A. Tax loss on short-term capital gains
B. Tax loss on short-term capital loss
C. Release of net working capital
D. Tax saving on short-term capital loss
E. Tax saving on short-term capital gains
Choose the correct answer from the options given below:
Terminal Year Cash Flow Considerations
For capital budgeting decisions in India, computing terminal year cash flows requires careful consideration of specific financial events occurring at the project's end. Key factors identified from the options include:
- Release of Net Working Capital (C): The initial investment made in Net Working Capital (NWC) during the project's life is typically recovered in the final year. This recovery represents a positive cash inflow.
- Tax Saving on Short-Term Capital Loss (D): If assets are sold at a loss in the terminal year, this constitutes a short-term capital loss (STCL). Such losses can be offset against taxable income, leading to a reduction in tax liability, effectively creating a tax saving. This saving is treated as a cash inflow.
- Tax Implications of Short-Term Capital Gains (A): Option A, 'Tax loss on short-term capital gains', pertains to the tax effects associated with short-term capital gains (STCG). Terminal cash flows must account for tax liabilities on gains or adjustments from offsetting losses against gains.
Options B ('Tax loss on short-term capital loss') and E ('Tax saving on short-term capital gains') are considered incorrect. A loss generates a saving (D), and capital gains typically result in tax payments, not savings.
Therefore, the relevant factors considered are A, C, and D.
Important Questions from Capital budgeting decisions
Zero Based Budgeting (ZBB) lays emphasis on:
A. Allocation of resources based on cost-benefit terms
B. Unlimited deficit financing
C. Preparing a new budget right from the scratch
D. Preparing the budget, neglecting the history of expenditure
Choose the correct answer from the options given below:
Under which of the following situations the decision outcome on evaluation of investment opportunities vary under NPV and IRR methods per se?
a) Time disparity
b) Cost disparity
c) Life disparity
d) Volume disparity
Choose the correct combination of situations:
Which one of the following methods of Capital Budgeting assumes that cash-inflows are reinvested at the project’s rate of return ?
Which of the following variables is not known in Internal Rate of Return methods of capital budgeting?
Indicate the correct code for discounted cash flow techniques for capital investment proposals from the following:
(i) Net Present Value Method
(ii) Internal Rate of Return method
(iii) Excess Benefit-Cost Ratio method
(iv) Net Terminal Value method
Choose the correct answer from the code given below :
