MGT 201 Financial Management - 2

20 Questions | Total Attempts: 267

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MGT 201 Financial Management - 2 - Quiz

Financial management is all about analyzing their money and investment so as to make investment decisions. It involves a finance manager choosing the sort of capital to obtain in order to fund a company’s assets. Take this second test on MGT 201 financial management and get to review chapter 1 to. All the best!


Questions and Answers
  • 1. 
    Which  techniques of capital budgeting do not consider time value of money 
    • A. 

      Profitability Index (PI)

    • B. 

      Return on investment (ROI)

    • C. 

      Pay back period

    • D. 

      Net Present Value (NPV)

    • E. 

      Internal Rate of Return (IRR)

  • 2. 
    In which Capital budgeting technique we use the following formula ?
    • A. 

      Profitability Index (PI)

    • B. 

      Internal Rate of Return (IRR)

    • C. 

      Net Present Value (NPV)

    • D. 

      Profitability Index (PI)

  • 3. 
    In marketing and strategy, cannibalization refers to
    • A. 

      Reduction in the sales revenue, or market share of one product as a result of the introduction of a new product by the same producer.

    • B. 

      Reduction in the sales revenue, or market share of one product as a result of the introduction of a new product by the competitor

    • C. 

      Increae in the sales revenue, or market share of one product as a result of the introduction of a new product by the same producer

    • D. 

      Increase in the sales revenue, or market share of one product as a result of the introduction of a new product by the competitor

  • 4. 
    Sunk costs need to be included while calculating the incremental cash flows.
    • A. 

      TRUE

    • B. 

      FALSE

  • 5. 
    While calculating the net incremental after tax cash flows we should include
    • A. 

      The incremental effect of externalities, whether negative or positive

    • B. 

      The incremental effect of externalities while its positive

    • C. 

      The incremental effect of externalities while its negitive

    • D. 

      No of the above

  • 6. 
    While calculating the NPV for the project 
    • A. 

      You have to include the Opportunity costs

    • B. 

      You have to ignore the Opportunity costs as in real term it will not produce any inflow or out flow of cash

  • 7. 
    In business when we talk about the interest, we usually refer to ________ of interest
    • A. 

      Discrete Compound Interest:

    • B. 

      Nominal rate

    • C. 

      Simple Interest

  • 8. 
    Nominal interest rate is Inflation Adjusted
    • A. 

      True

    • B. 

      False

  • 9. 
    Default Risk Premium is charged by the investor, as compensation, against
    • A. 

      The risk that the company might goes bankrupt

    • B. 

      The risk of default interest payments

    • C. 

      Option A & B

    • D. 

      None

  • 10. 
    Which option is not correct for Maturity Risk Premium (MR)
    • A. 

      It is risk associated with interest rate uncertainty

    • B. 

      The longer the time to maturity, the higher the premium.

    • C. 

      Risk associated that the issuer will not able to pay at maturity

    • D. 

      It is linked to life of the investment

  • 11. 
    Risk of government default on debt because of political or economic turmoil is called
    • A. 

      Default Risk Premium (DR):

    • B. 

      Sovereign Risk Premium (SR)

    • C. 

      Maturity Risk Premium (MR)

    • D. 

      None

  • 12. 
    Normally, short term interest rates are lower than long term rates
    • A. 

      True

    • B. 

      False

  • 13. 
    Normall or upward sloping yield curve is 
    • A. 

      Short term interest rates are lower than long term

    • B. 

      Where the short term raters are higher than long term interest

    • C. 

      None

  • 14. 
    The interest incurred in one year is not added to the principal in case of 
    • A. 

      Simple Interest

    • B. 

      Discrete Compound Interest

    • C. 

      Compound Interest

  • 15. 
    Which formula is correct in case of simple interest
    • A. 

      F V = PV + (PV x i x n)

    • B. 

      F V = (PV x i x n)

  • 16. 
    If you invest $100 at an annual interest rate of 5% compounded continuously,  after five years.final amount  will be 
    • A. 

      2500

    • B. 

      128.40

    • C. 

      1217.93

    • D. 

      None

  • 17. 
    Why net present value is the most important criteria for selecting the project in capital budgeting?
    • A. 

      Because it has a direct link with the shareholders dividends maximization

    • B. 

      Because it helps in quick judgment regarding the investment in real assets

    • C. 

      Because it has direct link with shareholders wealth maximization

    • D. 

      Because we have a simple formula to calculate the cash flows

  • 18. 
    Which is not Objective of Financial Forecasting
    • A. 

      Reduce cost of responding to emergencies by anticipating the future occurrences

    • B. 

      Prepare to take advantage of future opportunities

    • C. 

      Reduce the uncertainty

    • D. 

      Prepare contingency and emergency plans

  • 19. 
    Documents that are to be prepared while making a financial plan
    • A. 

      Cash Budget

    • B. 

      Pro Forma Balance Sheet

    • C. 

      Pro Forma Income Statement

    • D. 

      Pro Froma Cash Flow Statement

  • 20. 
    Which method is simple for forecasting ?
    • A. 

      Percentage of Sales

    • B. 

      Cash Budget

    • C. 

      Historical accounts

    • D. 

      Option a & b

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