Capital Budgeting – Basic Question

1. Capital Budgeting is a part of:
   (a) Investment Decision,
   (b) Working Capital Management,
   (c) Marketing Management
   (d) Capital Structure.
2. Capital Budgeting deals with:
   (a) Long-term Decisions,
   (b) Short-term Decisions,
   (c) Both (a) and (b),
   (d) Neither (a) nor (b).
3. Which of the following is not used in Capital Budgeting?
   (a) Time Value of Money,
   (b) Sensitivity Analysis,
   (c) Net Assets Method,
   (d) Cash Flows.
4. Capital Budgeting Decisions are:
   (a) Reversible,
   (b) Irreversible.
   (c) Unimportant,
   (d) All of the above.
5. Which of the following is not incorporated in Capital Budgeting?
   (a) Tax-Effect,
   (b) Time Value of Money,
   (c) Required Rate of Return,
   (d) Rate of Cash Discount.
6. Which of the following is not a capital budgeting decision;
   (a) Expansion Programme,
   (b) Merger,
   (c) Replacement of an Asset,
   (d) Inventory Level.
7. A sound Capital Budgeting technique is based on:
   (a) Cash Flows,
   (b) Accounting Profit,
   (c) Interest Rate on Borrowings,
   (d) Last Dividend Paid.
8. Which of the following is not a relevant cost in Capital Budgeting?
   (a) Sunk Cost,
   (b) Opportunity Cost,
   (c) Allocated Overheads,
   (d) Both (a) and (c) above.
9. Capital Budgeting Decisions are based on:
   (a) Incremental Profit,
   (b) Incremental Cash Flows,
   (c) Incremental Assets,
   (d) Incremental Capital.
10. Which of the following does not effect cash flows from a proposal:
    (a) Salvage Value,
    (b) Depreciation Amount,
    (c) Tax Rate Change,
    (d) Method of Project Financing.
11. Cash Inflows from a project include:
    (a) Tax Shield of Depreciation,
    (b) After-tax Operating Profits,
    (c) Raising of Funds,
    (d) Both (a) and (b).
12. Which of the following is not true with reference to capital budgeting ?
    (a) Capital budgeting is related to asset replacement decisions,
    (b) Cost of capital is equal to minimum required rate of return,
    (c) Existing investment in a project is not treated as sunk cost,
    (d) Timing of cash flows is relevant.
13. Which of the following is not followed in capital budgeting?
    (a) Cash flows Principle,
    (b) Interest Exclusion Principle,
    (c) Accrual Principle,
    (d) Post-tax Principle.
14. Depreciation is incorporated in cash flows because it:
    (a) Is unavoidable cost,
    (b) Is a cash flow,
    (c) Reduces Tax liability,
    (d) Involves an outflow.
15. Which of the following is not true for capital budgeting?
    (a) Sunk costs are ignored,
    (b) Opportunity costs are excluded,
    (c) Incremented cash flows are considered,
    (d) Relevant cash flows are considered.
16. Which of the following is not applied in capital budgeting ?
    (a) Cash flows be calculated in incremental terms,
    (b) All costs and benefits are measured on cash basis,
    (c) All accrued costs and revenues be incorporated,
    (d) All benefits are measured on after-tax basis.
17. Evaluation of Capital Budgeting Proposals is based on Cash Flows because:
    (a) Cash Flows are easy to calculate,
    (b) Cash Flows are suggested by SEBI,
    (c) Cash is more important than profit,
    (d) None of the above.
18. Which of the following is not included in incremental cash flows ?
    (a) Opportunity Costs,
    (b) Sunk Costs,
    (c) Change in Working Capital,
    (d) Inflation effect.
19. A proposal is not a Capital Budgeting proposal if it:
    (a) Is related to Fixed Assets,
    (b) Brings long-term benefits,
    (c) Brings short-term benefits only,
    (d) Has very large investment.
20. In Capital Budgeting, Sunk cost is excluded because it is:
    (a) Of small amount,
    (b) Not incremental,
    (c) Not reversible,
    (d) All of the above.