Net Present Value NPV is a valuable technique to evaluate various projects for investment opportunities. We have covered NPV in great detail under Financial Management topic. Limited time scale exams normally includes MCQs (multuple choice questions), so it is a good idea to practice these before the actual exam day.
1. Net Present Value is a technique of:
a. Capital budgeting
b. Revenue recognition
c. Prudence concept
2. There is a direct relation between NPV and Economic Value Added (EVA)?
a. Yes
b. No.
3. NPV will be zero when:
a. Cash flows are not sufficient to repay capital invested
b. Cash flows are more than the capital invested
c. Cash flows are sufficient to repay capital invested
4. You will undertake a project, if its NPV is:
a. Zero
b. Positive
c. Negative
5. The discount rate to discount cash flows is a measure of:
a. Interest rate
b. Inflation rate
c. Opportunity cost of capital
1.What is the relationship between NPV (Net Present Value) and EVA (Economic Value Added)?
Indirect
Direct
No relation
2.We can get NPV by subtracting the present value of future cash flows from the initial investment.
True
False
3.When cash flows of a project are sufficient to repay the capital investment, the NPV will be:
Positive
Negative
Zero
None of the above
4.Capital budgeting starts from:
Identification of potential projects
Pooling of funds for the projects
Estimation of cash flows
Determination of discount rate
5.Mutually exclusive projects means:
Accepting project with highest net present value
Accepting project with lowest net present value
Excluding projects with highest IRR
6.Investment’s profitability is totally ignored in:
NPV
IRR
Payback
ARR (Accounting rate of return)
7.The most reliable method for evaluating capital budgets is:
IRR
NPV
ARR
8.IRR is the interest rate at which NPV of the project becomes:
Zero
Positive
Negative
9.Present Value of future cash flows depends upon:
Length of the project
Interest rate
None of the above.
10.When the present value of the project are sufficient to repay the capital investment, the NPV will be:
Negative
Positive
Zero
Irrelevant