CBS Corporate Finance & Investment 3

Question 1

A project requires an initial investment of $200,000 and generates $50,000 annual cash flows for 5 years. What is the payback period?

Accepted Answer

4 years

Answer

Payback = Initial investment / Annual cash flow = $200,000 / $50,000 = 4 years.

Question 2

Which financial metric measures how efficiently a company uses its assets to generate earnings?

Accepted Answer

Return on Assets (ROA)

Answer

ROA = Net income / Total assets, showing how effectively assets generate profit.

Question 3

What is the primary purpose of a leveraged buyout (LBO)?

Accepted Answer

To acquire a company using mostly borrowed funds

Answer

An LBO uses significant debt financing to acquire a company, with the acquired firm's assets often serving as collateral.

Question 4

Beta of 1.2 for a stock means the stock is expected to:

Accepted Answer

Rise 1.2% for every 1% move in the market

Answer

A beta above 1 means the stock is more volatile than the market; a beta of 1.2 implies 1.2% movement per 1% market movement.

Question 5

Which financial statement best shows a company's ability to meet short-term obligations?

Accepted Answer

Balance sheet

Answer

The balance sheet displays current assets and current liabilities, enabling liquidity analysis.

(CBS) Certified Budget Specialist Practice Test