C214 FINC 6000
Financial Management
Comprehensive FA Review (Qns & Ans)
2025
1. Which method is primarily used to evaluate capital
expenditure projects?
- A) Payback Period
- B) Net Present Value (NPV)
- C) Internal Rate of Return (IRR)
- D) Return on Investment (ROI)
- Correct ANS : B) Net Present Value (NPV)
©/2025
, Rationale : NPV evaluates the profitability of an investment
by calculating the present value of expected cash flows minus the
initial investment.
2. In a healthcare context, which of the following would be
considered a fixed cost?
- A) Salaries of medical staff
- B) Medical supplies
- C) Utility expenses
- D) Patient billing costs
- Correct ANS : A) Salaries of medical staff
Rationale : Fixed costs do not change with the level of
services provided, while variable costs fluctuate with patient
volume.
3. The Weighted Average Cost of Capital (WACC) reflects:
- A) The minimum return needed by all shareholders
- B) The average return by debt holders only
- C) The risk-free rate of return
- D) The opportunity cost of capital
- Correct ANS : A) The minimum return needed by all
shareholders
©/2025
, Rationale : WACC is the average rate that a company is
expected to pay to finance its assets, reflecting the returns
required by all sources of capital.
4. Which of the following best describes "financial leverage"?
- A) Using debt to finance a project
- B) Increasing equity investment
- C) Accumulating cash reserves
- D) Enhancing profitability through cost-cutting
- Correct ANS : A) Using debt to finance a project
Rationale : Financial leverage involves the use of debt to
increase the potential return on investment.
5. A healthcare firm’s liquidity position is often measured using
which ratio?
- A) Current ratio
- B) Return on equity
- C) Debt to equity ratio
- D) Profit margin
- Correct ANS : A) Current ratio
©/2025
, Rationale : The current ratio measures the ability of a
company to pay off its short-term liabilities with its short-term
assets.
Fill-in-the-Blank Questions
6. The ________ rate is the rate of return needed to make an
investment acceptable.
- Correct ANS : hurdle
Rationale : The hurdle rate is the minimum acceptable return
on an investment, often aligned with WACC.
7. A project with a positive NPV is considered ________ .
- Correct ANS : profitable
Rationale : A positive NPV indicates that the project's
anticipated cash flows exceed the costs, making it a worthwhile
investment.
8. In financial analysis, the ________ provides a standardized
approach to compare the profitability of firms of different sizes.
- Correct ANS : return on assets (ROA)
Rationale : ROA measures a company's ability to generate
profit from its assets, facilitating comparative analysis.
©/2025
Financial Management
Comprehensive FA Review (Qns & Ans)
2025
1. Which method is primarily used to evaluate capital
expenditure projects?
- A) Payback Period
- B) Net Present Value (NPV)
- C) Internal Rate of Return (IRR)
- D) Return on Investment (ROI)
- Correct ANS : B) Net Present Value (NPV)
©/2025
, Rationale : NPV evaluates the profitability of an investment
by calculating the present value of expected cash flows minus the
initial investment.
2. In a healthcare context, which of the following would be
considered a fixed cost?
- A) Salaries of medical staff
- B) Medical supplies
- C) Utility expenses
- D) Patient billing costs
- Correct ANS : A) Salaries of medical staff
Rationale : Fixed costs do not change with the level of
services provided, while variable costs fluctuate with patient
volume.
3. The Weighted Average Cost of Capital (WACC) reflects:
- A) The minimum return needed by all shareholders
- B) The average return by debt holders only
- C) The risk-free rate of return
- D) The opportunity cost of capital
- Correct ANS : A) The minimum return needed by all
shareholders
©/2025
, Rationale : WACC is the average rate that a company is
expected to pay to finance its assets, reflecting the returns
required by all sources of capital.
4. Which of the following best describes "financial leverage"?
- A) Using debt to finance a project
- B) Increasing equity investment
- C) Accumulating cash reserves
- D) Enhancing profitability through cost-cutting
- Correct ANS : A) Using debt to finance a project
Rationale : Financial leverage involves the use of debt to
increase the potential return on investment.
5. A healthcare firm’s liquidity position is often measured using
which ratio?
- A) Current ratio
- B) Return on equity
- C) Debt to equity ratio
- D) Profit margin
- Correct ANS : A) Current ratio
©/2025
, Rationale : The current ratio measures the ability of a
company to pay off its short-term liabilities with its short-term
assets.
Fill-in-the-Blank Questions
6. The ________ rate is the rate of return needed to make an
investment acceptable.
- Correct ANS : hurdle
Rationale : The hurdle rate is the minimum acceptable return
on an investment, often aligned with WACC.
7. A project with a positive NPV is considered ________ .
- Correct ANS : profitable
Rationale : A positive NPV indicates that the project's
anticipated cash flows exceed the costs, making it a worthwhile
investment.
8. In financial analysis, the ________ provides a standardized
approach to compare the profitability of firms of different sizes.
- Correct ANS : return on assets (ROA)
Rationale : ROA measures a company's ability to generate
profit from its assets, facilitating comparative analysis.
©/2025
