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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

This section consists of multiple-choice questions. Read the below case study and indicate which of the answer options provided is the correct answer.

  1. The capital budgeting decision depends in part on the

  1. Availability of funds.
  2. Relationships among proposed projects.
  3. Risk associated with a particular project.
  4. All of these

  1. Which of the following is not a typical cash flow related to equipment purchase and replacement decisions?

  1. Increased operating costs
  2. Overhaul of equipment
  3. Salvage value of equipment when project is complete
  4. Depreciation expense

  1. 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

  1. 8 years.
  2. 7 years.
  3. 6 years.
  4. 5 years.

  1. 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

  1. R15000
  2. R11755.68
  3. R26755.68
  4. None of the above

  1. 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

  1. Project's rate of return exceeds 10%.
  2. Project's rate of return is less than the minimum rate required.
  3. Project earns a rate of return of 10%.
  4. Project earns a rate of return of 0%.

  1. When a capital budgeting project generates a positive net present value, this means that the project earns a return higher than the

  1. Internal rate of return.
  2. Annual rate of return.
  3. Required rate of return.
  4. Present value index

  1. The present value index is computed by dividing the

  1. Total cash flows by the initial investment.
  2. Present value of cash flows by the initial investment.
  3. Initial investment by the total cash flows.
  4. Initial investment by the present value of cash flows.

  1. Which of the following cost will be included in the purchase price of a new asset

  1. Vat
  2. Installation costs
  3. Transport costs to bring the asset to the location of use
  4. All of the above

  1. In cashflow estimation, the depreciation is considered as

  1. Cash charge
  2. Noncash charge
  3. Cash flow discounts
  4. Net salvage discount

  1. The cashflows that could be generated from an owned asset by the company but not used in project are classified as

  1. Occurred cost
  2. Mean cost
  3. Opportunity cost
  4. Weighted cost

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