Financial Management - Study Mode
[#211] In estimating value of cash flows, compounded future value is classified as its
Correct Answer
(A) terminal value
Explanation
Solution: In estimating value of cash flows, compounded future value is classified as its terminal value. Terminal value (TV), or horizon value, determines the value of a business or project beyond the forecast period when future cash flows can be estimated.
[#212] In capital budgeting, a technique which is based upon discounted cash flow is classified as
Correct Answer
(A) net present value method
Explanation
Solution: In capital budgeting, a technique which is based upon discounted cash flow is classified as net present value method. Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time.
[#213] An increase in marginal cost of capital and capital rationing are two arising complications of
Correct Answer
(C) optimal capital budget
Explanation
Solution: An increase in marginal cost of capital and capital rationing are two arising complications of optimal capital budget. The optimal capital budget is an amount of investment that allows shareholder value to be maximized.
[#214] An initial cost is Rs 6000 and probability index is 5.6 then present value of cash flows will be
Correct Answer
(C) Rs 33,600.00
Explanation
Solution: Present value of cash flow = Initial cost × Profitability index
= 6000 × 5.6 = Rs. 33600.00.
[#215] In large expansion programs, increased riskiness and floatation cost associated with project can cause
Correct Answer
(A) rise in marginal cost of capital
Explanation
Solution: In large expansion programs, increased riskiness and floatation cost associated with project can cause rise in marginal cost of capital. Marginal cost of capital is the weighted average cost of the last dollar of new capital raised by a company. It is the composite rate of return required by shareholders and debt-holders for financing new investments of the company.