3 - Financial Management

Question 1

A project should be accepted if the present value of cash flows is _________.

Answer 1

Greater than the initial investment

Question 2

The security related risk that cannot be totally eliminated through diversification is called ________.

Answer 2

Systemic risk

Question 3

Systemic risk is also known as ________ risk and includes factors such as inflation, recession, and interest rate risk.

Answer 3

Market

Question 4

The quantity of inventory that should be ordered at one time in order to minimize the associated costs of carrying and ordering inventory is called _______.

Answer 4

Economic order quantity

Question 5

Calculation for the annual cost of debt

Answer 5

Interest rate x (1 - Tax rate)

Question 6

Firms respond to an increase in corporate income tax rates by increasing their ________ costs (those that are tax deductible).

Answer 6

explicit

Question 7

Key elements of __________ include interest rate risk, liquidity risk, foreign currency risk, default risk, systemic risk, counterparty risk, and credit risk.

Answer 7

Financial risk management

Question 8

Formula to calculate present value of future payments is

Answer 8

PV = Payment / (1 + r)n(exponent)

Question 9

Accounts receivable turnover formula

Answer 9

Net credit sales/((Beg AR+End AR)/2)

Question 10

Higher interest rates increase the cost of money and __________.

Answer 10

Discourage business investment

Question 11

Lower interest rates encourage __________ and ___________.

Answer 11

Expand output and increase capital spending

Question 12

The __________ model uses the beta coefficient, the market risk premium, and the risk-free rate.

Answer 12

capital asset pricing model

Question 13

Analyses of investment decisions concerning items that have a useful life of more than one year are _________.

Answer 13

Capital budgeting decisions