Financial Management Quiz
Questions: 16 · 10 minutes
1. What is the primary financial benefit of holding a diversified portfolio rather than investing everything in one company?
It guarantees a positive return in every period
It removes market-wide economic risk
It ensures every investment produces the same return
It can reduce company-specific risk by spreading exposure
2. How is net working capital normally calculated?
Revenue minus operating expenses
Total assets minus total debt
Current assets minus current liabilities
Cash plus long-term investments
3. A business has $120,000 in current assets and $80,000 in current liabilities. What is its current ratio?
0.67
1.20
2.00
1.50
4. Assuming equal risk and no special restrictions, why is receiving $10,000 today generally preferable to receiving $10,000 one year from now?
Money received today is never subject to tax
Money received today can potentially earn a return during the year
Future payments cannot be recorded in financial statements
Inflation always makes future money completely worthless
5. Sales remain stable while a retailer's average inventory falls, causing inventory turnover to rise. What is the most reasonable interpretation?
The retailer is taking longer to sell its inventory
The retailer's accounts receivable collection has necessarily slowed
Inventory is moving more efficiently, although possible stockouts should also be checked
The retailer's long-term debt has automatically increased
6. A company uses an unused warehouse for a new project instead of renting it to another business. What is the forgone rental income?
A depreciation expense caused by borrowing
A sunk cost that must always be ignored
A financing cash flow from the new project
An opportunity cost of the new project
7. A profitable company cannot pay a supplier on time because many customers have not yet paid their invoices. What most directly explains the problem?
Its gross profit margin must be negative
Revenue should not have been included on the income statement
Its fixed assets have appreciated too quickly
Profit has been recorded, but cash remains tied up in accounts receivable
8. A seasonal retailer wants to estimate whether it can cover payroll and supplier payments during each of the next six months. Which tool is most directly useful?
A monthly cash budget showing expected receipts and payments
A statement of changes in equity from last year
A long-term asset register
A calculation of annual depreciation alone
9. A factory budgeted $50,000 for materials at its actual production level but spent $56,000. How should the $6,000 difference be described?
A favorable revenue variance
A favorable cost variance
An unfavorable cost variance
An unfavorable revenue variance
10. A company needs to finance a production facility expected to operate for 20 years. Which approach best follows the maturity-matching principle?
Use long-term financing aligned with the facility's useful life
Rely entirely on supplier invoices payable within 30 days
Renew a one-week loan continuously for 20 years
Delay all other payments until the facility has paid for itself
11. A product sells for $40 per unit, has a variable cost of $25 per unit, and has total fixed costs of $60,000. How many units must be sold to break even?
1,500 units
2,400 units
4,000 units
3,000 units
12. Managers reject a positive-value project because it would reduce their departmental influence, even though it would benefit the company's owners. Which concept best describes this conflict?
The time value of money
The agency problem
Operating leverage
The matching principle
13. Which objective best reflects sound long-term financial management in a company?
Maximizing the company's sustainable long-term value while considering risk and timing
Maximizing reported revenue in every accounting period
Keeping all available funds in cash to avoid uncertainty
Minimizing every operating expense regardless of its effect on the business
14. After discounting all expected cash flows at an appropriate required rate of return, a proposed project has a net present value of $12,000. What does this indicate?
The project will produce exactly $12,000 in accounting profit each year
The project is expected to add $12,000 of value relative to the required return
The project earns less than the required rate of return
The project's initial cost is $12,000
15. Two otherwise similar companies operate in the same industry, but Company A uses substantially more debt financing. What is the most reasonable inference?
Company A generally faces greater financial risk from required debt payments
Company A has eliminated its cost of equity
Company A must have higher revenue
Company A cannot earn a return for shareholders
16. Two projects have identical expected cash flows, but one project's cash flows are substantially more uncertain. If that uncertainty leads to a higher discount rate, what happens to that project's present value?
It rises because uncertainty creates additional value
It falls because the future cash flows are discounted more heavily
It remains unchanged because the expected cash flows are identical
It becomes equal to the project's accounting profit