Capital budgeting decisions are analyzed with help of weighted average and for this purpose
A. component cost is used
B. common stock value is used
C. cost of capital is used
D. asset valuation is used
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A formula of after-tax component cost of debt is
A. interest rate-tax savings
B. marginal tax-required return
C. interest rate + tax savings
D. borrowing cost + embedded cost
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Risk free rate is subtracted from expected market return is considered as
A. country risk
B. diversifiable risk
C. equity risk premium
D. market risk premium
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Type of variability in which a project contributes in return of company is considered as
A. variable risk
B. within firm risk
C. corporate risk
D. Both B and C
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Rate of required return by debt holders is used for estimation the
A. cost of debt
B. cost of equity
C. cost of internal capital
D. cost of reserve assets
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A project whose cash flows are more than capital invested for rate of return then net present value will be
A. positive
B. independent
C. negative
D. zero
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In mutually exclusive projects, project which is selected for comparison with others must have
A. higher net present value
B. lower net present value
C. zero net present value
D. all of above
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Relationship between Economic Value Added (EVA) and Net Present Value (NPV) is considered as
A. valued relationship
B. economic relationship
C. direct relationship
D. inverse relationship
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An uncovered cost at start of year is Rs 200, full cash flow during recovery year is Rs 400 and prior years to full recovery is 3 then payback would be
A. 5 years
B. 3.5 years
C. 4 years
D. 4.5 years
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In capital budgeting, positive net present value results in
A. negative economic value added
B. positive economic value added
C. zero economic value added
D. percent economic value added
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An uncovered cost at start of year is divided by full cash flow during recovery year then added in prior years to full recovery for calculating
A. original period
B. investment period
C. payback period
D. forecasted period
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In cash flow analysis, two projects are compared by using common life is classified as
A. transaction approach
B. replacement chain approach
C. common life approach
D. Both B and C
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Other factors held constant, but lesser project liquidity is because of
A. shorter payback period
B. greater payback period
C. less project return
D. greater project return
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In capital budgeting, an internal rate of return of project is classified as its
A. external rate of return
B. internal rate of return
C. positive rate of return
D. negative rate of return
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In independent projects evaluation, results of internal rate of return and net present value lead to
A. cash flow decision
B. cost decision
C. same decisions
D. different decisions
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In internal rate of returns, discount rate which forces net present values to become zero is classified as
A. positive rate of return
B. negative rate of return
C. external rate of return
D. internal rate of return
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Projects which are mutually exclusive but different on scale of production or time of completion then the
A. external return method
B. net present value of method
C. net future value method
D. internal return method
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Graph which is plotted for projected net present value and capital rates is called
A. net loss profile
B. net gain profile
C. net future value profile
D. net present value profile
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A modified internal rate of return is considered as present value of costs and is equal to
A. PV of hurdle rate
B. FV of hurdle rate
C. PV of terminal value
D. FV of terminal value
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Set of projects or set of investments usually maximize firm value is classified as
A. optimal capital budget
B. minimum capital budget
C. maximum capital budget
D. greater capital budget
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