Which of the following is correct for capital employed?

• A) Profit × capital employed
• B) Profit + capital employed
• C) Profit – capital employed
• D) Profit ÷ capital employed

R & D department of a toy manufacturing company has developed a report suggesting the company to diversify its production line into stuff toys. The cost incurred on this report is known as:

• A) Operating cost
• B) Opportunity cost
• C) Sunk cost
• D) Relevant cost

Which of the following is a method of “capital budgeting”?

• A) Accounting rate of return
• B) Net present value
• C) Payback period
• D) All of the given options

Contribution margin per unit is Rs. 60; sold units are 1,000 and fixed cost is Rs. 50,000.
Required: Identify the profit/loss with the help of provided data.

• A) Rs. 60,000 loss
• B) Rs. 10,000 loss
• C) Rs. 60,000 profit
• D) Rs. 10,000 profit

You have decided to use present value method to a proposed project. What is the condition for acceptance of the project?

• A) NPV is at break-even
• B) NPV is Positive
• C) FPV is greater than investment
• D) NPV is Negative

ABC Company has currently option to work on seven projects but only four projects are with positive Net Present Value (NPV). Total cost to opt these four projects is Rs. six million but the management of the company has imposed limit of Rs. four million for these projects.
Keep into consideration the above mentioned restriction, this situation is known as:

• A) Capital rationing
• B) Capital funding
• C) Capital budgeting
• D) Capital expenditure

In case of IRR the NPV……………. is equal to ZERO, while in case of MIRR the NPV of terminal cash flows………….. is equal to investment.

• A) Positive, Zero
• B) Zero, break-even point
• C) Negative, negative
• D) Negative, Zero

It is assumed that the initial investment for “Project B” is Rs. 170,000. Cash flows are Rs. 40,000, Rs. 90,000, and Rs. 40,000 in the first, second third year respectively.
Required: Identify the payback period of Project B.

• A) 2.80 year
• B) 2.00 year
• C) 3.00 year
• D) 2.40 year

Following information has been extracted from ABC Company to find out the manufacturing cost per unit.
Direct Material: Rs. 6,520 per unit; Direct Labor: Rs. 3,000 per unit; over head cost: Rs. 1,500 per unit.

• A) Rs. 8,020
• B) Rs. 9,520
• C) Rs. 4,500
• D) Rs. 11,020

Following information has been extracted for the year to calculate the capital turnover of RC Company.
Average invested capital: Rs. 340,000 and Net income: Rs. 250,000 and Sales revenue: Rs.700,000
Find the capital turnover with the help of provided information.

• A) 0.14 times
• B) 1.36 times
• C) Required more data to calculate the capital turnover
• D) 2.05 times

Which of the following is a basic characteristic of capital budgeting?

• A) Analysis of potential projects.
• B) Long-term decisions; involve large expenditures.
• C) Determine worth of long term investment
• D) All of the given options

Which of the following is not a weakness of payback period method?

• A) Easy to calculate and understand
• B) Ignores the Time Value of Money
• C) Ignores CFs occurring after payback period
• D) No specification of acceptable payback

Which of the following is (are) objective(s) of pricing?

• A) To know the theoretical economic background to pricing.
• B) All of the given options
• C) To be able to use cost-plus pricing.
• D) To know the differences between full cost pricing, rate of marginal pricing.

Following information has been extracted for the year to calculate the Residual Income of XYZ Company.
Cost of Capital: Rs. 340,000 and Net income: Rs. 500,000 and Sles: Rs.750, 000
Find the Residual Income with the help of provided information.

• A) Rs. 160,000
• B) Required more information
• C) Rs. 410,000
• D) Rs. 250,000

Present value of outflows= Rs. 365,500
Present value of inflows= Rs. 269,300
Profitability index= ?

• A) 0.74
• B) 1.36
• C) 1.46
• D) 1.51

The probability for economic recession in a given country is 0.2 and the NPV of a project under consideration by an organization there is -500,000 Rs. What is Expected Net Present value for it?

• A) -200,000 Rs.
• B) -250,000 Rs.
• C) -500,000 Rs.
• D) -100,000 Rs.

Which of the following is correct for Economic Value Added (EVA)?

• A) EVA = Net operating profit after tax – capital charge
• B) EVA = Net operating profit after tax + Total investment
• C) EVA = Net operating profit after tax – Total investment
• D) EVA = Net operating profit after tax + capital charge

Division Y of automobile spare parts; manufactures motors and budgets to transfer 72 motors to Division Z and to sell 48 motors to external customers. The standard cost information per motor for Division Y is as follows:
Variable cost per motor: Rs. 100 per motor; fixed production overhead and fixed selling & administrative overhead per motor: Rs. 150. In order to set the external selling price the company uses a 44 % mark up on total standard cost.
Required: Identify the sales if the transfer price is set at marginal cost.

• A) Rs. 24,480
• B) Rs. 10,000
• C) Rs. 17,280
• D) Rs. 7,200

Which of the following statement is correct for “Residual Income”?

• A) Earned income – investment
• B) Return on investment – investment charge
• C) Earned income – expenses for the period
• D) Earned income – investment charge

Which of the following is an advantage of IRR?

• A) All of the given options
• B) Results are expressed as a simple percentage
• C) It indicates how sensitive decisions are to a change in interest rates
• D) It takes into account the time value of money