50-102

Which TWO of the following are examples of financial objectives that a company might choose to pursue? A Dealing honestly and fairly with customers on all occasions B Provision of good working conditions and industrial relations C Earning above a particular level of return on capital employed D Producing environmentally friendly products E Restricting the level of gearing to below a specified target level

1)С and E

2)B and C

3)D and E

4)C and D

• 1

• 2

• 3

• 4

In relation to the financial management of a company, which of the following providesthe best definition of a firm’s primary financial objective? A To achieve longterm growth in earnings B To maximise the level of annual dividends C To maximise the wealth of its ordinary shareholder D To maximise the level of annual profits

• B

• A

• D

• C

Two machines, A and B, which perform the same functions, have the following costs and lives: PV Value of costs - Machine A=6.000 Machine B=8.000 and Life for machine A is 8 years, for machine B is 12 years. Which machine would you choose? The two machines are mutually exclusive and the cost of capital is 10%

• A because the EAC is 1,125

• A because the PV of costs is 6,000

• B because the EAC is 667

• B because the EAC is 1,174

If the depreciation amount is $100,000 and the marginal tax rate is 30%, then the tax shield due to depreciation is:

• 333333

• 58000

• 30000

• 100000

For project A in year 2, inventories increase by $10,000 and accounts payable by $4,000. Calculate the increase or decrease in net working capital for year 2

• Decreases by $6,000

• Increases by $12,000

• Decreases by $12,000

• Increases by $6,000

Capital equipment costing $200,000 today has salvage value of $50,000 at the end of 5 years. If straight line depreciation is used, what is the book value of the equipment at the end of year 2?

• 50000

• 200000

• 70000

• 140000

Suppose a real cash flow occurring in year 2 is 50,000. If the inflation rate is 10% per year, calculate nominal cash flow for year 2.

• 60500

• 50000

• 55000

• 78000

The real rate of interest is 3% and the inflation is 4%. What is the nominal rate of interest?

• 4%

• 3%

• 7%

• 7.12%

A firm owns a building with a book value of $100,000 and a market value of $250,000. If the building is utilized for a project, then the opportunity cost ignoring taxes is:

• 300000

• 150000

• 100000

• 250000

Money that a firm has already spent or committed to spend regardless of whether a project is taken is called:

• fixed costs

• opportunity costs

• sunk costs

• none of these options