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General Practice Test Flashcards

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

Read the first 7 General Practice Test flashcards as text

  1. Depreciation expense affects cash flow primarily by:

    Answer: Reducing taxable income, creating a tax shield

    Depreciation is a non-cash expense that lowers taxes, providing a tax shield.

  2. The internal rate of return (IRR) is the discount rate at which a project's NPV equals:

    Answer: Zero

    IRR is defined as the rate that makes NPV equal to zero.

  3. Which source of capital generally carries the lowest cost for a profitable firm due to tax deductibility?

    Answer: Debt

    Interest on debt is tax-deductible, lowering its effective cost.

  4. Working capital is calculated as:

    Answer: Current assets minus current liabilities

    Working capital equals current assets less current liabilities.

  5. According to the CAPM, a stock with a beta of 1.5 is expected to be:

    Answer: More volatile than the market

    A beta above 1 indicates greater volatility than the overall market.

  6. A dividend policy that pays a constant percentage of earnings each year is called a:

    Answer: Constant payout ratio policy

    A constant payout ratio pays a fixed percentage of earnings as dividends.

  7. Inflation that is higher than expected generally benefits:

    Answer: Borrowers with fixed-rate debt

    Borrowers repay fixed debt with cheaper, devalued dollars when inflation is high.