All Free Management Sciences MCQs with Answers
Every Management Sciences question in the bank, across all chapters, each with the correct answer and a written explanation. Free and unlimited, with no account needed.
3,770 questions · page 45 of 189
- A. maximum capital budget
- B. greater capital budget
- C. optimal capital budget
- D. minimum capital budget
Explanation: When a firm approaches its optimal capital budget, the marginal cost of capital may increase and available funds may become subject to…
Correct answer: optimal capital budget- A. net present value method
- B. net future value method
- C. net capital budgeting method
- D. net equity budgeting method
Explanation: The net present value method is a discounted-cash-flow technique because it discounts expected future cash flows back to their present…
Correct answer: net present value method- A. terminal value
- B. existed value
- C. quit value
- D. relative value
Explanation: The compounded value of a project's cash flows at the end of its life is called its terminal value.
Correct answer: terminal value- A. negative numbers
- B. positive numbers
- C. hurdle number
- D. relative number
Explanation: Project costs are cash outflows and are recorded as negative numbers in capital-budgeting analysis.
Correct answer: negative numbers- A. minimum life
- B. present value life
- C. economic life
- D. transaction life
Explanation: Economic life is the period over which an asset provides the most economically beneficial service, commonly the life that maximizes its…
Correct answer: economic life- A. technical equity
- B. defined future value
- C. project net present value
- D. equity net present value
Explanation: Net present value is obtained by adding the present values of all project cash flows, including the initial investment as a negative…
Correct answer: project net present value- A. present value consent
- B. mutually exclusive
- C. mutual project
- D. mutual consent
Explanation: Mutually exclusive projects cannot both be selected, so accepting one requires rejecting the other.
Correct answer: mutually exclusive- A. present value of equity
- B. future value of equity
- C. present value cash flow
- D. future value of cash flow
Explanation: NPV calculation begins by discounting each future cash flow to its present value, after which the initial investment and discounted…
Correct answer: present value cash flow- A. non-normal cash flow
- B. normal cash flow
- C. normal costs
- D. non-normal costs
Explanation: A non-normal cash flow changes sign more than once, such as moving from negative to positive and later back to negative.
Correct answer: non-normal cash flow- A. greater than two
- B. equal to
- C. less than one
- D. greater than one
Explanation: Profitability index equals the present value of future inflows divided by the initial investment.
Correct answer: greater than one- A. negative index
- B. exchange index
- C. project index
- D. profitability index
Explanation: The ratio of the present value of future cash flows to the project's initial cost is called the profitability index.
Correct answer: profitability index- A. 8200
- B. 16000
- C. 0.0064
- D. 1562.5
Explanation: Profitability index equals the present value of future cash flows divided by the initial investment. Therefore, PV = 3.2 × $5,000 = $16,000.
Correct answer: 16000893. The situation in which the firm limits the expenditures on capital is classified as __________?
- A. optimal rationing
- B. capital rationing
- C. marginal rationing
- D. transaction rationing
Explanation: Capital rationing occurs when a firm places a limit on the funds available for capital investment.
Correct answer: capital rationing- A. one
- B. multiple
- C. accepted
- D. non-accepted
Explanation: Non-normal cash flows involve more than one change between outflows and inflows, so they may produce multiple internal rates of return.
Correct answer: multiple- A. be reinvested
- B. not be reinvested
- C. be earned
- D. not be earned
Explanation: The traditional IRR method assumes that interim cash inflows can be reinvested at the project’s IRR.
Correct answer: be reinvested- A. less project return
- B. greater project return
- C. shorter payback period
- D. greater payback period
Explanation: A shorter payback period means the investment is recovered sooner, increasing project liquidity and reducing the time funds remain tied…
Correct answer: shorter payback period- A. negative projects
- B. relative projects
- C. evaluate projects
- D. earned projects
Explanation: The profitability index evaluates the value created per unit of investment and is particularly useful for comparing or ranking projects…
Correct answer: evaluate projects- A. 0.55
- B. 1.82
- C. 0.55
- D. 0.0182
Explanation: Profitability index = present value of future cash flows ÷ initial cost = $2,000 ÷ $1,100 = 1.82 approximately.
Correct answer: 1.82- A. negative
- B. zero
- C. positive
- D. independent
Explanation: When a project’s discounted cash flows exactly recover the investment at the required rate of return, its net present value is zero.
Correct answer: zero- A. 3.46 years
- B. 2.46 years
- C. 5.46 years
- D. 4.46 years
Explanation: Payback period = completed years + unrecovered cost ÷ recovery-year cash flow = 4 + $300 ÷ $650 = 4.46 years.
Correct answer: 4.46 years