FCCA Strategic Financial Management

Question 1

Which capital budgeting technique calculates the discount rate at which the net present value of a project equals zero?

Accepted Answer

Internal Rate of Return (IRR)

Answer

Net Present Value (NPV)

Answer

Payback Period

Answer

Accounting Rate of Return (ARR)

Question 2

Under the Modigliani-Miller theorem (without taxes), what is the effect of changing a firm's capital structure on its overall value?

Accepted Answer

It has no effect on the overall firm value

Answer

It increases firm value by reducing the cost of equity

Answer

It decreases firm value by increasing financial risk

Answer

It always maximizes value when debt is maximized

Question 3

Which of the following best describes the Weighted Average Cost of Capital (WACC)?

Accepted Answer

The average return required by all providers of finance, weighted by their proportion of total capital

Answer

The cost of the most recently issued debt

Answer

The risk-free rate plus a market risk premium

Answer

The cost of equity minus the tax shield on debt

Question 4

In the Capital Asset Pricing Model (CAPM), what does a beta (β) greater than 1 indicate?

Accepted Answer

The asset is more volatile than the market

Answer

The asset is less volatile than the market

Answer

The asset moves independently of the market

Answer

The asset has no systematic risk

Question 5

Which working capital strategy involves maintaining minimal inventory and tight credit policies to reduce current assets?

Accepted Answer

Aggressive working capital strategy

Answer

Conservative working capital strategy

Answer

Matching working capital strategy

Answer

Hedging working capital strategy

Question 6

A company has a current ratio of 1.8 and a quick ratio of 0.9. What does this most likely indicate?

Accepted Answer

A significant portion of current assets is tied up in inventory

Answer

The company holds no short-term debt

Answer

The company has excessive cash holdings

Answer

The company's receivables are very high relative to payables

Question 7

Which dividend policy theory argues that investors are indifferent between dividends and capital gains because they can create 'homemade dividends'?

Accepted Answer

Modigliani-Miller dividend irrelevance theory

Answer

Bird-in-the-hand theory

Answer

Signalling theory

Answer

Clientele effect theory