List - I List - II a. Net present value i. Number of years required to recover the original cash outlay invested in a project. b. Payback period ii. It is the rate of return which equates the present value of anticipated net cash flows with the initial outlay. c. Internal rate of return iii. It is found out by dividing the average after-tax profit by the average investment. d. Accounting rate of return iv. It is the difference between the present value of cash inflows and present value of cash outflows.
Matching Capital Budgeting Techniques
This question requires matching four capital budgeting techniques from List - I with their correct definitions from List - II. Let's analyze each item:
List - I Items and Definitions (List - II)
- a. Net present value (NPV): This technique calculates the difference between the present value of cash inflows and the present value of cash outflows associated with a project. This matches definition iv.
- b. Payback period: This method determines the time required for a project's cash inflows to recover the initial investment. This matches definition i.
- c. Internal rate of return (IRR): This is the discount rate at which the net present value (NPV) of all cash flows from a particular project equals zero, meaning the present value of cash inflows equals the initial outlay. This matches definition ii.
- d. Accounting rate of return (ARR): This profitability ratio is calculated by dividing the average accounting profit (after taxes and depreciation) by the average investment. This matches definition iii.
Correct Matches
Based on the analysis, the correct matches are:
- Net present value (a) corresponds to definition iv.
- Payback period (b) corresponds to definition i.
- Internal rate of return (c) corresponds to definition ii.
- Accounting rate of return (d) corresponds to definition iii.
Therefore, the correct pairing is a-iv, b-i, c-ii, d-iii.
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 :
