Capital Budgeting MCQs 2026

Capital budgeting analysis 35 for warehouse automation project must correctly treat sunk R&D costs treatment by

1. Aexcluding prior R&D as irrelevant to accept-reject decision✓
2. Bcapitalizing all historical costs into initial outlay✓
3. Cusing accounting net income without adjustment✓
4. Dignoring terminal year cash flows entirely✓

Net Present Value (NPV) criterion accepts a standalone project when

1. AIRR equals zero only✓
2. Bpayback exceeds five years✓
3. CNPV is greater than zero✓
4. Daccounting profit is negative✓

Internal Rate of Return (IRR) is the discount rate that makes

1. Apayback period equal to project life✓
2. Baccounting ROI maximum✓
3. CPI equal to two✓
4. DNPV equal to zero✓

Profitability Index equals

1. Apresent value of inflows divided by initial investment✓
2. BNPV divided by salvage value✓
3. CIRR times payback✓
4. Dbook profit divided by sales✓

Payback period ignores

1. Ainitial investment amount✓
2. Boperating cash inflows✓
3. Cproject life entirely✓
4. Dcash flows beyond the payback cutoff and time value of money✓

Discounted payback period improves on simple payback by

1. Aignoring terminal salvage✓
2. Busing accounting income✓
3. Cdiscounting cash flows before accumulation✓
4. Dexcluding initial outlay✓

Mutually exclusive projects should be ranked by

1. AIRR always without exception✓
2. BNPV when scales differ✓
3. Cpayback only✓
4. Daccounting profit margin✓

Capital rationing exists when

1. Afunds available for investment are limited✓
2. Ball positive NPV projects can be funded✓
3. CWACC is zero✓
4. Ddepreciation is accelerated✓

Sunk costs in capital budgeting are

1. Aalways subtracted from NPV✓
2. Birrelevant to project accept-reject decisions✓
3. Cthe primary cash flow input✓
4. Dequal to opportunity costs✓

Opportunity cost of using owned land for a project is

1. Athe rent or value foregone from best alternative use✓
2. Bzero because land is already owned✓
3. Chistorical purchase price only✓
4. Dannual depreciation only✓

Terminal year cash flow in NPV analysis typically includes

1. Aonly depreciation tax shield✓
2. Boperating cash flow plus after-tax salvage minus recovery adjustments✓
3. Conly working capital build✓
4. Donly interest expense✓

Replacement decision analysis uses

1. Aincremental cash flows of new versus old asset✓
2. Bfull book value of old asset as sunk benefit✓
3. Conly purchase price of new machine✓
4. Dhistorical cost of both assets✓

Scenario analysis in capital budgeting varies

1. Akey inputs like sales growth and cost assumptions✓
2. Bonly the color of equipment✓
3. Conly audit opinions✓
4. Donly dividend dates✓

Real options in capital budgeting include

1. Amandatory annual audit✓
2. Bfixed depreciation schedule only✓
3. Cstatutory tax filing✓
4. Doption to expand, abandon, or delay a project✓

Equivalent Annual Annuity approach helps compare projects with

1. Aidentical cash flows only✓
2. Bzero salvage always✓
3. Cunequal lives✓
4. Dnegative NPV only✓

Inflation in cash flow forecasting requires

1. Amixing real cash flows with nominal discount rate✓
2. Bignoring wage growth✓
3. Cconsistent nominal or real rates and cash flows✓
4. Dusing book values only✓

NPV exercise 20: initial cost Rs 333,000, annual inflow Rs 64,200 for 7 years, discount rate 12%. NPV is approximately

1. ARs 292,993✓
2. BRs -40,007✓
3. CRs -333,000✓
4. DRs -80,007✓

Capital budgeting analysis 21 for ERP system project must correctly treat depreciation tax shield by

1. Acapitalizing all historical costs into initial outlay✓
2. Busing accounting net income without adjustment✓
3. Cignoring terminal year cash flows entirely✓
4. Dadding depreciation tax shield to operating cash flows✓

NPV exercise 22: initial cost Rs 332,000, annual inflow Rs 61,800 for 4 years, discount rate 14%. NPV is approximately

