Question

1. Which of the following is not a method that can be used to analyze a potential investment?

1. Net Present Value
2. Internal Rate of Return
3. Opportunity Cost Analysis
4. Payback method

2. Which of the following statements about different budgeting techniques is not true?

A. Budget ratcheting tightens targets when performance fails to meet the target by a predetermined percentage

B. Budget lapsing prevents managers from hoarding funds

C. Master(static) budgets are prepared for a single level of activity

D.    Budget lapsing encourages managers to spend money regardless of cost or value

3. The organizational process of budgeting performs several important functions. Which is true?

A. Assigns decision rights

B. Shares knowledge

C. Measures performance

D. All of the choices are correct

4) You are going to dinner with three friends, one who likes steak, another who is a wine connoisseur, and the third who is a vegetarian (which is assumed to be the least expensive). Which is true?

A. How the bill is shared has no effect on what and how much people choose to eat

B. Equal sharing of the bill ensures that people order a similar dollar amount of food

C. The wine-drinker will argue for equal shares, and will drink as fast (and/or as much) as possible

D. The vegetarian will be better off with equal shares

Answer 1

The correct answer is Option C.

Opportunity cost analysis is not a method to analyse potential investment.

NPV discounts the future cash flows to bring it to its present value and initial investment is subtracted from that amount. The negative or positive NPV is used to analyse the potential investment.

Internal Rate of Return (IRR) calculates the discount rate at which net present value is zero.

Payback method determines the the number of years the in which the investment amount would be recovered.

Option A, B and D is incorrect, as NPV, Internal Rate of Return, and Payback Method are methods to analyze and evaluate potential investment.