Capital Budgeting MCQs 2026

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

1. A IRR equals zero only ✓
2. B payback exceeds five years ✓
3. C NPV is greater than zero ✓
4. D accounting profit is negative ✓

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

1. A payback period equal to project life ✓
2. B accounting ROI maximum ✓
3. C PI equal to two ✓
4. D NPV equal to zero ✓

Profitability Index equals

1. A present value of inflows divided by initial investment ✓
2. B NPV divided by salvage value ✓
3. C IRR times payback ✓
4. D book profit divided by sales ✓

Payback period ignores

1. A initial investment amount ✓
2. B operating cash inflows ✓
3. C project life entirely ✓
4. D cash flows beyond the payback cutoff and time value of money ✓

Discounted payback period improves on simple payback by

1. A ignoring terminal salvage ✓
2. B using accounting income ✓
3. C discounting cash flows before accumulation ✓
4. D excluding initial outlay ✓

Mutually exclusive projects should be ranked by

1. A IRR always without exception ✓
2. B NPV when scales differ ✓
3. C payback only ✓
4. D accounting profit margin ✓

Capital rationing exists when

1. A funds available for investment are limited ✓
2. B all positive NPV projects can be funded ✓
3. C WACC is zero ✓
4. D depreciation is accelerated ✓

Sunk costs in capital budgeting are

1. A always subtracted from NPV ✓
2. B irrelevant to project accept-reject decisions ✓
3. C the primary cash flow input ✓
4. D equal to opportunity costs ✓

Opportunity cost of using owned land for a project is

1. A the rent or value foregone from best alternative use ✓
2. B zero because land is already owned ✓
3. C historical purchase price only ✓
4. D annual depreciation only ✓

Terminal year cash flow in NPV analysis typically includes

1. A only depreciation tax shield ✓
2. B operating cash flow plus after-tax salvage minus recovery adjustments ✓
3. C only working capital build ✓
4. D only interest expense ✓

Replacement decision analysis uses

1. A incremental cash flows of new versus old asset ✓
2. B full book value of old asset as sunk benefit ✓
3. C only purchase price of new machine ✓
4. D historical cost of both assets ✓

Scenario analysis in capital budgeting varies

1. A key inputs like sales growth and cost assumptions ✓
2. B only the color of equipment ✓
3. C only audit opinions ✓
4. D only dividend dates ✓

Real options in capital budgeting include

1. A mandatory annual audit ✓
2. B fixed depreciation schedule only ✓
3. C statutory tax filing ✓
4. D option to expand, abandon, or delay a project ✓

Equivalent Annual Annuity approach helps compare projects with

1. A identical cash flows only ✓
2. B zero salvage always ✓
3. C unequal lives ✓
4. D negative NPV only ✓

Inflation in cash flow forecasting requires

1. A mixing real cash flows with nominal discount rate ✓
2. B ignoring wage growth ✓
3. C consistent nominal or real rates and cash flows ✓
4. D using 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. A Rs 292,993 ✓
2. B Rs -40,007 ✓
3. C Rs -333,000 ✓
4. D Rs -80,007 ✓

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

1. A capitalizing all historical costs into initial outlay ✓
2. B using accounting net income without adjustment ✓
3. C ignoring terminal year cash flows entirely ✓
4. D adding 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. A Rs 180,067 ✓
2. B Rs -151,933 ✓
3. C Rs -332,000 ✓
4. D Rs -191,933 ✓

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

1. A capitalizing all historical costs into initial outlay ✓
2. B using accounting net income without adjustment ✓
3. C adding depreciation tax shield to operating cash flows ✓
4. D ignoring 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. A Rs 255,721 ✓
2. B Rs -110,279 ✓
3. C Rs -366,000 ✓
4. D Rs -150,279 ✓

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

1. A capitalizing all historical costs into initial outlay ✓
2. B using accounting net income without adjustment ✓
3. C charging foregone rent or best alternative use value ✓
4. D ignoring 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. A Rs 166,619 ✓
2. B Rs -233,381 ✓
3. C Rs -400,000 ✓
4. D Rs -273,381 ✓

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

1. A charging foregone rent or best alternative use value ✓
2. B capitalizing all historical costs into initial outlay ✓
3. C using accounting net income without adjustment ✓
4. D ignoring 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. A Rs 268,916 ✓
2. B Rs -165,084 ✓
3. C Rs -434,000 ✓
4. D Rs -205,084 ✓

