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1. What is the primary goal of capital budgeting?

  • Maximize shareholder wealth
  • Minimize initial investment costs
  • Increase short-term profits
  • Maintain a stable market share

2. Which of the following is NOT a typical capital budgeting decision?

  • Purchasing new equipment
  • Investing in a new product line
  • Paying off a short-term loan
  • Building a new factory

3. What is the payback period?

  • The time it takes to recoup the initial investment
  • The total return on investment
  • The present value of future cash flows
  • The rate of return on the investment

4. Net Present Value (NPV) is a method that considers:

  • Only the initial investment
  • The time value of money
  • Only future cash inflows
  • Only future cash outflows

5. A positive Net Present Value (NPV) indicates that a project is:

  • Unprofitable
  • Profitable
  • Break-even
  • Indifferent

6. Internal Rate of Return (IRR) is the discount rate that makes the NPV equal to:

  • One
  • Zero
  • The initial investment
  • The salvage value

7. Which method considers the time value of money?

  • Payback Period
  • Net Present Value (NPV)
  • Accounting Rate of Return
  • Both A and C

8. What does IRR stand for?

  • Internal Rate of Return
  • Investment Rate of Return
  • Initial Rate of Return
  • Incremental Rate of Return

9. A project with a higher IRR is generally considered:

  • Less desirable
  • More desirable
  • Equally desirable as a project with a lower IRR
  • Indeterminate in terms of desirability

10. Which of these is a limitation of the Payback Period method?

  • It's easy to calculate
  • It ignores the time value of money
  • It's widely used in practice
  • It considers all cash flows

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