MBA 621 Practice Final Questions &
Answers Verified 100% Correct
What is the purpose of a budget
acquire and use financial resources over a specific perio of time; planning (developing) and
controlling (gathering feedback)
What is the formula for "How much inventory should we produce?"
(Sell + ending inventory) - starting inventory
Why is it important to budget monthly cash needs
shows cash inflows/outflows
includes things like excess and borrowing
what is a line of credit
a loan to be paid back
GIVE FORMULA: What is the present value of $10,000 in 5 years at 5%?
10,000 x .784 = 7,840
What is an annuity
A series of identical cash flows.
GIVE FORMULA: What is the PV of a series of $10,000 payments for 10 years at 8%?
10,000 x 6.71 = 67,100
What is capital budgeting?
, A way to plan goals, control those plans, gather feedback, and make decisions
What is NPV
This is the difference between the cost of the original investment and the present value of
the future cash inflows.
What is the preference rule of NPV
Higher the NPV th emore desirable; = or > 0 is to be accepted
Profitability Index general rule
The higher the project PI, the more desirable the project.
Profitability Index
sum of PV cash flows / Initial Investment
Internal Rate of Return general rule
The higher the Internal Rate of Return, the more desirable the project.
Annuity PV factor formula
investment / annual cash
Payback formula
Initial investment / expected annual cash inflow
What does the payback method tell us
how long it will take to pay off an investment
What number do we want the payback number to be?
As little as possible
What is a major flaw of the payback method?
it does not consider time value of money or cash flows
Answers Verified 100% Correct
What is the purpose of a budget
acquire and use financial resources over a specific perio of time; planning (developing) and
controlling (gathering feedback)
What is the formula for "How much inventory should we produce?"
(Sell + ending inventory) - starting inventory
Why is it important to budget monthly cash needs
shows cash inflows/outflows
includes things like excess and borrowing
what is a line of credit
a loan to be paid back
GIVE FORMULA: What is the present value of $10,000 in 5 years at 5%?
10,000 x .784 = 7,840
What is an annuity
A series of identical cash flows.
GIVE FORMULA: What is the PV of a series of $10,000 payments for 10 years at 8%?
10,000 x 6.71 = 67,100
What is capital budgeting?
, A way to plan goals, control those plans, gather feedback, and make decisions
What is NPV
This is the difference between the cost of the original investment and the present value of
the future cash inflows.
What is the preference rule of NPV
Higher the NPV th emore desirable; = or > 0 is to be accepted
Profitability Index general rule
The higher the project PI, the more desirable the project.
Profitability Index
sum of PV cash flows / Initial Investment
Internal Rate of Return general rule
The higher the Internal Rate of Return, the more desirable the project.
Annuity PV factor formula
investment / annual cash
Payback formula
Initial investment / expected annual cash inflow
What does the payback method tell us
how long it will take to pay off an investment
What number do we want the payback number to be?
As little as possible
What is a major flaw of the payback method?
it does not consider time value of money or cash flows
