Examius
🇮🇳 CMA Intermediate · flashcards
CMA Intermediate Financial Management Flashcards
50 question-and-answer cards covering Financial Management as it is examined in CMA Intermediate. 24 of them are printed below, taken from across the deck — no signup, no paywall on the preview.
24 sample cards from the Financial Management deck
Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.
What is WACC and how is it computed?
Weighted Average Cost of Capital = the weighted average of the costs of each source of capital using their proportions as weights: WACC = (We × Ke) + (Wd × Kd) + (Wp × Kp), where weights may be book-value or market-value based.
Why is cost of equity generally higher than cost of debt?
Equity holders bear greater risk (residual claim, no fixed return, paid last), so they demand a higher return; additionally debt enjoys a tax shield, further lowering its after-tax cost.
What is the marginal cost of capital?
The cost of raising an additional rupee of new capital; it is the weighted average cost of the additional/incremental funds raised by the firm.
What is meant by the 'flotation cost' in cost of capital?
The cost incurred in issuing securities (underwriting, brokerage, legal, printing fees); it reduces net proceeds and thereby raises the effective cost of the capital raised.
What is Capital Budgeting?
The process of planning, evaluating and selecting long-term investment proposals (capital expenditures) whose benefits accrue over more than one year, to maximize shareholder wealth.
What are the main capital budgeting evaluation techniques?
Traditional/non-discounting methods (Payback Period, Accounting Rate of Return) and discounted cash flow methods (Net Present Value, Internal Rate of Return, Profitability Index, Discounted Payback).
What is the Payback Period?
The length of time required to recover the initial investment from the project's net cash inflows; shorter payback is preferred. For even cash flows: Payback = Initial Investment / Annual Cash Inflow.
What are the limitations of the Payback Period method?
It ignores the time value of money, ignores cash flows occurring after the payback period, and emphasizes liquidity rather than profitability.
What is the Accounting Rate of Return (ARR)?
ARR = Average Annual Accounting Profit (after tax) / Average (or Initial) Investment × 100; it is a non-discounting method based on accounting profits rather than cash flows.
What is Net Present Value (NPV)?
NPV = Present value of cash inflows − Present value of cash outflows (initial investment), discounted at the cost of capital. Accept the project if NPV > 0.
What is the decision rule for NPV?
Accept if NPV is positive (> 0), reject if negative (< 0); for mutually exclusive projects, choose the one with the highest positive NPV.
What is the Internal Rate of Return (IRR)?
The discount rate at which the NPV of a project equals zero, i.e., the rate where PV of inflows = PV of outflows. Accept if IRR > cost of capital.
What is the formula to interpolate IRR between two rates?
IRR = LR + [NPV at LR / (NPV at LR − NPV at HR)] × (HR − LR), where LR = lower rate and HR = higher rate used in interpolation.
What is the Profitability Index (PI)?
PI = Present Value of Cash Inflows / Initial Investment (PV of outflows). Accept if PI > 1; it measures value created per unit of investment (benefit-cost ratio).
How do NPV and IRR differ when ranking mutually exclusive projects?
They can give conflicting rankings due to differences in project size, cash flow timing, and the reinvestment rate assumption. NPV assumes reinvestment at the cost of capital and is generally preferred as it directly measures wealth added.
What is the discounted payback period?
The time required to recover the initial investment from discounted (present value) cash inflows; it improves on the simple payback by incorporating the time value of money but still ignores cash flows after payback.
What is a capital rationing situation?
A situation where a firm has limited funds and cannot accept all profitable (positive-NPV) projects, so it must select the combination of projects that maximizes total NPV within the budget constraint (often ranked using the Profitability Index).
What is risk analysis in capital budgeting?
The process of identifying and measuring the variability/uncertainty of a project's future cash flows and returns, and incorporating that risk into the investment evaluation.
What is the Risk-Adjusted Discount Rate (RADR) method?
A technique that adds a risk premium to the risk-free/normal discount rate so riskier projects are discounted at a higher rate: RADR = Risk-free rate + Risk premium; higher risk means a higher discount rate and lower present value.
What is the Certainty Equivalent (CE) approach to risk?
Risky cash flows are converted into certain (risk-free) equivalents by multiplying them with certainty-equivalent coefficients (between 0 and 1), then discounted at the risk-free rate.
What is sensitivity analysis in capital budgeting?
A technique that examines how the project's NPV/return changes when one key variable (e.g., sales, cost, life) is changed at a time, identifying the variables to which the project outcome is most sensitive.
What is the standard deviation used for in capital budgeting risk analysis?
It measures the absolute dispersion/variability of expected cash flows or returns around their expected value; a higher standard deviation indicates greater risk.
What is the Coefficient of Variation and why is it used in risk analysis?
CV = Standard Deviation / Expected Value (mean). It measures relative risk per unit of return, making it useful for comparing the risk of projects with different expected values; a lower CV means lower relative risk.
What is scenario analysis (and decision-tree analysis) in capital budgeting?
Scenario analysis evaluates project NPV under different sets of assumptions (e.g., optimistic, most likely, pessimistic). Decision-tree analysis maps sequential decisions and their probabilistic outcomes to evaluate expected value across uncertain, multi-stage events.
What this deck covers
The Financial Management deck follows the CMA Intermediate Financial Management syllabus — 3 chapters and 6 topics — so questions land on material that is genuinely examinable rather than trivia around it. That works out to roughly 16.7 cards per chapter.
Answers are written to be recallable, not just readable — averaging about 187 characters, which is long enough to carry the reasoning and short enough to say out loud.
A deck like this earns its keep on the second and third pass. Read the syllabus first so you know the shape of the subject, then use the cards to find the specific facts that have not stuck.
Financial Management flashcards FAQ
How many Financial Management flashcards are in this CMA Intermediate deck?
50 cards. This page previews 24 of them, sampled evenly across the deck so you can judge the difficulty before installing anything.
Are these CMA Intermediate flashcards free?
Yes. The preview here is free to read with no signup, and the full 50-card deck is free inside the Examius app.
What do the Financial Management cards cover?
They follow the CMA Intermediate Financial Management syllabus — 3 chapters and 6 topics — so the questions track what is actually examinable.
How should I use these flashcards?
Read the syllabus first so you know the shape of the subject, then drill the deck. Examius schedules each card with spaced repetition, so cards you keep missing come back sooner and ones you know drift further apart.