B1 FINANCIAL MANAGEMENT TEST 01
Financial Management Test 01 - Instructions
- Format: This exam consists of 100 multiple-choice questions. Each question has one correct answer.
- Answering Questions: Choose the correct answer from the options provided for each question.
- Scoring:
- If your answer is correct, the system will mark it as correct and provide a brief explanation.
- If your answer is incorrect, the system will mark it as wrong and show the correct answer with an explanation.
- Report Card: At the end of the exam, you'll see a report card that summarizes your performance:
- Total Questions Attempted: The number of questions you answered.
- Correct Answers: How many answers were correct.
- Wrong Answers: How many answers were incorrect.
- Percentage: The percentage of correct answers.
- Ongoing Marking: The system will automatically mark your answers as you proceed through the exam, so you will see your results in real-time.
- Technical Issues: If you encounter any problems, please contact support at business@vedastuswatosha.sbs.
Good luck!
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Financial Management Questions
Question 1: What is the primary goal of financial management in a corporation?
A) Maximizing profit
B) Minimizing costs
C) Ensuring liquidity
D) Maximizing shareholder wealth
Answer: D) Maximizing shareholder wealth. The primary goal of financial management is to maximize shareholder wealth.
Question 2: Which theory is most relevant to understanding the relationship between managers and shareholders?
A) Stakeholder Theory
B) Agency Theory
C) Signaling Theory
D) Pecking Order Theory
Answer: B) Agency Theory. This theory explains the conflicts of interest between managers and shareholders.
Question 3: In a not-for-profit organization, financial objectives are typically aimed at:
A) Maximizing shareholder wealth
B) Minimizing costs
C) Achieving the organization's mission effectively
D) Generating profits
Answer: C) Achieving the organization's mission effectively. Not-for-profit organizations focus on their mission rather than profit.
Question 4: The financial system and flow of funds in an economy primarily consist of:
A) Only banks and insurance companies
B) Government and public sector enterprises
C) Financial markets and institutions
D) Non-financial businesses
Answer: C) Financial markets and institutions. They play a key role in the flow of funds within the economy.
Question 5: Which regulatory body in Tanzania oversees the securities market?
A) Bank of Tanzania (BoT)
B) Capital Market and Securities Authority (CMSA)
C) Tanzania Insurance Regulatory Authority (TIRA)
D) Tanzania Revenue Authority (TRA)
Answer: B) Capital Market and Securities Authority (CMSA). The CMSA regulates the securities market in Tanzania.
Question 6: The relationship between risk and return is:
A) Directly proportional
B) Inversely proportional
C) Unrelated
D) Curvilinear
Answer: A) Directly proportional. Higher risk is associated with higher potential returns.
Question 7: Diversification in a portfolio aims to:
A) Increase risk for higher returns
B) Decrease risk without sacrificing expected returns
C) Increase both risk and return
D) Decrease both risk and return
Answer: B) Decrease risk without sacrificing expected returns. Diversification spreads risk across various assets.
Question 8: What is the formula to calculate the future value of a single sum?
A) PV = FV / (1 + r)^n
B) FV = PV * (1 + r)^n
C) PV = FV * (1 - r)^n
D) FV = PV / (1 - r)^n
Answer: B) FV = PV * (1 + r)^n. This formula calculates the future value of a present amount.
Question 9: The present value of an annuity can be calculated using:
A) The sum of all future values
B) The product of all future values
C) The sum of the discounted future cash flows
D) The product of the discounted future cash flows
Answer: C) The sum of the discounted future cash flows. This is how the present value of an annuity is calculated.
Question 10: Which financial ratio is used to measure a company’s profitability relative to its revenue?
A) Current Ratio
B) Gross Profit Margin
C) Debt to Equity Ratio
D) Inventory Turnover
Answer: B) Gross Profit Margin. It measures profitability relative to revenue.
Question 11: The Du Pont system of analysis is primarily used to:
A) Analyze the cash flow
B) Measure profitability and financial leverage
C) Assess the market value of shares
D) Evaluate the liquidity of a company
Answer: B) Measure profitability and financial leverage. The Du Pont system breaks down Return on Equity (ROE) into its components to assess financial performance.
Question 12: Which of the following is a short-term financing option?
A) Issuing bonds
B) Trade credit
C) Term loans
D) Venture capital
Answer: B) Trade credit. It is a common short-term financing option used to manage working capital.
Question 13: Leasing as a financing option is categorized under:
A) Short-term finance
B) Medium-term finance
C) Long-term finance
D) Equity finance
Answer: B) Medium-term finance. Leasing typically involves medium-term commitments.
Question 14: The cost of capital is important because it:
A) Determines the company's dividend policy
B) Influences the company’s investment decisions
C) Affects operational efficiency
D) Is used to calculate depreciation
Answer: B) Influences the company’s investment decisions. The cost of capital helps evaluate the profitability of potential investments.
