CBS CBS Capital Budgeting & Asset Management

Question 1

Which capital budgeting method calculates the time required to recover the initial investment from project cash flows?

Accepted Answer

Payback Period

Answer

Net Present Value (NPV)

Answer

Internal Rate of Return (IRR)

Answer

Profitability Index

Question 2

A project has an NPV of $0. This means the project's return is exactly equal to the:

Accepted Answer

Required rate of return (discount rate)

Answer

Risk-free rate

Answer

Inflation rate

Answer

Prime lending rate

Question 3

Under the Modified Accelerated Cost Recovery System (MACRS), which depreciation method is used in the early years of an asset's life?

Accepted Answer

Double-declining balance

Answer

Straight-line

Answer

Sum-of-the-years-digits

Answer

Units of production

Question 4

The hurdle rate used in capital budgeting is most commonly defined as the firm's:

Accepted Answer

Weighted Average Cost of Capital (WACC)

Answer

Debt-to-equity ratio

Answer

Gross profit margin

Answer

Quick ratio

Question 5

Which of the following best describes a sunk cost in capital budgeting analysis?

Accepted Answer

A cost already incurred that cannot be recovered regardless of the decision

Answer

A future cost that is contingent on project approval

Answer

An opportunity cost associated with the chosen project

Answer

A variable cost that changes with production volume

Question 6

A capital lease differs from an operating lease primarily because a capital lease:

Accepted Answer

Transfers substantially all risks and rewards of ownership to the lessee

Answer

Requires no down payment

Answer

Is always shorter than 12 months

Answer

Does not appear on the balance sheet