Business Finance Q2 Reviewer

What characterizes an amortized loan?

• Payments are only applied to the loan's principal amount.

• Payments are applied only to the interest accrued.

• Scheduled, periodic payments are applied to both the loan's principal amount and the interest accrued.

• Amortized loans do not include auto loans, home loans, or personal loans.

How is the interest calculated on an amortized loan?

• The interest is fixed, without any important change and does not move over time.

• The interest is calculated based on the most recent ending balance of the loan.

• The interest is calculated based on the original loan amount.

• The interest is calculated independently of the principal amount.

What type of amortization involves a fixed principal payment, and the interest expense is adjusted based on the declining principal balance?

• Interest-only repayment

• Equal principal repayment

• Equal Installment Payments

• Present Value of Annuity

It is a series of equal payments made at regular intervals.

• Interest-only repayment

• Equal principal repayment

• Equal Installment Payments

• Present Value of Annuity

It is the process of evaluating and selecting long-term investments that are consistent with the firm’s goal of maximizing owner’s wealth.

• Microeconomics
• Human resource management
• Financial accounting
• Capital budgeting

Which of the following is an examples of capital expenditure or long-term investments?

• Paying for a haircut
• Renting a car
• Buying groceries
• Purchasing property

These are projects which serve the same function and therefore compete with one another.

• Complementary Projects

• Mutually Exclusive Projects

• Independent Investment Projects

• Synergistic Projects

Instead of investing in all projects with potential profitability, a company might have to prioritize and distribute its capital to focus on projects that yield the highest return on investment.

• Unlimited Funds

• Ranking Approach

• Capital Rationing

• Invest in all projects with potential profitability

What is the significance of the "Implementation" step in the capital budgeting process?

• to generate a list of potential investments

• to evaluate and analyze project proposal

• to allocate resources and initiate the selected projects

• to monitor, assess and review the performance of implemented projects

It is a capital budgeting technique that measures the amount of time, usually in years, to recover the initial investment.

• Internal Rate of Return

• Payback Period
• Return on Investment
• Net Present Value