Financial Management - Study Mode

[#256] Real rate expected cash flows and nominal rate expected cash flows must be
Correct Answer

(B) equal

Explanation

Solution: Real rate expected cash flows and nominal rate expected cash flows must be equal. Nominal cash flow is the true dollar amount of future revenues the company expects to receive and expenses it expects to pay out, without any adjustments for inflation. In the short term and under conditions of low inflation, the amounts attributed to nominal and real cash flows are nearly identical.

[#257] Double declining balance method and sum of years digits are included in
Correct Answer

(D) accelerated methods

Explanation

Solution: Double declining balance method and sum of years digits are included in accelerated methods.

[#258] Free cash flow is Rs 15000, operating cash flow is Rs 3000, investment outlay cash flow is Rs 5000 then salvage cash flow will be
Correct Answer

(C) Rs 7,000.00

Explanation

Solution: salvage cash flow = Free cash flow - Investment outlay cashflow - Operating cash flow = 15000 - 5000 - 3000 = Rs. 7000.

[#259] If the Money Discount Rate is 19% and Inflation Rate is 12%, then the Real Discount Rate is:
Correct Answer

(D) 6.25%

Explanation

Solution: The formula to calculate the Real Discount Rate is: Real Rate = [(1 + Money Rate) / (1 + Inflation Rate)] - 1 Substitute the given values: Real Rate = [(1 + 0.19) / (1 + 0.12)] - 1 Real Rate = (1.19 / 1.12) - 1 Real Rate = 1.0625 - 1 = 0.0625 or 6.25% Conclusion: The Real Discount Rate is 6.25% , so the correct answer is Option D.

[#260] Gross Profit Ratio for a firm remains same but the Net Profit Ratio is decreasing. The reason for such behaviour could be:
Correct Answer

(B) If Increase in Expense