Free Capital Budgeting Questions and Answers

Question 1

One could say that a company's future success depends on its capital expenditures.

Accepted Answer

TRUE

Answer

FALSE

Question 2

Results of internal rate of return and net present value in the evaluation of independent projects result in

Accepted Answer

same decision

Answer

cost decision

Answer

cash flow decision

Answer

different decision

Question 3

A project's profitability index (PI) of.92 indicates that___.

Accepted Answer

The projects returns 92 cents in present value for each current dollar invested(cost)

Answer

The projects NPV is greater than zero

Answer

The projects costs (cash outlay)are(is)less than the present value of the projects benefits

Answer

The projects NPV is greater than 1

Question 4

As long as the rate of return on the firm's least profitable investment project is lower than the marginal cost of capital, the firm should continue to increase its level of capital investment.

Accepted Answer

FALSE

Answer

TRUE

Question 5

The projected net present value and capital rates are shown on a graph that is referred to as

Accepted Answer

Net present value profile

Answer

Net less profile

Answer

Net gain profile

Answer

Net future value profile

Question 6

Cashflows for the terminal year include the salvage value of the project's assets.

Accepted Answer

TRUE

Answer

FALSE

Question 7

The net present value of projects whose cash flows are adequate to cover the cost of capital invested at the expected rate of return is

Accepted Answer

zero

Answer

independent

Answer

positive

Answer

negative

Question 8

The proposal with the early cash flows will be more attractive for two conventional contracts with identical cumulative cash flows if the discount rate is higher.

Accepted Answer

TRUE

Answer

FALSE

Question 9

Process used by project managers to add value for the company is categorized as .

Accepted Answer

Capital budgeting

Answer

Book value budgeting

Answer

Equity budgeting

Answer

Cost budgeting

Question 10

The single point where the NPV profiles of two projects that are mutually exclusive intersect represents the discount rate as .

Accepted Answer

Fishers rate of intersection

Answer

Gordons rate of return

Answer

The minimum acceptable rate of return for each project

Answer

The rate at which the projects have identical profitability indexes