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

Business Finance (ACC501)

Multiple Choice Questions (MCQs)

 

Objective Questions

Question

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

Answer: 2 Chapter No. 12 

Question

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

Answer: 4 Chapter No. 10 

Question

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

Answer: 2 Chapter No. 10 

Question

If a firm uses cash to purchase inventory, its current ratio will:

  1. Increase
  2. Decrease
  3. Remain unaffected
  4. Become zero

Answer: 3 Chapter No. 8 

Question

Which of the following item provides the important function of shielding part of income from taxes?

  1. Inventory
  2. Supplies
  3. Machinery
  4. Depreciation

Answer: 4 Chapter No. 6 

Question

The conflict of interest between stockholders and management is known as:

  1. Agency problem
  2. Interest conflict
  3. Management conflict
  4. Agency cost

Answer: 1 Chapter No. 3 

Question

Which of the following form of business organization is least regulated?

  1. Sole proprietorship
  2. General Partnership
  3. Limited Partnership
  4. Corporation

Answer: 1 Chapter No. 2 

Question

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

Answer: Chapter No.  

Question

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

Answer: Chapter No.  

Question

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%

Answer: Chapter No.  

Question

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

Answer: 1 Chapter No.  

Question

Business Finance addresses which of the following?

  1. Capital budgeting
  2. Capital structure
  3. Working capital management
  4. All of the given

Answer: Chapter No.  

Question

Who of the following make a broader use of accounting information?

  1. Accountants
  2. Financial Analysts
  3. Auditors
  4. Marketers

Answer: 2 Chapter No.  

Question

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

Answer: Chapter No.  

Question

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

Answer: Chapter No.  

Question

A business owned by a single person is known as:

  1. Sole-proprietorship
  2. General partnership
  3. Limited partnership
  4. Corporation

Answer: 1 Chapter No.  

Question

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

Answer: Chapter No.  

Question

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

Answer: Chapter No.  

Question

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

Answer: Chapter No.  

Question

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

Answer: Chapter No.  

Question

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

Answer: Chapter No.  

Question

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

Answer: Chapter No.  

Question

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

Answer: Chapter No.  

Question

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

Answer: Chapter No.  

Question

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

Answer: 4 Chapter No.  

Question

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

Answer: 1 Chapter No.  

Question

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

Answer: 1 Chapter No.  

Question

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

Answer: 1 Chapter No.  

Question

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

Answer: 1 Chapter No.  

Question

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

Answer: 3 Chapter No.  

Question

In which type of market, new securities are traded?

  1. Primary market
  2. Secondary market
  3. Tertiary market
  4. None of the given

Answer: Chapter No.  

Question

A ________ is an agent who arranges security transactions among investors.

  1. Broker
  2. Dealer
  3. Member
  4. Specialist

Answer: Chapter No.  

Question

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

Answer: Chapter No.  

Question

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

Answer: Chapter No.  

Question

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

Answer: Chapter No.  

Question

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

Answer: Chapter No.  

Question

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

Answer: Chapter No.  

Question

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

Answer: Chapter No.  

Question

A ________ covenant limits or prohibits actions that company might take.

  1. Positive
  2. Negative
  3. Neutral
  4. None of the given

Answer: Chapter No.  

Question

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

Answer: Chapter No.  

Question

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)

Answer: Chapter No.  

Question

Product costs include which of the following?

  1. Selling expenses
  2. General expenses
  3. Manufacturing overhead
  4. Administrative expenses

Answer: Chapter No.  

Question

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

Answer: Chapter No.  

Question

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

Answer: Chapter No.  

Question

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

Answer: Chapter No.  

Question

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

Answer: 2 Chapter No.  

Question

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

Answer: Chapter No.  

Question

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

Answer: 4 Chapter No.  

Question

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

Answer: Chapter No.  

Question

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

Answer: Chapter No.  

Question

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

Answer: Chapter No.  

Question

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.

Answer: Chapter No.  

Question

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

Answer: Chapter No.  

Question

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

Answer: Chapter No.  

Question

In which form of business organizations, owners have limited liability?

  1. Sole proprietorship
  2. Partnership
  3. Joint stock company
  4. None of the given

Answer: 4 Chapter No.  

Question

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

Answer: 4 Chapter No.  

Question

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

Answer: 3 Chapter No.