CFA 2026 Level II Vignettes Corporate Finance Capital Budgeting Free Quiz 2

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CFA 2026 Level II Vignettes Corporate Finance Capital Budgeting Free Quiz 2

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CFA 2026 Level II Vignettes Corporate Finance Capital Budgeting Free Quiz 2

Practice CFA 2026 Level II Vignettes Corporate Finance MCQs from Capital Budgeting. Get instant results with Explanation.

General10 MCQs

1. Vignette 3: Capital Budgeting - Case Study: A company is evaluating a new plant. Which cash flows should be included in the capital budgeting analysis?

A. Total cash flows of the firmB. Cash flows including financing costsC. Cash flows before taxD. Incremental after-tax cash flows, excluding sunk costs and including opportunity costs

2. How are sunk costs treated in capital budgeting?

A. Sunk costs should be excluded from the analysisB. Sunk costs should be included as a cash outflowC. Sunk costs are only relevant if they are largeD. Sunk costs are opportunity costs

3. How are opportunity costs treated in capital budgeting?

A. Opportunity costs are not relevantB. Opportunity costs should be included as a cash outflowC. Opportunity costs are only relevant for financial assetsD. Opportunity costs are included in sunk costs

4. How does depreciation affect project cash flows?

A. Depreciation does not affect cash flowsB. Depreciation is a cash outflowC. Depreciation creates a tax shield that increases cash flow by Depreciation × Tax rateD. Depreciation is only relevant for accounting purposes

5. What is the formula for after-tax operating cash flow?

A. (Sales – Expenses) × (1 – Tax)B. EBIT × (1 – Tax)C. EBIT × (1 – Tax) – DepreciationD. (Sales – Cash expenses) × (1 – Tax) + Depreciation × Tax

General10 MCQs

6. Vignette 4: Capital Budgeting - Case Study: A company performs sensitivity analysis on its project's NPV. What does sensitivity analysis involve?

A. It examines the combined effect of changing multiple variablesB. It provides a probability distribution for NPVC. It changes one variable at a time to assess its impactD. It ignores uncertainty in input variables

7. What is scenario analysis?

A. Considers simultaneous changes in multiple variables under different scenariosB. Only changes one variable at a timeC. Provides a single point estimate of NPVD. Ignores correlation between variables

8. What is Monte Carlo simulation in capital budgeting?

A. It uses a single set of assumptionsB. It generates a single NPV valueC. It only works with deterministic variablesD. It simulates thousands of possible outcomes using random inputs to generate a distribution

9. What are real options in capital budgeting?

A. Real options are only related to financial assetsB. Real options are managerial flexibility that can add value to a projectC. Real options are always valued using Black-ScholesD. Real options reduce project uncertainty

10. What is the effect of the abandonment option on project value?

A. It increases the project's riskB. It guarantees a positive NPVC. It provides downside protection and can increase project valueD. It is always exercised at the end of the project life

📋 CFA - Test Online Practice Quizzes

CFA

Conducting Body: CFA Institute

Frequency: 4 times a year (February, May, August, November) | Time: 135 Minutes

Negative Marking: No

⚡ Test Pattern (Total: 90 MCQs):

Alternative Investments: 8 MCQs
Corporate Issuers: 7 MCQs
Derivatives: 5 MCQs
Economics: 7 MCQs
Equity Investments: 12 MCQs
Ethics: 16 MCQs
Financial Statement Analysis: 11 MCQs
Fixed Income: 11 MCQs
Portfolio Management: 9 MCQs
Quant Methods: 6 MCQs

Merit Formula: -

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