Capital Budgeting Quiz
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Questions and Answers

What is the primary purpose of capital budgeting in a firm?

  • To set operational budgets for each department
  • To determine the efficient use of human resources
  • To manage the company's cash flow on a daily basis
  • To analyze potential project investments and their profitability (correct)

    • Which of the following methods is NOT typically used for capital budgeting?

  • Internal Rate of Return (IRR)
  • Payback Period
  • Expense Ratio Analysis (correct)
  • Net Present Value (NPV)

    • When using the Net Present Value method, what does a negative NPV indicate?

  • The investment is likely to be profitable
  • The investment is expected to lose value (correct)
  • The cash inflows exceed the cash outflows
  • The investment will break even

    • Which of the following is an advantage of using the Internal Rate of Return (IRR) method?

    <p>It incorporates the time value of money</p> Signup and view all the answers

    What does the Payback Period method fail to consider that can affect investment decisions?

    <p>The time value of money</p> Signup and view all the answers

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