Capital Investment Decisions & Termloans
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Accounting and Financial Management for Bankers — JAIIB.
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Free sample — 8 of 66 rapid-fire Q&A cards.
What is capital investment decision in the context of banking?
Capital investment decision refers to the process of allocating long-term funds to projects or assets that are expected to generate returns over a period exceeding one year. It involves evaluating the viability and profitability of proposed investments.
What is the difference between capital expenditure and revenue expenditure in banking?
Capital expenditure creates long-term assets; revenue expenditure is for short-term operations.
What does Net Present Value (NPV) represent in capital budgeting?
NPV is the difference between the present value of future cash inflows and the initial investment outlay, discounted at the required rate of return. A positive NPV indicates that the investment adds value to the firm.
What is the Time Value of Money concept used in capital budgeting?
A rupee today is worth more than a rupee received in the future.
What is the decision rule for accepting a project using NPV?
A project should be accepted if its NPV is positive (greater than zero) and rejected if the NPV is negative. When comparing mutually exclusive projects, the one with the higher positive NPV is preferred.
What is the formula for calculating Net Present Value of a project?
NPV equals present value of cash inflows minus initial investment.
How is the Internal Rate of Return (IRR) defined?
IRR is the discount rate at which the NPV of a project equals zero, meaning the present value of cash inflows exactly equals the initial investment. It represents the project's expected rate of return.
What is the opportunity cost of capital in investment appraisal?
Return foregone by not investing in the next best alternative.
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