In the name of ALLAH, the most beneficient, the most merciful

Business Finance (ACC501)

Multiple Choice Questions (MCQs)

Objective Questions

  1. Which of the following statement measures performance over a specific period of time?

    1. Income Statement
    2. Balance Sheet
    3. Cash Flow Statement
    4. Retained Earning Statement
  2. Which of the following is subcategory (ies) of finance department?

    1. Accounting department only
    2. Treasury department only
    3. Accounting department and Treasury department
    4. None of the given
  3. Which one of the following typically applies to preferred stock but not to common stock?

    1. Dividend yield
    2. Cumulative dividends
    3. Voting rights
    4. Tax deductible dividends
  4. The principal amount of a bond at issue is called:

    1. Par value
    2. Coupon value
    3. Present value of an annuity
    4. Present value of a lump sum
  5. Which of the following is the most significant financial advantage of corporate form?

    1. Easy to raise money
    2. Double taxation
    3. Easy to start
    4. All business income is divided among shareholder
  6. Which of the following measures the present value of an investment per dollar invested?

    1. Net Present Value (NPV)
    2. Average Accounting Return (AAR)
    3. Internal Rate of Return (IRR)
    4. Profitability Index (PI)
  7. Time trend analysis of financial statements is used to compare the performance of firm with:

    1. Firm's own previous performance
    2. Performance of similar firms
    3. Performance of the industry
    4. Performance of all firms in country
  8. Business Finance addresses which of the following?

    1. Capital budgeting
    2. Capital structure
    3. Working capital management
    4. All of the given
  9. The most common application of term "Finance" involves raising money to acquire _________.

    1. Land & Building
    2. Machinery & Equipment
    3. Inventory
    4. All of the given
  10. Head of Treasury department reports to whom?

    1. Financial and cost Accountant
    2. Chief of financial officer
    3. Cash and credit manager
    4. Board of directors
  11. Which one of the following formula will be used to calculate profit margin ratio?

    1. Profit Margin Ratio = Sales / Net income
    2. Profit Margin Ratio = Net income / Sales
    3. Profit Margin Ratio = Net income / CGS
    4. Profit Margin Ratio = Net income / Operating profit
  12. Which of the following refers to the cash flows that result from the firm’s day-to-day activities of producing and selling?

    1. Operating Cash Flows
    2. Investing Cash Flows
    3. Financing Cash Flows
    4. All of the given
  13. A given rate is quoted as 9 percent APR, but the EAR is 9.38 percent. What is the compounding period?

    1. Semiannually
    2. Quarterly
    3. Monthly
    4. Daily
  14. JJ Inc. has a 4 percent return on total assets of Rs. 500,000 and a net profit margin of 5 percent. Total sales for JJ Inc. would be :

    1. Rs. 150,000
    2. Rs. 200,000
    3. Rs. 250,000
    4. Rs. 400,000
  15. Net Income after taxation differs from Net Cash Flow from operations because:

    1. Depreciation expense is shown in the Cash Flow Statement and not in the Income Statement
    2. Non-cash items are included in the Income Statement, but not in the Cash Flow Statement
    3. Cash sales are shown in the Cash Flow Statement but not in the Income Statement
    4. Cash expenses are shown in the Cash Flow Statement but not in the Income Statement
  16. In which of the following form of business "All business income is not considered as personal income"?

    1. Corporate form
    2. Partnership
    3. Sole proprietorship
    4. None of the given
  17. Which of the following is the amount of cash we would get if we actually sell an asset?

    1. Market Value
    2. Book Value
    3. Intrinsic Value
    4. None of the given
  18. Which of the following equation best represents Net Working Capital?

    1. Current liabilities - current assets
    2. Current assets - current liabilities
    3. Current assets = current liabilities
    4. None of the given
  19. Mr. A has just recently started a business by investing a capital of Rs. 500,000. He will be the only owner of the business and also enjoy all the profits of the business. Which type of business is being employed by Mr. A?

    1. Sole-proprietorship
    2. Partnership
    3. Corporation
    4. None of the given
  20. Which of the following issue is NOT covered by "Investment" area of finance?

    1. Best mixture of financial investment
    2. International aspects of corporate finance
    3. Associated risks and rewards
    4. Pricing financial assets
  21. If a firm uses cash to purchase inventory, its current ratio will:

    1. Increase
    2. Decrease
    3. Remain unaffected
    4. Become zero
  22. Agency problems can be controlled by which of the way?

    1. Monitor what the agent is doing?
    2. Employ auditors to review company books to make sure funds are used properly
    3. Pay bonus share to manager as compensation plan
    4. All of the given
  23. Sumi Inc. has just paid a dividend of Rs. 7 per share. The dividend of this company grows at a steady rate of 5% per year. What will be the dividend in 5 years?

