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 firms 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 Companys 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.
Corporations 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 doesnt 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 firms
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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