D775 Introduction to Business Finance Exam (BJO1)

12. What does sustainability in finance involve?

• Adhering to maximizing shareholder wealth
• Focusing on short-term profits
• Relying on the government to dictate environmental and social factors
• Integrating environmental, social, and governance factors into financial decision-making

13. How can companies demonstrate a commitment to corporate social responsibility (CSR)?

• Engaging in fair trade practices
• Refusing to be a publicly traded firm
• Using only audited statements
• Finding profitable projects

14. Which ratios examine the short-term health of the firm?

• Profitability
• Activity
• Liquidity
• Market

15. What does a low price to earnings (P/E) ratio indicate?

• Strong liquidity is expected
• High debt levels may become a problem
• Asset turnover is increasing
• Stock may be undervalued

16. What does a high price-earnings (P/E) ratio suggest?

• Potential overvaluation
• Low debt levels
• Strong asset usage
• High liquidity

17. What does the cash ratio emphasize when comparing the cash ratio to both the current ratio and the quick ratio?

• Market valuation
• Asset turnover
• Immediate liquidity
• Profit margins

18. What is a limitation of the payback period?

• It measures profitability in dollars instead of percentages
• It ignores the time value of money in its calculation
• It is difficult to understand and calculate
• It assesses the liquidity of the investment

19. What should the company compare the expected returns with?

• The marginal tax rate
• The company’s net profit
• The weighted average cost of capital
• The dividend payout ratio

20. Which IRR would indicate that this is a profitable project?

• 10%
• 14%
• 12%
• 8%

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