3. Investment

Capital Budgeting — Quiz

Test your understanding of capital budgeting with 5 practice questions.

Practice Questions

Question 1

Which capital budgeting method is most appropriate for evaluating projects that are mutually exclusive and have different initial investments?

Question 2

A company is considering a project with an initial investment of $$ \$50,000 $ and expected cash inflows of $ \$20,000 $ in Year 1, $ \$25,000 $ in Year 2, and $ \$15,000 $ in Year 3. If the discount rate is $ 10\% $$, what is the Net Present Value (NPV) of the project? (Round to the nearest dollar)

Question 3

Which of the following is a primary advantage of the Internal Rate of Return (IRR) method?

Question 4

A project has an initial investment of $$ \$10,000 $ and is expected to generate cash inflows of $ \$4,000 $$ per year for 4 years. What is the Payback Period for this project?

Question 5

If a project's Internal Rate of Return (IRR) is $ 8\% $ and the company's cost of capital (required rate of return) is $ 10\% $, what decision should be made regarding the project?