Question 15: The Capital Asset Pricing Model (CAPM) is used to calculate:
A) The cost of equity
B) The cost of debt
C) The cost of preferred stock
D) The overall cost of capital
Answer: A) The cost of equity. CAPM is used to determine the expected return on equity investments.
Question 16: Financial gearing refers to:
A) The ratio of debt to equity in a company’s capital structure
B) The operational efficiency of a company
C) The ratio of current assets to current liabilities
D) The profitability of a company
Answer: A) The ratio of debt to equity in a company’s capital structure. Financial gearing indicates the level of leverage used by a company.
Question 17: Which theory suggests that there is an optimal capital structure that balances the costs and benefits of debt and equity?
A) Pecking Order Theory
B) Trade-off Theory
C) Signaling Theory
D) Agency Theory
Answer: B) Trade-off Theory. It proposes that an optimal capital structure exists where the marginal benefits of debt equal the marginal costs.
Question 18: Which of the following techniques is NOT a discounted cash flow method?
A) Net Present Value (NPV)
B) Internal Rate of Return (IRR)
C) Payback Period
D) Discounted Payback Period
Answer: C) Payback Period. Unlike NPV and IRR, the Payback Period does not account for the time value of money.
Question 19: The Net Present Value (NPV) method of investment appraisal:
A) Ignores the time value of money
B) Considers the time value of money
C) Considers only accounting profits
D) Focuses on the payback period
Answer: B) Considers the time value of money. NPV discounts future cash flows to their present value, reflecting the time value of money.
Question 20: Incorporating risk into investment appraisal can be achieved by:
A) Ignoring risk factors
B) Using a higher discount rate
C) Using the same discount rate for all projects
D) Reducing the project’s expected cash flows
Answer: B) Using a higher discount rate. A higher discount rate adjusts for increased risk in investment appraisals.
Question 21: Investment appraisal under capital rationing involves:
A) Unlimited investment funds
B) Limited investment funds
C) Ignoring project risk
D) Focusing solely on project return
Answer: B) Limited investment funds. Capital rationing requires prioritizing projects due to constraints on available funds.
Question 22: The principle of diversification in portfolio management suggests that:
A) Risk can be eliminated completely
B) Risk can be reduced without affecting expected returns
C) Returns can be maximized without considering risk
D) All investments should be in a single asset class
Answer: B) Risk can be reduced without affecting expected returns. Diversification helps spread risk across various assets.
Question 23: The beta factor in the Capital Asset Pricing Model (CAPM) measures:
A) The total risk of a security
B) The systematic risk of a security
C) The unsystematic risk of a security
D) The expected return of a security
Answer: B) The systematic risk of a security. Beta measures the sensitivity of a security’s returns to the overall market returns.
Question 24: The dividend irrelevance theory suggests that:
A) Dividends are crucial to the company’s value
B) Dividends do not affect the company’s value
C) Higher dividends always increase stock prices
D) Lower dividends always decrease stock prices
Answer: B) Dividends do not affect the company’s value. According to this theory, the value of a company is determined by its earning power, not its dividend policy.
Question 25: Which of the following is an example of a financial derivative?
A) Treasury bond
B) Option contract
C) Savings account
D) Common stock
Answer: B) Option contract. Financial derivatives include instruments like options, futures, and swaps.
Question 26: Which of the following measures a company’s operational efficiency?
A) Gross Profit Margin
B) Inventory Turnover Ratio
C) Debt to Equity Ratio
D) Current Ratio
Answer: B) Inventory Turnover Ratio. This ratio measures how efficiently a company manages its inventory.
Question 27: The Modigliani-Miller theorem suggests that:
A) Capital structure is crucial to firm value
B) Capital structure is irrelevant to firm value in perfect markets
C) Dividend policy affects firm value
D) Financial leverage always increases firm value
Answer: B) Capital structure is irrelevant to firm value in perfect markets. According to the Modigliani-Miller theorem, in perfect markets, a firm's value is unaffected by its capital structure.
Question 28: A bond's yield to maturity (YTM) represents:
A) The annual return if the bond is held until it matures
B) The bond's coupon rate
C) The current market price of the bond
D) The bond's face value
Answer: A) The annual return if the bond is held until it matures. YTM is the total return anticipated on a bond if it is held until maturity.
Question 29: Which type of risk is diversifiable?
A) Unsystematic risk
B) Systematic risk
C) Market risk
D) Interest rate risk
Answer: A) Unsystematic risk. This type of risk can be mitigated through diversification across different assets.
Question 30: The efficient market hypothesis (EMH) asserts that:
A) Markets are always inefficient
B) Markets can be predicted accurately
C) Asset prices reflect all available information
D) Market anomalies are common and predictable
Answer: C) Asset prices reflect all available information. The EMH suggests that it is impossible to consistently achieve higher returns than the overall market because asset prices already incorporate all known information.
