CIMA Financial Management and Risk 1

Question 1

What does the 'weighted average cost of capital' (WACC) represent?

Accepted Answer

The blended cost of all sources of finance, weighted by their proportion in the capital structure

Answer

WACC is the blended rate of return a company must earn on its assets to satisfy all its investors, weighted by each source's proportion in the capital structure.

Question 2

In capital investment appraisal, which method calculates the discount rate at which the net present value (NPV) of a project equals zero?

Accepted Answer

Internal rate of return (IRR)

Answer

The Internal Rate of Return (IRR) is the discount rate that makes the NPV of a project's cash flows equal to zero.

Question 3

Which type of risk cannot be eliminated through diversification in a portfolio?

Accepted Answer

Systematic (market) risk

Answer

Systematic (market) risk affects all investments and cannot be eliminated through diversification, unlike unsystematic risk which is company-specific.

Question 4

A company has current assets of $500,000 and current liabilities of $200,000. What is its current ratio?

Accepted Answer

2.5

Answer

The current ratio is calculated as current assets divided by current liabilities: $500,000 / $200,000 = 2.5.

Question 5

Which financial instrument gives the holder the right, but not the obligation, to buy an asset at a specified price on or before a specified date?

Accepted Answer

Call option

Answer

A call option gives the holder the right, but not the obligation, to purchase an underlying asset at the strike price before or at expiration.

CIMA - Chartered Institute of Management Accountants Aptitude Test Practice Test

CIMA - Chartered Institute of Management Accountants Aptitude Test Practice Test

CIMA Financial Management and Risk 1