1. ARs 180,067✓
2. BRs -151,933✓
3. CRs -332,000✓
4. DRs -191,933✓

Capital budgeting analysis 23 for waste treatment facility project must correctly treat depreciation tax shield by

1. Acapitalizing all historical costs into initial outlay✓
2. Busing accounting net income without adjustment✓
3. Cadding depreciation tax shield to operating cash flows✓
4. Dignoring terminal year cash flows entirely✓

NPV exercise 24: initial cost Rs 366,000, annual inflow Rs 69,400 for 6 years, discount rate 16%. NPV is approximately

1. ARs 255,721✓
2. BRs -110,279✓
3. CRs -366,000✓
4. DRs -150,279✓

Capital budgeting analysis 25 for solar power plant project must correctly treat opportunity cost of land by

1. Acapitalizing all historical costs into initial outlay✓
2. Busing accounting net income without adjustment✓
3. Ccharging foregone rent or best alternative use value✓
4. Dignoring terminal year cash flows entirely✓

NPV exercise 26: initial cost Rs 400,000, annual inflow Rs 67,000 for 3 years, discount rate 10%. NPV is approximately

1. ARs 166,619✓
2. BRs -233,381✓
3. CRs -400,000✓
4. DRs -273,381✓

Capital budgeting analysis 27 for warehouse automation project must correctly treat opportunity cost of land by

1. Acharging foregone rent or best alternative use value✓
2. Bcapitalizing all historical costs into initial outlay✓
3. Cusing accounting net income without adjustment✓
4. Dignoring terminal year cash flows entirely✓

NPV exercise 28: initial cost Rs 434,000, annual inflow Rs 74,600 for 5 years, discount rate 12%. NPV is approximately

1. ARs 268,916✓
2. BRs -165,084✓
3. CRs -434,000✓
4. DRs -205,084✓

Capital budgeting analysis 29 for ERP system project must correctly treat opportunity cost of land by

1. Acapitalizing all historical costs into initial outlay✓
2. Busing accounting net income without adjustment✓
3. Cignoring terminal year cash flows entirely✓
4. Dcharging foregone rent or best alternative use value✓

NPV exercise 30: initial cost Rs 433,000, annual inflow Rs 82,200 for 7 years, discount rate 14%. NPV is approximately

1. ARs 352,499✓
2. BRs -433,000✓
3. CRs -80,501✓
4. DRs -120,501✓

Capital budgeting analysis 31 for waste treatment facility project must correctly treat opportunity cost of land by

1. Acapitalizing all historical costs into initial outlay✓
2. Bcharging foregone rent or best alternative use value✓
3. Cusing accounting net income without adjustment✓
4. Dignoring terminal year cash flows entirely✓

NPV exercise 32: initial cost Rs 467,000, annual inflow Rs 79,800 for 4 years, discount rate 16%. NPV is approximately

1. ARs -243,705✓
2. BRs 223,295✓
3. CRs -467,000✓
4. DRs -283,705✓

Capital budgeting analysis 33 for solar power plant project must correctly treat sunk R&D costs treatment by

1. Acapitalizing all historical costs into initial outlay✓
2. Busing accounting net income without adjustment✓
3. Cexcluding prior R&D as irrelevant to accept-reject decision✓
4. Dignoring terminal year cash flows entirely✓

NPV exercise 34: initial cost Rs 501,000, annual inflow Rs 87,400 for 6 years, discount rate 10%. NPV is approximately

1. ARs 380,650✓
2. BRs -501,000✓
3. CRs -120,350✓
4. DRs -160,350✓

NPV exercise 36: initial cost Rs 500,000, annual inflow Rs 85,000 for 3 years, discount rate 12%. NPV is approximately

1. ARs 204,156✓
2. BRs -500,000✓
3. CRs -295,844✓
4. DRs -335,844✓

Capital budgeting analysis 37 for ERP system project must correctly treat sunk R&D costs treatment by

1. Acapitalizing all historical costs into initial outlay✓
2. Busing accounting net income without adjustment✓
3. Cignoring terminal year cash flows entirely✓
4. Dexcluding prior R&D as irrelevant to accept-reject decision✓