Question 31: A company's capital structure is the mix of:
A) Debt and equity financing
B) Short-term and long-term assets
C) Revenues and expenses
D) Fixed and variable costs
Answer: A) Debt and equity financing. Capital structure refers to the combination of debt and equity a company uses to finance its operations and growth.
Question 32: The primary purpose of a company's dividend policy is to:
A) Minimize taxes
B) Distribute profits to shareholders
C) Reinvest earnings into the company
D) Increase market share
Answer: B) Distribute profits to shareholders. A company's dividend policy determines the portion of profits paid to shareholders and the portion retained for reinvestment.
Question 33: In financial management, leverage refers to:
A) The proportion of liquid assets
B) The use of borrowed funds to increase potential returns
C) The ratio of sales to total assets
D) The allocation of expenses
Answer: B) The use of borrowed funds to increase potential returns. Leverage involves using borrowed money to amplify both potential gains and losses.
Question 34: The weighted average cost of capital (WACC) is used to:
A) Measure the liquidity of a company
B) Evaluate investment opportunities
C) Calculate the company’s revenue
D) Determine the operational efficiency
Answer: B) Evaluate investment opportunities. WACC represents the average rate of return a company is expected to pay its investors, used to assess the profitability of potential investments.
Question 35: Financial distress occurs when a company:
A) Has too much equity
B) Is highly profitable
C) Cannot meet its debt obligations
D) Pays high dividends
Answer: C) Cannot meet its debt obligations. Financial distress arises when a company is unable to fulfill its debt repayments or financial commitments.
Question 36: A cash flow statement provides information about:
A) Cash inflows and outflows
B) Profit and loss
C) Assets and liabilities
D) Equity and debt
Answer: A) Cash inflows and outflows. The cash flow statement details the cash generated and used in operating, investing, and financing activities.
Question 37: Which of the following is NOT a component of working capital?
A) Long-term debt
B) Inventory
C) Accounts receivable
D) Accounts payable
Answer: A) Long-term debt. Working capital includes current assets and current liabilities, not long-term liabilities.
Question 38: The primary goal of financial management is to:
A) Maximize shareholder wealth
B) Minimize costs
C) Maximize sales
D) Maintain liquidity
Answer: A) Maximize shareholder wealth. The ultimate objective of financial management is to enhance the value of the company for its shareholders.
Question 39: Which of the following ratios measures a company’s ability to pay off its short-term liabilities with its short-term assets?
A) Debt-to-Equity Ratio
B) Current Ratio
C) Return on Equity
D) Gross Profit Margin
Answer: B) Current Ratio. This ratio evaluates a company's capacity to meet short-term obligations using short-term assets.
Question 40: A firm's net working capital is calculated as:
A) Total assets minus total liabilities
B) Current assets minus current liabilities
C) Total assets minus current liabilities
D) Current assets minus total liabilities
Answer: B) Current assets minus current liabilities. Net working capital is a measure of a company's short-term financial health and operational efficiency.
Question 41: Calculate the Net Present Value (NPV) of an investment that requires an initial outlay of TSh 10,000,000 and provides cash inflows of TSh 4,000,000, TSh 5,000,000, and TSh 6,000,000 at the end of each of the next three years. The discount rate is 10%.
A) TSh 2,487,100
B) TSh 2,835,570
C) TSh 3,000,000
D) TSh 4,500,250
Answer: B) TSh 2,835,570. NPV = -TSh 10,000,000 + TSh 4,000,000/(1+0.1)^1 + TSh 5,000,000/(1+0.1)^2 + TSh 6,000,000/(1+0.1)^3 = TSh 2,835,570.
Question 42: If a company has total sales of TSh 150,000,000, a gross profit margin of 30%, and operating expenses of TSh 20,000,000, what is the company's operating profit?
A) TSh 40,000,000
B) TSh 30,000,000
C) TSh 25,000,000
D) TSh 50,000,000
Answer: C) TSh 25,000,000. Gross profit = TSh 150,000,000 * 0.30 = TSh 45,000,000. Operating profit = Gross profit - Operating expenses = TSh 45,000,000 - TSh 20,000,000 = TSh 25,000,000.
Question 43: A company's stock has a beta of 1.2. If the risk-free rate is 3% and the expected market return is 10%, what is the expected return of the company's stock according to the Capital Asset Pricing Model (CAPM)?
A) 11.4%
B) 10.8%
C) 12.0%
D) 13.2%
Answer: A) 11.4%. Expected return = Risk-free rate + Beta * (Market return - Risk-free rate) = 3% + 1.2 * (10% - 3%) = 11.4%.
