Capital Budgeting Decisions in Business Finance : Practice MCQ Questions & Answers with Explanations

The correct answer is B: Ignores cash flows after the payback period.

The payback period method calculates how long it takes to recover the initial investment from net cash inflows. Its main limitation is that it ignores all cash flows occurring after the payback period and does not consider the time value of money. Discounted payback period is the modified version that accounts for time value.

The correct answer is C: NPV is the difference between the present value of cash inflows and the initial investment.

NPV accounts for the time value of money by discounting future cash flows. A positive NPV indicates the project adds value and should be accepted; a negative NPV means it should be rejected. NPV and IRR may occasionally give conflicting decisions when evaluating mutually exclusive projects.

The correct answer is C: 30 per cent.

As per Union Budget 2022, income from the transfer of any virtual/digital asset will be taxed at 30%. No deduction except the cost of acquisition will be allowed, and no loss from such a transaction can be carried forward. Additionally, TDS will be imposed on payments for the transfer of crypto assets at a rate of 1% for transactions above a certain threshold. India's first global cryptocurrency index, tracking the 15 most-traded cryptocurrencies, was launched by CryptoWire (a unit of TickerPlant).

The correct answer is C: 14 per cent.

In the Union Budget 2022, the tax deduction limit for both Central and State government employees was increased from 10% to 14%. This helps bring state government employees' social security benefits on par with central government employees. Additionally, a taxpayer can now file an updated return on payment of taxes within two years from the end of the relevant assessment year. Income from transfer of digital assets (cryptocurrency) is charged at 30% tax plus 1% TDS on each transaction.