FINANCIAL DECISION

Which concept refers to the cost a company pays for using funds, such as interest on a bank loan?

• Capital structure

• Retained earnings

• Cost of capital

• Working capital

Which of the following best describes retained earnings?

• Profits paid to shareholders as cash

• Profits kept for reinvestment in the business

• Interest paid on borrowed funds

• The minimum return required by investors

What is the primary purpose of working capital management?

• Selecting long-term investment projects

• Managing short-term assets and liabilities to ensure smooth operations

• Deciding the mix of debt and equity

• Distributing profits to shareholders

Which of the following is an example of an investment decision?

• Paying cash dividends to shareholders

• Issuing new shares to raise capital

• Building a new factory to expand production capacity

• Deciding to retain earnings for future use

Which function of corporate finance involves overseeing short-term assets and liabilities to maintain liquidity?

• Raising funds

• Investing funds

• Managing working capital

• Choosing capital structure

6. According to the content, why do companies often adjust their capital structure over time?

• To achieve an optimal cost of capital and support long-term growth

• To avoid paying taxes

• To maximize short-term profits

• To eliminate equity financing completely

What is the role of "cost of capital" in investment decisions?

• It is the minimum return a firm must earn to satisfy investors and creditors

• It represents the total profit of the company

• It is the amount paid as dividends to shareholders

• It is the interest rate set by the government

What happens when a company chooses to retain earnings instead of paying dividends?

• Shareholders receive cash immediately

• The company reinvests the profit to finance future operations and growth

• The company must issue more debt

• The cost of capital always decreases

In the relationship between investment and financing, which statement is TRUE?

• They are completely independent of each other.

• Financing decisions always come before investment decisions.

• They are interdependent and must be aligned for sustainability.

• Investment decisions never affect the choice of debt or equity.

What is a disadvantage of using Debt as a source of financing?

• It reduces ownership control.

• It is more expensive than equity.

• It increases financial risk due to interest payments.

• It does not require repayment.