FINANCIAL MANAGEMENT -BEC 2 M1-M9 General Knowledge

Question 1

———– is often used as the hurdle rate in Capital Investment Decisions

Answer 1

Weighted Average Cost of Capital (WACC)

Question 2

Name the three formulas used to calculate the cost of retained earnings

Answer 2

Capital Asset Pricing Model (CAPM), Discounted Cash flow(DCF), & Bond Yield Risk Premium(BYRP) method.

Question 3

The optimal capital structure would be……..

Answer 3

The one that produces the lowest WACC

Question 4

Growth & Profitability are affected by an entity’s….

Answer 4

Capital Structure

Question 5

What are the key measures of a firm’s profitability?

Answer 5

Return on assets(ROA), Return on Equity(ROE), & Return on Investment(ROI). Net Income is in the numerator of each of these profitability ratios.

Question 6

———-Leverage measure the effect on a firm’s profitability caused by a change in sales.

Answer 6

Operating Leverage

Question 7

Firms that rely more heavily on fixed costs as opposed to variable costs will have…..

Answer 7

higher leverage.

Question 8

A firm with a High leverage will have what type of return?

Answer 8

Greater returns on the upside which comes with higher risk on the downside.