3.6-3.8

Question 1

A business that is bankrupt is not necessarily insolvent.

Answer 1

False

Question 2

Without damaging their relationship with a supplier or customer, which of the following is preferred by businesses?

Answer 2

Debtor days to be as short as possible and creditor days to be as long as possible

Question 3

Regardless of the outcome, bankruptcy will damage the reputation of the business and its owners

Answer 3

True

Question 4

his ratio measures the average number of days it takes a company to pay its short-term debts to vendors from whom it has purchased supplies.

Answer 4

Creditor days

Question 5

If a company chooses to increase its retained profit by not issuing dividends to its shareholders, which ratio would improve?

Answer 5

Gearing ratio

Question 6

Which of the following could lead to a low inventory turnover ratio?

Answer 6

Overstocking of inventory

Question 7

This ratio measures the extent to which the capital employed by a company is financed from loan capital.

Answer 7

Gearing ratio

Question 8

A business that is insolvent is not necessarily bankrupt.

Answer 8

True

Question 9

Which ratio would improve if a company removed slow-moving or obsolete stock from its line of inventory?

Answer 9

Stock (inventory) turnover

Question 10

This ratio measures the average number of days it takes a company to collect its short-term debts from customers to whom it has sold goods.

Answer 10

Debtor days

Question 11

A businesses requires a cash flow forecast in order to:

Answer 11

Plan for future periods of positive and negative cash flow

Question 12

What is a prediction of the future cash inflows, cash outflows and net cash flow for a specific time period known as?

Answer 12

Cash flow forecast

Question 13

Which of the following is a cash inflow?

Answer 13

Debtors

Question 14

When a company has high liquidity, this means that:

Answer 14

The company’s assets can be easily converted into cash.

Question 15

Liquidity can be defined as:

Answer 15

The ability to convert an asset to cash without loss of value

Question 16

A business can be profitable and can still have negative cash flow

Answer 16

True

Question 17

A business can have positive cash flow and still be unprofitable

Answer 17

True

Question 18

Identify the term used to describe the amount of cash a company has in the bank at the beginning of the month.

Answer 18

Opening balance

Question 19

Which of the following is likely to increase cash outflows?

Answer 19

Making cash payments only

Question 20

Which investment appraisal technique calculates the time required for an investment to generate sufficient profit to cover the cost of the initial investment?

Answer 20

Payback period

Question 21

Which investment appraisal technique requires estimating net cash flows in the future?

Answer 21

Average rate of return

Payback period

Net present value

Question 22

Which investment appraisal technique considers the change in value of money over time (i.e. inflation)?

Answer 22

Net present value

Question 23

Which of the following is a limitation of the Average Rate of Return investment appraisal technique?

Answer 23

It is more complex than the Payback Period method

It ignores inflation

It requires estimating the net cash flows in the futur

Question 24

Which investment appraisal technique shows average annual forecasted profits from an investment as a percentage of the initial cost of the investment?

Answer 24

Average rate of return

Question 25

Which of the following is a quantitative investment appraisal technique?

Answer 25

Payback period

Question 26

Which of the following is a qualitative investment appraisal technique?

Answer 26

Product life cycle