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

1. A capitalizing all historical costs into initial outlay ✓
2. B using accounting net income without adjustment ✓
3. C ignoring terminal year cash flows entirely ✓
4. D charging 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. A Rs 352,499 ✓
2. B Rs -433,000 ✓
3. C Rs -80,501 ✓
4. D Rs -120,501 ✓

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

1. A capitalizing all historical costs into initial outlay ✓
2. B charging foregone rent or best alternative use value ✓
3. C using accounting net income without adjustment ✓
4. D ignoring 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. A Rs -243,705 ✓
2. B Rs 223,295 ✓
3. C Rs -467,000 ✓
4. D Rs -283,705 ✓

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

1. A capitalizing all historical costs into initial outlay ✓
2. B using accounting net income without adjustment ✓
3. C excluding prior R&D as irrelevant to accept-reject decision ✓
4. D ignoring 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. A Rs 380,650 ✓
2. B Rs -501,000 ✓
3. C Rs -120,350 ✓
4. D Rs -160,350 ✓

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

1. A excluding prior R&D as irrelevant to accept-reject decision ✓
2. B capitalizing all historical costs into initial outlay ✓
3. C using accounting net income without adjustment ✓
4. D ignoring terminal year cash flows entirely ✓

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

1. A Rs 204,156 ✓
2. B Rs -500,000 ✓
3. C Rs -295,844 ✓
4. D Rs -335,844 ✓

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

1. A capitalizing all historical costs into initial outlay ✓
2. B using accounting net income without adjustment ✓
3. C ignoring terminal year cash flows entirely ✓
4. D excluding 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. A Rs -216,097 ✓
2. B Rs 317,903 ✓
3. C Rs -534,000 ✓
4. D Rs -256,097 ✓

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

1. A capitalizing all historical costs into initial outlay ✓
2. B using accounting net income without adjustment ✓
3. C ignoring terminal year cash flows entirely ✓
4. D excluding 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. A Rs 404,664 ✓
2. B Rs -568,000 ✓
3. C Rs -163,336 ✓
4. D Rs -203,336 ✓

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

1. A Rs -181,416 ✓
2. B Rs 621,584 ✓
3. C Rs -803,000 ✓
4. D Rs -221,416 ✓

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

1. A capitalizing all historical costs into initial outlay ✓
2. B using consistent nominal cash flows and nominal discount rate ✓
3. C using accounting net income without adjustment ✓
4. D ignoring terminal year cash flows entirely ✓

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

1. A including after-tax salvage in terminal year cash flow ✓
2. B capitalizing all historical costs into initial outlay ✓
3. C using accounting net income without adjustment ✓
4. D ignoring 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. A Rs 81,783 ✓
2. B Rs -97,000 ✓
3. C Rs -55,217 ✓
4. D Rs -15,217 ✓

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

1. A capitalizing all historical costs into initial outlay ✓
2. B using accounting net income without adjustment ✓
3. C including after-tax salvage in terminal year cash flow ✓
4. D ignoring 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. A Rs 137,321 ✓
2. B Rs -131,000 ✓
3. C Rs -33,679 ✓
4. D Rs 6,321 ✓

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

1. A including after-tax salvage in terminal year cash flow ✓
2. B capitalizing all historical costs into initial outlay ✓
3. C using accounting net income without adjustment ✓
4. D ignoring 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. A Rs -93,029 ✓
2. B Rs 71,971 ✓
3. C Rs -165,000 ✓
4. D Rs -133,029 ✓

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

1. A capitalizing all historical costs into initial outlay ✓
2. B using accounting net income without adjustment ✓
3. C including after-tax salvage in terminal year cash flow ✓
4. D ignoring 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. A Rs -37,612 ✓
2. B Rs 126,388 ✓
3. C Rs -164,000 ✓
4. D Rs -77,612 ✓

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

1. A capitalizing all historical costs into initial outlay ✓
2. B using accounting net income without adjustment ✓
3. C adding back net working capital release at project end ✓
4. D ignoring 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. A Rs 224,921 ✓
2. B Rs 26,921 ✓
3. C Rs -198,000 ✓
4. D Rs -13,079 ✓

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

1. A capitalizing all historical costs into initial outlay ✓
2. B adding back net working capital release at project end ✓
3. C using accounting net income without adjustment ✓
4. D ignoring 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. A Rs -98,964 ✓
2. B Rs 133,036 ✓
3. C Rs -232,000 ✓
4. D Rs -138,964 ✓

