This section consists of multiple-choice questions. Read the below case study and indicate which of the answer options provided is the correct answer.
The capital budgeting decision depends in part on the
Availability of funds.
Relationships among proposed projects.
Risk associated with a particular project.
All of these
Which of the following is not a typical cash flow related to equipment purchase and replacement decisions?
Increased operating costs
Overhaul of equipment
Salvage value of equipment when project is complete
Depreciation expense
An asset costs R210,000 with a R30,000 salvage value at the end of its ten-year life. If annual cash inflows are R30,000, the cash payback period is
8 years.
7 years.
6 years.
5 years.
The following information has been provided to you:
ABC Limited would like to invest in a project with the following annual cash inflows:
Year
Net Annual Cash Flow
1
R 3,000
2
R 8,000
3
R 15,000
4
R 9,000
The initial investment is R15 000
The costs of capital is 10%
Calculate the NPV for the project
R15000
R11755.68
R26755.68
None of the above
If a company's required rate of return is 10% and, in using the net present value method, a project's net present value is zero, this indicates that the
Project's rate of return exceeds 10%.
Project's rate of return is less than the minimum rate required.
Project earns a rate of return of 10%.
Project earns a rate of return of 0%.
When a capital budgeting project generates a positive net present value, this means that the project earns a return higher than the
Internal rate of return.
Annual rate of return.
Required rate of return.
Present value index
The present value index is computed by dividing the
Total cash flows by the initial investment.
Present value of cash flows by the initial investment.
Initial investment by the total cash flows.
Initial investment by the present value of cash flows.
Which of the following cost will be included in the purchase price of a new asset
Vat
Installation costs
Transport costs to bring the asset to the location of use
All of the above
In cashflow estimation, the depreciation is considered as
Cash charge
Noncash charge
Cash flow discounts
Net salvage discount
The cashflows that could be generated from an owned asset by the company but not used in project are classified as
Occurred cost
Mean cost
Opportunity cost
Weighted cost