ACC501 Business Finance Solved MCQ's For MID & Final EXAMS Mega File (part1)

ACC501 Solved MCQ's For MID & Final Exam

1. Which of the following is an example of positive covenant?

Select correct option:

Maintaining firm’s working capital at or above some specified minimum level

Furnishing audited financial statements periodically to the lender

Maintaining any collateral or security in good condition

Restricting selling or leasing assets wrong question option d is negative and all is positive example

Wrong, wrong, wrong question it is unfair discipline

2. AST Company’s debt-to-total assets ratio is 0.45. What is its debt -to-equity ratio?

Select correct option:

0.101

0.220

0.667

0.818

Reference:(1-0.45=0.55)

=0.45/0.55=0.818

3. What amount a borrower would pay at the end of fourth yearwith a 4-year,

12%, interest-only loan ofRs. 8,000?

Select correct option:

Rs. 1,360

Rs. 2,000

Rs. 5,625

Rs. 8,960

Reference: 8000*12/100=8960

4. What will be the price per share if there is a current dividend of Rs. 4.75, required rate ofreturn of 12% and growth rate of 5%?

Select correct option:

Rs. 30.19

Rs. 43.52

Rs. 56.53

Rs. 71.25

Reference: D*1+g/r-g

4.75*(1+0.5/4.75-0.5)=71.25

5. A given rate is quoted as 9 percent APR, but the EAR is 9.38 percent. What

is the compounding period? Select correct option: Semiannually

Quarterly

Monthly Daily Reference:(1+APR/m)^m-1

PR=9

M=30

(1+9/30)^30-1=9.38

6. Mr. Aslam owns 100 shares of a company and there are four directors to be elected. How much votes Mr. Aslamwould have as per cumulative voting

procedure?

Select correct option:

100 votes

200 votes

300 votes

400 votes

Reference: 100*4=400

7. SNT Corporation has policy ofpaying a Rs. 6 per share dividend every year.

Ifthis policy is to continue indefinitely, what will be the value of a share of stock at a 15%required rate of return?

Select correct option:

Rs. 30

Rs. 40

Rs. 50

Rs. 60

Reference: 6/0.15=40

8. Which of the following process can be defined as the process of generating

earnings from previous earnings?

Select correct option:

Discounting Compounding Factorization

None of the given options

9. Which of the following is the amount of cash we would get if we actually sell an asset?

Select correct option:

Market Value Book Value Intrinsic Value

None of the given options

10.

11. Which of the following financial statement shows both dollars and percentages inthe report?

Select correct option:

Balance Sheet

Common-Size Statement

Income Statement

Relative Statement of Equity

12. in which form of Business, owners have limited libility.

Select correct option:

sole proprietorship partnership

joint stock company

none of the above

13. Suppose the initial investment for a project is Rs. 16 million andthe cash flows are Rs. 4 million in the first year and Rs. 9 million in the second and Rs. 5 million in the third. The project will have a payback period of:

Select correct option:

2.6 Years

3.1 Years

3.7 Years

4.1 Years

14. Which of the following is NOT a shortcoming of Payback Rule?

Select correct option:

Time value of money is ignored

Itfails to consider risk differences

Simple and easy to calculate

None ofthe given options pg 106

15. When a corporation wishes to borrow from public on a long-term basis, it does so by issuing or selling:

Select correct option:

  

Debt securities or bonds pg 71

Common Stocks

Preferred Stock

All of the given options

16. Treasury notes and bonds are examples ofwhich of the following types of

bonds?

Select correct option:

Government bonds 85

Zero coupon bonds Floating-rate bonds Euro bonds

17. When real rate is         _, all interest rates will tend to be           .

Select correct option: Low;higher

High; lower

High; higher pg 88

None of the given options

18. Which of the following statements is(are) CORRECT regarding a bond?

Select correct option:

Abond is an evidence of debt issued by a corporation or a governmental body. A

bond represents a loan made by investors to the issuer.

When a corporation wishes to borrow from public on along term basis, it does so by issuing or selling bonds.

