Financial Management Final Quiz

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const questions = [
{
“text”: “Project A requires an initial investment of $80,000 and returns $25,000 annually for 5 years. Project B requires $100,000 and returns $30,000 annually for 5 years. Which has the higher NPV at 10% discount rate?”,
“options”: [“Project A”, “Project B”, “Same NPV”, “Cannot be determined”],
“answer”: “Project A”
},
{
“text”: “Project X yields cash flows increasing each year, while Project Y gives higher initial returns. What technique best accounts for pattern difference in mutually exclusive projects?”,
“options”: [“Payback period”, “Accounting rate of return”, “NPV”, “IRR”],
“answer”: “NPV”
},
{
“text”: “A firm has $200,000 to invest and faces capital rationing. If Project A costs $120,000 and has PI = 1.3 and Project B costs $100,000 with PI = 1.5, which should be selected?”,
“options”: [“Only Project A”, “Only Project B”, “Both Projects”, “None”],
“answer”: “Only Project B”
},
{
“text”: “Which method is best for evaluating risk in capital budgeting under capital rationing conditions?”,
“options”: [“IRR”, “Payback”, “Profitability Index”, “ARR”],
“answer”: “Profitability Index”
},
{
“text”: “A project has three possible NPVs: $10,000 (P=0.2), $15,000 (P=0.5), $20,000 (P=0.3). What is the expected NPV?”,
“options”: [“$14,500”, “$15,000”, “$16,000”, “$15,500”],
“answer”: “$15,000”
},
{
“text”: “If the expected NPV of a project is $20,000 with a standard deviation of $5,000, what is its coefficient of variation?”,
“options”: [“0.25”, “0.5”, “1”, “2”],
“answer”: “0.25”
},
{
“text”: “If success yields $100,000 (P=0.6) and failure yields $40,000 (P=0.4), what’s the expected value using probability tree?”,
“options”: [“$64,000”, “$70,000”, “$60,000”, “$80,000”],
“answer”: “$76,000”
},
{
“text”: “Two projects have returns of 12% and 16%, and standard deviations of 5% and 7%. If their correlation coefficient is -1, what is the standard deviation of the portfolio (equal investment)?”,
“options”: [“1%”, “0%”, “2%”, “3%”],
“answer”: “0%”
},
{
“text”: “What happens to the portfolio risk if projects are perfectly negatively correlated?”,
“options”: [“Risk increases”, “Risk remains same”, “Risk becomes zero”, “Risk depends on investment amount”],
“answer”: “Risk becomes zero”
},
{
“text”: “A firm invests $100,000 in a project that may double demand. What type of real option is this?”,
“options”: [“Option to abandon”, “Option to contract”, “Option to expand”, “Option to postpone”],
“answer”: “Option to expand”
},
{
“text”: “If the present value of abandoning a project is $30,000 and continuing it is $20,000, what should be done?”,
“options”: [“Continue”, “Abandon”, “Postpone”, “None”],
“answer”: “Abandon”
},
{
“text”: “A firm’s stock is trading at $50, expects a dividend of $4 next year, and has a growth rate of 6%. What is the cost of equity?”,
“options”: [“14%”, “12%”, “10%”, “8%”],
“answer”: “14%”
},
{
“text”: “If a stock just paid a dividend of $3, has a growth rate of 5% and current price of $60, what is the cost of equity using DDM?”,
“options”: [“10.25%”, “10.5%”, “10%”, “9.75%”],
“answer”: “10.25%”
},
{
“text”: “A company issues 10% preference shares at $100 with flotation costs of $2. What is the cost of preference capital?”,
“options”: [“10.2%”, “10.4%”, “10.1%”, “10.0%”],
“answer”: “10.2%”
},
{
“text”: “A firm issued bonds with 8% coupon rate, sold at $95, with 5 years to maturity and 35% tax. What is after-tax cost of debt?”,
“options”: [“5.2%”, “5.0%”, “5.4%”, “4.8%”],
“answer”: “5.2%”
},
{
“text”: “A company has 40% debt (after-tax cost = 6%), 60% equity (cost = 12%). What is WACC?”,
“options”: [“8.4%”, “9.6%”, “10%”, “7.8%”],
“answer”: “9.6%”
},
{
“text”: “WACC is computed by:”,
“options”: [“Taking weighted average of all capital components”, “Averaging equity and debt”, “Using only debt”, “Using only equity”],
“answer”: “Taking weighted average of all capital components”