Question 44: Calculate the Internal Rate of Return (IRR) for an investment that requires an initial outlay of TSh 15,000,000 and provides cash inflows of TSh 6,000,000, TSh 7,000,000, and TSh 8,000,000 at the end of each of the next three years.
A) 20.5%
B) 22.3%
C) 18.9%
D) 24.0%
Answer: B) 22.3%. Using the IRR formula or a financial calculator, the IRR is approximately 22.3%.
Question 45: If a company’s equity beta is 1.5, the risk-free rate is 2%, and the market risk premium is 6%, what is the company’s cost of equity?
A) 9%
B) 11%
C) 12%
D) 15%
Answer: B) 11%. Cost of equity = Risk-free rate + Beta * Market risk premium = 2% + 1.5 * 6% = 11%.
Question 46: A company is considering a project that will cost TSh 50,000,000 and is expected to generate cash flows of TSh 20,000,000 per year for the next 3 years. What is the project's payback period?
A) 2.5 years
B) 2 years
C) 3 years
D) 2.25 years
Answer: A) 2.5 years. Payback period = Initial investment / Annual cash flow = TSh 50,000,000 / TSh 20,000,000 = 2.5 years.
Question 47: Calculate the Earnings Per Share (EPS) if a company has a net income of TSh 100,000,000 and 50,000 shares outstanding.
A) TSh 2,500
B) TSh 2,000
C) TSh 1,500
D) TSh 3,000
Answer: B) TSh 2,000. EPS = Net income / Shares outstanding = TSh 100,000,000 / 50,000 = TSh 2,000.
Question 48: If a company's current ratio is 2.5 and its current liabilities are TSh 30,000,000, what are its current assets?
A) TSh 45,000,000
B) TSh 75,000,000
C) TSh 60,000,000
D) TSh 90,000,000
Answer: B) TSh 75,000,000. Current assets = Current ratio * Current liabilities = 2.5 * TSh 30,000,000 = TSh 75,000,000.
Question 49: A company has an EBIT of TSh 200,000,000, interest expenses of TSh 30,000,000, and a tax rate of 25%. What is the company's Net Income?
A) TSh 135,000,000
B) TSh 127,500,000
C) TSh 130,000,000
D) TSh 140,000,000
Answer: B) TSh 127,500,000. Net Income = (EBIT - Interest expenses) * (1 - Tax rate) = (TSh 200,000,000 - TSh 30,000,000) * (1 - 0.25) = TSh 127,500,000.
Question 50: If a project has an initial cost of TSh 50,000,000 and it is expected to generate annual cash flows of TSh 20,000,000 for 3 years, what is the project's NPV if the discount rate is 8%?
A) TSh 9,450,250
B) TSh 6,624,340
C) TSh 7,500,000
D) TSh 8,620,520
Answer: B) TSh 6,624,340. NPV = -TSh 50,000,000 + TSh 20,000,000/(1+0.08)^1 + TSh 20,000,000/(1+0.08)^2 + TSh 20,000,000/(1+0.08)^3 = TSh 6,624,340.
Question 51: A company is evaluating a new project which requires an initial investment of TSh 25,000,000. The project is expected to generate cash inflows of TSh 10,000,000, TSh 12,000,000, and TSh 15,000,000 over the next three years. If the required rate of return is 12%, what is the project's NPV?
A) TSh 6,316,666
B) TSh 5,789,473
C) TSh 7,500,000
D) TSh 8,000,000
Answer: A) TSh 6,316,666. NPV = -TSh 25,000,000 + TSh 10,000,000 / (1 + 0.12)^1 + TSh 12,000,000 / (1 + 0.12)^2 + TSh 15,000,000 / (1 + 0.12)^3 = TSh 6,316,666.
Question 52: A company's total liabilities are TSh 80,000,000 and its shareholders' equity is TSh 120,000,000. What is the company's debt-to-equity ratio?
A) 0.75
B) 0.67
C) 0.50
D) 1.00
Answer: B) 0.67. Debt-to-equity ratio = Total liabilities / Shareholders' equity = TSh 80,000,000 / TSh 120,000,000 = 0.67.
Question 53: If a company's working capital is TSh 40,000,000 and current liabilities are TSh 20,000,000, what are the current assets?
A) TSh 80,000,000
B) TSh 60,000,000
C) TSh 70,000,000
D) TSh 50,000,000
Answer: B) TSh 60,000,000. Current assets = Working capital + Current liabilities = TSh 40,000,000 + TSh 20,000,000 = TSh 60,000,000.
Question 54: A company is planning to issue new bonds worth TSh 100,000,000 with a coupon rate of 6%. If the market interest rate is 5%, what will be the price of the bonds assuming they are priced to yield the market rate?
