#1
Which of the following is a component of project cash flow?
Depreciation expense
ExplanationNon-cash expense affecting cash flow.
#2
Which of the following best describes the term 'cash flow' in financial analysis?
The movement of cash into and out of a business
ExplanationInflux and outflow of funds within an entity.
#3
What does the term 'depreciation' refer to in financial analysis?
The allocation of the cost of an asset over its useful life
ExplanationSpread of asset cost over its useful duration.
#4
Which financial metric is used to measure a company's ability to meet its short-term liabilities with its most liquid assets?
Quick Ratio
ExplanationIndicator of liquidity and solvency.
#5
What does the term 'working capital' represent in financial analysis?
The difference between a company's current assets and current liabilities
ExplanationCapital available for day-to-day operations.
#6
Which of the following is NOT a method for estimating the cost of equity in financial analysis?
Discounted Cash Flow (DCF) Model
ExplanationFocuses on cash flow projections, not equity costs.
#7
What is the Net Present Value (NPV) of a project if its initial investment is $50,000 and it generates cash flows of $20,000 per year for 5 years with a discount rate of 10%?
$90,000
ExplanationPresent value of future cash flows exceeds initial investment.
#8
Which of the following financial ratios measures a project's profitability?
Return on Investment (ROI)
ExplanationIndicator of profitability relative to investment.
#9
In financial analysis, what does the term 'payback period' refer to?
The time it takes for a project to break even
ExplanationDuration for recovering initial investment.
#10
What does the term 'discount rate' represent in the context of project cash flow analysis?
The rate at which future cash flows are discounted to their present value
ExplanationAdjustment rate for future cash value to present.
#11
Which of the following is NOT a method for evaluating project cash flows?
Balance Sheet Analysis
ExplanationAssessing financial position rather than cash flow dynamics.
#12
What does a positive Net Present Value (NPV) indicate about a project?
The project is generating a profit
ExplanationProfitability of the project based on discounted cash flows.
#13
Which of the following is a limitation of using the Internal Rate of Return (IRR) as a capital budgeting technique?
It can result in multiple rates of return for unconventional cash flows
ExplanationComplexity in interpreting non-conventional cash flows.
#14
Which financial metric indicates the efficiency of a company in generating profits from its operating activities?
Operating Cash Flow Ratio
ExplanationOperational profit generation efficiency gauge.
#15
Which of the following is an advantage of using the Modified Internal Rate of Return (MIRR) over the Internal Rate of Return (IRR)?
MIRR considers all cash flows and reinvestment rates
ExplanationOvercoming IRR's limitations on reinvestment rates.
#16
What does the profitability index (PI) measure in project evaluation?
The ratio of discounted cash inflows to the initial investment
ExplanationEfficiency measure of cash flow in relation to investment.
#17
Which of the following is an advantage of using the Profitability Index (PI) in project evaluation?
It considers the time value of money
ExplanationRecognition of cash flow timing effects.
#18
Which financial metric is used to assess a company's efficiency in managing its inventory?
Inventory Turnover Ratio
ExplanationMeasure of inventory management effectiveness.