Module 2
Multiple Choice Questions (MCQs)
1. Time Value of Money (TVM) means:
A. Money loses value over time
B. Money today is worth more than the same amount in the future
C. Money value is constant
D. Inflation reduces purchasing power
Answer: B
2. Which of the following considers the time value of money?
A. Payback Period
B. ARR
C. IRR
D. None of the above
Answer: C
3. The Present Value (PV) of ₹1000 receivable after one year at 10% discount rate is:
A. ₹900
B. ₹909
C. ₹1000
D. ₹1100
Answer: B
4. The Net Present Value (NPV) method:
A. Ignores time value
B. Measures profitability
C. Only considers cash inflows
D. Gives percentage return
Answer: B
5. Which capital budgeting method gives the time needed to recover initial investment?
A. IRR
B. NPV
C. Payback Period
D. PI
Answer: C
6. If NPV > 0, the project is:
A. Unprofitable
B. Risky
C. Acceptable
D. To be ignored
Answer: C
7. Internal Rate of Return (IRR) is the rate that makes:
A. NPV zero
B. Payback period minimum
C. ARR maximum
D. PI equal to 1
Answer: A
8. Accounting Rate of Return (ARR) uses:
A. Discounted cash flows
B. Net present value
C. Average accounting profits
D. IRR
Answer: C
9. Profitability Index (PI) is calculated as:
A. NPV / Initial Investment
B. PV of inflows / PV of outflows
C. IRR / NPV
D. Payback / IRR
Answer: B
10. The formula for Future Value (FV) is:
A. FV = PV / (1+r)^n
B. FV = PV × (1+r)^n
C. FV = PV × r × n
D. FV = NPV / IRR
Answer: B
11. Discounting is the process of finding:
A. Future value
B. Present value
C. IRR
D. ARR
Answer: B
12. The IRR decision rule is to accept the project if:
A. IRR < Cost of capital
B. IRR > NPV
C. IRR > Cost of capital
D. IRR = 0
Answer: C
13. Which of these ignores the time value of money?
A. NPV
B. PI
C. IRR
D. ARR
Answer: D
14. Which method is best when capital is rationed?
A. Payback
B. ARR
C. IRR
D. PI
Answer: D
15. What does a PI of 1.5 indicate?
A. Break-even
B. 50% more return than cost
C. 15% return
D. Project rejection
Answer: B
16. Traditional methods of capital budgeting include:
A. NPV and IRR
B. ARR and Payback
C. PI and IRR
D. NPV and PI
✅ Answer: B
17. Which method considers both magnitude and timing of cash flows?
A. ARR
B. Payback
C. NPV
D. None
Answer: C
18. Which is a disadvantage of Payback Period method?
A. Complex to use
B. Ignores time value and cash flows after payback
C. Uses too many assumptions
D. Too futuristic
Answer: B
19. In IRR method, when cash flows are unconventional:
A. One IRR always exists
B. Multiple IRRs may exist
C. IRR equals NPV
D. IRR doesn't work
Answer: B
20. If NPV = 0, the project:
A. Is rejected
B. Is unprofitable
C. Breaks even
D. Cannot be evaluated
Answer: C
Fill in the Blanks
-
The __________ value of money is higher than its future value.
Answer: present -
NPV is the difference between present value of inflows and __________.
Answer: outflows -
Payback period ignores the __________ value of money.
Answer: time -
IRR is the rate at which NPV becomes __________.
Answer: zero -
ARR stands for __________ Rate of Return.
Answer: Accounting -
PI stands for __________ Index.
Answer: Profitability -
The future value of ₹1000 in 2 years at 10% interest = ₹__________.
Answer: 1210
(Formula: FV = 1000 × (1+0.10)^2 = 1210) -
Capital budgeting decisions are generally __________ in nature.
Answer: long-term -
The __________ method uses average accounting profit and investment.
Answer: ARR -
A project with PI less than 1 is considered __________.
Answer: unacceptable
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