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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.