QUIZ 1

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1.    The three fundamental concepts underlying financial decision making are _____?

1. time value of money, buy low and sell high, and incremental after-tax cash flows

2. time value of money, a positive risk-return relationship, and incremental after-tax cash flows

3. time value of money, a negative risk-return relationship, and incremental after-tax cash flows

4. time value of money, a positive risk-return relationship, and incremental after-tax profits

5. none of the above

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  • Correct answer is 'b'

2.    The acceptance of positive net present value projects will _____.

1. increase the operating profits of the firm

2. increase the net before tax profits of the firm

3. increase the after tax profits of the firm

4. increase the economic value of the firm

5. insure the firm always makes a profit

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  • Correct answer is 'd'

3.    Money has a time value because individuals prefer consumption today over consumption at some point in the future and must be compensated for the postponement of consumption.

1. True

2. False

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  • Correct answer is 'a'

4.    In order to make financial decisions using time value of money calculations, all cash flows should first be stated in _____ terms.

1. Random Value

2. Future Value

3. Present Value

4. Real Dollar Value

5. Nominal Dollar Value

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  • Correct answer is 'c'

5.    Which of the following statements is true about time value of money problems?

1. a specific dollar amount to be paid in the future is worth less today

2. a dollar amount invested today grows to a greater amount in the future if we continue to reinvest the proceeds we earn over time

3. the present value of a $ calculation is the inverse of the future value of a $ calculation

4. a and b are both true

5. a, b, and c are all true

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  • Correct answer is 'e'

6.    Cash flows are important for which of the following types of organizations?

1. private closely held firms

2. public companies

3. non-profit organizations

4. both a and b

5. a, b, and c

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  • Correct answer is 'e'

7.    Which of the following statements are true concerning cash flows?

1. Cash flows determine the value of a business organization.

2. Cash flows determine the value of a financial asset to an investor.

3. Cash flows determine the value of an investment project.

4. Both a and b are correct.

5. Answer a, b, and c are all correct.

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  • Correct answer is 'e'

8.    The relationship between risk and return is _____.

1. non-existent

2. a direct relationship 

3. an inverse relationship 

4. a confusing relationship 

5. none of the above 

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  • Correct answer is 'b'

9.    Capital Budgeting refers to the process of making financial decisions relating to investment in the firm's various projects and business activities.

1. True

2. False  

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  • Correct answer is 'a'

10.    By accepting only _____ we can increase the economic value of the business organization.

1. present values

2. net present value projects 

3. positive net present value projects 

4. cash flows 

5. negative risk return relationships 

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  • Correct answer is 'c'

These study questions only cover the online class notes. 

You should also be able to answer any of the assigned discussion questions and problems in the text book assignments.