NPV exercise 38: initial cost Rs 534,000, annual inflow Rs 92,600 for 5 years, discount rate 14%. NPV is approximately

1. ARs -216,097✓
2. BRs 317,903✓
3. CRs -534,000✓
4. DRs -256,097✓

Capital budgeting analysis 39 for waste treatment facility project must correctly treat sunk R&D costs treatment by

1. Acapitalizing all historical costs into initial outlay✓
2. Busing accounting net income without adjustment✓
3. Cignoring terminal year cash flows entirely✓
4. Dexcluding prior R&D as irrelevant to accept-reject decision✓

NPV exercise 40: initial cost Rs 568,000, annual inflow Rs 100,200 for 7 years, discount rate 16%. NPV is approximately

1. ARs 404,664✓
2. BRs -568,000✓
3. CRs -163,336✓
4. DRs -203,336✓

Capital budgeting analysis 41 for solar power plant project must correctly treat inflation in cash flows by

1. Acapitalizing all historical costs into initial outlay✓
2. Busing consistent nominal cash flows and nominal discount rate✓
3. Cusing accounting net income without adjustment✓
4. Dignoring terminal year cash flows entirely✓

NPV exercise 42: initial cost Rs 602,000, annual inflow Rs 97,800 for 4 years, discount rate 10%. NPV is approximately

1. ARs -291,987✓
2. BRs 310,013✓
3. CRs -602,000✓
4. DRs -331,987✓

Capital budgeting analysis 43 for warehouse automation project must correctly treat inflation in cash flows by

1. Acapitalizing all historical costs into initial outlay✓
2. Busing consistent nominal cash flows and nominal discount rate✓
3. Cusing accounting net income without adjustment✓
4. Dignoring terminal year cash flows entirely✓

NPV exercise 44: initial cost Rs 601,000, annual inflow Rs 105,400 for 6 years, discount rate 12%. NPV is approximately

1. ARs 433,342✓
2. BRs -601,000✓
3. CRs -167,658✓
4. DRs -207,658✓

Capital budgeting analysis 45 for ERP system project must correctly treat inflation in cash flows by

1. Acapitalizing all historical costs into initial outlay✓
2. Busing accounting net income without adjustment✓
3. Cusing consistent nominal cash flows and nominal discount rate✓
4. Dignoring terminal year cash flows entirely✓

NPV exercise 46: initial cost Rs 635,000, annual inflow Rs 103,000 for 3 years, discount rate 14%. NPV is approximately

1. ARs 239,128✓
2. BRs -635,000✓
3. CRs -435,872✓
4. DRs -395,872✓

Capital budgeting analysis 47 for waste treatment facility project must correctly treat inflation in cash flows by

1. Acapitalizing all historical costs into initial outlay✓
2. Busing accounting net income without adjustment✓
3. Cusing consistent nominal cash flows and nominal discount rate✓
4. Dignoring terminal year cash flows entirely✓

NPV exercise 48: initial cost Rs 669,000, annual inflow Rs 110,600 for 5 years, discount rate 16%. NPV is approximately

1. ARs 362,137✓
2. BRs -669,000✓
3. CRs -346,863✓
4. DRs -306,863✓

Capital budgeting analysis 49 for solar power plant project must correctly treat risk-adjusted discount rate by

1. Ausing hurdle rate reflecting project-specific business risk✓
2. Bcapitalizing all historical costs into initial outlay✓
3. Cusing accounting net income without adjustment✓
4. Dignoring terminal year cash flows entirely✓

NPV exercise 50: initial cost Rs 668,000, annual inflow Rs 118,200 for 7 years, discount rate 10%. NPV is approximately

1. ARs 575,447✓
2. BRs -92,553✓
3. CRs -668,000✓
4. DRs -132,553✓

Capital budgeting analysis 51 for warehouse automation project must correctly treat risk-adjusted discount rate by

1. Acapitalizing all historical costs into initial outlay✓
2. Busing hurdle rate reflecting project-specific business risk✓
3. Cusing accounting net income without adjustment✓
4. Dignoring terminal year cash flows entirely✓

