Practice Test GeeksCertified Treasury Professional Exam Practice Test
← All CTP Flashcard Decks

Long-Term Capital Investments Flashcards

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

Read the first 7 Long-Term Capital Investments flashcards as text

  1. When evaluating an international capital investment, the treasury professional must account for an additional risk factor known as:

    Answer: Country risk premium

    International projects require a country risk premium added to the discount rate to reflect political, regulatory, and sovereign risks.

  2. The weighted average cost of capital (WACC) used as a discount rate implicitly assumes that the project:

    Answer: Has the same risk as the firm's existing asset portfolio

    Using the firm's WACC is only appropriate when the project has similar risk and capital structure characteristics as the firm's existing operations.

  3. Monte Carlo simulation in capital budgeting generates:

    Answer: A probability distribution of NPV outcomes across thousands of scenarios

    Monte Carlo simulation randomly samples input variable distributions thousands of times to build a probability distribution of possible NPV outcomes.

  4. A firm sells an old machine for $80,000. The machine has a book value of $50,000 and the tax rate is 25%. What is the after-tax salvage value?

    Answer: $72,500

    Tax on gain = ($80,000 − $50,000) × 25% = $7,500; after-tax salvage = $80,000 − $7,500 = $72,500.

  5. Which of the following is a limitation of the payback period method?

    Answer: It ignores the time value of money and cash flows beyond the payback period

    The payback period ignores both the time value of money and all cash flows occurring after the payback cutoff date, potentially favoring inferior projects.

  6. A project generates the following undiscounted cash flows: Year 0: −$200,000; Years 1−5: $50,000/yr. Which statement is TRUE regarding its discounted payback period versus simple payback period?

    Answer: The discounted payback period is longer than the simple payback period

    Discounting reduces the present value of future cash flows, so more periods are needed to recover the investment, making the discounted payback always longer.

  7. An expansion project requires an increase in net working capital (NWC) of $40,000 at inception. This NWC investment should be treated as:

    Answer: A cash outflow at inception, recovered as a cash inflow at project termination

    NWC invested at project start is a cash outflow that is recovered (as a cash inflow) at the project's end when working capital needs wind down.