# Financial Management online Test

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Return

Risk

Variance

Because investors dislike uncertainty, they will require _____ rates of return from risky investments.

Higher

Lower

The same

None of the above

The benefits attributed to an investment project are:

Tax shield benefits of depreciation

After tax operating benefits

Rate of return less than the cost of capital

Both 1 and 2 are correct

When a firm places a budgetary constraint on the projects it invests in, this is called:

Capital rationing

Working capital management

Cash budgeting

None of the above

According to reinvestment rate assumption, which method of capital budgeting assumes cash flows are reinvested at the project’s rate of return?

Payback period

Net present value

Internal rate of return

None of the above

If two projects are independent, that means that_______

Selection of one precludes selection of the other

You should analyze the projects independently

Both 1 and 2

None of the above

Which of the following capital budgeting methods measures how long it takes to recover the initial investment in a project?

Payback period

Net present value

Internal rate of return

None of the above

Which of the following capital budgeting methods is most theoretically correct?

Payback period

Net present value

Internal rate of return

None of the above

Which of the following capital budgeting methods states the return of a project as a percentage?

Payback period

Net present value

Internal rate of return

None of the above

Since capital budgeting uses cash flows instead of accounting flows, the financial manager must add back ______ to the analysis.

The cost of fixed assets

The cost of accounts payable

Investments

Depreciation

_____ Focuses on long-term decision-making regarding the acquisition of projects.

Working capital management

Capital budgeting

Cash budget

None of the above

Firms that have high price/earning ratios are generally:

Riskier than firms with low price/earning ratios

Les risky than firms with low price/earning ratios

Equally risk as firms with all firms

None of the above

A low price/earning ratio usually means that a firm:

Is a growth stock

Has positive expectations for the future

Is a mature firm

Is doomed in the market place

A high price/earnings ratio usually indicates that a firm is a:

Value stock

Growth stock

Convertible security

Constant security

Common stock that has no growth in dividend is valued as if it were:

Preferred stock

A bond

An option

None of the above

One characteristic of preferred stock is that:

It has maturity date

It is a hybrid security with characteristics of both common stock and debt

It pays a fixed dividend payment

All of the above

If you win the lottery and you choose to have your proceeds distributed to you over a twenty- year period, which calculation would you use to calculate the worth of those proceeds to you today?

Future value of a lump sum

Future value of an annuity

Present value of a lump sum

Present value of an annuity

The concept of present value and future value are:

Directly related to each other

Not related to each other

Proportionately related to each other

Inversely related to each other

The future value of an annuity is:

Less than each annuity payment

Equal to each annuity payment

More than each annuity payment

None of the above

The future value of a rupee that you invest today is:

More than a rupee

Equal to a rupee

Less than a rupee

None of the above

The present value of a rupee to be received in the future is:

More than a rupee

Equal to a rupee

Less than a rupee

None of the above

Time value of money is an important finance concept because:

It takes risk into account

It takes time into account

It takes compound interest into account

All of the above

If you have Rs. 1000 and you plan to save it for 4 years with an interest rate of 10%, what is the future value of your saving?

Rs.1464.00

Rs.1000.00

Rs.1331.00

Cannot be determined

An annuity is

More than one payment

A series of unequal but consecutive payments

A series of equal and consecutive payment

A series of equal and non- consecutive payments

As time to maturity draws near, a bond’s value approaches:

Zero

Par

The coupon payment

None of the above

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