BEC Financial Management and Capital Budgeting 2

Question 1

Which of the following best describes a capital lease (finance lease)?

Accepted Answer

A lease that transfers substantially all risks and rewards of ownership to the lessee

Answer

A short-term rental agreement with no balance sheet impact

Answer

An operating expense treated as rent

Answer

A lease cancelable at any time by either party

Question 2

The optimal capital structure for a firm minimizes its:

Accepted Answer

Weighted average cost of capital (WACC)

Answer

Total revenue

Answer

Gross profit margin

Answer

Accounts payable turnover

Question 3

A company's current ratio is 1.8 and its quick ratio is 0.9. This difference most likely indicates:

Accepted Answer

The company holds a significant amount of inventory

Answer

The company has excessive cash balances

Answer

The company has very little long-term debt

Answer

The company's accounts receivable are uncollectible

Question 4

Which capital budgeting technique explicitly accounts for the time value of money?

Accepted Answer

Net Present Value (NPV)

Answer

Payback period

Answer

Accounting rate of return

Answer

Break-even analysis

Question 5

A dividend payout ratio measures:

Accepted Answer

The percentage of earnings paid to shareholders as dividends

Answer

The total dollar amount of dividends declared

Answer

The growth rate of dividends over time

Answer

The yield on the company's preferred stock

Question 6

Free cash flow (FCF) is best described as:

Accepted Answer

Operating cash flow minus capital expenditures

Answer

Net income plus all non-cash charges

Answer

EBITDA minus interest expense

Answer

Revenue minus cost of goods sold