Financial Management for Engineers Flashcards
6 cards from real MEM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Financial Management for Engineers flashcards as text
Which financial statement shows a company's revenues and expenses over a specific period?
Answer: Income statement
The income statement (profit and loss statement) reports revenues, expenses, and net income over a defined accounting period.
What does WACC stand for in corporate finance?
Answer: Weighted Average Cost of Capital
WACC (Weighted Average Cost of Capital) represents a firm's average cost of financing from all sources, weighted by their proportion in the capital structure.
A project has an IRR of 18% and the company's WACC is 12%. What should management do?
Answer: Accept the project because IRR exceeds WACC
When IRR exceeds the cost of capital (WACC), the project generates more return than it costs to finance, so it should be accepted.
Which ratio measures a company's ability to meet short-term obligations using its most liquid assets?
Answer: Quick ratio
The quick ratio (acid-test ratio) excludes inventory from current assets to measure immediate liquidity, providing a stricter test than the current ratio.
What is capital budgeting primarily concerned with?
Answer: Evaluating long-term investment decisions
Capital budgeting is the process of evaluating and selecting long-term investments in assets or projects that will benefit the firm over multiple years.
In the context of MEM financial management, what does 'leverage' refer to?
Answer: Using debt financing to amplify returns on equity
Financial leverage refers to using borrowed capital (debt) to increase the potential return on equity investment, while also amplifying potential losses.