},
{
“text”: “According to MM theory without taxes, the value of the firm is:”,
“options”: [“Independent of capital structure”, “Maximized with more equity”, “Higher with more debt”, “Minimized with dividends”],
“answer”: “Independent of capital structure”
},
{
“text”: “Pecking Order Theory suggests:”,
“options”: [“Firms prefer debt over retained earnings”, “Firms avoid debt”, “Internal funds are preferred”, “All firms issue equity first”],
“answer”: “Internal funds are preferred”
},
{
“text”: “Which theory supports the idea that firms issue equity when stock prices are high?”,
“options”: [“Pecking Order”, “MM Theory”, “Market Timing”, “Tax Shield”],
“answer”: “Market Timing”
},
{
“text”: “Bird-in-hand theory suggests:”,
“options”: [“Dividends are irrelevant”, “Investors prefer certain dividends”, “Firms should reinvest earnings”, “None of the above”],
“answer”: “Investors prefer certain dividends”
},
{
“text”: “Clientele theory implies:”,
“options”: [“All investors prefer dividends”, “Different investors prefer different payout policies”, “Only tax-exempt prefer dividends”, “Dividends reduce firm value”],
“answer”: “Different investors prefer different payout policies”
},
{
“text”: “Signaling theory implies that dividend announcements:”,
“options”: [“Reveal private information about future earnings”, “Have no effect”, “Are always negative”, “Only attract short-term investors”],
“answer”: “Reveal private information about future earnings”
},
{
“text”: “The tax shield theory of capital structure suggests:”,
“options”: [“Debt is irrelevant”, “Debt has a tax advantage”, “Equity is cheaper”, “Debt increases cost”],
“answer”: “Debt has a tax advantage”
},
{
“text”: “The option to postpone a project is valuable when:”,
“options”: [“There is uncertainty about future cash flows”, “The NPV is already high”, “Capital is free”, “All risks are known”],
“answer”: “There is uncertainty about future cash flows”
},
{
“text”: “Combination of risky projects reduces total risk when:”,
“options”: [“Projects are perfectly correlated”, “Projects are negatively correlated”, “Projects are unrelated”, “Projects have same NPV”],
“answer”: “Projects are negatively correlated”
},
{
“text”: “A project has three outcomes: $40K (P=0.3), $60K (P=0.5), $100K (P=0.2). What is expected value?”,
“options”: [“$64K”, “$66K”, “$68K”, “$70K”],
“answer”: “$64K”
},
{
“text”: “A firm with $500,000 capital has WACC of 10%. What is the minimum acceptable return for a new project?”,
“options”: [“>10%”, “10%”
},
{
“text”: “If two projects have equal NPV, but one has higher risk, which one is preferable?”,
“options”: [“Higher risk”, “Lower risk”, “Same”, “Depends on discount rate”],
“answer”: “Lower risk”
},
{
“text”: “A firm evaluates projects using IRR and NPV. IRR > WACC, NPV > 0. What decision should be made?”,
“options”: [“Accept”, “Reject”, “Defer”, “Recompute”],
“answer”: “Accept”
},
{
“text”: “The IRR of a project equals its cost of capital. NPV is:”,
“options”: [“Positive”, “Negative”, “Zero”, “Cannot be determined”],
“answer”: “Zero”
},
{
“text”: “Which metric adjusts for time value and risk most effectively?”,
“options”: [“Payback”, “IRR”, “NPV”, “ARR”],
“answer”: “NPV”
},
{
“text”: “If flotation costs are considered, cost of capital:”,
“options”: [“Increases”, “Decreases”, “Unchanged”, “Only affects equity”],
“answer”: “Increases”
},
{
“text”: “Which of the following is a real option?”,
“options”: [“Option to expand”, “Buy a bond”, “Buy equity”, “Reinvest dividend”],
“answer”: “Option to expand”
},
{
“text”: “In capital rationing, which project should be selected?”,
“options”: [“Highest NPV”, “Highest IRR”, “Highest PI”, “Shortest Payback”],
“answer”: “Highest PI”
},
{
“text”: “If IRR > WACC, and NPV > 0, what does it mean?”,
“options”: [“Project adds value”, “Project loses value”, “WACC is too high”, “WACC is too low”],
“answer”: “Project adds value”
}
]

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