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
year
with a 4-year,
12%, interest-only loan
of
Rs. 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
of
return 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
of
paying a Rs. 6 per share dividend
every year.
If
this 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
in
the 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
and
the 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
It
fails to consider risk differences
Simple
and easy to calculate
None
of
the 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
of
which 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:
A
bond 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 a
long term basis, it does so by
issuing or selling bonds.
All of the given
options
19. Between
the
two 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
of
a 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 used
to 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
does
not 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:
Debt
is an ownership interest in
the
firm.
Unpaid
debt can result in bankruptcy or financial failure. Pg
78
Debt
provides the voting rights to the
bondholders.
Corporation’s
payment of interest on
debt
is fully taxable.
27. If a firm is allowed to miss
a coupon payment on a bond
in a
year 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
both
conventional 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
of
the 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:
If
Profitability Index > 1, NPV is Negative
(-)
If
Profitability Index < 1, NPV is Positive
(+)
If Profitability Index > 1, NPV is Positive (+)
If
Profitability 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
Net
Present Value
Profitability
Index Internal Rate of Return
37. Which of the following
is an example
of
positive 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
is
the 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:
Net
Present Value (NPV)
Average
Accounting Return (AAR) Internal Rate
of
Return (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:
Net
Present 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
Tax
deductible dividends
42.
Treasury notes and
bonds
are
examples of which
of
the 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
paid
every 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
due
pg 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:
Real
rate of interest
Internal rate of interest pg 88
Expected inflation
Interest rate
risk
47. Which of the following
is
the amount of time required for
an investment to
generate
cash
flows sufficient to recover its initial cost?
Select correct option:
Yield to maturity
Maturity
Period
Payback period pg
104
Accounts Receivable period
m.q .z
48. In which
type
of
the 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 a
characteristic 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 are
offered 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 109
conceptual
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 a
series of constant cash flows
that occur
at
the end
of
each period for
some fixed
number
of
periods?
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
of
cash outflows?
Select correct option:
Net
Present Value (NPV)
Average
Accounting Return (AAR) Internal Rate
of
Return (IRR)
Profitability
Index (PI)
56. One would be
indifferent between taking and not taking the investment
when:
Select correct option:
NPV
is greater than Zero
NPV is equal to Zero pg 104 doubt ask question in
mdb
NPV
is less than
Zero
All of the
given options
57. Which one of the following terms
refers
to
the 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
of
financial investment
International aspects of corporate finance Associated risks
and
rewards
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
of
the following?
Select correct option: Selling expenses General expenses
Manufacturing overhead
Administrative expenses
62.
Financial policy
is
evaluated by which
of
the following?
Select correct option:
Profit Margin
Total Assets Turnover
Debt-equity
ratio
None of the given options
63. Cash flow from assets involves which
of
the 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
cash
flows that result from the firm’s
day-to-day activities of producing
and
selling?
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
of
goods 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
that
time, 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
of
market, new securities
are
traded?
Select correct option: Primary market Secondary market
Tertiary market
None of the given options
70.
Which of the following
ratios
are
particularly
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
of
time?
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
of
profits, 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
of
capital 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
is
measured 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
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