All of the given options

19. Between thetwo identical bonds having different coupon, the price of the

                 bond will change less than that of                  bond.

Select correct option:

Higher-coupon; lower-coupon

Lower-coupon; higher-coupon

Long-term; short-term

None of the given options

  

20. As the dividend is always same for a zero growth stock, so the stock can also be viewed as:

Select correct option:

Ordinary Annuity

Annuity Due

Ordinary perpetuity pg 91

None of the given options

21. The coupon rate ofa floating-rate bond is capped and upper and lower rates

are called:

Select correct option:

Float

Collar pg 86

Limit

Surplus

22. Internal Rate of Return (IRR) is sometimes referred to as:

Select correct option: Simple Interest Rate Compound Interest Rate

Economic Rate of Return

Required Rate of Return

23. If the dividend for a share is growing at a steady rate then which of the following formula(s) can be usedto find the dividend in two periods?

Select correct option:

D2 = D1 x (1 + g ) D2 = Do x ( 1 + g )2

D2 = Do x ( 1 + g )2

All of the given options pg 92

  

24. A project whose acceptance doesnot prevent or require the acceptance of one or more alternative projects is referred to as a(n):

Select correct option:

mutually exclusive project independent project dependent project

contingent project

25. A project has an initial investment of Rs. 600,000. What would be the NPV

for the project if it has a profitability index of 1.12?

Select correct option: Rs. 40,000

Rs. 55,000

Rs. 65,000

Rs. 72,000

Reference=600000*1.12=672000-600000=72000

26. Which of the following statement is TRUE regarding debt?

Select correct option:

Debtis an ownership interest in the firm.

Unpaid debt can result in bankruptcy or financial failure. Pg 78

Debtprovides the voting rights to the bondholders.

Corporation’s payment of interest on debtis fully taxable.

27. If a firm is allowed to miss a coupon payment on a bond in ayear in which it reports an operating loss, the bond is most likely a(n)                             bond.

Select correct option:

Income

Zero coupon Floating-rate Put

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

  

Select correct option: Positive

Negative pg 80

Neutral

None of the given options

29. IRR and NPV rules always lead to identical decisions as long as:

Select correct option:

Cash flow s are conventional

Cash flow s are independent

Cash flow s are bothconventional and independent pg 110

None of the given options

30. Which of the following allows a company to repurchase part or all of the

bond issue at a stated price? Select correct option: Repayment

Seniority

Call provision

Protective covenants

31. Which of the following is NOT a quality of IRR?

Select correct option: Most widely used

Ideal to rank the mutually exclusive investments pg 116

Easily communicated and understood

Can be estimated even without knowing the discount rate

32. In which type ofthe market, previously issued securities are traded among investors?

Select correct option:

Primary Market

Secondary Market pg 100

TertiaryMarket

None of the given options

  

33. A model which makes an assumption about the future growth of dividends is known as:

Select correct option: Dividend Price Model Dividend Growth Model Dividend Policy Model All of the given options

34. Which of the following represents the linear relation between Net Present

Value (NPV) and Profitability Index (PI)?

Select correct option:

IfProfitability Index > 1, NPV is Negative (-) IfProfitability Index < 1, NPV is Positive (+)

If Profitability Index > 1, NPV is Positive (+)

IfProfitability Index > 1, NPV is Zero (0)

35. Which of the following comes under the head of discounted cash flow criteria

for capital budgeting decisions?

Select correct option: Payback Period

Net Present Value pg 118

Average Accounting Return

36.

Which of the following is NOT included in discounted cash flow criteria for capital budgeting decision?

