#1
What does the Payback Period represent in financial decision-making?
The time it takes to recover the initial investment
ExplanationTime taken to recover initial investment.
#2
What is the primary goal of financial management in a business?
Maximizing shareholder wealth
ExplanationPrimary goal is maximizing shareholder wealth.
#3
Which financial statement provides a snapshot of a company's financial position at a specific point in time?
Balance Sheet
ExplanationProvides snapshot of financial position at a point in time.
#4
Which financial evaluation method measures an investment's profitability by comparing the present value of its expected cash flows to the initial investment?
Net Present Value (NPV)
ExplanationCompares present value of cash flows to initial investment.
#5
What does the Profitability Index (PI) indicate in financial analysis?
The ratio of net present value to initial investment
ExplanationIndicates ratio of NPV to initial investment.
#6
Which financial ratio measures a company's ability to pay off its short-term liabilities with its current assets?
Current Ratio
ExplanationMeasures ability to pay short-term liabilities with current assets.
#7
What does the Debt-to-Equity Ratio indicate about a company's financial leverage?
The proportion of debt financing relative to equity financing
ExplanationIndicates proportion of debt financing relative to equity.
#8
Which of the following is NOT a component of the Time Value of Money (TVM)?
Discounted Value
ExplanationDiscounted Value is not a component of TVM.
#9
Which of the following statements about the Internal Rate of Return (IRR) is true?
It assumes reinvestment of cash inflows at the project's cost of capital
ExplanationAssumes reinvestment of cash inflows at project's cost of capital.
#10
Which financial evaluation method assumes that cash flows generated by an investment are reinvested at the project's rate of return?
Internal Rate of Return (IRR)
ExplanationAssumes reinvestment of cash flows at project's rate of return.
#11
Which of the following statements about the Discounted Payback Period is true?
It considers all cash flows after the payback period
ExplanationConsiders all cash flows after payback period.
#12
What is the formula to calculate Return on Investment (ROI)?
(Net Profit / Cost of Investment) * 100%
ExplanationROI formula: (Net Profit / Cost of Investment) * 100%.
#13
What is the formula to calculate the Future Value (FV) of a single sum investment?
FV = PV * (1 + r)^n
ExplanationFV formula: FV = PV * (1 + r)^n.
#14
What is the main drawback of using the Payback Period as an investment evaluation method?
It does not consider the time value of money
ExplanationDoes not consider the time value of money.
#15
What is the formula to calculate Net Present Value (NPV)?
NPV = Present Value of Cash Inflows - Initial Investment
ExplanationNPV formula: NPV = Present Value of Cash Inflows - Initial Investment.