CFA 2026 Level II Vignettes Corporate Finance Capital Budgeting Free Quiz 3

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CFA 2026 Level II Vignettes Corporate Finance Capital Budgeting Free Quiz 3

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CFA 2026 Level II Vignettes Corporate Finance Capital Budgeting Free Quiz 3

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

General10 MCQs

1. Vignette 5: Capital Budgeting - Case Study: A survey of capital budgeting practices shows that many firms use NPV and IRR. Which method is theoretically preferred and why?

A. NPV is the preferred method because it directly measures value creationB. IRR is always preferred over NPVC. Payback period is the most commonly used primary methodD. All methods give the same decision

2. What is the problem with IRR when a project has non-conventional cash flows?

A. IRR is always uniqueB. Non-conventional cash flows do not affect IRRC. Multiple IRRs are not a problemD. Non-conventional cash flows can lead to multiple IRRs, making NPV the preferred method

3. What is the reinvestment rate assumption in NPV and IRR?

A. Both assume reinvestment at the cost of capitalB. NPV assumes reinvestment at the cost of capital; IRR assumes reinvestment at the IRRC. NPV assumes reinvestment at the IRR; IRR assumes reinvestment at the cost of capitalD. Neither assumes reinvestment

4. What is the modified IRR (MIRR) and how does it improve upon IRR?

A. MIRR is the same as IRRB. MIRR uses the IRR as the reinvestment rateC. MIRR uses the cost of capital as the reinvestment rate and avoids the multiple IRR problemD. MIRR is not used in practice

5. How should inflation be treated in capital budgeting?

A. Inflation does not affect capital budgeting decisionsB. Inflation only affects the cost of capital, not cash flowsC. Nominal cash flows should be discounted at the real rateD. Consistency is required: nominal with nominal, real with real

General10 MCQs

6. Vignette 6: Capital Budgeting - Case Study: After implementing a project, a company reviews its performance against the original projections. What is this process called and why is it important?

A. The post-audit is performed before the project is approvedB. The post-audit compares actual to forecasted results after project implementationC. The post-audit is only for large projectsD. The post-audit is not necessary

7. What are the benefits of a post-audit?

A. The post-audit is purely a compliance exerciseB. The post-audit never leads to changes in forecastingC. The post-audit helps improve forecasting and accountabilityD. The post-audit is only required by regulators

8. What is a hurdle rate in capital budgeting?

A. The hurdle rate is the minimum acceptable rate of return, often the WACCB. The hurdle rate is always the risk-free rateC. The hurdle rate is the same for all projectsD. The hurdle rate is the return on equity

9. How can project risk be incorporated into the capital budgeting analysis?

A. Risk-adjusted discount rates are used only for financial projectsB. The certainty equivalent method adjusts the discount rateC. Both methods ignore riskD. Risk-adjusted discount rates increase the discount rate for riskier projects; certainty equivalents adjust cash flows

10. Should the same hurdle rate be used for all projects?

A. The company's WACC is always the appropriate hurdle rateB. The hurdle rate should be adjusted for the project's riskC. All projects have the same riskD. The hurdle rate is fixed once set

📋 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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