Financial Management - Study Mode

[#1056] Basic objective of diversification is:
Correct Answer

(C) Decreasing Risk

[#1057] At Indifference level of EBIT, different capital have:
Correct Answer

(B) Same EPS

[#1058] Present value of future cash flows is divided by an initial cost of project to calculate
Correct Answer

(D) profitability index

Explanation

Solution: Present value of future cash flows is divided by an initial cost of project to calculate profitability index.

[#1059] If net present value is positive then profitability index will be
Correct Answer

(D) greater than one

Explanation

Solution: If net present value is positive then profitability index will be greater than one. A positive net present value indicates that the projected earnings generated by a project or investment - in present dollars - exceeds the anticipated costs, also in present dollars. It is assumed that an investment with a positive NPV will be profitable, and an investment with a negative NPV will result in a net loss.

[#1060] Cash flows occurring with more than one change in sign of cash flow are classified as
Correct Answer

(A) non-normal cash flow

Explanation

Solution: Cash flows occurring with more than one change in sign of cash flow are classified as non-normal cash flow. Non-normal cash flow stream (also called unconventional cash flow) is a pattern of cash flows in which the direction of cash flows changes more than once.