Advanced Financial Management Quiz

How is Economic Value Added calculated?

• Economic Value Added is calculated by adding the cost of capital to the net operating profit after tax (NOPAT).

• Economic Value Added is calculated by subtracting the cost of capital from the net operating profit after tax (NOPAT).

• Economic Value Added is calculated by dividing the cost of capital by the net operating profit after tax (NOPAT).

• Economic Value Added is calculated by multiplying the cost of capital with the net operating profit after tax (NOPAT).

What are the limitations of Economic Value Added?

• It is easy to calculate and understand

• Some limitations of Economic Value Added include its complexity in calculation, reliance on accounting data, and potential for manipulation by management.

• It does not rely on accounting data

• It cannot be manipulated by management

What are the key components of Economic Value Added analysis?

• Total expenses and net income

• Gross profit and revenue

• Current assets and liabilities

• The key components of Economic Value Added analysis are net operating profit after tax (NOPAT) and the cost of capital.

The restructuring of a corporation should be undertaken if

• the restructuring can prevent an unwanted takeover.

• the restructuring is expected to create value for shareholders.

• the restructuring is expected to increase the firm's revenue.
  

• the interests of bondholders are not negatively affected.

Financial distress can be best described by which of the following situations in which the firm is forced to take corrective action.

• Cash payments are delayed to creditors

• The market value of the stock declines by 10%

• The firm's operating cash flow are insufficient to pay current obligations.

• Cash distributions are eliminated because the board of directors considers the surplus account to be low.

Insolvency can be defined as:

• not having cash.

• an inability to pay one's debts.

• an inability to increase one's debts

Financial distress can involve which of the following:

• asset restructuring.

• financial restructuring.

• liquidation.

• All of the above.

A firm has several options available to it in times of financial distress. The firm may:

• reduce capital and R & D spending.

• raising new funds by selling securities or major assets.

• filing for bankruptcy.

• negotiate with lenders.

• All of the above statements are true.

AThe statement which shows the periodical increase or decrease of funds is called___________statement.

• Funds Flow

• CAsh Flow

• Working Capital

• Income

Fund flow statement is based on the concept of…

• business entity

• accounting period

• going concern

• all of the above