A) TSh 100,000,000
B) TSh 105,263,158
C) TSh 95,238,095
D) TSh 110,000,000
Answer: B) TSh 105,263,158. Price of the bond = Coupon payment / Market interest rate = TSh 6,000,000 / 0.05 = TSh 105,263,158.
Question 55: Calculate the Debt Ratio if a company has total assets of TSh 200,000,000 and total liabilities of TSh 80,000,000.
A) 35%
B) 40%
C) 50%
D) 60%
Answer: B) 40%. Debt Ratio = Total liabilities / Total assets = TSh 80,000,000 / TSh 200,000,000 = 0.40 or 40%.
Question 56: If a company’s EBIT is TSh 150,000,000, interest expense is TSh 25,000,000, and the tax rate is 30%, what is the company's Earnings Before Tax (EBT)?
A) TSh 120,000,000
B) TSh 135,000,000
C) TSh 125,000,000
D) TSh 150,000,000
Answer: C) TSh 125,000,000. EBT = EBIT - Interest expense = TSh 150,000,000 - TSh 25,000,000 = TSh 125,000,000.
Question 57: What is the Payback Period for an investment costing TSh 20,000,000 with annual cash inflows of TSh 5,000,000?
A) 5 years
B) 6 years
C) 4 years
D) 3 years
Answer: C) 4 years. Payback Period = Initial investment / Annual cash inflows = TSh 20,000,000 / TSh 5,000,000 = 4 years.
Question 58: If a company has an inventory turnover ratio of 8 and its cost of goods sold is TSh 120,000,000, what is the average inventory?
A) TSh 20,000,000
B) TSh 15,000,000
C) TSh 10,000,000
D) TSh 12,000,000
Answer: B) TSh 15,000,000. Average inventory = Cost of goods sold / Inventory turnover ratio = TSh 120,000,000 / 8 = TSh 15,000,000.
Question 59: Calculate the Gross Profit Margin if a company’s total revenue is TSh 250,000,000 and the cost of goods sold is TSh 150,000,000.
A) 50%
B) 40%
C) 45%
D) 55%
Answer: B) 40%. Gross Profit Margin = (Revenue - Cost of Goods Sold) / Revenue = (TSh 250,000,000 - TSh 150,000,000) / TSh 250,000,000 = 0.40 or 40%.
Question 60: What is the Net Present Value (NPV) of an investment that costs TSh 40,000,000 and provides cash flows of TSh 15,000,000 annually for 4 years, if the discount rate is 10%?
A) TSh 5,000,000
B) TSh 6,234,500
C) TSh 4,121,741
D) TSh 3,750,000
Answer: C) TSh 4,121,741. NPV = -TSh 40,000,000 + TSh 15,000,000 / (1 + 0.10)^1 + TSh 15,000,000 / (1 + 0.10)^2 + TSh 15,000,000 / (1 + 0.10)^3 + TSh 15,000,000 / (1 + 0.10)^4 = TSh 4,121,741.
Question 61: A company has total sales of TSh 300,000,000 and its cost of goods sold is TSh 180,000,000. What is the company's operating profit?
A) TSh 80,000,000
B) TSh 120,000,000
C) TSh 100,000,000
D) TSh 150,000,000
Answer: B) TSh 120,000,000. Operating profit = Total sales - Cost of goods sold = TSh 300,000,000 - TSh 180,000,000 = TSh 120,000,000
Question 62: If a company’s earnings before interest and tax (EBIT) is TSh 75,000,000, interest expense is TSh 10,000,000, and tax rate is 25%, what is the net income?
A) TSh 50,000,000
B) TSh 45,000,000
C) TSh 48,750,000
D) TSh 52,500,000
Answer: C) TSh 48,750,000. Net income = (EBIT - Interest expense) × (1 - Tax rate) = (TSh 75,000,000 - TSh 10,000,000) × (1 - 0.25) = TSh 48,750,000
Question 63: A firm’s return on equity (ROE) is 15% and its net income is TSh 30,000,000. What is the firm’s shareholders' equity?
A) TSh 300,000,000
B) TSh 200,000,000
C) TSh 350,000,000
D) TSh 250,000,000
Answer: B) TSh 200,000,000. Shareholders' equity = Net income / ROE = TSh 30,000,000 / 0.15 = TSh 200,000,000
Question 64: Calculate the future value of an investment of TSh 50,000,000 after 5 years if the annual interest rate is 8% compounded annually.
A) TSh 78,000,000
B) TSh 72,000,000
C) TSh 73,466,400
D) TSh 80,000,000
Answer: C) TSh 73,466,400. Future Value = TSh 50,000,000 × (1 + 0.08)^5 = TSh 73,466,400
Question 65: A company's current assets are TSh 80,000,000 and its current liabilities are TSh 50,000,000. What is the company's current ratio?
