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CA Final Capital Budgeting — practice questions — page 3

Explore 83 free Capital Budgeting questions in CA Final Strategicfinancialmanagement. Open each question or exercise to read its content, reference answers and available explanation.

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Capital Budgeting questions and exercises with answers

Showing questions 61–83 of 83.

The equity IRR measures returns to shareholdersRead the answer and worked solution →IRR calculation excludes external factors such as theRead the answer and worked solution →In savings and loans, IRR is also called theRead the answer and worked solution →A project with larger outlay but lower IRR has a higher NPV. With no capital limit, which is chosen?Read the answer and worked solution →IRR should not be used to compare projects of differentRead the answer and worked solution →A project costs Rs 1,00,000 and returns Rs 1,10,000 a year later. At 10% cost of capital its NPV isRead the answer and worked solution →A project costs Rs 5,000 and returns Rs 3,000 at the end of each of two years. At 10% its NPV is aboutRead the answer and worked solution →A project costs Rs 20,000 and gives Rs 8,000 yearly for 3 years. At 10% (annuity factor 2.4869) its NPV is aboutRead the answer and worked solution →An outlay of Rs 2,000 returns Rs 2,500 after one year. The IRR isRead the answer and worked solution →Outlay Rs 1,000 now; inflows Rs 550 (year 1) and Rs 605 (year 2). With 10% reinvestment, MIRR isRead the answer and worked solution →Rs 10,000 today repays Rs 13,750 in a year. Its IRR isRead the answer and worked solution →Projects: Rs 1,00,000 giving Rs 1,32,000, and Rs 10,000 giving Rs 13,750, both in a year at 10%. Higher NPV?Read the answer and worked solution →A machine costs Rs 10,000, lasts 3 years, no running costs. At 10% (factor 2.4869) the EAC is aboutRead the answer and worked solution →PV of costs of an asset over 5 years is Rs 37,908. At 10% (factor 3.7908) its EAC isRead the answer and worked solution →For 5-year and 6-year projects, the chain method compares repeated cycles over how many years?Read the answer and worked solution →Risk-adjusted NPV multiplies each cash flow by theRead the answer and worked solution →rNPV is the standard valuation method in which industry?Read the answer and worked solution →A Rs 50,000 cash flow in a year has 60% probability; discount rate 10%. Risk-adjusted PV is aboutRead the answer and worked solution →Adjusted present value equals equity-financed NPV plus theRead the answer and worked solution →Sensitivity analysis studies how uncertainty in a model's output relates to itsRead the answer and worked solution →NPV accuracy relies heavily on the chosenRead the answer and worked solution →A benefit of NPV for a firm with several projects is that NPVs areRead the answer and worked solution →R&D managers can use real options valuation to handle uncertainty whenRead the answer and worked solution →

Worked practice questions

The equity IRR measures returns to shareholders

  1. before any debt is raised
  2. after debt has been serviced
  3. ignoring all cash flows
  4. only at the project end
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Correct answer: B. after debt has been serviced

Equity IRR looks at cash flows left for owners once lenders are paid, unlike the project IRR.

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IRR calculation excludes external factors such as the

  1. initial outlay
  2. timing of inflows
  3. project cash flows
  4. cost of capital
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Correct answer: D. cost of capital

IRR is derived only from the project's own cash flows; the cost of capital is used only afterwards for comparison.

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In savings and loans, IRR is also called the

  1. nominal rate set
  2. effective interest rate
  3. coupon rate offered
  4. discount yield rate
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Correct answer: B. effective interest rate

The IRR of deposit or loan flows is the effective annual rate actually earned or paid.

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