Missed MCQs: Financial Management Flashcards
What is a valuation estimation technique that can be adapted to start up companies and other situations where earnings are very low?
Price sales ratio
What is the CAPM Formula?
Expected return on asset = risk-free rate+ beta coefficient (market rate of return - risk free rate)
E= R + Beta (m-R)
What is the formula for projected stock price?
P0= PEG {PEG RATIO] * E1 [EPS*1+GROWTH] * G [GROWTH]
What is the purpose of the payback method?
It simply looks at the time required to recover the initial investment; subsequent cash flows are ignored.
NPV as used in investment decision-making is stated in terms of…
Net present value, like most capital budgeting techniques, focuses on cash flow. Cash flow is a pure measure of financial performance that isolates relevant information for decision making. The amount of cash the firm takes in and pays out for an investment affects the amount of cash the firm has available for operations and other activities.
When is working capital policy deemed to be more conservative?
Working capital policy is deemed to be more conservative as an increasing portion of an organization’s long-term assets, permanent current assets, and temporary current assets are funded by long-term financing.
What metric equates the PV of a projects expected cash inflows to the PV of the projects expected cash outflows?
Internal rate of return. focuses the decision maker on the discount rate at which the present value of a project’s cash inflows equals the present value of the cash outflows. The IRR is the rate used to arrive at a net present value of zero.
