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MGT 201 Spring Semester 2008
Quiz 01

Total marks: 10

Choose the correct option:

1. The benefit we expect from a project is expressed in terms of:

a. Cash in flows
b. Cash out flows
c. Cash flows
d. Returns

2. A plant space is allocated to a project. If this space can be used for some other
project then, for project evaluation we must consider its:

a. Opportunity cost
b. Sunk cost
c. Recoverable past cost
d. Irrecoverable past costs.

3. In case of project evaluation, when capital investments contain Current asset

component, it is treated as part of:

a. Working capital
b. Operating cash inflows
c. Capital investment
d. Additional cash inflow

4. If the cash flow stream for a project is NOT a uniform series of inflows. Initial
outflow occur at time 0. 15% discount rate produces a resulting present value of
Rs. 104,000 (approximately) that is greater than the initial cash outflow of Rs.
100,000. Now if we want to calculate the best discount rate:

a. We need to try a higher discount rate

b. We need to try a lower discount rate
c. 15% is the best discount rate
d. Interpolation is not required here

5. Which of the following technique would be used for a project that has non –
normal cash flows?

a. Internal rate of return

b. Multiple internal rate of return
c. Modified internal arte of return
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MGT 201 Spring Semester 2008
Quiz 01

d. Net present value

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MGT 201 Spring Semester 2008
Quiz 01

6. A capital budgeting technique that is NOT considered as a discounted cash flow

method is:
a. Payback period
b. Internal rate of return
c. Net present value
d. Profitability index

7. To select the combination of investment proposals that will provide the greatest
increase in the value of the firm within the budget ceiling constraint is:

a. Cash budgeting
b. Capital budgeting
c. Capital rationing
d. Capital expenditure

8. For issuance of bond, the discount or capitalization rate, applied to the cash flow
stream will differ among bonds depending upon the:

a. Risk and return

b. Risk structure
c. Risk free rate
d. Premium for risk

9. AT & T and General Electric Company have exceptionally strong credit positions.
They are such strong that they don’t have to put up property as security for debt
issue. The debt instrument they would use to borrow money is:

a. Mortgage bonds
b. Indentures
c. Debentures
d. T-bills

10. If a bond’s
Market required rate of return 13%
Stated coupon rate 12%

In case of bond discount, price for this bond:

a. Will be less then its face value

b. Will be more than its face value
c. Depends upon the market conditions
d. Cannot be determined
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MGT 201 Spring Semester 2008
Quiz 01