
(C) Redemption period
(D) Investment period

(B) Payback period

2. ______ is the discount rate that should be used in capital budgeting.
(A) Cost of capital (Ko)
(B) Risk-free rate (Rf)
(D) Beta rate (β)

(A) Cost of capital (Ko)

3. Ranking projects according to their ability to repay quickly may be useful to firms:
(A) When experiencing liquidity constraints.
(B) When careful control over cash is required.
(C) To indicate the prospective investors specifying when their funds are likely to be repaid.
(D) All of the above

(D) All of the above

4. Incorporating flotation costs into the analysis of a project will:
(A) Have no effect on the present value of the project
(B) Increase the NPV of the project
(C) Increase the project’s rate of return
(D) Increase the initial cash outflow of the project

(D) Increase the initial cash outflow of the project

5. Internal Rate of Return (IRR) criterion for project acceptance, under theoretically infinite funds, is: Accept all projects which have –
(A) IRR equal to the cost of capital
(B) IRR greater than the cost of capital
(C) IRR less than the cost of capital
(D) None of the above

(B) IRR greater than the cost of capital

6. Capital budgeting decisions are analyzed with help of a weighted average and for this purpose –
(A) Component cost is used
(B) Common stock value is used
(C) Cost of capital is used
(D) Asset valuation is used

(C) Cost of capital is used

7. A project whose acceptance does not prevent or require the acceptance of one or more alternative projects is referred to as
(A) Mutually exclusive project
(B) Independent project
(C) Dependent project
(D) Contingent project

(B) Independent project

8. The decision to accept or reject a capital budgeting project depends on –
(A) An analysis of the cash flows generated by the project
(B) Cost of capital that is invested in business/project.
(C) Both (A) and (B)
(D) Neither (A) nor (B)

(C) Both (A) and (B)

9. The concept of joint probability is used in the case of:
(A) Independent cash flows
(B) Uncertain cash flows
(C) Dependent cash flows
(D) Certain cash flows

(C) Dependent cash flows

10. Capital budgeting is the process ______.
(A) This helps to make the master bud-get of the organization
(B) By which the firm decides how much capital to invest in business
(C) By which the firm decides which long-term investments to make
(D) Undertaken to analyze how to make available various finance to the business

(C) By which the firm decides which long-term investments to make

11. The shorter the payback period –
(A) The riskier is the project
(B) The less risky is the project
(C) Less will the NPV of the project
(D) More will the NPV of the project

(B) The less risky is the project

12. The decision-tree approach is used in:
(A) Proposals with longer life
(B) Sequential decisions
(C) Independent Cash flows
(D) Accept-Reject Proposal

(B) Sequential decisions

13. The situation in which the company replaces existing assets with new assets is classified as
(A) Replacement projects
(B) New projects
(C) Existing projects
(D) Internal projects

(A) Replacement projects

14. A Profitability Index (PI) of 0.92 for a project means that
(A) The project’s costs (cash outlay) are (is) less than the present value of the project’s benefits
(B) The project’s NPV is greater than zero
(C) The project’s NPV is greater than 1
(D) The project returns 92 cents in present value for each rupee invested

(D) The project returns 92 cents in present value for each rupee invested

15. The values of the future net incomes discounted by the cost of capital are called –
(A) Average capital cost
(B) Discounted capital cost
(C) Net capital cost
(D) Net present values

(D) Net present values

16. With limited finance and a number of project proposals at hand, select that package of projects which has:
(A) The maximum net present value
(B) Internal rate of return is greater than the cost of capital
(C) Profitability index is greater them unity
(D) Any of the above

(A) The maximum net present value

17. When choosing among mutually exclusive projects, the project with –
(A) Longest payback is preferred
(B) Higher NPV get selected
(C) Quickest payback is preferred
(D) Lower cost of capital will be selected

(C) Quickest payback is preferred

18. Where capital availability is unlimited and the projects are riot mutually exclusive, for the same cost of capital, following criterion is used?
(A) Net present value
(B) Internal Rate of Return
(C) Profitability Index
(D) Any of the above

(D) Any of the above

19. A project is accepted when:
(A) Net present value is greater than zero
(B) Internal Rate of Return will be greater than the cost of capital
(C) Profitability index will be greater than unity
(D) Any of the above

(D) Any of the above

20. _____ is a project whose cash flows are not affected by the accept/reject decision for other projects.
(A) Mutually exclusive project
(B) Independent project
(C) Low-cost project
(D) Risk-free project

(B) Independent project

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