Finance Quiz: WACC and Capital Budgeting

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Questions and Answers

What is the formula for calculating the Weighted Average Cost of Capital (WACC)?

  • WACC = Ke * We + Kd * Wd * (1 - T) (correct)
  • WACC = Ke * We + Kd * Wd / (1 - T)
  • WACC = Ke * We / (1 - T) + Kd * Wd
  • WACC = Ke * We + Kd * Wd

What is the future value (FV) of ₹1,30,000 at a continuous compounding rate of 11.5% for 5.5 years?

  • ₹2,65,456
  • ₹2,74,532
  • ₹2,48,756 (correct)
  • ₹2,56,879

Which of the following terms describes the process of buying and selling an asset to profit from price differences in different markets?

  • Wealth Maximization
  • Arbitrage (correct)
  • Discounting
  • Factoring

Which of the following is NOT a method commonly used to calculate the cost of equity capital?

<p>Weighted Average Cost of Capital (WACC) (A)</p> Signup and view all the answers

In capital budgeting, what is the significance of the time value of money?

<p>It converts future cash flows to their present value, making comparisons easier. (C)</p> Signup and view all the answers

Based on the given information, what is the dividend payout ratio of the company?

<p>17.14% (D)</p> Signup and view all the answers

Which of the following is a measure of financial risk in an organization?

<p>Debt-to-Equity Ratio (D/E) (B)</p> Signup and view all the answers

Which of the following is NOT a component of the traditional capital budgeting process?

<p>Dividend Declaration (A)</p> Signup and view all the answers

Flashcards

WACC

Weighted Average Cost of Capital; it's the average rate of return a company is expected to pay its security holders.

Future Value (FV)

The amount of money that an investment will grow to over a period of time at a given interest rate.

ETF Fund Calculation

Calculating the future value of an investment in an ETF fund using compound interest.

Dividend Payout Ratio

The percentage of earnings distributed to shareholders in dividends, calculated as dividends divided by net income.

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Intrinsic Value

The perceived or calculated value of a stock based on expected dividends and growth, relative to its market price.

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Factoring

A financing process where a business sells its accounts receivable to a third party at a discount.

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Economic Value Added (EVA)

A measure of a company's financial performance that shows the true economic profit after deducting the cost of capital.

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Capital Budgeting

The process of planning for long-term investments and determining their potential profitability.

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