Financial Management MCQ on Capital Budgeting - MCQ Questions (2024)

1. The investment made in fixed assets is known as:

(a) Revenue expenditure

(b) Rental Expenditure

(c) Capital expenditure

(d) None of these

Ans-(c) Capital expenditure

2. The investment decision analysis encompasses the risk-return analysis of which of the following?

(a) Long term investment proposals

(b) Short term investment proposals

(c) Both of these

(d) None of these

Ans-(c) Both of these

3. The main components of capital budgeting are:

(a) Capital expenditure

(b) Budgeting

(c) Capital expenditure & Budgeting

(d) None of these

Ans-(c) Capital expenditure & Budgeting

4. The investment decisions which are concerned with the allocation of funds of an entity to the long term investment proposals are known as:

(a) Capital investment

(b) Capital budgeting

(c) Both of these

(d) None of these

Ans-(c) Both of these

5. The decisions which are concerned with allocation of funds to the short term investment proposals are known as:

(a) Capital investment

(b) Working capital decisions

(c) Capital budgeting

(d) None of these

Ans-(b) Working capital decisions

6. The art of making plans in quantitative manner to ensure profitability and growth is

known as:

(a) Budgeting

(b) Discounting

(c) Compounding

(d) None of these

Ans-(a) Budgeting

7. Financial managers consider capital budgeting as a very important function of finance due to:

(a) Large Investment

(b) Long term Effect on Profitability

(c) Long Term Commitment of Funds

(d) All of these

Ans-(d) All of these

8. The capital expenditure decisions encompass the decisions relating to:

(a) Independent investment proposals

(b) Mutually exclusive investment proposals

(c) Contingent investment proposals

(d) All of these

Ans-(d) All of these

9. The capital budgeting decision generally involves – investment of funds.

(a) Meager

(b) Huge

(c) Small

(d) No

Ans-(b) Huge

10. The examples of capital expenditure is :

(a) Purchase of fixed assets

(b) Replacement of fixed assets

(c) Alteration to the fixed assets

(d) All of these

Ans-(d) All of these

11. The Nature of capital expenditure decisions may be

(a) Reversible

(b) Routine

(c) Irreversible

(d) None of these

Ans-(c) Irreversible

12. The process of owning and acquiring economic resources to generate income in future

is called as:

(a) Financing decision

(b) Dividend decision

(c) Investment decision

(d) None of these

Ans-(c) Investment decision

13. Which of the following network techniques help in monitoring the implementation of the approved proposals?

(a) Critical Path Method (CPM)

(b) Programme Evaluation Review Technique (PERT)

(c) Both of the above

(d) None of these

Ans-(c) Both of the above

14. The criteria that do not take time value of money into consideration are known as:

(a) Discounted criteria

(b) Either (a) or (b)

(c) Traditional criteria

(d) Neither (a) nor (b)

Ans-(c) Traditional criteria

15. The final approval of investment proposals is based on:

(a) Financial viability

(b) Economic constituents

(c) Profitability

(d) All of these

Ans-(d) All of these

16. The overall objective of capital budgeting is to:

(a) Maximize the shareholders’ wealth

(b) Reduce costs

(c) Increase revenues

(d) None of these

Ans-(a) Maximize the shareholders' wealth

17. The payback period method give much emphasis on:

(a) Profitability

(b) Whole life earnings

(c) Liquidity

(d) Time factor

Ans-(c) Liquidity

18. The traditional criteria encompasses:

(a) Accounting rate of return

(b) Payback period

(c) Both of these

(d) None of these

Ans-(c) Both of these

19. The length of time needed to recover the initial cash outlay of the investment propos

is called as:

(a) Payback period

(b) Return period

(c) Accounting period

(d) None of these

Ans-(a) Payback period

20. The criterion which measures the profitability in terms of relation between income and

investment is known as:

(a) Payback period

(b) time value of money

(c) Accounting rate of return

(d) None of these

Ans-(c) Accounting rate of return

21. A discount rate that equates the present value of inflows to the present value of cash outflows is known as:

(a) Rate of return

(b) Cost of capital

(c) Internal rate of return

(d) None of these

Ans-(c) Internal rate of return

22. The advantages of accounting rate of return criterion are:

(a) Takes whole life earnings

(b) Emphasis on profitability

(c) Easy computation

(d) All of these

Ans-(d) All of these

23. The criterion which compares the present value of cash inflows with the present value of

cash outflows is known as:

(a) Present value criterion

(b) Accounting rate of return criterion

(c) Payback period criterion

(d) None of these

Ans-(a) Present value criterion

24.what is the acceptance rule of payback period ?

(a) Select the investment proposal with highest payback period among all investment proposals

(b) Select the investment proposal with lowest payback period among all investment Proposals

(c) Either (a) or (b)

(d) Neither (a) nor (b)

Ans-(b) Select the investment proposal with lowest payback period among all investment Proposals

25. The merit of present value method is/are:

(a) It takes time factor into consideration

(c) It takes whole life earnings

(b) Both of these

(d) None of these

Ans-(b) Both of these

Also Read Financial Management MCQ

1. Financial Management MCQ-Fundamentals
2. FM MCQ on Time Value of Money
3. Financial Management MCQ on Risk and Return
4. Financial Management MCQ on Equity Valuation
5. Financial Management MCQ on Valuation of Bonds