Capital Budgeting Basics Quiz Form
Test your knowledge of capital budgeting fundamentals with this 10-question quiz. All questions are required. Good luck!
Which of the following is NOT a commonly used capital budgeting technique?
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Net Present Value (NPV)
Internal Rate of Return (IRR)
Payback Period
Current Ratio Analysis
The Net Present Value (NPV) of a project is:
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The sum of all future cash flows, discounted to present value
The rate at which NPV equals zero
The time it takes to recover the initial investment
The total profit earned over the project's life
Select all the factors that should be considered when evaluating a capital budgeting project:
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Initial investment cost
Estimated future cash flows
Project risk
Personal preferences of the finance manager
If a project's IRR is greater than the required rate of return, the project should generally be:
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Rejected
Accepted
Deferred
Re-evaluated using the payback method
Which statement best describes the payback period method?
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It considers the time value of money
It measures how quickly an investment is recovered
It always results in the same decision as NPV
It is the most accurate method for all projects
Rate your confidence in your capital budgeting knowledge:
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1
2
3
4
5
Match each capital budgeting concept to its description:
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Rows
NPV
Payback Period
IRR
Definition
Discounted cash flow measure
Time to recover investment
Interest rate making NPV zero
Discounted cash flow measure
Time to recover investment
Interest rate making NPV zero
Discounted cash flow measure
Time to recover investment
Interest rate making NPV zero
A project with a negative NPV should:
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Be accepted
Be rejected
Be accepted only if it has a short payback period
Be financed with debt
Which of the following increases the risk of a capital budgeting project?
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Stable cash flows
Longer project duration
Lower initial investment
Guaranteed returns
Select all examples of capital investments:
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Purchasing new machinery
Upgrading factory equipment
Paying monthly utility bills
Launching a new product line
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