1.1. What is the main reason why investors create diversified portfolios for their investments? A. To reduce risk. B. To increase potential returns. C. To maximise dividend growth. D. To increase diversity. (1) 1.2. For what purpose does a company use the weighted average cost of capital (WACC)? A. To evaluate risk B. To increase shareholder's wealth C. The valuation of shares D. Investment and financing decisions (1 ) 1.3. What does the target capital structure of a firm represent? A. The current capital structure proportions. B. The capital structure proportions after a new investment. C. The desired capital structure proportions. D. The capital structure proportions less any new investments. (1) NARE 1.4. What is the overall objective of financial statement analysis? A. Evaluating a new investment. B. Examining the firm's financial position and retums in relation to risk. C. Determining how to finance an investment. D. Calculating the WACC. 1.5. How will an investor describe the relationship between risk and return? A. Higher risk results in higher expected return. B. Higher risk results in higher return. C. Lower risk results in higher return. D. Lower risk results in higher expected return. Page 6 of Summative STADIO FMA400 FINANCIAL MANAGEMENT IV 1.6. What cost should be ignored in the determination of the cash flows used to evaluate projects? A. Opportunity cost B. Taxation C. Incremental investment in working capital D. Sunk cost (1) 1.7. Delicious (Pty) Ltd sells Nespresso cappuccino pods at R70 per box. The company purchases them at R40 per box from the supplier. The ordering cost is R10 per order and the carrying cost is R20 per box per annum. It takes the supplier five days from receiving the order for the cappuccinos to deliver. Delicious (Pty) Ltd sells 4 000 boxes per year. What economic order quantity (EOQ) should the company apply for inventory management purposes? Round off the answer to the nearest whole number. A. 76 boxes B. 45 boxes I C. 126 boxes D. 63 boxes 4 4)