    1. Rs. 4.41
    2. Rs. 6.12
    3. Rs. 7.35
    4. Rs. 8.93
  24. The value of net working capital will be greater than zero when:

    1. Current Assets > Current Liabilities
    2. Current Assets < Current Liabilities
    3. Current Assets = Current Liabilities
    4. None of the given
  25. The process of determining the present value of a payment or a stream of payments that is to be received in the future is known as:

    1. Discounting
    2. Compounding
    3. Factorization
    4. None of the given
  26. The preferred stock of a company currently sells for Rs. 25 per share. The annual dividend of Rs. 2.50 is fixed. Assuming a constant dividend forever, what is the rate of return on this stock?

    1. 5.00 percent
    2. 7.00 percent
    3. 8.45 percent
    4. 10.0 percent
  27. In how many years, an amount will be doubled at a discount rate of 8 percent?

    1. 3 years
    2. 6 years
    3. 9 years
    4. Cannot be determined without more information
  28. Which of the following terms refers to the use of debt financing?

    1. Operating Leverage
    2. Financial Leverage
    3. Manufacturing Leverage
    4. None of the given
  29. When a corporation wishes to borrow from public on a long-term basis, it does so by issuing or selling:

    1. Debt securities or bonds
    2. Common Stocks
    3. Preferred Stock
    4. All of the given
  30. If a firm’s debt ratio is 45%, this means _______ of the firm’s assets are financed by equity financing.

    1. 50%
    2. 55%
    3. 45%
    4. Cannot be determined without more information
  31. Balance sheet for a company reports current assets of Rs. 700,000 and current liabilities of Rs. 460,000. What would be the Current Ratio for the company if there is an inventory level of Rs. 120,000?

    1. 1.01 times
    2. 1.26 times
    3. 1.39 times
    4. 1.52 times
  32. What will be the coupon value of a Rs. 1,000 face-value bond with a 10% coupon rate?

    1. Rs. 100
    2. Rs. 510
    3. Rs. 1,000
    4. Rs. 1,100
  33. The most important item that can be extracted from financial statements is the actual ________ of the firm.

    1. Net Working Capital
    2. Cash Flow
    3. Net Present Value
    4. None of the given
  34. Time value of money is an important finance concept because:

    1. It takes risk into account
    2. It takes time into account
    3. It takes compound interest into account
    4. All of the given
  35. Which of the following has "Limited liability" for business debts?

    1. Sole proprietorship
    2. General partnership
    3. Corporation
    4. All of the givem
  36. Standard Corporation sold fully depreciated equipment for Rs. 5,000. This transaction will be reported on the cash flow statement as a(n):

    1. Operating activity
    2. Investing activity
    3. Financing activity
    4. None of the given
  37. Period costs include which of the following?

    1. Selling expense
    2. Raw material
    3. Direct labor
    4. Manufacturing overhead
  38. During the accounting period, sales revenue is Rs. 25,000 and accounts receivable increases by Rs. 8,000. What will be the amount of cash received from customers for the period?

    1. Rs. 33,000
    2. Rs. 25,000
    3. Rs. 17,000
    4. Rs. 8,000
  39. Who of the following make a broader use of accounting information?

    1. Accountants
    2. Financial Analysts
    3. Auditors
    4. Marketers
  40. Which of the following form of business organization is least regulated?

    1. Sole proprietorship
    2. General Partnership
    3. Limited Partnership
    4. Corporation
  41. Mr. Ali has an opprtunity to invest Rs. 45,000 in a local bank at 13% compound interest rate for 6 years. What amount he will receive after 6 years?

    1. Rs. 93,690
    2. Rs. 80,100
    3. Rs. 97,500
    4. Rs. 65,770
  42. All of the followings are tax admissible items EXCEPT:

    1. Interest
    2. Dividend
    3. Salaries payable
    4. Depreciation
  43. Which of the given is correct?

    1. Financial asset is a document representing a claim to income
    2. Real asset is a document representing a claim to income
    3. Financial asset is an object that provides a service
    4. All of the given
  44. Between the two identical bonds having different coupon, the price of the ________ bond will change less than that of ________ bond.

    1. Higher-coupon; lower-coupon
    2. Lower-coupon; higher-coupon
    3. Long-term; short-term
    4. None of the given
  45. Which of the following is the amount of cash we would get if we actually sell an asset?

    1. Market Value
    2. Book Value
    3. Intrinsic Value
    4. None of the given
  46. Which of the following set of ratios is used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time?

    1. Liquidity Ratios
    2. Leverage Ratios
    3. Profitability Ratios
    4. Market Value Ratios
  47. In which type of market, new securities are traded?

    1. Primary market
    2. Secondary market
    3. Tertiary market
    4. None of the given
  48. All else equal, the market value of a corporate bond is always inversely related to its:

    1. Time to maturity
    2. Coupon rate
    3. Yield to maturity
    4. All of the given
  49. In which of the following tax system, a tax payer is charged uniformly for all levels of his taxable income?

    1. Progressive Tax Rate
    2. Marginal Tax Rate
    3. Flat Tax Rate
    4. Average Tax Rate
  50. Finance is vital for which of the following business activity (activities)?

    1. Marketing Research
    2. Product Pricing
    3. Design of marketing and distribution channels
    4. All of the given
  51. A business owned by a single person is known as:

    1. Sole-proprietorship
    2. General partnership
    3. Limited partnership
    4. Corporation
  52. Product costs include which of the following?

