Finance Exam – Questions and Correct Answers

1. Which activity is an example of a capital investment project that uses the payback method?

• Paying employee wages
• Paying office rent
• Ordering office supplies
• ✔ Purchasing new machinery

2. Which condition would increase the company’s discretionary financing need (DFN)?

• Decrease in accounts receivable due to customers paying early
• Increase in accounts payable due to larger supplier orders
• Reduced inventory due to efficient management
• ✔ Insufficient cash to acquire additional inventory to support sales growth

3. Which ratios focus primarily on company earnings?

• Activity
• ✔ Profitability
• Market
• Liquidity

4. Which ratios measure debt usage?

• ✔ Leverage
• Market
• Activity
• Profitability

5. What does liquidity measure?

• Stock market trends
• ✔ Ability to meet current obligations
• Long-term asset value
• Revenue growth

6. What is the purpose of capital budgeting?

• Reduce taxes
• Conserve assets
• ✔ Maximize shareholder value
• Reduce market dependence

7. What does a positive NPV indicate?

• Reject the project
• ✔ Accept the project
• Uncertain outcome
• Break-even

8. What does beta measure?

• Profitability
• ✔ Systematic risk
• Liquidity
• Debt levels

9. Which ratio measures asset efficiency?

• Current ratio
• ✔ Return on assets
• Debt ratio
• P/E ratio

10. What does the payback period measure?

• Total profit
• ✔ Time to recover initial investment
• Rate of return
• Terminal value

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