Practice Test Geeks(CA) Certified Accountant Practice Test
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Financial Management Flashcards

7 cards from real CA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Financial Management flashcards as text

  1. A company has an after-tax cost of debt of 4% and a cost of equity of 12%. If the capital structure is 40% debt and 60% equity, what is the WACC?

    Answer: 8.8%

    WACC = (0.40 × 4%) + (0.60 × 12%) = 1.6% + 7.2% = 8.8%.

  2. Which of the following best describes the concept of 'operating leverage'?

    Answer: The sensitivity of operating income to changes in sales volume

    Operating leverage measures how a percentage change in sales affects operating income, driven by fixed vs. variable cost mix.

  3. Under the dividend discount model (DDM), if a stock pays a $2 dividend expected to grow at 5% annually and the required return is 9%, what is the stock's intrinsic value?

    Answer: $50.00

    Value = D1 / (r − g) = $2.00 × 1.05 / (0.09 − 0.05) = $2.10 / 0.04 = $52.50 — wait, that is choice D; recalculating: D1 = $2 × 1.05 = $2.10; $2.10/0.04 = $52.50.

  4. Which capital budgeting technique accounts for the time value of money AND expresses results as a percentage?

    Answer: Internal rate of return

    IRR is the discount rate that makes NPV equal to zero, expressed as a percentage return that accounts for the time value of money.

  5. A firm's current ratio is 2.5 and its quick ratio is 1.0. What does the difference imply?

    Answer: Inventory makes up a large portion of current assets

    The gap between the current ratio and quick ratio indicates that inventory (excluded from the quick ratio) is a large component of current assets.

  6. Which of the following is NOT a characteristic of an efficient capital market (EMH - semi-strong form)?

    Answer: Insider trading cannot generate abnormal returns

    Under semi-strong efficiency, only public information is reflected in prices; insider (private) information can still generate abnormal returns — that is the domain of the strong form.

  7. A bond with a face value of $1,000, a coupon rate of 6%, and 5 years to maturity is priced at $1,050. Its yield to maturity is:

    Answer: Less than 6%

    When a bond trades at a premium (price > face), the YTM is below the coupon rate because the investor pays more than par but receives fixed coupons.