Financial Management - Study Mode

[#1131] Other factors held constant, greater project liquidity is because of
Correct Answer

(C) shorter payback period

Explanation

Solution: Other factors held constant, greater project liquidity is because of shorter payback period. The payback period is the cost of the investment divided by the annual cash flow. The shorter the payback, the more desirable the investment.

[#1132] In calculation of internal rate of return, an assumption states that received cash flow from project must
Correct Answer

(A) be reinvested

Explanation

Solution: In calculation of internal rate of return, an assumption states that received cash flow from project must be reinvested. The internal rate of return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.

[#1133] In capital budgeting, number of non-normal cash flows have internal rate of returns are
Correct Answer

(B) multiple

Explanation

Solution: In capital budgeting, number of non-normal cash flows have internal rate of returns are multiple. Capital budgeting is the process a business undertakes to evaluate potential major projects or investments.

[#1134] An internal rate of return in capital budgeting can be modified to make it representative of
Correct Answer

(D) relative profitability

Explanation

Solution: An internal rate of return in capital budgeting can be modified to make it representative of relative profitability.

[#1135] Situation in which firm limits expenditures on capital is classified as
Correct Answer

(B) capital rationing

Explanation

Solution: Situation in which firm limits expenditures on capital is classified as capital rationing. Capital rationing is the process of putting restrictions on the projects that can be undertaken by the company or the capital that can be invested by the company.