Capital Budgeting and Its Importance

Q.

What is meant by capital structure?

Q.

Explain the term Trading on Equity. Why, when and how it can be used by a company?

Q. The long term investment decision is also known as decision.

1. Capital Structure
2. Capital budgeting
3. Financing
4. Working Capital

Q.

___ is another name used for a long-term investment decision.

1. Bridge Fiancing

2. Capital Budgeting

3. Investment Decision

4. Capital Structure

Q.

Capital budgeting decisions are important because:

1. They are irreversible

2. They come with heavy risks.

3. They involve heavy investment

4. All of the above

Q.

Name and define the activity which essentially involves preparation of financial blueprint of an enterprise’s future operations. Also, state any two reasons why this activity is important?

Q.

Long term investment decision is also known as___

1. None of these

2. Dividend Decision

3. Capital Budgeting

4. Working Capital

Q.

What Is the Cost of Capital in Financial Management?

Q.

Which of the following affects capital budgeting decision?

1. Rate of Return

2. Cash Flow of the Project

3. Investment Criteria and interest rate

4. All of these

Q.

'Capital structure decision is essentially optimisation of risk-return relationship'. Comment.

Q.

The firm invests its funds in acquiring fixed assets as well as current assets. When decisions regarding fixed assets are taken, it is also called ___

1. Capital budgeting decision

2. Investment decision

3. Financial decision

4. All of the above

Q.

Give the Accounting Entry for Unrecorded Assets in Case of Reconstitution of a Partnership Firm.

Q.

Higher debt-equity ratio results in:

(a) Lower financial risk

(b) Higher degree of operating risk

(c) Higher degree of financial risk

(d) Higher EPS

Q.

'S' Ltd. is manufacturing steel at its plant in India. It is enjoying a buoyant demand for its products as economic growth is at about 7-8% and the demand for steel is growing. It is planning to set-up a new steel plant to capitalise on the increased demand. It is estimated that it will require about Rs 5000 crores to set-up and about Rs 500 crores of working capital to start the new plant.

Keeping in mind that it is a highly capital intensive sector, what factors will affect the fixed and working capital? Give reasons concerning both in support of your answer.

Q.

To invest in assets, you require something called ___

1. Liabilites

2. Capital

3. Debt

4. Assets

Q.

Meera, the finance manager of Platinum Ltd., a firm dealing in a telecommunication equipment chooses a capital structure which was highly geared.

(i) What do you understand by a highly geared capital structure?

(ii) What are the implications of choosing such a structure?

Q. You are the finance manager of a newly established company. The directors of the company have asked you to plan the capital structure of the company. State any five factors that you would consider while planning the capital structure.

Q. If a company is planning to upgrade its machinery, it will be investing incapital.

1. Fixed
2. Working
3. Current
4. Borrowed

Q. Capital budgeting decisions affect the

1. Sales of a firm
2. Demand of the product
3. Profitability of a firm
4. Output of a firm

Q. Capital budgeting decisions involve ____________________.

1. A current outlay followed by a series of benefits over the lifetime of the project
2. A current outlay or series of outlays of cash resources in return for an anticipated flow of future benefits
3. Both (a) and (c)
4. Capital expenditure management, long term investment decision and so on

Q. A capital budgeting decision is capable of changing the financial fortune of a business. Do you agree? Why or Why not?

Q.

Higher debt-equity ratio results in:

1. Higher EPS

2. Lower financial risk

3. Higher degree of operating risk

4. Higher degree of financial risk

Q.

Wasim sold books for $15$ days, selling $10$ books each day. Akram sold books for $10$ days, selling $15$ books each day. Who sold more books? Do not

solve actually. Use a property to answer and also name the property used.

Q.

___ happen in the form of a series of cash receipts in case of earning returns or in the form of payments over the investment timeline.

1. Capital Structure

2. Cash Flow

3. Investment Decision

4. Financial Decision

Q. Mr. Rahul purchased land worth Rs. 1, 00, 000 in the name of his company. This is a/andecision.

1. Investment
2. Dividend
3. Financing
4. Administrative

Q. What is the other name of a long term investment decision?

Q. Ascale company requires the most working capital.

1. Very Small
2. Small
3. Medium
4. Large

Q. Explain briefly factors kept in mind while planning the capital structure of a company.

Q. A capital budget proposal should contain _____________.

1. the proposed investment or outlay
2. The expected rate of return
3. A description of proposal
4. All the above

Q. Arrange the following steps involved in capital budgeting in order of their occurrence:
i) Project selection
ii) Project appraisal
iii) Project generation
iv) Follow up
v) Project execution

1. ii, iii, i, v, iv
2. iii, ii, i, v, iv
3. i, iii, ii, v, iv
4. i, ii, iii, v, iv