Business Finance MPQ

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1. The greater the ratio of variable costs to sales, the:

  • Lower the level of profitability
  • More units must be sold to cover fixed charges
  • More each additional sale contributes to coverage of fixed costs
  • Lower the benefit of conducting a sensitivity analysis
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Other questions in this quiz

2. The opportunity cost of capital:

  • Is the minimum acceptable rate of return on a project
  • Is always less than 10%
  • Is the maximum acceptable rate of return on a project
  • Is the interest rate that the firm pays on a loan from a financial institution

3. Compared to buying stocks and bonds directly, what are the advantages of investing in a mutual fund?

  • Mutual funds are efficiently diversified and professionally managed
  • Investment returns are never taxed until withdrawn from the fund
  • You can buy additional shares in the fund or cash out at any time
  • All of these

4. A tax shield is equal to the reduction in:

  • Taxable income resulting from a decrease in long-term debt
  • Net income caused by depreciation
  • Total tax liability resulting from a tax-deductible expense
  • Taxable income resulting from depreciation

5. Which of the following statements best distinguishes the difference between real and financial assets?

  • Financial assets appreciate in value; real assets depreciate in value
  • Real assets have less value than financial assets
  • Financial assets represent claims to income that is generated by real assets
  • Real assets are tangible; financial assets are not

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