Investment Decisions

Amounts are Rs lakh and ordinary share counts are lakh shares unless stated otherwise. 30 original test MCQs, 2 marks each. Practice and separate-test stems differ. T001-T010 use one shared case below; T011-T030 stand alone.

Original practice, not official ICAI questions or suggested answers. Scores are temporary and not synced to Study Hub. Contract/current-rule/accounting/tax boundaries are included in the review pack.

Not scored yet.

Cedar Components: shared case for T001-T010

Shared case: Cedar Components, T 001-T 010 Cedar considers one independent four-year project. At time 0, asset including installation costs Rs 100 lakh and net working capital requires Rs 10 lakh. Asset accounting/tax depreciation is straight-line Rs 20 lakh yearly, leaving taxbook/book residual Rs 20 lakh after year 4. Annual incremental sales are Rs 80 lakh and cash operating costs Rs 40 lakh. Corporate tax 25% is immediately payable/usable on the positive specified income. No financing interest or equity dividend is subtracted in these operating project cash flows; use matching discount rate 10%. All operating receipts/payments occur at each yearend. At end year 4, sell the asset for Rs 20 lakh; the case's disposal tax model has no tax because sale equals taxbook. Working capital 10 is explicitly fully recovered then. No midlife capex, extra cash flows, inflation or loss-tax-relief uncertainties are included. All amounts are Rs lakh. For strict dated cash recovery, only yearend receipts exist. If a question explicitly switches to conventional uniform operating cash within a year, label that different assumption and keep terminal extra 30 only at year 4. For ARR, use average asset capital=(100+20)/2 plus full WC 10 held throughout. Each first 10 question is independently scored, not dependent on a preceding answer. This is original practice, not current-law assurance or a purchase instruction.

Plan comparison	Value / stated unit
Case tax rate, percent	25
Discount rate, percent	10
Time 0 outlay, Rs lakh	110

FM-C07-T001 · 2 marks

Read shared case

At time 0, total incremental project outlay?

A. 110 lakh. B. 90 lakh reversing WC. C. 100 lakh excluding WC. D. 120 lakh double WC.

FM-C07-T002 · 2 marks

Read shared case

Annual accounting PAT?

A. 35 lakh OCF. B. 30 lakh ignoring depreciation. C. 20 lakh EBIT. D. 15 lakh.

FM-C07-T003 · 2 marks

Read shared case

Annual operating cash flow?

A. 35 lakh. B. 55 lakh double depreciation. C. 15 lakh PAT only. D. 40 lakh pre tax cash.

FM-C07-T004 · 2 marks

Read shared case

End year 4 total project cash flow?

A. 55 lakh excludes WC. B. 35 lakh excludes terminal extras. C. 65 lakh. D. 30 lakh terminal extras only.

FM-C07-T005 · 2 marks

Read shared case

At 10%, project NPV?

A. 131.43569 lakh PV only. B. 60 lakh un discounted net. C. About 21.43569 lakh. D. -21.43569 reversed sign.

FM-C07-T006 · 2 marks

Read shared case

At 10%, PI?

A. .194870 NPV per outlay. B. 1.314357 using asset 100 only. C. About 1.194870. D. .836911 reciprocal.

FM-C07-T007 · 2 marks

Read shared case

ARR on specified average asset plus WC capital?

A. 25% omitting WC. B. 50% using OCF. C. 13.6364% initial total basis. D. 21.4286%.

FM-C07-T008 · 2 marks

Read shared case

Strict yearend receipts: when is cumulative investment recovered?

A. End year 3. B. End year 4. C. Never. D. Exactly 3.142857 under unchanged strictly year end timing.

FM-C07-T009 · 2 marks

Read shared case

Finance/reinvestment rates 10%; MIRR over 4 years?

A. 10% by definition. B. About 15.0066%. C. 19.4870% NPV ratio. D. 17.8416% IRR.

FM-C07-T010 · 2 marks

Read shared case

Which appraisal statement is justified?

A. Payback 4 years proves every cash obligation met. B. Study case authorise s buying the asset. C. Positive NPV under stated cash/return; feasibility and risk need verification, not actual spending authorisation. D. ARR automatically guarantees market return.

FM-C07-T011 · 2 marks

A road must be built if a factory is accepted. Appraisal treatment?

A. Treat road as independent optional benefit with no cost. B. Ignore road because called infrastructure. C. Include the necessary linked project cash flows and feasibility. D. Accept factory on revenue alone.

FM-C07-T012 · 2 marks

Required capex 20 at end year 2, discount 10%. Present cost?

A. 16.52893 lakh. B. 18.1818 lakh one period only. C. 24.2 lakh future value. D. 20 lakh at time 0 without date adjustment.

