Crowdly

Metal X should increase their short-term borrowings.

Metal X may have solvency problems, that is problems paying their bills if and when they fall due because they may have to pay bills before they receive cash from their customers.

Metal X’s management can slow down their decision-making process because turnover has slowed down.

If an organization’s debt holders want a 6.0% return and shareholders want a 12.0% return, what is the weighted average cost of capital ("WACC") if the organization is financed by 40% debt?

6.0%

12.0%

9.6%

8.4%

Which of the following statements about dividends are correct? (Choose all correct answers.)

Dividends are tax deductible for shareholders.

Dividends are paid from retained earnings.

Dividends are tax deductible for the entities paying them.

Shareholders receiving dividends do not need to include them in their taxable income.

Dividends must be paid regularly every year and have priority over interest payments.

Companies or organizations with highly variable revenues and profitability should:

Maximize their debt financing to minimize possible losses to their shareholders.

Maximize their debt financing to minimize the income tax their pay.

Finance themselves by using a lower Debt/Equity ratio to ensure their solvency and ability to pay their debts if and when they fall due.

Finance themselves using short term loans so they have flexibility.

Allocate the following definitions to the correct balance sheet item:

Assets which convert to cash within 12 months e.g., short term. Cash in tills or bank accounts, accounts receivables (money owed by customers)

Long term bills such as term bank loans, leases

Bill that needs to be paid in the short term. For example, Bank overdraft, accounts payable (money owed to suppliers)

Monies received from shareholders purchasing shares.

Assets that can be converted to cash over a longer-term nature such as production plant and equipment, buildings.

Earnings kept within the business.

Which of the following best describes the correct approach to using economic indicators to assess the viability of a project?

Choose one financial metric (e.g., IRR) and base the decision on its value

Use Net Present Value (NPV) to compare different projects

Calculate and compare multiple indicators to make a well-rounded decision

Select the project with the shortest payback period

Which of the following statements are correct regarding the discount rate and the weighted average cost of capital (WACC)?

The discount rate represents the opportunity cost of capital used to evaluate the present value of future cash flows

WACC is commonly used as the discount rate in project evaluation because it reflects the average return required by both debt and equity holders

A project is generally considered acceptable if its internal rate of return (IRR) exceeds the WACC

The discount rate is always lower than the WACC to make investment options more appealing

Why is Discounted Cash Flow (DCF) analysis important in project evaluation?

It ensures that all project costs and benefits are recorded in the same financial period

It accounts for the time value of money by comparing cash flows occurring at different times

It eliminates the need to consider initial costs when evaluating a project’s profitability

It focuses only on future benefits without considering associated costs

Why is it important for engineering students to study engineering economics?

To enhance their ability to evaluate the long-term technical feasibility of engineering systems

To develop skills for optimising resource use in engineering design and implementation

To improve their understanding of the mathematical foundations behind engineering models

To support the integration of advanced technologies in engineering practice

Which of the following statements correctly describe key financial principles related to cash flow and present value?

Net cash flow represents the total future value of money received minus money spent over a period of time

The time value of money principle states that money available today is worth more than the same amount received in the future

Net Present Value (NPV) calculates the future value of cash inflows and outflows without considering the time value of money

Net cash flow is the difference between cash received and cash spent over a given period, typically a year, but it may be shorter