A) 2.00
B) 1.60
C) 1.75
D) 1.50
Answer: B) 1.60. Current ratio = Current assets / Current liabilities = TSh 80,000,000 / TSh 50,000,000 = 1.60
Question 66: What is the value of a perpetuity that pays TSh 3,000,000 annually if the discount rate is 5%?
A) TSh 55,000,000
B) TSh 70,000,000
C) TSh 60,000,000
D) TSh 50,000,000
Answer: C) TSh 60,000,000. Value of perpetuity = Annual payment / Discount rate = TSh 3,000,000 / 0.05 = TSh 60,000,000
Question 67: A company’s net income is TSh 12,000,000 and the number of shares outstanding is 2,000,000. What is the Earnings Per Share (EPS)?
A) TSh 5.00
B) TSh 6.00
C) TSh 8.00
D) TSh 7.00
Answer: B) TSh 6.00. EPS = Net income / Number of shares = TSh 12,000,000 / 2,000,000 = TSh 6.00
Question 68: A company's debt-equity ratio is 1.5. If the equity is TSh 40,000,000, what is the total debt?
A) TSh 80,000,000
B) TSh 60,000,000
C) TSh 50,000,000
D) TSh 70,000,000
Answer: B) TSh 60,000,000. Total debt = Debt-equity ratio × Equity = 1.5 × TSh 40,000,000 = TSh 60,000,000
Question 69: If a company has a P/E ratio of 12 and its earnings per share (EPS) is TSh 8, what is the price of the stock?
A) TSh 100
B) TSh 96
C) TSh 80
D) TSh 90
Answer: B) TSh 96. Stock price = P/E ratio × EPS = 12 × TSh 8 = TSh 96
Question 70: A firm’s dividend payout ratio is 40% and its earnings are TSh 20,000,000. What is the total dividend paid?
A) TSh 10,000,000
B) TSh 14,000,000
C) TSh 8,000,000
D) TSh 12,000,000
Answer: C) TSh 8,000,000. Total dividend = Dividend payout ratio × Earnings = 0.40 × TSh 20,000,000 = TSh 8,000,000
Question 71: If the cost of equity is 12% and the cost of debt is 8%, with a debt-equity ratio of 0.5, what is the weighted average cost of capital (WACC) if the tax rate is 30%?
A) 9.50%
B) 11.00%
C) 10.00%
D) 12.00%
Answer: C) 10.00%. WACC = (E/V × Cost of equity) + (D/V × Cost of debt × (1 - Tax rate)) = (0.67 × 0.12) + (0.33 × 0.08 × (1 - 0.30)) = 0.10 or 10.00%
Question 72: What is the effective annual rate (EAR) if the nominal annual interest rate is 6% compounded quarterly?
A) 6.00%
B) 6.10%
C) 6.14%
D) 6.15%
Answer: C) 6.14%. EAR = (1 + (0.06 / 4))^4 - 1 = 0.0614 or 6.14%
Question 73: A company is evaluating a project that requires an initial investment of TSh 25,000,000 and is expected to generate cash flows of TSh 7,000,000 per year for 5 years. If the discount rate is 9%, what is the Net Present Value (NPV) of the project?
A) TSh 2,500,000
B) TSh 1,817,294
C) TSh 2,000,000
D) TSh 1,500,000
Answer: B) TSh 1,817,294. NPV = -TSh 25,000,000 + Σ (TSh 7,000,000 / (1 + 0.09)^t) for t=1 to 5 = TSh 1,817,294
Question 74: A company’s total revenue is TSh 500,000,000 and its total expenses are TSh 350,000,000. What is the company's operating margin?
A) 25%
B) 30%
C) 35%
D) 40%
Answer: B) 30%. Operating margin = (Total revenue - Total expenses) / Total revenue = (TSh 500,000,000 - TSh 350,000,000) / TSh 500,000,000 = 0.30 or 30%
Question 75: If a company's cost of capital is 10% and its return on investment (ROI) is 8%, what is the value of the company’s Economic Value Added (EVA)?
A) Zero EVA
B) Negative EVA
C) Positive EVA
D) Cannot be determined
Answer: B) Negative EVA. EVA = (ROI - Cost of Capital) × Capital Invested. Since ROI (8%) less Cost of Capital (10%), EVA will be negative.
Question 76: If a company has a fixed cost of TSh 50,000,000 and a variable cost per unit of TSh 15, and it sells 200,000 units, what is the total cost?
A) TSh 75,000,000
B) TSh 85,000,000
C) TSh 70,000,000
D) TSh 80,000,000
Answer: C) TSh 70,000,000. Total cost = Fixed cost + (Variable cost per unit × Number of units) = TSh 50,000,000 + (TSh 15 × 200,000) = TSh 70,000,000
Question 77: A company's cash flow statement shows net cash from operating activities of TSh 40,000,000, net cash used in investing activities of TSh 20,000,000, and net cash from financing activities of TSh 10,000,000. What is the net increase in cash?
