Capital Budgeting Quiz (9-6-2025)

Which of the following best describes capital budgeting?

• Managing day-to-day operations

• Evaluating long-term investment projects

• Preparing the annual budget

• Controlling short-term expenses

The main objective of capital budgeting is:

• Minimizing production cost

• Maximizing shareholder wealth

• Increasing sales volume

• Improving cash collections

Which of the following is NOT a capital budgeting technique?

• Net Present Value (NPV)

• Payback Period

• Ratio Analysis

• Internal Rate of Return (IRR)

The time value of money principle states that:

• Future money is more valuable than present money

• Present money is more valuable than future money

• Money has no time value

• Cash flows are irrelevant to decisions

Which method ignores the time value of money?

• Payback Period

• Net Present Value

• Internal Rate of Return

• Profitability Index

A project costs ₱100,000 and generates ₱40,000 annually for 3 years. At a 10% discount rate, the project’s NPV is:

• Positive

• Negative

• Zero

• Cannot be determined

If the NPV of a project is positive, it means:

• The project should be rejected

• The project increases firm value

• The IRR is lower than the discount rate

• The payback period is long

IRR is the discount rate that:

• Maximizes sales

• Makes NPV = 0

• Maximizes payback period

• Equals the accounting rate of return

A project is acceptable if:

• NPV > 0

• IRR > cost of capital

• PI > 1

• All of the above

If two projects are mutually exclusive, which is the best decision rule?

• Higher NPV

• Shorter payback

• Higher accounting profit

• Lower initial cost