Capital Budgeting – Mix Question

1. Which of the following statements is correct?
   (a) If PI < 1, its NPV is less than zero.
   (b) If PI = 0, its NPV is greater than zero
   (c) If PI > 1, its NPV will be positive
   (d) PI of a project may be greater than, less than or equal to one
   Code:
   (1) (a) and (b) only
   (2) (b) and (c) only
   (3) (a) and (c) only
   (4) (a), (c) and (d) only
2. Which of the following variables is known in Internal Rate of Return?
   (a) Initial Cash Flows
   (b) Subsequent Cash Flows
   (c) Terminal Inflows
   (d) Life of the Project
   Code:
   (1) (a) and (b) only
   (2) (b) and (c) only
   (3) (a) , (b), (c) only
   (4) (a), (b), (c) and (d) all
3. Reinvestment Rate Assumption in implied in:
   (a) Net Present Value
   (b) Internal Rate of Return
   (c) Pay Back Period
   (d) Profitable Index
   Code:
   (1) (a) and (b) only
   (2) (b) and (c) only
   (3) (a) , (b), (c) only
   (4) (a), (b), (c) and (d) all
4. Net Present Value Technique is based on:
   (a) All cash Flows
   (b) Only higher Cash Flows
   (c) Earlier Cash Flows
   (d) Selected Cash Flows
5. Match the items of List – I with the items of List – II.
   List – I
   (a) Pay Back
   (b) NPV
   (c) ARR
   (d) Tax Shield
   List – II
   (i) Depreciation
   (ii) Earlier Cash Flows
   (iii) Accounting Profit
   (iv) All cash Flows
   Codes:
   (a) (b) (c) (d)
   (1) (iii) (ii) (iv) (i)
   (2) (ii) (iv) (iii) (i)
   (3) (iv) (i) (ii) (iii)
   (4) (i) (ii) (iii) (iv)
6. Which combination of the following two statements (A) and (R) is correct?
   Assertion (A): Payback method considers cash flow only up-to the payback period
   Reason (R): Payback method is crude method of Capital budgeting
   Codes:
   (a) (A) is right, but (R) is wrong
   (b) Both (A) and (R) are correct
   (c) (A) is wrong, but (R) is correct
   (d) Both (A) and (R) are wrong
7. Which combination of the following two statements (A) and (R) is correct?
   Assertion (A): Payback method considers cash flow only up-to the payback period
   Reason (R): The focus is to recover initial cost of the project
   Codes:
   (a) (A) is right, but (R) is wrong
   (b) Both (A) and (R) are correct
   (c) (A) is wrong, but (R) is correct
   (d) Both (A) and (R) are wrong
8. Statement – I : In Case of IRR method Varying opportunities cost is consider
   Statement – II : Sensitivity Analysis helps in estimating more than one cash inflow from a project
   Code:
   (1) Statement -1 is correct, but statement – II is wrong
   (2) Statement – I is wrong, but statement – II is correct
   (3) Statement – I and statement – II both are correct
   (4) Statement – I and statement – II both are wrong