A) TSh 20,000,000
B) TSh 30,000,000
C) TSh 40,000,000
D) TSh 10,000,000
Answer: B) TSh 30,000,000. Net increase in cash = Net cash from operating activities - Net cash used in investing activities + Net cash from financing activities = TSh 40,000,000 - TSh 20,000,000 + TSh 10,000,000 = TSh 30,000,000
Question 78: What is the present value of TSh 1,000,000 to be received in 3 years if the discount rate is 7%?
A) TSh 850,000
B) TSh 880,000
C) TSh 816,306
D) TSh 900,000
Answer: C) TSh 816,306. Present Value = Future Value / (1 + Discount Rate)^Number of Years = TSh 1,000,000 / (1 + 0.07)^3 = TSh 816,306
Question 79: If a company has an inventory turnover ratio of 5 and cost of goods sold (COGS) of TSh 100,000,000, what is the average inventory?
A) TSh 20,000,000
B) TSh 30,000,000
C) TSh 25,000,000
D) TSh 15,000,000
Answer: A) TSh 20,000,000. Average inventory = COGS / Inventory turnover ratio = TSh 100,000,000 / 5 = TSh 20,000,000
Question 80: A project has an initial investment of TSh 50,000,000 and is expected to generate cash flows of TSh 12,000,000 annually for 6 years. What is the payback period of the project?
A) 5 years
B) 3.75 years
C) 4.17 years
D) 4.5 years
Answer: C) 4.17 years. Payback period = Initial investment / Annual cash flow = TSh 50,000,000 / TSh 12,000,000 = 4.17 years
Question 81: What is the degree of operating leverage (DOL) if the percentage change in operating profit is 20% and the percentage change in sales is 15%?
A) 1.50
B) 1.75
C) 1.33
D) 1.25
Answer: C) 1.33. DOL = Percentage change in operating profit / Percentage change in sales = 20% / 15% = 1.33
Question 82: A company’s net income is TSh 10,000,000 and it has TSh 5,000,000 in interest expense. If the company's tax rate is 30%, what is its EBIT?
A) TSh 21,428,571
B) TSh 22,000,000
C) TSh 20,000,000
D) TSh 18,000,000
Answer: A) TSh 21,428,571. EBIT = (Net income + Interest expense) / (1 - Tax rate) = (TSh 10,000,000 + TSh 5,000,000) / (1 - 0.30) = TSh 21,428,571
Question 83: What is the total contribution margin if a company sells 100,000 units at a selling price of TSh 80 per unit and the variable cost per unit is TSh 50?
A) TSh 4,000,000
B) TSh 3,000,000
C) TSh 2,500,000
D) TSh 3,500,000
Answer: B) TSh 3,000,000. Contribution margin = (Selling price - Variable cost) × Number of units = (TSh 80 - TSh 50) × 100,000 = TSh 3,000,000
Question 84: A company is evaluating a project with a cost of TSh 15,000,000 and expects to generate a cash flow of TSh 3,000,000 annually for 6 years. If the discount rate is 8%, what is the Internal Rate of Return (IRR) of the project?
A) 12%
B) 8%
C) 9%
D) 10%
Answer: D) 10%. The IRR is the discount rate that makes the NPV of the project zero. In this case, it is approximately 10%.
Question 85: What is the quick ratio if a company has TSh 10,000,000 in cash, TSh 5,000,000 in accounts receivable, and TSh 8,000,000 in current liabilities?
A) 2.00
B) 1.88
C) 1.50
D) 1.25
Answer: B) 1.88. Quick ratio = (Cash + Accounts receivable) / Current liabilities = (TSh 10,000,000 + TSh 5,000,000) / TSh 8,000,000 = 1.88
Question 86: A company has a beta of 1.2, the risk-free rate is 5%, and the market return is 12%. What is the required return on the company's stock using the Capital Asset Pricing Model (CAPM)?
A) 12.4%
B) 9.4%
C) 13.0%
D) 14.4%
Answer: B) 9.4%. Required return = Risk-free rate + Beta × (Market return - Risk-free rate) = 5% + 1.2 × (12% - 5%) = 9.4%
Question 87: What is the average collection period if a company has accounts receivable of TSh 6,000,000 and annual credit sales of TSh 30,000,000?
A) 60 days
B) 80 days
C) 73 days
D) 90 days
Answer: C) 73 days. Average collection period = (Accounts receivable / Annual credit sales) × 365 = (TSh 6,000,000 / TSh 30,000,000) × 365 = 73 days
Question 88: What is the payback period if an investment of TSh 50,000,000 generates cash flows of TSh 10,000,000 annually?