    1. Selling expenses
    2. General expenses
    3. Manufacturing overhead
    4. Administrative expenses
  53. Decisions about “how to raise money” and “what to do with it” are part of which of the following?

    1. Business Finance
    2. Change management
    3. Costing for accounting
    4. All of the given
  54. Cash flow to the creditors can be calculated by using which one of the following expressions?

    1. Interest paid - retirement of debt - new borrowings + dividends
    2. Interest paid + retirement of debt + new borrowings - dividends
    3. Interest paid - retirement of debt - proceed from new borrowings
    4. Interest paid + retirement of debt - proceed from new borrowings
  55. What will be the value of a Rs. 1,000 face-value bond with an 8% coupon rate at 8% required rate of return?

    1. More than its face value
    2. Less than its face value
    3. Equal to its face value
    4. Cannot be determined without more information
  56. Mr. Ahmed wants to receive Rs. 1,800 forever at the end of each year. What will be the present value of this series of cash flow if rate of interest is 10%?

    1. Rs. 180
    2. Rs. 1,800
    3. Rs. 1,980
    4. Rs. 18,000
  57. Which of the following best represents the term "Financing"?

    1. It means raising money to acquire something.
    2. It is an object that provides services.
    3. It is trade license to trade securities on behalf of investors.
    4. It represents an ownership interest.
  58. Which of the given is (are) major difference(s) between net income and cash flow of the company?

    1. Accounts receivable only
    2. Depreciation only
    3. Accounts payable only
    4. All of the given
  59. Which of the following measure reveals how much profit a company generates with the money shareholders have invested?

    1. Profit Margin
    2. Return on Assets
    3. Return on Equity
    4. Debt-Equity Ratio
  60. A firm reports total liabilities of Rs. 300,000 and owner‟s equity of Rs. 500,000.What would be the total worth of the firm‟s assets?

    1. Rs. 300,000
    2. Rs. 500,000
    3. Rs. 800,000
    4. Rs. 1100,000
  61. If you plan to save Rs. 5,000 with a bank at an interest rate of 8%, what will be the worth of your amount after 4 years if bank offers simple interest?

    1. Rs. 5,400
    2. Rs. 5,900
    3. Rs. 6,600
    4. Rs. 6,802
  62. Agency problems can be controlled by which of the way?

    1. Monitor what the agent is doing?
    2. Employ auditors to review company books to make sure funds are used properly
    3. Pay bonus share to manager as compensation plan
    4. All of the given
  63. Which of the following diffulty(ies) is(are) faced while valuing a common stock?

    1. Unknown future cash flows
    2. Life of investment is limited
    3. Coupon rate is difficult to determine
    4. All of the given
  64. In which form of business organizations, owners have limited liability?

    1. Sole proprietorship
    2. Partnership
    3. Joint stock company
    4. None of the given
  65. The conflict of interest between stockholders and management is known as:

    1. Agency problem
    2. Interest conflict
    3. Management conflict
    4. Agency cost
  66. Which of the following is a non-cash item?

    1. Tax
    2. Depreciation
    3. Account Receivables
    4. All of the given
  67. Which of the following comes under the head of discounted cash flow criteria for capital budgeting decisions?

    1. Payback Period
    2. Net Present Value
    3. Average Accounting Return
    4. None of the given
  68. XYZ Company has a ROE of 12 percent and a dividend payout ratio of 40 percent. What is the firm’s maximum sustainable rate of growth?

    1. 3.73%
    2. 5.93%
    3. 7.76%
    4. 9.17%
  69. Which of the following item provides the important function of shielding part of income from taxes?

    1. Inventory
    2. Supplies
    3. Machinery
    4. Depreciation
  70. Which of the following ratio is a way to measure a company's performance?

    1. Short-term solvency ratio
    2. Turnover ratio
    3. Profitability ratio
    4. Market value ratio
  71. A ________ is an agent who arranges security transactions among investors.

    1. Broker
    2. Dealer
    3. Member
    4. Specialist
  72. In which type of business, all owners share in gains and losses and all have unlimited liability for all business debts?

    1. Sole-proprietorship
    2. General Partnership
    3. Limited Partnership
    4. Corporation
  73. Standard Company had net sales of Rs. 750,000 over the past year. During that time, average receivables were Rs. 150,000. Assuming a 365-day year, what was the average collection period?

    1. 5 days
    2. 36 days
    3. 48 days
    4. 73 days
  74. A ________ covenant limits or prohibits actions that company might take.

    1. Positive
    2. Negative
    3. Neutral
    4. None of the given
  75. All of the following are the features of privately placed bonds EXCEPT:

    1. Pay regular interest payments as decided
    2. Pay principle amoumt at the time of maturity
    3. Offered to general public
    4. Cost of bonds considered as cost of doing business
  76. Which of the following ratios is NOT from the set of Asset Management Ratios?

    1. Inventory Turnover Ratio
    2. Receiveable Turnover
    3. Capital Intensity Ratio
    4. Return on Assets