MULTIPLE-CHOICE QUESTIONS Each of the following sub-questions contains one statement but with multiple possible answers. Only one of the answers is correct. Read each statement very carefully and then decide which one of the options is the correct one. In your examination script (answer book), write down only the number of the sub-question and next to it the letter that represents the answer you have selected. Example: If you believe that for sub-question 1.11 option is correct, then write down: 1.11. C 1.1. 1.2. 1.3. Why are finance costs excluded when preparing a cash budget using the operating cash flow? A. Finance cost is an external forecast item and therefore, not used. B. Finance cost is not a cash-flow item. C. The objective of a cash budget is to measure the firm's operations and not how they are financed Who are the beneficiaries of a firm's available free cash flow (FCF) after the firm has met all its operating needs? A. The directors B. The investors C. The employees At what cost are the different sources of capital always valued when calculating the weighted average cost of capital (WACC)? A. The market value cost B. The book value cost C. The target value cost What do firms wish to determine when using break-even analysis? A. The extent of leverage in their capital structures B. Their level of operations necessary to cover all cost C. Their profitability The most common statistical indicator of an asset's risk is known as the A. probability distribution. B. expected value of the return. C. standard deviation. 1.4. 1.5. 1.6. Which attitude towards risk best explains a risk-averse investor? A. An increase in risk will be compensated for by an expected increase in return. B. A higher return will not justify the increase in risk. C. No change in return would be required for an increase in risk. What expense does a company incur as a consequence of its financing activities? A. Depreciation expense B. Interest expense C. Income tax expense 1.7