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Questions and Answers
What is the primary purpose of capital budgeting in a firm?
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?
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?
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?
Which of the following is an advantage of using the Internal Rate of Return (IRR) method?
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What does the Payback Period method fail to consider that can affect investment decisions?
What does the Payback Period method fail to consider that can affect investment decisions?
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