ACCA AS Financial Management

Question 1

Net present value (NPV) is calculated as:

Accepted Answer

The sum of present values of future cash flows minus the initial investment

Answer

The sum of undiscounted future cash flows minus initial investment

Answer

Annual profit divided by initial investment

Answer

The payback period expressed in present value terms

Question 2

The internal rate of return (IRR) is:

Accepted Answer

The discount rate at which NPV equals zero

Answer

The discount rate that maximises NPV

Answer

The average accounting return over the project's life

Answer

The required rate of return set by the company

Question 3

Which of the following is a limitation of the payback period as an investment appraisal method?

Accepted Answer

It ignores cash flows arising after the payback period

Answer

It is too complex to calculate

Answer

It requires a cost of capital to be specified

Answer

It is not suitable for comparing projects of different sizes

Question 4

The weighted average cost of capital (WACC) represents:

Accepted Answer

The average after-tax cost of all long-term financing, weighted by market values

Answer

The return required by equity shareholders only

Answer

The cost of new debt only

Answer

The risk-free rate plus a market risk premium

Question 5

Working capital management involves balancing:

Accepted Answer

The levels of current assets and current liabilities to maintain liquidity and profitability

Answer

Long-term debt and equity

Answer

Capital expenditure and revenue expenditure

Answer

Dividend policy and retained earnings

Question 6

The operating cycle (cash conversion cycle) measures:

Accepted Answer

The time from paying for raw materials to collecting cash from customers

Answer

The number of days it takes to repay long-term debt

Answer

The duration of a capital expenditure project

Answer

The time taken to complete one production run