Financial Statements and Analysis Test

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Financial Statements and Analysis Test - 19

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Weekly Quiz Competition

Question 1
1 / -0

Window dressing imples.

A
Curtailment of expenses

B
Checking of wastages

C
Under valuation of assets

D
Over valuation of assets
Question 2
1 / -0

Which of the following is not true with reference to capital budgeting?

A
Capital budgeting is related to asset replacement decisions

B
Cost of capital is equal to minimum required return

C
Existing investment in a project is not treated as sunk cost

D
Timing of cash flows is relevant

Solution

Sunk cost is a cost that cannot be recovered and has been incurred already. Existing investment in a project is treated as a sunk cost as it is incurred in the past and cannot be recovered.
Question 3
1 / -0

Capital Budgeting deals with _______.

A
Long-term decisions

B
Short-term decisions

C
Both A and B

D
Neither A nor B

Solution

Capital budgeting is the planning process used to determine whether an organisation's long term investments such as new machinery, replacement of machinery,new plants, new products etc. are worth the funding of cash through the firms capitalisation structure.
Question 4
1 / -0

Which of the following is not true for capital budgeting?

A
Sunk costs are ignored

B
Opportunity costs are excluded

C
Incremental cash flows are considered

D
Relevant cash flows are considered

Solution

Capital budgeting decisions involve huge funds and are long term decisions. As they involve huge costs one wrong decision would have a big effect on the business. They include all the potential expenses/costs. It includes opportunity cost, actual cost, incremental and relevant cash flows. It does not include sunk costs.
Question 5
1 / -0

Assets are held for the purpose of __________.

A
Earning revenue

B
Resale

C
Conversion into cash

D
Personal purpose

Solution

In financial accounting asset is an economic resource. Anything tangible or intangible that can be owned or controlled to produce positive economic value (earning revenue) is an asset.
Question 6
1 / -0

Which of the following is not incorporated in Capital Budgeting?

A
Tax-Effect

B
Time Value of Money

C
Required Rate of Return

D
Rate of Cash Discount

Solution

Capital budgeting decisions involve huge funds and are long term decisions. As they involve huge costs one wrong decision would have a big effect on the business. The company understands how much tax benefit will the company have after the investment, whether the rate of return is more than the cost of capital and how much is to be paid in terms of present value. All these are taken into account but rate of cash discount is not.
Question 7
1 / -0

Which of the following is not a capital budgeting decision?

A
Expansion program.

B
Merger.

C
Replacement of an asset.

D
Inventory level.

Solution

Capital Budgeting and investment appraisal, is the planning process used to determine whether an organisation's long term investments such as new machinery, replacement of machinery, new plants, new products, and research development projects are made effectively.
Capital budgeting helps in making the most optimal decisions. It includes expansion programs, merger decisions, replacement decisions but will not comprise of the inventory related decision making.
Question 8
1 / -0

Majority of Capital Budgeting techniques makes use of __________.

A
Cash flows

B
Accounting profit

C
Interest rate on borrowings

D
Last dividend paid

Solution

Capital Budgeting is the planning process used to determine whether an organisation's long term investments such as new machinery, replacement of machinery, new plants, new products, and research development projects will be able to earn future cash flows as estimated. A number of capital budgeting techniques are used for decision making which are based on cash flows like Payback period, Discounted cash flow, Net present values, Internal rate of return and Profitability Index.
Question 9
1 / -0

Capital Budgeting Decisions are based on ___________.

A
Incremental profit

B
Incremental cash flows

C
Incremental assets

D
Incremental capital

Solution

Capital budgeting decisions are based on comparison of a project's initial investment outlay to the future incremental cash flows of the project and its terminal cash flow.
Question 10
1 / -0

Which of the following is an irrelevant cost in Capital Budgeting Decisions?

A
Sunk Cost

B
Opportunity Cost

C
Allocated Overheads

D
Both A and C

Solution

Sunk costs are the costs which were incurred in the past. Sunk costs are irrelevant for decisions, because they cannot be changed.
Opportunity Cost is the income foregone by selecting one alternative over another. These are considered as relevant costs for decision making.
Allocation of overheads means charging a cost center with such overheads which can be identified and measured. Such allocated overheads are irrelevant as already charged to cost center.

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Re-Attempt Weekly Quiz Competition

Financial Statements and Analysis Test - 19

Result

Financial Statements and Analysis Test - 19

Score

-

Rank

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SHARING IS CARING

Question 1

Curtailment of expenses

Checking of wastages

Under valuation of assets

Over valuation of assets

Question 2

Capital budgeting is related to asset replacement decisions

Cost of capital is equal to minimum required return

Existing investment in a project is not treated as sunk cost

Timing of cash flows is relevant

Solution

Question 3

Long-term decisions

Short-term decisions

Both A and B

Neither A nor B

Solution

Question 4

Sunk costs are ignored

Opportunity costs are excluded

Incremental cash flows are considered

Relevant cash flows are considered

Solution

Question 5

Earning revenue

Resale

Conversion into cash

Personal purpose

Solution

Question 6

Tax-Effect

Time Value of Money

Required Rate of Return

Rate of Cash Discount

Solution

Question 7

Expansion program.

Merger.

Replacement of an asset.

Inventory level.

Solution

Question 8

Cash flows

Accounting profit

Interest rate on borrowings

Last dividend paid

Solution

Question 9

Incremental profit

Incremental cash flows

Incremental assets

Incremental capital

Solution

Question 10

Sunk Cost

Opportunity Cost

Allocated Overheads

Both A and C

Solution

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