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D076- ALL UNIT TESTS OFFICIAL EXAM
QUESTIONS WITH ANSWERS.
Which process is Li engaging in if he recently made a personal
budget and is now keeping a record of his cash flows? - correct
answer -Tracking
Which type of expense is a magazine subscription? - correct
answer -Variable expense
Which tool is forward-looking and thus helps decision makers
understand how actions taken today can affect their firm's future
performance? - correct answer -Financial forecasting
A company is developing a financial forecast for the next year.
The company plans to implement a new factory that will increase
production and resulting sales by 20%.
Since the company's assets are increasing significantly, what else
must increase? - correct answer -Financing
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Jack works for a company that manufactures televisions and must
obtain financing to increase the company's inventory levels.
Jack's manager knows that current investment markets are tight,
and it may be difficult for the company to obtain additional
financing for the next year. The manager asks Jack to propose a
way for the firm to reduce its discretionary financing needed
(DFN).
What should Jack suggest to reduce next year's DFN? - correct
answer -Lower the amount of dividends that are paid out to
shareholders next year
What is the term for the rate that allows a firm to maintain its
present financial ratios without issuing new equity or increasing
debt? - correct answer -Sustainable growth rate
Which method is most commonly used for determining a
company's DFN? - correct answer -Percent of sales
Freedom Rock Bicycles has a sales capacity of $10 million. When
sales exceed this capacity, the company must invest $200,000 in
new equipment. Freedom Rock Bicycles had sales of $9 million in
one year, and it projects a sales growth of 10%. The net fixed
assets in the year were $500,000.
By how much will the company's discretionary financing need
increase? - correct answer -$0
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Why are financial models helpful in financial forecasting? - correct
answer -Models allow users to see the complex relationships
between sales and other aspects of the business.
A firm is currently operating at 75% capacity with current sales of
$34 million.
Will the firm need to acquire additional fixed assets if its sales are
predicted to increase by $6 million next year? - correct answer -
No, because the increase in sales will not exceed the firm's sales
capacity.
How does an analyst use the hurdle rate? - correct answer -It is
used to compare with the IRR to determine whether a project
should be accepted.
Which term refers to the metrics and calculations that use tools
such as net present value (NPV), internal rate of return (IRR), and
profitability index (PI) to evaluate investments? - correct answer -
Capital budgeting criteria
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What would profitability index (PI) be useful for? - correct answer -
Determining whether a firm should invest in projects with different
initial outlays
Company ABC is considering several projects for the next year as
outlined in the chart below.
NPV IRR PI
Project 1 $5,600 15% 2.5
Project 2 $2,700 18% 1.7
Project 3 $8,300 17% 2.0
If the company has a limited amount of capital to spend on
projects, in which order should Company ABC do the projects to
create the greatest value? - correct answer -Project 1, Project 3,
Project 2
Maria is planning to invest in some company stocks for retirement
and is trying to figure out if the stocks are a good buy. She
calculates the intrinsic value of one of the stocks, Quiet Flag
Industries, to be $35. The stock is currently trading on the market
for $30, so she decides to buy it.
Why was it a good idea for Maria to buy this stock? - correct
answer -The stock is undervalued.
D076- ALL UNIT TESTS OFFICIAL EXAM
QUESTIONS WITH ANSWERS.
Which process is Li engaging in if he recently made a personal
budget and is now keeping a record of his cash flows? - correct
answer -Tracking
Which type of expense is a magazine subscription? - correct
answer -Variable expense
Which tool is forward-looking and thus helps decision makers
understand how actions taken today can affect their firm's future
performance? - correct answer -Financial forecasting
A company is developing a financial forecast for the next year.
The company plans to implement a new factory that will increase
production and resulting sales by 20%.
Since the company's assets are increasing significantly, what else
must increase? - correct answer -Financing
, Page | 2
Jack works for a company that manufactures televisions and must
obtain financing to increase the company's inventory levels.
Jack's manager knows that current investment markets are tight,
and it may be difficult for the company to obtain additional
financing for the next year. The manager asks Jack to propose a
way for the firm to reduce its discretionary financing needed
(DFN).
What should Jack suggest to reduce next year's DFN? - correct
answer -Lower the amount of dividends that are paid out to
shareholders next year
What is the term for the rate that allows a firm to maintain its
present financial ratios without issuing new equity or increasing
debt? - correct answer -Sustainable growth rate
Which method is most commonly used for determining a
company's DFN? - correct answer -Percent of sales
Freedom Rock Bicycles has a sales capacity of $10 million. When
sales exceed this capacity, the company must invest $200,000 in
new equipment. Freedom Rock Bicycles had sales of $9 million in
one year, and it projects a sales growth of 10%. The net fixed
assets in the year were $500,000.
By how much will the company's discretionary financing need
increase? - correct answer -$0
, Page | 3
Why are financial models helpful in financial forecasting? - correct
answer -Models allow users to see the complex relationships
between sales and other aspects of the business.
A firm is currently operating at 75% capacity with current sales of
$34 million.
Will the firm need to acquire additional fixed assets if its sales are
predicted to increase by $6 million next year? - correct answer -
No, because the increase in sales will not exceed the firm's sales
capacity.
How does an analyst use the hurdle rate? - correct answer -It is
used to compare with the IRR to determine whether a project
should be accepted.
Which term refers to the metrics and calculations that use tools
such as net present value (NPV), internal rate of return (IRR), and
profitability index (PI) to evaluate investments? - correct answer -
Capital budgeting criteria
, Page | 4
What would profitability index (PI) be useful for? - correct answer -
Determining whether a firm should invest in projects with different
initial outlays
Company ABC is considering several projects for the next year as
outlined in the chart below.
NPV IRR PI
Project 1 $5,600 15% 2.5
Project 2 $2,700 18% 1.7
Project 3 $8,300 17% 2.0
If the company has a limited amount of capital to spend on
projects, in which order should Company ABC do the projects to
create the greatest value? - correct answer -Project 1, Project 3,
Project 2
Maria is planning to invest in some company stocks for retirement
and is trying to figure out if the stocks are a good buy. She
calculates the intrinsic value of one of the stocks, Quiet Flag
Industries, to be $35. The stock is currently trading on the market
for $30, so she decides to buy it.
Why was it a good idea for Maria to buy this stock? - correct
answer -The stock is undervalued.
