ACA Financial Management

Question 1

A UK company is evaluating a project with an initial investment of £100,000 and expected net cash flows of £30,000 per year for 5 years.
If the cost of capital is 10%, what is the approximate net present value (NPV)?

Accepted Answer

£13,724

Answer

£50,000

Answer

£30,000

Answer

−£13,724

Question 2

Which of the following sources of finance would typically have the lowest cost to a UK company?

Accepted Answer

Secured bank loan

Answer

Ordinary share capital

Answer

Preference shares

Answer

Unsecured overdraft

Question 3

What does the weighted average cost of capital (WACC) represent?

Accepted Answer

The average return required by all of the company's investors, weighted by market value

Answer

The cost of the company's most expensive source of finance

Answer

The interest rate on the company's bank loan

Answer

The dividend yield on ordinary shares

Question 4

Under the UK Corporate Governance Code, what is the primary role of the audit committee?

Accepted Answer

Overseeing the integrity of financial reporting and the effectiveness of internal and external audit

Answer

Setting executive remuneration

Answer

Appointing the CEO

Answer

Managing day-to-day operations

Question 5

A company has earnings before interest and tax (EBIT) of £200,000 and interest charges of £50,000. What is the interest cover ratio?

Accepted Answer

4 times

Answer

2.5 times

Answer

3 times

Answer

5 times

Question 6

Which of the following best describes the payback period method of investment appraisal?

Accepted Answer

The time taken for cumulative net cash flows to equal the initial investment

Answer

The total profit generated by the investment over its life

Answer

The internal rate of return on the investment

Answer

The discounted value of all future cash flows