Financial Management Set 28
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This set of Financial Management Multiple Choice Questions & Answers (MCQs) focuses on Financial Management Set 28
Q1 | Which of the following would be included in a cash estimation/ budget?
- depreciation charges.
- dividends.
- goodwill.
- patent amortization.
Q2 | Which of the following is NOT a cash outflow for the firm?
- depreciation.
- dividends.
- interest payments.
- taxes.
Q3 | Which of the following would be considered a application of funds?
- a decrease in accounts receivable.
- a decrease in cash.
- an increase in account payable.
- an increase in cash.
Q4 | All of the following influence capital budgeting cash flows EXCEPT:
- accelerated depreciation.
- salvage value.
- tax rate changes.
- method of project financing used.
Q5 | The estimated benefits from a project are expressed as cash flows instead of incomeflows because:
- it is simpler to calculate cash flows than income flows.
- it is cash, not accounting income, that is central to the firm's capital budgeting decision.
- this is required by the Internal Revenue Service.
- this is required by the Securities and Exchange Commission.
Q6 | A capital investment is one that
- has the prospect of long-term benefits.
- has the prospect of short-term benefits.
- is only undertaken by large corporations.
- applies only to investment in fixed assets.
Q7 | A profitability index of .85 for a project means that:
- the present value of benefits is 85% greater than the project's costs.
- the project's NPV is greater than zero.
- the project returns 85 cents in present value for each current dollar invest
Q8 | Which of the following statements is correct?
- If the NPV of a project is greater than 0, its PI will equal 0.
- If the IRR of a project is 0%, its NPV, using a discount rate, k, greater than 0, will be 0.
- If the PI of a project is less than 1, its NPV should be less than 0.
- If the IRR of a project is greater than the discount rate, k, its PI will be less than 1 and its NPV will be greater than 0.
Q9 | A project's profitability index is equal to the ratio of the of a project's future cashflows to the project's .
- present value; initial cash outlay
- net present value; initial cash outlay
- present value; depreciable basis
- net present value; depreciable basis
Q10 | The discount rate at which two projects have identical is referred to as Fisher's rate of intersection.
- present values
- net present values
- IRRs
- profitability indexes
Q11 | Two mutually exclusive investment proposals have "scale differences" (i.e., the cost of the projects differ). Ranking these projects on the basis of IRR, NPV, and PI methods give contradictory results.
- will never
- will always
- may
- will generally
Q12 | Preferred shareholders' claims on assets and income of a firm come those of creditors those of common shareholders.
- before; and also before
- after; but before
- after; and also after
- equal to; and equal to
Q13 | You are considering two mutually exclusive investment proposals, project A and project B. B's expected value of net present value is $1,000 less than that for A and A has less dispersion. On the basis of risk and return, you would say that
- Project A dominates project B.
- Project B dominates project A.
- Project A is more risky and should offer greater expected value.
- Each project is high on one variable, so the two are basically equal.
Q14 | To increase a given present value, the discount rate should be adjusted
- upward.
- downward.
- No change.
- constant
Q15 | In finance, "working capital" means the same thing as
- total assets.
- fixed assets.
- current assets.
- current assets minus current liabilities.
Q16 | Which of the following would be consistent with a more aggressive approach to financing working capital?
- Financing short-term needs with short-term funds.
- Financing permanent inventory buildup with long-term debt.
- Financing seasonal needs with short-term funds.
- Financing some long-term needs with short-term funds.
Q17 | Which asset-liability combination would most likely result in the firm's having the greatest risk of technical insolvency?
- Increasing current assets while lowering current liabilities.
- Increasing current assets while incurring more current liabilities.
- Reducing current assets, increasing current liabilities, and reducing long-term debt.
- Replacing short-term debt with equity.
Q18 | Which of the following illustrates the use of a hedging (or matching) approach to financing?
- Short-term assets financed with long-term liabilities.
- Permanent working capital financed with long-term liabilities.
- Short-term assets financed with equity.
- All assets financed with 50 percent equity, 50 percent long-term debt mixture.
Q19 | In deciding the appropriate level of current assets for the firm, management is confronted with
- a trade-off between profitability and risk.
- a trade-off between liquidity and marketability.
- a trade-off between equity and debt.
- a trade-off between short-term versus long-term borrowing.
Q20 | varies inversely with profitability.
- Liquidity.
- Risk.
- Financing.
- Liabilities.
Q21 | Spontaneous financing includes
- accounts receivable.
- accounts payable.
- short-term loans.
- a line of credit.
Q22 | Permanent working capital
- varies with seasonal needs.
- includes fixed assets.
- is the amount of current assets required to meet a firm's long-term minimum needs.
- includes accounts payable
Q23 | Financing a long-lived asset with short-term financing would be
- an example of "moderate risk -- moderate (potential) profitability" asset financing.
- an example of "low risk -- low (potential) profitability" asset financing.
- an example of "high risk -- high (potential) profitability" asset financing.
- an example of the "hedging approach" to financing.
Q24 | Net working capital refers to
- total assets minus fixed assets.
- current assets minus current liabilities.
- current assets minus inventories.
- current assets.
Q25 | Marketable securities are primarily
- short-term debt instruments.
- short-term equity securities.
- long-term debt instruments.
- long-term equity securities.