NPV exercise 52: initial cost Rs 702,000, annual inflow Rs 115,800 for 4 years, discount rate 12%. NPV is approximately

1. ARs 351,725✓
2. BRs -702,000✓
3. CRs -390,275✓
4. DRs -350,275✓

Capital budgeting analysis 53 for ERP system project must correctly treat risk-adjusted discount rate by

1. Ausing hurdle rate reflecting project-specific business risk✓
2. Bcapitalizing all historical costs into initial outlay✓
3. Cusing accounting net income without adjustment✓
4. Dignoring terminal year cash flows entirely✓

NPV exercise 54: initial cost Rs 736,000, annual inflow Rs 123,400 for 6 years, discount rate 14%. NPV is approximately

1. ARs 479,862✓
2. BRs -736,000✓
3. CRs -296,138✓
4. DRs -256,138✓

Capital budgeting analysis 55 for waste treatment facility project must correctly treat risk-adjusted discount rate by

1. Acapitalizing all historical costs into initial outlay✓
2. Busing accounting net income without adjustment✓
3. Cusing hurdle rate reflecting project-specific business risk✓
4. Dignoring terminal year cash flows entirely✓

NPV exercise 56: initial cost Rs 770,000, annual inflow Rs 121,000 for 3 years, discount rate 16%. NPV is approximately

1. ARs 271,753✓
2. BRs -770,000✓
3. CRs -498,247✓
4. DRs -538,247✓

Capital budgeting analysis 57 for solar power plant project must correctly treat mutually exclusive replacement choice by

1. Acapitalizing all historical costs into initial outlay✓
2. Bcomparing incremental cash flows of new versus continuing old equipment✓
3. Cusing accounting net income without adjustment✓
4. Dignoring terminal year cash flows entirely✓

NPV exercise 58: initial cost Rs 769,000, annual inflow Rs 128,600 for 5 years, discount rate 10%. NPV is approximately

1. ARs 487,495✓
2. BRs -769,000✓
3. CRs -321,505✓
4. DRs -281,505✓

Capital budgeting analysis 59 for warehouse automation project must correctly treat mutually exclusive replacement choice by

1. Acapitalizing all historical costs into initial outlay✓
2. Bcomparing incremental cash flows of new versus continuing old equipment✓
3. Cusing accounting net income without adjustment✓
4. Dignoring terminal year cash flows entirely✓

Capital budgeting analysis 1 for solar power plant project must correctly treat salvage value estimation by

1. Aincluding after-tax salvage in terminal year cash flow✓
2. Bcapitalizing all historical costs into initial outlay✓
3. Cusing accounting net income without adjustment✓
4. Dignoring terminal year cash flows entirely✓

NPV exercise 2: initial cost Rs 97,000, annual inflow Rs 25,800 for 4 years, discount rate 10%. NPV is approximately

1. ARs 81,783✓
2. BRs -97,000✓
3. CRs -55,217✓
4. DRs -15,217✓

Capital budgeting analysis 3 for warehouse automation project must correctly treat salvage value estimation by

1. Acapitalizing all historical costs into initial outlay✓
2. Busing accounting net income without adjustment✓
3. Cincluding after-tax salvage in terminal year cash flow✓
4. Dignoring terminal year cash flows entirely✓

NPV exercise 4: initial cost Rs 131,000, annual inflow Rs 33,400 for 6 years, discount rate 12%. NPV is approximately

1. ARs 137,321✓
2. BRs -131,000✓
3. CRs -33,679✓
4. DRs 6,321✓

Capital budgeting analysis 5 for ERP system project must correctly treat salvage value estimation by

1. Aincluding after-tax salvage in terminal year cash flow✓
2. Bcapitalizing all historical costs into initial outlay✓
3. Cusing accounting net income without adjustment✓
4. Dignoring terminal year cash flows entirely✓

NPV exercise 6: initial cost Rs 165,000, annual inflow Rs 31,000 for 3 years, discount rate 14%. NPV is approximately