Select correct option:

Payback Period pg 119

NetPresent Value Profitability Index Internal Rate of Return

37. Which of the following is an example ofpositive covenant?

Select correct option:

Maintaining any collateral or security in good condition Limiting the amount of dividend according to some formula Restricting pledging assets to other lenders

Barring merger with another firm

38. Which of the following isthe most common capital budgeting technique?

Select correct option: Payback Period

  

Net Present Value Internal Rate of Return Profitability Index

39. Which of the following measures the present value of an investment per dollar invested?

Select correct option:

NetPresent Value (NPV)

Average Accounting Return (AAR) Internal Rate ofReturn (IRR)

Profitability Index (PI) pg 119

40. Which of the following is a measure of accounting profit relative to the book value?

Select correct option:

NetPresent Value Profitability Index Internal Rate of Return

Average Accounting Return pg 119

41. Which one of the following typically applies to preferred stock but not to

common stock? Select correct option: Dividend yield Cumulative dividends Voting rights

Taxdeductible dividends

42. Treasury notes and bonds areexamples of which ofthe following types of bonds?

Select correct option:

Government bonds pg 86

Zero coupon bonds

Floating-rate bonds

Euro bonds

43. Expectation of a      inflation rate will push long term interest rates      

than short term rates reflected by an upward term structure.

Select correct option:

Lower; higher

Higher; lower

Higher; higher pg 88

None of the given options

  

44. A company issues bonds with a Rs. 1,000 face value. What is the coupon rate if the coupon payments of Rs. 60 are paidevery 6months?

Select correct option:

3 percent

6 percent

9 percent

12 percent

60+60=120/1000=12%

45. The projected cash flows from a project are: Year 1: Rs. 100 Year 2: Rs. 300

Year 3: Rs. 400 Year 4: Rs. 800 The Project cost is Rs. 800. What would be the payback period for the project?

Select correct option:

2.00 Years

2.67 Years

3.00 Years

3.67 Years

Project=800 paid in 1 year=100, 2nd year=300 and 3rd year=400 total 800 paid in 3rd

year

In which of the following type of annuity, cash flows occur at the beginning of each period?

Select correct option:

Ordinary annuity

Annuity duepg 66

Perpetuity

None of the given options

46. Which of the following is NOT an important feature of treasury notes and

bonds?

Select correct option: Default free

Taxable

Least liquid pg 90

Highly liquid

Which of the following is NOT a determinant of term structure?

Select correct option:

Realrate of interest

Internal rate of interest pg 88

Expected inflation

  

Interest rate risk

47. Which of the following isthe amount of time required for an investment to

generate cashflows sufficient to recover its initial cost?

Select correct option: Yield to maturity

MaturityPeriod

Payback period pg 104

Accounts Receivable period

m.q .z

48. In which type ofthe market, securities are originally sold to the investors?

Select correct option: PrimaryMarket SecondaryMarket TertiaryMarket

None of the given options

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

Select correct option:

Broker pg 100

Dealer

Member

Specialist volatile

50. Which of the following is acharacteristic of preferred stock?

Select correct option:

These stocks have not stated liquidating value

Dividends on these stocks can be cumulative pg 100

These bonds hold credit ratings quite different from bonds

These stocks have not any kind of priority over common stocks

51. Which of the following type of bond pays no coupon at all and areoffered at

a price that is much lower than its stated value?

Select correct option: Government bonds

Zero coupon bonds pg 85

  

Floating-rate bonds

Euro bonds

52. An investment will be                if the IRR doesn’t exceeds the required

return and                 otherwise.

Select correct option:

Accepted; rejected Accepted; accepted Rejected; rejected

Rejected; accepted pg 109conceptual

53. Which of the following comes under the head of accounting criteria for capital budgeting decision?

Select correct option:

Payback Period Net Present Value Profitability Index

Average Accounting Return pg 119

54. Which of the following is aseries of constant cash flows that occur atthe end

ofeach period for some fixed number ofperiods?

Select correct option:

Ordinary annuity pg 63

Annuity due

Perpetuity

None of the given options

55. Which of the following term refers to the difference between the present

value of cash inflows and the present value ofcash outflows?

Select correct option:

NetPresent Value (NPV)

Average Accounting Return (AAR) Internal Rate ofReturn (IRR)

Profitability Index (PI)

56. One would be indifferent between taking and not taking the investment

when:

Select correct option: NPVis greater than Zero

NPV is equal to Zero pg 104 doubt ask question in mdb

  

NPVis less than Zero

All of the given options

57. Which one of the following terms refers tothe risk arises for bond owners from fluctuating interest rates?

Select correct option:

Fluctuations Risk

Interest Rate Risk pg75

Real-Time Risk

Inflation Risk

58. All else equal, the market value of a corporate bond is always inversely

related to its:

Select correct option: Time to maturity Coupon rate

Yield to maturity

All of the given options

59. Which of the following issue is NOT covered by “Investment” area of

finance?

