MEM Financial Management for Engineers 1

Question 1

Which financial statement shows a company's revenues and expenses over a specific period?

Accepted Answer

Income statement

Answer

The income statement (profit and loss statement) reports revenues, expenses, and net income over a defined accounting period.

Question 2

What does WACC stand for in corporate finance?

Accepted Answer

Weighted Average Cost of Capital

Answer

WACC (Weighted Average Cost of Capital) represents a firm's average cost of financing from all sources, weighted by their proportion in the capital structure.

Question 3

A project has an IRR of 18% and the company's WACC is 12%. What should management do?

Accepted Answer

Accept the project because IRR exceeds WACC

Answer

When IRR exceeds the cost of capital (WACC), the project generates more return than it costs to finance, so it should be accepted.

Question 4

Which ratio measures a company's ability to meet short-term obligations using its most liquid assets?

Accepted Answer

Quick ratio

Answer

The quick ratio (acid-test ratio) excludes inventory from current assets to measure immediate liquidity, providing a stricter test than the current ratio.

Question 5

What is capital budgeting primarily concerned with?

Accepted Answer

Evaluating long-term investment decisions

Answer

Capital budgeting is the process of evaluating and selecting long-term investments in assets or projects that will benefit the firm over multiple years.

MEM - Master of Engineering Management Practice Test

MEM - Master of Engineering Management Practice Test

MEM Financial Management for Engineers 1