A cash flow pattern that begins negative and then turns positive, staying positive afterwards, is classified as what?
Correct answer B. Normal cash flow
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Finance MCQs
Page 19 of Finance multiple-choice questions with answers. Tap an option to check yourself.
Page 19 of 25
If two independent projects both exceed the hurdle rate, what should be done with them?
Correct answer B. Be accepted
When valuing cash flows, what is the compounded future value of a cash flow called?
Correct answer B. Terminal value
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In capital budgeting, what does a positive net present value imply about economic value added?
Correct answer B. Positive economic value added
What is the asset life that maximises an asset’s net present value called?
Correct answer A. Economic life
When calculating net present value, what must be found first?
Correct answer B. Present value of cash flows
Which index is calculated by dividing the present value of a project’s future cash flows by its initial cost?
Correct answer C. Profitability index
A project has $200 of unrecovered cost at the start of the recovery year, the full cash flow in that year is $400, and three years pass before full recovery. What is the payback period?
Correct answer B. 3.5 years
How are Economic Value Added (EVA) and Net Present Value (NPV) related?
Correct answer D. Direct relationship
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In capital budgeting, what is the profitability index used for?
Correct answer C. Evaluate projects
When comparing mutually exclusive projects, which project should be chosen over the others?
Correct answer B. Higher net present value
If a project’s cash flows exceed the amount needed to repay the invested capital at its required rate of return, what will its net present value be?
Correct answer A. Positive
Multiplying return on assets by the equity multiplier gives which measure?
Correct answer D. Return on stock
What is the process of comparing a company’s results with those of leading firms called?
Correct answer D. Benchmarking
What does a high price-to-earnings ratio usually indicate about a company?
Correct answer A. High growth prospect
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The price-earnings ratio and the price-to-cash-flow ratio belong to which group of ratios?
Correct answer B. Market value ratios
In capital budgeting, which bonds are most sensitive to changes in interest rates?
Correct answer B. Long-term bonds
What is the equation called in which total assets turnover is multiplied by the profit margin?
Correct answer D. DuPont equation
Ratios that relate a firm’s share price to its book value per share, cash flow and earnings are known as what?
Correct answer C. Market value ratios
What is the payback period called when the expected cash flows are discounted at the project’s cost of capital?
Correct answer A. Discounted payback period