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B Com Exam  >  B Com Tests  >  Accountancy and Financial Management  >  Test: Capital Budgeting - B Com MCQ

Test: Capital Budgeting - B Com MCQ


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10 Questions MCQ Test Accountancy and Financial Management - Test: Capital Budgeting

Test: Capital Budgeting for B Com 2024 is part of Accountancy and Financial Management preparation. The Test: Capital Budgeting questions and answers have been prepared according to the B Com exam syllabus.The Test: Capital Budgeting MCQs are made for B Com 2024 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests for Test: Capital Budgeting below.
Solutions of Test: Capital Budgeting questions in English are available as part of our Accountancy and Financial Management for B Com & Test: Capital Budgeting solutions in Hindi for Accountancy and Financial Management course. Download more important topics, notes, lectures and mock test series for B Com Exam by signing up for free. Attempt Test: Capital Budgeting | 10 questions in 10 minutes | Mock test for B Com preparation | Free important questions MCQ to study Accountancy and Financial Management for B Com Exam | Download free PDF with solutions
Test: Capital Budgeting - Question 1
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What is the pay-back period method in capital budgeting?

Detailed Solution for Test: Capital Budgeting - Question 1
The pay-back period method in capital budgeting is the time required to recover the initial investment in a project. It is a non-discounted cash flow method used to assess the time it takes for an investment to generate returns equal to the initial investment.
Test: Capital Budgeting - Question 2
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What is the primary focus of capital budgeting, as mentioned in the text?

Detailed Solution for Test: Capital Budgeting - Question 2
The primary focus of capital budgeting, as mentioned in the text, is allocating financial resources effectively among the available opportunities to maximize long-term profitability. It involves careful planning and analysis of investment decisions.
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Test: Capital Budgeting - Question 3
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What is the main advantage of the internal rate of return (IRR) method in capital budgeting?

Detailed Solution for Test: Capital Budgeting - Question 3
The main advantage of the internal rate of return (IRR) method in capital budgeting is that it adjusts for the time value of money. This means it considers the fact that money received in the future is worth less than money received today due to factors like inflation and opportunity cost.
Test: Capital Budgeting - Question 4
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According to the definitions provided in the text, what is the primary objective of capital budgeting?
Detailed Solution for Test: Capital Budgeting - Question 4
According to the definitions in the text, the primary objective of capital budgeting is to carefully plan and analyze projects to maximize long-term profitability. It involves making investment decisions for the long term, considering the financial resources of the firm and the expected future streams of earnings from a project. This helps in avoiding over or underinvestment, which can significantly impact a company's profit.
Test: Capital Budgeting - Question 5
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In capital budgeting, what does "irreversible" investment decisions mean?
Detailed Solution for Test: Capital Budgeting - Question 5
"Irreversible" investment decisions in capital budgeting refer to investment decisions that involve large losses when reversed. Once a decision is made to purchase a permanent asset, it is very difficult to dispose of those assets without incurring significant losses.
Test: Capital Budgeting - Question 6
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Why is capital budgeting considered a challenging process, as mentioned in the text?
Detailed Solution for Test: Capital Budgeting - Question 6
Capital budgeting is considered a challenging process because it involves large, irreversible investments. Once a decision is made to purchase a permanent asset, it is difficult to dispose of those assets without incurring significant losses. This makes careful planning and analysis essential before making such investments.
Test: Capital Budgeting - Question 7
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Which of the following is NOT a traditional method of capital budgeting evaluation, as mentioned in the text?
Detailed Solution for Test: Capital Budgeting - Question 7
The Net Present Value Method is not a traditional method of capital budgeting evaluation; it is a modern method. Traditional methods include the Pay-back Period Method, Accounts Rate of Return, and Post Pay-back Methods.
Test: Capital Budgeting - Question 8
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Why is careful planning and analysis required in capital budgeting, according to the text?
Detailed Solution for Test: Capital Budgeting - Question 8
According to the text, careful planning and analysis are required in capital budgeting to avoid over or underinvestment. Overinvestment can lead to the inability to utilize assets effectively, while underinvestment can result in missed opportunities. Therefore, thorough planning and analysis are necessary to make informed investment decisions.
Test: Capital Budgeting - Question 9
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According to the text, what is the main drawback of the Pay-back Period Method?
Detailed Solution for Test: Capital Budgeting - Question 9
The main drawback of the Pay-back Period Method, as mentioned in the text, is that it ignores the time value of money. This means it does not take into account that money received in the future is worth less than money received today.
Test: Capital Budgeting - Question 10
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What is the purpose of the screening or matching process in capital budgeting, as described in the text?
Detailed Solution for Test: Capital Budgeting - Question 10
The purpose of the screening or matching process in capital budgeting, as described in the text, is to evaluate investment proposals. It involves analyzing various proposals and selecting those that are suitable for further consideration based on available financial resources.
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