A) 4 years
B) 5 years
C) 6 years
D) 7 years
Answer: B) 5 years. Payback period = Initial investment / Annual cash flow = TSh 50,000,000 / TSh 10,000,000 = 5 years
Question 89: What is the interest expense for a loan of TSh 200,000,000 at an annual interest rate of 8% for one year?
A) TSh 16,000,000
B) TSh 15,000,000
C) TSh 18,000,000
D) TSh 14,000,000
Answer: A) TSh 16,000,000. Interest expense = Loan amount × Interest rate = TSh 200,000,000 × 0.08 = TSh 16,000,000
Question 90: A company’s current assets are TSh 40,000,000 and its current liabilities are TSh 25,000,000. What is the current ratio?
A) 2.00
B) 1.60
C) 1.75
D) 1.40
Answer: B) 1.60. Current ratio = Current assets / Current liabilities = TSh 40,000,000 / TSh 25,000,000 = 1.60
Question 91: If a company's debt ratio is 40% and total assets are TSh 80,000,000, what is the total amount of debt?
A) TSh 30,000,000
B) TSh 35,000,000
C) TSh 32,000,000
D) TSh 28,000,000
Answer: C) TSh 32,000,000. Total debt = Debt ratio × Total assets = 0.40 × TSh 80,000,000 = TSh 32,000,000
Question 92: A company has a return on equity (ROE) of 15% and net income of TSh 12,000,000. What is the total equity of the company?
A) TSh 70,000,000
B) TSh 80,000,000
C) TSh 90,000,000
D) TSh 100,000,000
Answer: B) TSh 80,000,000. Total equity = Net income / ROE = TSh 12,000,000 / 0.15 = TSh 80,000,000
Question 93: What is the net present value (NPV) of an investment that costs TSh 40,000,000 and generates annual cash flows of TSh 9,000,000 for 5 years, if the discount rate is 10%?
A) TSh 5,000,000
B) TSh 6,000,000
C) TSh 4,308,118
D) TSh 3,500,000
Answer: C) TSh 4,308,118. NPV = (Annual cash flow × [1 - (1 + Discount rate)^-Number of years] / Discount rate) - Initial investment = (TSh 9,000,000 × [1 - (1 + 0.10)^-5] / 0.10) - TSh 40,000,000 = TSh 4,308,118
Question 94: If a company has a market value of equity of TSh 50,000,000 and total debt of TSh 20,000,000, what is the debt-to-equity ratio?
A) 0.50
B) 0.30
C) 0.40
D) 0.25
Answer: C) 0.40. Debt-to-equity ratio = Total debt / Market value of equity = TSh 20,000,000 / TSh 50,000,000 = 0.40
Question 95: A company has a profit margin of 8% and sales of TSh 200,000,000. What is the net income?
A) TSh 14,000,000
B) TSh 20,000,000
C) TSh 16,000,000
D) TSh 18,000,000
Answer: C) TSh 16,000,000. Net income = Profit margin × Sales = 0.08 × TSh 200,000,000 = TSh 16,000,000
Question 96: A company’s fixed costs are TSh 25,000,000, and the contribution margin per unit is TSh 40. How many units must the company sell to break even if the selling price per unit is TSh 60?
A) 600,000 units
B) 625,000 units
C) 750,000 units
D) 500,000 units
Answer: B) 625,000 units. Break-even units = Fixed costs / Contribution margin per unit = TSh 25,000,000 / TSh 40 = 625,000 units
Question 97: What is the debt ratio if a company's total liabilities are TSh 30,000,000 and total assets are TSh 75,000,000?
A) 0.50
B) 0.45
C) 0.40
D) 0.60
Answer: C) 0.40. Debt ratio = Total liabilities / Total assets = TSh 30,000,000 / TSh 75,000,000 = 0.40
Question 98: A company's earnings before interest and taxes (EBIT) are TSh 50,000,000, and its interest expense is TSh 10,000,000. What is the interest coverage ratio if the company’s EBIT is TSh 50,000,000?
A) 4.0
B) 5.0
C) 6.0
D) 4.5
Answer: B) 5.0. Interest coverage ratio = EBIT / Interest expense = TSh 50,000,000 / TSh 10,000,000 = 5.0
Question 99: If a company has a return on assets (ROA) of 12% and total assets of TSh 100,000,000, what is the net income?
A) TSh 10,000,000
B) TSh 14,000,000
C) TSh 12,000,000
D) TSh 15,000,000
Answer: C) TSh 12,000,000. Net income = ROA × Total assets = 0.12 × TSh 100,000,000 = TSh 12,000,000
Question 100: A company’s sales are TSh 500,000,000 and its net income is TSh 50,000,000. What is the return on sales (ROS)?
A) 8%
B) 12%
C) 10%
D) 15%
Answer: C) 10%. Return on sales = Net income / Sales = TSh 50,000,000 / TSh 500,000,000 = 10%
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