Select correct option:

Best mixture offinancial investment International aspects of corporate finance Associated risks andrewards

Pricing financial assets

60. Period costs include which of the following?

Select correct option:

Selling expense

Raw material

  

Direct labor

Manufacturing overhead

61. Product costs include which ofthe following?

Select correct option: Selling expenses General expenses

Manufacturing overhead

Administrative expenses

62. Financial policy isevaluated by which ofthe following?

Select correct option: Profit Margin

Total Assets Turnover

Debt-equity ratio

None of the given options

63. Cash flow from assets involves which ofthe following component(s)?

Select correct option: Operating cash flow

Capital spending

Change in net working capital

All of the given options

64. Which of the following refers to the cashflows that result from the firm’s

day-to-day activities of producing andselling?

Select correct option:

Operating Cash Flows Investing Cash Flows Financing Cash Flows All of the given options

65. Finance is vital for which of the following business activity (activities)?

Select correct option:

Marketing Research

Product Pricing

Design of marketing and distribution channels

All of the given options

  

66. Which of the following costs are reported on the income statement as the cost ofgoods sold?

Select correct option: Product cost

Period cost

Both product cost and period cost

Neither product cost nor period cost

67. Standard Company had net sales of Rs. 750,000 over the past year. During thattime, average receivables were Rs. 150,000.Assuming a 365-day year, what was the average collection period?

Select correct option:

5 days

36 days

48 days

73 days

750000/150000=5

365/5=73days

68. Which of the following terms refers to the use of debt financing?

Select correct option: Operating Leverage

Financial Leverage Manufacturing Leverage None of the given options

69. In which type ofmarket, new securities aretraded?

Select correct option: Primary market Secondary market Tertiary market

None of the given options

70. Which of the following ratios areparticularly interesting to short-term creditors?

Select correct option:

  

Liquidity Ratios

Long-term Solvency Ratios

Profitability Ratios

Market Value Ratios

71. shows the sources from which cash has been generated and how it has been

spent during a period oftime?

Select correct option:

Income Statement

Balance Sheet

Cash Flow Statement

Owner’s Equity Statement

72. Standard Corporation sold fully depreciated equipment for Rs. 5,000. This transaction will be reported on the cash flow statement as a(n):

Select correct option:

Operating activity

Investing activity

Financing activity

None of the given options

73. me: Quick Ratio is also known as:

Select correct option: Current Ratio

Acid-test Ratio

Cash Ratio

74. of the following statement measures performance over a specific period of

time?

Select correct option:

Income Statement

Balance Sheet

Cash Flow Statement

Retained Earning Statement

75. Which of the following statement shows assets, liabilities, and net worth as of a specific date?

  

Select correct option: Income Statement

Balance Sheet

Owner’s Equity Statement

Cash Flow Statement

76. A portion ofprofits, which a company retains itself for further expansion, is known as:

Select correct option:

Dividends

Retained Earnings

Capital Gain

None of the given options

77. Which one of the following is NOT a liquidity ratio?

Select correct option:

Current Ratio

Quick Ratio

Cash Coverage Ratio

Cash Ratio

78. Which of the following ratio gives an idea as to how efficient management is at using its assets to generate earnings?

Select correct option:

Profit Margin Return on Assets Return on Equity

Total Assets Turnover

79. Which of the following is an example ofcapital spending?

Select correct option:

  

Purchase of Fixed Assets Decrease in NetWorking Capital Increase in NetWorking Capital None of the given options

80. Which of the following ismeasured by profit margin?

Select correct option:

Operating efficiency Asset use efficiency Financial policy Dividend policy

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

Select correct option: Accountants

Financial Analysts

Auditors

Marketers