NPTEL Course
Financial Management
Assignment IV
1. The present value of an annuity due is equal to the present value of a regular annuity
multiplied by:
a. r
b. (1 + r)
c. 1 / r
d. r (1 + r)
2. The present value of a perpetuity of one rupee when the interest rate is r percent is:
a. 1 / r
b. 1 / r2
c. 1 / r0.5
d. 2r2
3. If the effective rate of interest compounded quarterly is 16%, then the nominal rate of
interest is:
a. 14.6%
b. 15%
c. 14.8%
d. 15.12%
4. In which of the following time value of money is not considered?
a. Payback period
b. NBCR
c. IRR
d. Both b and c
5. Present value interest factor of a perpetuity represents
a. Interest rate in percentage terms
b. Reciprocal of interest rate in percentage terms
c. Reciprocal of interest rate in decimal terms
d. None of the above
6. In capital budgeting, positive net present value results in
a. negative economic value added
b. percent economic value added
c. zero economic value added
d. positive economic value added
7. ABC Company is considering two investments both of which cost Rs. 10,000. The
cash flows are as follows:
Year Project A Project B
1 Rs. 6,000 Rs. 5,000
2 4,000 3,000
3 3,000 8,000
Based on the net present value method, assuming a cost of capital of 10%, which of
the two projects should be chosen?
a. Project A which has a net present value of Rs. 11,014
b. Project A which has a net present value of Rs. 1,014
c. Project B which has a net present value of Rs. 13,035
d. Project B which has a net present value of Rs. 3,035.
8. ________ of a project is the sum of all present values of all cash inflows minus
present value of outflows?
a. payback period
b. NPV
c. BCR
d. IRR
9. Which of the following statements is true?
a. Investments that have a positive net present value should be considered for
acceptance
b. Investments that have a positive net present value should always be accepted
c. Investments that yield a positive internal rate of return should be accepted
d. Investments that pay back in five years or less should always be accepted
10. The discount factor used to appraise capital investment decisions is a measure of:
a. The opportunity cost of capital of all businesses in the same industry
b. The current inflation rate
c. The opportunity cost of capital of the business
d. The current high street interest rate
11. The NPV rule assumes that the intermediate cash flows of a project are reinvested at a
rate equal to:
a. the cost of capital
b. the cost of equity
c. the IRR
d. the current yield
12. As discount rate increases, NPV of a simple project
a. Increases at a decreasing rate
b. Decreases at an increasing rate
c. Decreases at a decreasing rate
d. None of the above
ANSWER KEY
1(b) 2(a) 3(d) 4(a) 5(c) 6(d)
7(d) 8(b) 9(a) 10(c) 11(a) 12(c)
