Question

1. Which factor should be considered relevant data for decision evaluation? (pick two)

a) Sunk costs

b) Costs that affect future cash flows

c) Revenues that will be earned with either alternative

d) Costs that will be incurred with one alternative but not the other

2. How do treasury’s plan assessments affect projected cash flow streams in budgeting?

a) Calculates adequate funds and liquidity

b) Determines impact on debt covenants and credit ratings

c) Manages financing of long-term assets through debt and equity issues

d) Treasury is not directly or indirectly responsible for budgeting

3. How do common-size statements enable direct financial comparisons of different size firms?

a) Expenses as % of profit reveal who has the best expense controls

b) Asset categories as a % of revenues can be compared

c) Liability categories as a % of total assets can Be compared

d) Cash flow elements as a % of net income can be compared

4. Which three ratios help determine the extent to which a company was leveraged?

a) Total liabilities to total assets

b) Times interest earned ratio

c) Long-term debt to capital

d) Debt to tangible net worth

e) Fixed charge coverage ratio

5. Why do service industry ratios differ from manufacturing industry ratios?

a) Balance sheets have higher current assets, especially A/R

b) Service firms have higher debt

c) Supply costs are always low

d) Asset turnover is more important than profit margin

6. What possible scenario could increase EVA?

a) Rating agencies re-evaluate creditworthiness of an issue.

b) Improve operating efficiency so less EBIT is generated on the existing asset base.

c) Invest additional capital in assets that earn a rate of return less than the cost of capital.

d) Eliminate assets that earn a rate of return

less than the cost of capital.

Answer 1

1. Sunk cost of the cost which have already been incurred and are not considered relevant for decision making

Revenues that will be earned with other alternatives are example of opportunity cost, and they would not be considered for relevant costing either.

Cost that affect the future cash flows are relevant for decision making as they are affecting the future cash flows related to a particular project

So the correct answer would be-

Option b) costs that affect future cash flows.

4. three ratios which helps in determining the degree of leverage of the company are-

(B) TIER - times interest earned ratio is a ratio which reflects the number of times earning is to, the overall interest

c) Long-term debt to capital-this ratio determine the solvency ratio of the firm.

d) Debt to tangible net worth-debt to tangible net worth speaks about the volume of debt to net worth of the company.