Financial Management

✅ The correct answer is A.
Total assets divided common equity is a formula uses for calculating equity multiplier. The equity multiplier is a financial leverage ratio that measures the amount of a firm’s assets that are financed by its shareholders by comparing total assets with total shareholder’s equity.

✅ The correct answer is A.
Net worth is also called asset net of liabilities. Net worth is the value of all the non-financial and financial assets owned by an institutional unit or sector minus the value of all its outstanding liabilities.

✅ The correct answer is C.
All assets are perfectly divisible and liquid in capital asset pricing model. The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk and expected return for assets, particularly stocks. CAPM is widely used throughout finance for pricing risky securities and generating expected returns for assets given the risk of those assets and cost of capital.

✅ The correct answer is C.
An average return of portfolio divided by its standard deviation is classified as Sharpe’s reward to variability ratio. The sharpe ratio definition is the excess return or risk premium of a well diversified portfolio or investment per unit of risk. Measure sharpe ratio using standard deviation. You may also know this ratio as the reward to variability ratio or the reward to volatility ratio.

✅ The correct answer is D.
In calculation of net cash flow, depreciation and amortization are treated as non-cash charges. A non-cash charge is a write-down or accounting expense that does not involve a cash payment.

✅ The correct answer is D.
Required rate of return in calculating bond’s cash flow is also classified as going rate of return and yield.

✅ The correct answer is A.
Set of projects or set of investments usually maximize firm value is classified as optimal capital budget. An optimal capital structure is the objectively best mix of debt, preferred stock, and common stock that maximizes a company’s market value while minimizing its cost of capital.

✅ The correct answer is D.
Market risk premium = Market required return – Yield on bond
= 14% – 7% = 7.00%

✅ The correct answer is B.
In calculation of net cash flow, deferred tax payments are classified as non-cash charges. A non-cash charge is a write-down or accounting expense that does not involve a cash payment.

✅ The correct answer is B.
Coefficient of beta is used to measure stock volatility relative to market. A beta coefficient is a measure of the volatility, or systematic risk, of an individual stock in comparison to the unsystematic risk of the entire market. In statistical terms, beta represents the slope of the line through a regression of data points from an individual stock’s returns against those of the market.