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

1. A capitalizing all historical costs into initial outlay ✓
2. B using accounting net income without adjustment ✓
3. C ignoring terminal year cash flows entirely ✓
4. D adding 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. A Rs 199,878 ✓
2. B Rs -266,000 ✓
3. C Rs -106,122 ✓
4. D Rs -66,122 ✓

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

1. A capitalizing all historical costs into initial outlay ✓
2. B adding back net working capital release at project end ✓
3. C using accounting net income without adjustment ✓
4. D ignoring 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. A Rs -154,951 ✓
2. B Rs 110,049 ✓
3. C Rs -265,000 ✓
4. D Rs -194,951 ✓

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

1. A capitalizing all historical costs into initial outlay ✓
2. B using accounting net income without adjustment ✓
3. C ignoring terminal year cash flows entirely ✓
4. D adding 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. A Rs 214,559 ✓
2. B Rs -84,441 ✓
3. C Rs -299,000 ✓
4. D Rs -124,441 ✓

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

1. A capitalizing all historical costs into initial outlay ✓
2. B using accounting net income without adjustment ✓
3. C ignoring terminal year cash flows entirely ✓
4. D adding depreciation tax shield to operating cash flows ✓

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

1. A Rs -291,987 ✓
2. B Rs 310,013 ✓
3. C Rs -602,000 ✓
4. D Rs -331,987 ✓

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

1. A capitalizing all historical costs into initial outlay ✓
2. B using consistent nominal cash flows and nominal discount rate ✓
3. C using accounting net income without adjustment ✓
4. D ignoring 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. A Rs 433,342 ✓
2. B Rs -601,000 ✓
3. C Rs -167,658 ✓
4. D Rs -207,658 ✓

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

1. A capitalizing all historical costs into initial outlay ✓
2. B using accounting net income without adjustment ✓
3. C using consistent nominal cash flows and nominal discount rate ✓
4. D ignoring 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. A Rs 239,128 ✓
2. B Rs -635,000 ✓
3. C Rs -435,872 ✓
4. D Rs -395,872 ✓

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

1. A capitalizing all historical costs into initial outlay ✓
2. B using accounting net income without adjustment ✓
3. C using consistent nominal cash flows and nominal discount rate ✓
4. D ignoring 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. A Rs 362,137 ✓
2. B Rs -669,000 ✓
3. C Rs -346,863 ✓
4. D Rs -306,863 ✓

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

1. A using hurdle rate reflecting project-specific business risk ✓
2. B capitalizing all historical costs into initial outlay ✓
3. C using accounting net income without adjustment ✓
4. D ignoring 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. A Rs 575,447 ✓
2. B Rs -92,553 ✓
3. C Rs -668,000 ✓
4. D Rs -132,553 ✓

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

1. A capitalizing all historical costs into initial outlay ✓
2. B using hurdle rate reflecting project-specific business risk ✓
3. C using accounting net income without adjustment ✓
4. D ignoring 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. A Rs 351,725 ✓
2. B Rs -702,000 ✓
3. C Rs -390,275 ✓
4. D Rs -350,275 ✓

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

1. A using hurdle rate reflecting project-specific business risk ✓
2. B capitalizing all historical costs into initial outlay ✓
3. C using accounting net income without adjustment ✓
4. D ignoring 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. A Rs 479,862 ✓
2. B Rs -736,000 ✓
3. C Rs -296,138 ✓
4. D Rs -256,138 ✓

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

1. A capitalizing all historical costs into initial outlay ✓
2. B using accounting net income without adjustment ✓
3. C using hurdle rate reflecting project-specific business risk ✓
4. D ignoring 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. A Rs 271,753 ✓
2. B Rs -770,000 ✓
3. C Rs -498,247 ✓
4. D Rs -538,247 ✓

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

1. A capitalizing all historical costs into initial outlay ✓
2. B comparing incremental cash flows of new versus continuing old equipment ✓
3. C using accounting net income without adjustment ✓
4. D ignoring 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. A Rs 487,495 ✓
2. B Rs -769,000 ✓
3. C Rs -321,505 ✓
4. D Rs -281,505 ✓

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

1. A capitalizing all historical costs into initial outlay ✓
2. B comparing incremental cash flows of new versus continuing old equipment ✓
3. C using accounting net income without adjustment ✓
4. D ignoring terminal year cash flows entirely ✓