#1
Which of the following is a characteristic of a capital budgeting decision?
It involves long-term investment in projects or assets.
ExplanationCapital budgeting involves evaluating and selecting long-term investment projects or assets.
#2
What is the primary goal of financial management?
Maximizing shareholder wealth
ExplanationFinancial management aims to maximize the wealth of shareholders by making sound investment and financing decisions.
#3
What does the concept of time value of money imply?
A dollar today is worth more than a dollar in the future
ExplanationTime value of money principle asserts that a dollar today is worth more than the same dollar in the future due to earning potential.
#4
In financial markets, what does the term 'liquidity' refer to?
The ease of converting assets into cash without significant loss
ExplanationLiquidity refers to the ease of converting assets into cash quickly without significant loss in value.
#5
Which financial statement shows a company's revenues and expenses over a specific period?
Income Statement
ExplanationIncome Statement displays a company's revenues and expenses over a defined period, indicating its profitability.
#6
Which financial ratio measures a company's ability to meet its short-term obligations with its most liquid assets?
Current Ratio
ExplanationCurrent Ratio assesses a company's ability to cover short-term liabilities with its most liquid assets.
#7
What does the Net Present Value (NPV) method consider in capital budgeting decisions?
Future cash flows
ExplanationNPV method considers the present value of future cash inflows and outflows to assess project profitability.
#8
What is the purpose of a sensitivity analysis in financial decision making?
To assess the impact of changing variables on project outcomes
ExplanationSensitivity analysis evaluates how changes in variables affect the outcomes of financial decisions or projects.
#9
Which of the following is a measure of a company's profitability relative to its assets?
Return on Assets (ROA)
ExplanationROA measures a company's ability to generate profit from its assets.
#10
What does the term 'cost of capital' represent in financial decision making?
The return required by investors for providing capital to a project
ExplanationCost of capital represents the rate of return required by investors for providing funds to finance a project.
#11
What is the Modigliani-Miller theorem primarily concerned with?
Capital structure irrelevance in a perfect market
ExplanationModigliani-Miller theorem suggests that, in a perfect market, capital structure decisions do not affect firm value.