Business Degree Business Finance 3

Question 1

What is 'leverage' in financial terms?

Accepted Answer

Using borrowed capital to increase potential return on investment

Answer

Financial leverage involves using debt to amplify potential investment returns, though it also increases the risk of losses.

Question 2

What is the breakeven point for a business?

Accepted Answer

The point where revenue equals total costs

Answer

The breakeven point is where total revenue exactly equals total costs, resulting in neither profit nor loss.

Question 3

Which valuation method calculates the present value of expected future cash flows?

Accepted Answer

Discounted cash flow (DCF) analysis

Answer

DCF analysis estimates an investment's value by discounting projected future cash flows back to their present value using a discount rate.

Question 4

What does 'gross profit margin' indicate?

Accepted Answer

The percentage of revenue remaining after subtracting cost of goods sold

Answer

Gross profit margin is calculated as (Revenue − COGS) / Revenue × 100, showing how efficiently a company produces its goods.

Question 5

What is an 'initial public offering' (IPO)?

Accepted Answer

The first time a private company offers shares to the public

Answer

An IPO is the process through which a private company offers shares to the public for the first time, becoming publicly traded.

Business Degree Practice Test