Practice Capital Budgeting Questions and Answers

• Raman Ltd. is evaluating a new machine costing ₹60 lakhs with a useful life of 5 years. The expected annual operating cash inflows (after-tax) are ₹18 ...
• Which of the following budgets is considered the primary budget prepared in a business organization?
• ABC Ltd operates at 80% capacity producing 16,000 units. The cost per unit is: • Direct Material ₹50 • Direct Labour ₹20 • Variable Overheads ₹...
• XYZ Ltd. is evaluating a project that requires an initial investment of ₹10 crore. The expected cash inflows over the next 5 years are uneven. The compan...
• A pharmaceutical company is evaluating a project with a 15-year horizon. The management is concerned about the time value of money and the project's long g...
• A telecom company is considering investing in a 4G expansion project with expected irregular cash inflows. The project shows multiple IRRs due to alternati...
• Project A requires investment of ₹10,00,000 with annual cash inflows of ₹3,00,000 for 5 years. Cost of capital = 10%. Compute Net Present Value (NPV). ...
• A project will be financed with a mix of equity and a concessional government loan carrying interest below market and a partial guarantee fee. The project ...
• A company with stable earnings announces a sudden, large cut in dividend despite strong retained earnings and no capital expenditure needs. Which interpret...
• Company considers leasing equipment (annual lease ₹12 lakh for 5 years) vs buying at ₹45 lakh financed at 10% loan. Tax rate = 30%. Equipment depreciat...
• Which financing strategy balances liquidity risk and cost by matching short-term needs with short-term funds and permanent working capital with long-term f...
• According to the Trade-off Theory, firms balance:
• If two mutually exclusive projects have conflicting rankings under NPV and IRR, which method should be preferred?
• Which statement is correct regarding Weighted Average Cost of Capital (WACC)?
• Raman Ltd. is evaluating a new machine costing ₹60 lakhs with a useful life of 5 years. The expected annual operating cash inflows (after-tax) are ₹18 ...
• A firm is considering replacing its old machine with a new one. Old machine: Book value = ₹8L, Salvage = ₹2L New machine: Cost = ₹20L, Life = 5 years...
• A project requires an investment of Rs. 10,00,000. It generates annual cash inflows of Rs. 3,00,000 for 5 years. If cost of capital is 10%, should the proj...
• A firm is considering replacing its old machine with a new one. Old machine: Book value = ₹8L, Salvage = ₹2L New machine: Cost = ₹20L, Life = 5 years...
• Which of the following is a non-discounting technique of capital budgeting?
• Project A has an initial outflow of ₹2,00,000 and annual cash inflows of ₹70,000 for 5 years. What is the Payback Period?
• A ₹1,000 face value bond, paying 10% annual coupon, maturing in 5 years, is currently selling for ₹1,100. What is its current yield?
• The discount rate that makes the NPV of a project equal to zero is called the:
• Project X requires an initial investment of ₹10,00,000 and is expected to generate cash inflows of ₹3,00,000, ₹4,00,000, ₹5,00,000, and ₹2,00,000...
• A project requires an initial investment of ₹10,00,000 and is expected to generate cash inflows of ₹4,00,000 per annum for 3 years. The Payback Period ...
• Project X has an initial outflow of ₹6,00,000 and is expected to generate cash inflows of ₹2,50,000, ₹3,00,000, and ₹2,00,000 over the next 3 years...
• The Internal Rate of Return (IRR) is the discount rate at which: