1.Which of the following is the first step in capital budgeting process?
A.Final approval.
B.Screening the proposal.
C.Implementing proposal .
D. Identification of investment proposal.
ANSWER: D
2.The term _________________ refers to the period in which the project will generate the
necessary cash flow to recoup the initial investment.
A. Internal return.
B. Payback period.
C. Discounting return.
D. Accounting return.
ANSWER: B
3.A mutually exclusive project can be selected as per payback period when it is _________.
A. Less.
B. More.
C. More than 5 years.
D. None of the above.
ANSWER: A
4.The project can be selected if its profitability index is more than ______.
A.1%.
B.3%.
C.5%.
D.10%.
ANSWER: A
5.Initial outlay 50,000, life of the asset 5 yrs, estimated annual cash flow 12,500, IRR =
____________.
A.5%
B.6%
C.8%
D.10%
ANSWER: C
6.A project costs Rs, 1,00,000 annual cash flow of Rs. 20,000 for 8 years. Its payback
period is
______________.
A.1 year.
B.2 years.
C.3 years.
D.5 years.
ANSWER: D
, 7.X ltd issues rupees 50,000 8% debentures at a discount of 5%. The tax rate is 50% the cost
of debt capital is __________.
A.4%.
B.4.2%.
C.4.6%.
D.5%.
ANSWER: B
8.Cost of the project is 6,00,000 , life of the project is 5 years annual cash flow is 2,00,000
cut off rate is 10% the discounted pay back period is ______________.
A.2 yrs.
B.2 yrs 6 months.
C.3 yrs.
D.3 yrs 9 months.
ANSWER: D
9.To increase the given present value, the discounted rate should be adjusted
A. Upward.
B. Downward.
C. No change.
D. Constant.
ANSWER: B
10.Which form of market efficiency states that current security prices fully reflect all
information, both public and private?
A.Weak.
B.Semi-strong.
C.Strong.
D.Highly strong.
ANSWER: C
11.
Which form of market efficiency states that current prices fully reflect the historical sequence
of prices?
A.Weak.
B.Semi-strong.
C.Strong.
D.Highly strong.
ANSWER: A
12.________________ is one that maximizes value of business, minimizes overall cost of
capital, that is flexible, simple and futuristic, that ensures adequate control on affairs of
business by the owners and so on.
A.Minimal capital structure.
B.Moderate capital structure.
C.Optimal capital structure.
D.Deficit capital structure.
ANSWER: C
13.___________________ refers to make-up of a firm's capitalization.
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