Objective type questions on capital budgeting

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Reference no: EM1311110

1.Benefits expected from proposed capital expenditures must be on an after-tax basis because

a.taxes are cash outlays

b.there may also be tax benefits to be evaluated

c.no benefits may be used by the firm until tax claims are satisfied

d.it is common, accepted practice to do so

2.In capital budgeting risk refers to the change that a project has a high degree of variability of the initial investment

a.true

b.false

3.When evaluating a capital budgeting project the change in net working capital must be considered as part of

a.the operating cash flows

b.the initial investment

c.the incremental operating cash inflows

d.the operating cash outflows

4.Among the reasons many firms use the payback period as a guidelines in capital investment decisions are all the following EXCEPT

a.it gives an implicit consideration of the timing of cash flow

b.it recognizes cash flows which occur after the payback period

c.it is a measure of risk exposure

d.it is easy to calculate

5.A $60,000 outlay for a new machine with a usable life of 15 years is called

a.an operating expenditure

b.a replacement expenditure

c.a capital expenditure

d.None of the above

Reference no: EM1311110

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