Advanced Capital Budgeting Decisions
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Questions and Answers

What is the formula for annual after-tax cash inflow of a project?

  • (R – C) (1 – T) - D
  • (R + C – D) (1 – T) + D
  • (R – C – D) (1 – T) + D (correct)
  • (R – C) (1 + T) + D

How does inflation affect the actual rate of return?

  • It has no effect on the actual rate of return
  • It reduces the actual rate of return (correct)
  • It increases the actual rate of return
  • It stabilizes the actual rate of return

What is the real net cash flow after deflating for an inflation rate of 10%?

  • ` 32,000
  • ` 27,513
  • ` 29,091 (correct)
  • ` 30,000

What is the formula for the required rate of return in nominal terms accounting for inflation?

<p>RN = RR + P (D)</p> Signup and view all the answers

How does the cost of capital considered for investment appraisals change with anticipated inflation?

<p>It increases (D)</p> Signup and view all the answers

In practice, investment projects are exposed to various types of factors. Which of the following is NOT one of these factors?

<p>Stability of exchange rates (A)</p> Signup and view all the answers

Which of the following is NOT an assumption made while discussing capital budgeting or investment evaluation techniques at intermediate level?

<p>Inflation will not impact the project revenues and costs (B)</p> Signup and view all the answers

What is the main reason for adjusting for inflation in capital investment appraisal?

<p>To maintain the project cash flows at constant value (C)</p> Signup and view all the answers

What is the necessity for incorporating risk in capital budgeting?

<p>To account for uncertainties in the project's cash flows (A)</p> Signup and view all the answers

Why is it important to consider change in technology as a factor impacting investment projects?

<p>To adapt to new market demands and competition (D)</p> Signup and view all the answers

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