Financial Management for Engineers Flashcards
6 cards from real MEM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Financial Management for Engineers flashcards as text
What is the primary purpose of a pro forma financial statement?
Answer: To project future financial performance
Pro forma financial statements are forward-looking projections used for planning, fundraising, or evaluating the financial impact of decisions.
Which capital structure theory suggests that an optimal debt-equity mix minimizes WACC and maximizes firm value?
Answer: Trade-off theory
The trade-off theory holds that firms balance the tax benefits of debt against the costs of financial distress to find an optimal capital structure.
An engineering manager evaluates two projects with identical NPVs. Project A has a 2-year payback; Project B has a 5-year payback. Which is generally preferred?
Answer: Project A, because shorter payback reduces risk and improves liquidity
Shorter payback periods reduce exposure to uncertainty and improve cash flow availability, making Project A preferable when NPVs are equal.
What does a positive EVA (Economic Value Added) indicate?
Answer: The company is creating shareholder value above its cost of capital
Positive EVA means a firm earns returns exceeding its cost of capital, indicating true economic profit and value creation for shareholders.
In financial analysis, what does 'sensitivity analysis' examine?
Answer: How changes in key assumptions affect project outcomes
Sensitivity analysis tests how much a project's NPV or other metrics change when individual input variables (like sales volume or cost) are varied.
Which depreciation method results in higher depreciation expense in early years of an asset's life?
Answer: Double declining balance depreciation
The double declining balance method applies twice the straight-line rate to the declining book value, front-loading depreciation expense.