1. ARs -93,029✓
2. BRs 71,971✓
3. CRs -165,000✓
4. DRs -133,029✓

Capital budgeting analysis 7 for waste treatment facility project must correctly treat salvage value estimation by

1. Acapitalizing all historical costs into initial outlay✓
2. Busing accounting net income without adjustment✓
3. Cincluding after-tax salvage in terminal year cash flow✓
4. Dignoring terminal year cash flows entirely✓

NPV exercise 8: initial cost Rs 164,000, annual inflow Rs 38,600 for 5 years, discount rate 16%. NPV is approximately

1. ARs -37,612✓
2. BRs 126,388✓
3. CRs -164,000✓
4. DRs -77,612✓

Capital budgeting analysis 9 for solar power plant project must correctly treat working capital recovery in terminal year by

1. Acapitalizing all historical costs into initial outlay✓
2. Busing accounting net income without adjustment✓
3. Cadding back net working capital release at project end✓
4. Dignoring terminal year cash flows entirely✓

NPV exercise 10: initial cost Rs 198,000, annual inflow Rs 46,200 for 7 years, discount rate 10%. NPV is approximately

1. ARs 224,921✓
2. BRs 26,921✓
3. CRs -198,000✓
4. DRs -13,079✓

Capital budgeting analysis 11 for warehouse automation project must correctly treat working capital recovery in terminal year by

1. Acapitalizing all historical costs into initial outlay✓
2. Badding back net working capital release at project end✓
3. Cusing accounting net income without adjustment✓
4. Dignoring terminal year cash flows entirely✓

NPV exercise 12: initial cost Rs 232,000, annual inflow Rs 43,800 for 4 years, discount rate 12%. NPV is approximately

1. ARs -98,964✓
2. BRs 133,036✓
3. CRs -232,000✓
4. DRs -138,964✓

Capital budgeting analysis 13 for ERP system project must correctly treat working capital recovery in terminal year by

1. Acapitalizing all historical costs into initial outlay✓
2. Busing accounting net income without adjustment✓
3. Cignoring terminal year cash flows entirely✓
4. Dadding back net working capital release at project end✓

NPV exercise 14: initial cost Rs 266,000, annual inflow Rs 51,400 for 6 years, discount rate 14%. NPV is approximately

1. ARs 199,878✓
2. BRs -266,000✓
3. CRs -106,122✓
4. DRs -66,122✓

Capital budgeting analysis 15 for waste treatment facility project must correctly treat working capital recovery in terminal year by

1. Acapitalizing all historical costs into initial outlay✓
2. Badding back net working capital release at project end✓
3. Cusing accounting net income without adjustment✓
4. Dignoring terminal year cash flows entirely✓

NPV exercise 16: initial cost Rs 265,000, annual inflow Rs 49,000 for 3 years, discount rate 16%. NPV is approximately

1. ARs -154,951✓
2. BRs 110,049✓
3. CRs -265,000✓
4. DRs -194,951✓

Capital budgeting analysis 17 for solar power plant project must correctly treat depreciation tax shield by

1. Acapitalizing all historical costs into initial outlay✓
2. Busing accounting net income without adjustment✓
3. Cignoring terminal year cash flows entirely✓
4. Dadding depreciation tax shield to operating cash flows✓

NPV exercise 18: initial cost Rs 299,000, annual inflow Rs 56,600 for 5 years, discount rate 10%. NPV is approximately

1. ARs 214,559✓
2. BRs -84,441✓
3. CRs -299,000✓
4. DRs -124,441✓

Capital budgeting analysis 19 for warehouse automation project must correctly treat depreciation tax shield by

1. Acapitalizing all historical costs into initial outlay✓
2. Busing accounting net income without adjustment✓
3. Cignoring terminal year cash flows entirely✓
4. Dadding depreciation tax shield to operating cash flows✓

NPV exercise 60: initial cost Rs 803,000, annual inflow Rs 136,200 for 7 years, discount rate 12%. NPV is approximately

1. ARs -181,416✓
2. BRs 621,584✓
3. CRs -803,000✓
4. DRs -221,416✓