Match the items of the following two lists and suggest the correct code : Codes : a b c dList – I List – II a. Pay-back Rate of Return i. Discounted Cash Flow Technique b. Internal Rate of Return ii. Compounded values of investments and returns c. Benefit Cost Ratio iii. Crude method for project evaluation d. Net Terminal Value Method iv. Varying sized projects evaluation
iii i iv ii
Pay-back (period or rate of return) measures how quickly the initial outlay is recovered and ignores the time value of money and cash flows after the pay-back period. It is therefore called a crude method of project evaluation: a matches with iii.
Internal Rate of Return is the discount rate at which the present value of cash inflows equals the present value of outflows. It is one of the main discounted cash flow techniques: b matches with i.
Benefit Cost Ratio (profitability index) divides the present value of inflows by the present value of outflows. Because it is a relative measure per rupee invested, it is used to compare and rank projects of varying size, especially under capital rationing: c matches with iv.
Net Terminal Value Method compounds all cash inflows and the outlay to the end of the project life at the reinvestment rate and compares the terminal values, so it works with compounded values of investments and returns: d matches with ii.
The correct code is a-iii, b-i, c-iv, d-ii.
Hence, iii i iv ii.
Similar Questions
Which of the following techniques for appraisal of investment proposals are based on time value of money ?
(a) Accounting Rate of Return
(b) Internal Rate of Return
(c) Profitability Index Method
(d) Earnings Per Share
Codes :
Which of the following is not true with reference to capital budgeting ?
In certainty equivalent approach, adjusted cash flows are discounted at :
In capital budgeting, the term capital rationing implies :
Interim cash inflows are reinvested at a rate of return equal to the internal rate of return is the built-in-mechanism for
Assertion (A) : When two or more investment proposals are mutually exclusive, ranking the proposals on the basis of IRR, NPV and PI methods may give contradictory results.
Reason (R) : The contradictory results in the ranking are due to differing dimensions relating to the scale of investments, cash flow patterns and project lives.
Indicate the correct answer :
Codes :
Formula for net cash inflow of a project is :
Important Questions from Capital budgeting decisions
- Under which one of the following situation a firm can not raise capital for a project under any circumstance ?
- Which of the following statement about Finance lease is NOT true ?
(i) Finance lease transfer substantially all the risks and rewards incidental to ownership of an asset.
(ii) The lease period in a finance lease covers a substantial portion of the asset's economic life.
(iii) Payment towards lease rental in finance lease cover all cast incurred by lessor in obtaining the assets.
(iv) Finance lease is considered short-term in nature. - Assertion (A): Compounding interest allows an investment to grow faster over time compared to simple interest.
Reason (R): Simple interest earns interest on Previously earned interest. Which of the following variables is not known in Internal Rate of Return methods of capital budgeting?
- As per the Union Budget 2022, how many crore has been made to cover 3.8 crore households in 2022-23 under Har Ghar, Nal Se Jal Scheme?
