#1
Which financial metric is commonly used to assess the profitability of a project?
Net Present Value (NPV)
ExplanationNPV assesses project profitability by comparing the present value of cash inflows and outflows.
#2
Which of the following is a qualitative method for project evaluation?
SWOT Analysis
ExplanationSWOT analysis evaluates a project's strengths, weaknesses, opportunities, and threats qualitatively.
#3
What does the Payback Period measure?
The time it takes for a project to repay its initial investment
ExplanationPayback period measures the duration required for a project to recoup its initial investment.
#4
Which ratio is typically used to assess a company's ability to meet its short-term liabilities with its short-term assets?
Current Ratio
ExplanationCurrent ratio evaluates a company's capability to cover short-term liabilities with its short-term assets.
#5
In risk management, what is the primary purpose of diversification?
To spread out investment across various assets to reduce risk
ExplanationDiversification aims to mitigate risk by allocating investments across diverse assets.
#6
What is the significance of the 'Break-Even Point' in financial analysis?
It is the point at which the total revenues equal the total costs, indicating no profit or loss
ExplanationBreak-even point denotes the level of output where total revenue equals total costs, signifying neither profit nor loss.
#7
What does the Internal Rate of Return (IRR) indicate about a project?
The discount rate that makes the NPV of all cash flows from a project equal to zero
ExplanationIRR represents the discount rate at which the NPV of a project becomes zero, indicating its rate of return.
#8
Which of the following best describes 'Market Risk'?
All of the above
ExplanationMarket risk encompasses risks associated with interest rates, currency fluctuations, and changes in market prices.
#9
What is 'Sensitivity Analysis' used for in project evaluation?
To assess how sensitive a project's outcome is to changes in underlying assumptions
ExplanationSensitivity analysis evaluates the impact of varying parameters on a project's outcome to understand risks.
#10
In the context of project evaluation, what does 'Scenario Analysis' involve?
Evaluating the project's performance under different hypothetical scenarios to understand potential risks and returns
ExplanationScenario analysis assesses how a project performs under different hypothetical situations to gauge risks and returns.
#11
What is the main disadvantage of using the Payback Period as a method of project evaluation?
It does not consider the time value of money
ExplanationPayback period ignores the time value of money, potentially leading to inaccurate assessments of project profitability.
#12
What does the 'Cost of Capital' represent in project evaluation?
The minimum return that a project must generate to be considered viable
ExplanationCost of capital signifies the minimum return a project should yield to justify its investment.
#13
In the context of financial risk analysis, what does 'Value at Risk (VaR)' measure?
The maximum potential loss in value of a portfolio over a defined period for a given confidence interval
ExplanationVaR quantifies the maximum potential loss a portfolio may face within a specified timeframe and confidence level.
#14
What is 'Monte Carlo Simulation' used for in financial risk analysis?
To model the probability of different outcomes in a process that cannot easily be predicted due to the intervention of random variables
ExplanationMonte Carlo simulation employs random variables to simulate various outcomes and assess their probabilities.
#15
How is 'Economic Value Added (EVA)' used in financial analysis?
To measure a company's financial performance based on the residual wealth calculated by deducting its cost of capital from its operating profit
ExplanationEconomic Value Added measures a company's financial performance by subtracting its cost of capital from its operating profit.
#16
What role does 'Corporate Governance' play in risk management?
Provides a framework for attaining a company's objectives, encompassing practically every sphere of management, from action plans and internal controls to performance measurement and corporate disclosure
ExplanationCorporate governance establishes structures and processes to ensure sound management practices, including risk management, throughout an organization.