FM-C07-T013 · 2 marks

Full WC recovery is not established in a real proposal. Best treatment?

A. Always recover all at zero tax guaranteed. B. Ignore WC initial outlay. C. Verify amount/timing/impairment; do not promise recovery by textbook default. D. Depreciate all WC automatically.

FM-C07-T014 · 2 marks

A taxbook disposal loss arises but immediate usable relief is not verified. Treatment?

A. Always credit full tax refund now. B. Treat loss itself as cash sale. C. Deduct both book value and depreciation again. D. Hold timing/eligibility and use explicitly justified tax cash assumptions.

FM-C07-T015 · 2 marks

Initial 100, first two flows 30/40, third year 50 explicitly uniform. Conventional payback?

A. 2.6 years with that stated timing assumption. B. 2 years. C. 1.4 years. D. 3 years despite explicit uniform flow assumption.

FM-C07-T016 · 2 marks

Annual PAT 15, depreciation 20. Which numerator belongs to ARR?

A. Initial cash 110. B. 15 accounting profit, not 35 OCF. C. 20 depreciation alone. D. 35 OCF always.

FM-C07-T017 · 2 marks

PV inflows equals outlay at appropriate discount return. What is established?

A. IRR necessarily zero. B. Zero NPV/value indifference, not zero cash receipts or automatic rejection. C. PI necessarily zero. D. No capital recovery occurs.

FM-C07-T018 · 2 marks

For A[-50, 70], B[-100, 130], incremental B-A IRR?

A. 20%. B. 10% discount rate. C. 40% AIRR. D. 30% BIRR.

FM-C07-T019 · 2 marks

A[-100, 140, 0], B[-100, 0, 160]. Crossover discount rate?

A. 10%. B. 26.4911%. C. 40%. D. 14.2857%.

FM-C07-T020 · 2 marks

Same timing projects at 10%: higher NPV?

A. Both equal NPV. B. Neither value positive. C. B 32.2314 versus A 27.2727, though A higher IRR. D. A because IRR 40% always wins.

FM-C07-T021 · 2 marks

Flows[-100, 230, -132], discount 15%. NPV?

A. -15 lakh. B. About+.189036 lakh; check value directly despite two IRRs. C. 20 lakh largest IRR as NPV. D. Exactly zero at 15% midpoint by rule.

FM-C07-T022 · 2 marks

NPV discounts cash at the required return. Which additional claim is unsafe?

A. Timing affects present value. B. Appropriate risk/return matters. C. MIRR explicitly supplies reinvestment rate. D. Literal reinvestment of every receipt at that rate is necessary for the arithmetic NPV value.

FM-C07-T023 · 2 marks

PI efficiency ordering is used to split a physically indivisible machine project. What is wrong?

A. NPV never matters. B. Divisibility/linear proportional benefits were not established. C. Budget constraint disappears. D. Every project can be split by definition.

FM-C07-T024 · 2 marks

Budget 100; A 60 NPV 30, B 50 NPV 26, C 50 NPV 25; C requires A. Which can no longer be assumed feasible?

A. B alone. B. A alone. C. No project whatsoever. D. B+C without A.

FM-C07-T025 · 2 marks

Old cash cost 25/new 8; old dep 4/new 18; tax 25%. Incremental annual OCF?

A. 17 before tax. B. 16.2 from rounding incorrectly. C. 2.25 PAT only. D. 16.25 lakh.

FM-C07-T026 · 2 marks

New net residual 8/old net 4, WC increment 5 released. Terminal extra beyond annual OCF?

A. 9 lakh. B. 13 ignores old foregone residual. C. 4 residual only. D. 5 WC only.

FM-C07-T027 · 2 marks

Real 30/year for 3 years, cost 70, real discount 10%. NPV?

A. -4.60556 sign flip. B. 4.60556 lakh. C. 74.60556 PV only. D. 20 un discounted net.

FM-C07-T028 · 2 marks

Outlay 110, 35 OCF for 3 years, terminal extra 28, 10%. Constant annual OCF for zero NPV?

A. 28 terminal only. B. 35 exact despite negative base NPV. C. 110/3=36.6667 ignoring discount/terminal. D. 35.773414 lakh.

FM-C07-T029 · 2 marks

Scenario NPVs-20/+10/+40 probabilities.25/.5/.25. Probability of negative NPV in this model?

A. 25%, not zero just because expected NPV 10. B. 0%. C. 100%. D. 50%.

FM-C07-T030 · 2 marks

Unequal-life choices cannot be repeated and terminal opportunities differ. Best comparison approach?

A. Ignore salvage. B. Always longest life. C. Use actual horizon/terminal options instead of imposing identical renewal cycles. D. Always choose greatest annualised NPV with invented repeats.