MBA6010
Managerial Finance
Comprehensive Final Test (Qns & Ans)
2025
1. Which of the following is a primary objective of managerial
finance?
- A) Minimizing tax liabilities
- B) Maximizing shareholder wealth
- C) Reducing employee turnover
- D) Increasing market share
- ANS: B) Maximizing shareholder wealth
©/2025
, - Rationale: The primary objective of managerial finance is to
maximize shareholder wealth by making financial decisions that
increase the value of the company.
2. What is the primary purpose of conducting a capital budgeting
analysis?
- A) To manage short-term liquidity
- B) To evaluate long-term investment projects
- C) To prepare financial statements
- D) To minimize tax liabilities
- ANS: B) To evaluate long-term investment projects
- Rationale: Capital budgeting analysis is used to evaluate the
potential profitability and risks of long-term investment projects.
Fill-in-the-Blank Questions
3. The __________ ratio measures a company's ability to meet
its short-term obligations using its most liquid assets.
- ANS: Current
- Rationale: The current ratio measures a company's ability to
pay off its short-term liabilities with its short-term assets.
©/2025
,4. __________ is the process of estimating the future value of a
financial asset based on its expected rate of return and the time
period.
- ANS: Compounding
- Rationale: Compounding involves calculating the future
value of an investment by applying its expected rate of return over
a specified time period.
True/False Questions
5. True or False: The net present value (NPV) of a project
should be positive for it to be considered a good investment.
- ANS: True
- Rationale: A positive NPV indicates that the project's
expected cash flows exceed the initial investment, making it a
good investment.
6. True or False: Diversification reduces unsystematic risk but
does not affect systematic risk.
- ANS: True
- Rationale: Diversification helps reduce unsystematic risk,
which is specific to individual assets, but it does not affect
systematic risk, which affects the entire market.
©/2025
, Multiple Response Questions
7. Which of the following are components of the weighted
average cost of capital (WACC)? (Select all that apply)
- A) Cost of equity
- B) Cost of debt
- C) Cost of goods sold
- D) Cost of preferred stock
- ANS: A) Cost of equity, B) Cost of debt, D) Cost of
preferred stock
- Rationale: WACC is calculated using the cost of equity,
cost of debt, and cost of preferred stock, weighted by their
respective proportions in the company's capital structure.
8. Which factors should be considered when determining a
company's optimal capital structure? (Select all that apply)
- A) Business risk
- B) Tax considerations
- C) Market conditions
- D) Employee satisfaction
- ANS: A) Business risk, B) Tax considerations, C) Market
conditions
©/2025
Managerial Finance
Comprehensive Final Test (Qns & Ans)
2025
1. Which of the following is a primary objective of managerial
finance?
- A) Minimizing tax liabilities
- B) Maximizing shareholder wealth
- C) Reducing employee turnover
- D) Increasing market share
- ANS: B) Maximizing shareholder wealth
©/2025
, - Rationale: The primary objective of managerial finance is to
maximize shareholder wealth by making financial decisions that
increase the value of the company.
2. What is the primary purpose of conducting a capital budgeting
analysis?
- A) To manage short-term liquidity
- B) To evaluate long-term investment projects
- C) To prepare financial statements
- D) To minimize tax liabilities
- ANS: B) To evaluate long-term investment projects
- Rationale: Capital budgeting analysis is used to evaluate the
potential profitability and risks of long-term investment projects.
Fill-in-the-Blank Questions
3. The __________ ratio measures a company's ability to meet
its short-term obligations using its most liquid assets.
- ANS: Current
- Rationale: The current ratio measures a company's ability to
pay off its short-term liabilities with its short-term assets.
©/2025
,4. __________ is the process of estimating the future value of a
financial asset based on its expected rate of return and the time
period.
- ANS: Compounding
- Rationale: Compounding involves calculating the future
value of an investment by applying its expected rate of return over
a specified time period.
True/False Questions
5. True or False: The net present value (NPV) of a project
should be positive for it to be considered a good investment.
- ANS: True
- Rationale: A positive NPV indicates that the project's
expected cash flows exceed the initial investment, making it a
good investment.
6. True or False: Diversification reduces unsystematic risk but
does not affect systematic risk.
- ANS: True
- Rationale: Diversification helps reduce unsystematic risk,
which is specific to individual assets, but it does not affect
systematic risk, which affects the entire market.
©/2025
, Multiple Response Questions
7. Which of the following are components of the weighted
average cost of capital (WACC)? (Select all that apply)
- A) Cost of equity
- B) Cost of debt
- C) Cost of goods sold
- D) Cost of preferred stock
- ANS: A) Cost of equity, B) Cost of debt, D) Cost of
preferred stock
- Rationale: WACC is calculated using the cost of equity,
cost of debt, and cost of preferred stock, weighted by their
respective proportions in the company's capital structure.
8. Which factors should be considered when determining a
company's optimal capital structure? (Select all that apply)
- A) Business risk
- B) Tax considerations
- C) Market conditions
- D) Employee satisfaction
- ANS: A) Business risk, B) Tax considerations, C) Market
conditions
©/2025
