MCQOPTIONS
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MCQOPTIONS
This section includes 88 Mcqs, each offering curated multiple-choice questions to sharpen your Financial Management/Financial Markets knowledge and support exam preparation. Choose a topic below to get started.
| 1. |
The double declining balance method and sum of years digits are included in |
| A. | yearly method |
| B. | single methods |
| C. | double methods |
| D. | accelerated methods |
| Answer» E. | |
| 2. |
The nominal interest rates and the nominal cash flows are usually reflected the |
| A. | inflation effects |
| B. | opportunity effects |
| C. | equity effects |
| D. | debt effects |
| Answer» B. opportunity effects | |
| 3. |
In the cash flow estimation and risk analysis, the real rate will be equal to nominal rate if there is |
| A. | no inflation |
| B. | high inflation |
| C. | no transactions |
| D. | no acceleration |
| Answer» B. high inflation | |
| 4. |
The situation in which the company replaces existing assets with new assets is classified as |
| A. | replacement projects |
| B. | new projects |
| C. | existing projects |
| D. | internal projects |
| Answer» B. new projects | |
| 5. |
The rate of return which is required to satisfy stockholders and debt holders is classified as |
| A. | weighted average cost of interest |
| B. | weighted average cost of capital |
| C. | weighted average salvage value |
| D. | mean cost of capital |
| Answer» C. weighted average salvage value | |
| 6. |
The net operating profit after taxes is $4500, the net investment in operating capital is $8500 and then the free cash flow would be |
| A. | −$4000 |
| B. | 4000 |
| C. | −$18000 |
| D. | 18000 |
| Answer» B. 4000 | |
| 7. |
The free cash flow is $17000 and the net investment in operating capital is $10000 then the net operating profit after taxes would be |
| A. | 7000 |
| B. | 27000 |
| C. | −$27000 |
| D. | −$7000 |
| Answer» C. −$27000 | |
| 8. |
The cash flows that should be considered for the decision in hand are classified as |
| A. | relevant cash flows |
| B. | irrelevant cash flows |
| C. | marginal cash flows |
| D. | transaction cash flows |
| Answer» B. irrelevant cash flows | |
| 9. |
The net investment in operating capital is $7000 and the net operating profit after taxes is $11,000 then the free cash flow will be |
| A. | −$18000 |
| B. | 18000 |
| C. | −$4000 |
| D. | 4000 |
| Answer» E. | |
| 10. |
The situation in which the firm limits the expenditures on capital is classified as |
| A. | optimal rationing |
| B. | capital rationing |
| C. | marginal rationing |
| D. | transaction rationing |
| Answer» C. marginal rationing | |
| 11. |
The initial cost is $5000 and the probability index is 3.2 then the present value of cash flows is |
| A. | 8200 |
| B. | 16000 |
| C. | 0.0064 |
| D. | 1562.5 |
| Answer» C. 0.0064 | |
| 12. |
An uncovered cost at the start of the year is $300, full cash flow during recovery year is $650 and prior years to full recovery is 4 then payback would be |
| A. | 3.46 years |
| B. | 2.46 years |
| C. | 5.46 years |
| D. | 4.46 years |
| Answer» E. | |
| 13. |
Other factors held constant, the greater project liquidity is because of |
| A. | less project return |
| B. | greater project return |
| C. | shorter payback period |
| D. | greater payback period |
| Answer» D. greater payback period | |
| 14. |
An internal rate of return in capital budgeting can be modified to make it the representative of |
| A. | relative outflow |
| B. | relative inflow |
| C. | relative cost |
| D. | relative profitability |
| Answer» E. | |
| 15. |
The profitability index in capital budgeting is used for |
| A. | negative projects |
| B. | relative projects |
| C. | evaluate projects |
| D. | earned projects |
| Answer» D. earned projects | |
| 16. |
The payback period in which an expected cash flows are discounted with the help of project cost of capital is classified as |
| A. | discounted payback period |
| B. | discounted rate of return |
| C. | discounted cash flows |
| D. | discounted project cost |
| Answer» B. discounted rate of return | |
| 17. |
The life that maximizes net present value of an asset is classified as |
| A. | minimum life |
| B. | present value life |
| C. | economic life |
| D. | transaction life |
| Answer» D. transaction life | |
| 18. |
If the net present value is positive then the profitability index will be |
| A. | greater than two |
| B. | equal to |
| C. | less than one |
| D. | greater than one |
| Answer» E. | |
| 19. |
The cash flows occurring with more than one change in sign of cash flow are classified as |
| A. | non-normal cash flow |
| B. | normal cash flow |
| C. | normal costs |
| D. | non-normal costs |
| Answer» B. normal cash flow | |
| 20. |
In internal rate of returns, the discount rate which forces the net present values to become zero is classified as |
| A. | positive rate of return |
| B. | negative rate of return |
| C. | external rate of return |
| D. | internal rate of return |
| Answer» E. | |
| 21. |
An initial cost is $6000 and the probability index is 5.6 then the present value of cash flows will be |
| A. | 25000 |
| B. | 28000 |
| C. | 33600 |
| D. | 30000 |
| Answer» D. 30000 | |
| 22. |
A modified internal rate of return is considered as present value of costs and is equal to |
| A. | p.v of hurdle rate |
| B. | fv of hurdle rate |
| C. | p.v of terminal value |
| D. | fv of terminal value |
| Answer» D. fv of terminal value | |
| 23. |
In independent projects evaluation, the results of internal rate of return and net present value lead to |
| A. | cash flow decision |
| B. | cost decision |
| C. | same decisions |
| D. | different decisions |
| Answer» D. different decisions | |
| 24. |
In capital budgeting, an internal rate of return of the project is classified as its |
| A. | external rate of return |
| B. | internal rate of return |
| C. | positive rate of return |
| D. | negative rate of return |
| Answer» C. positive rate of return | |
| 25. |
The relevant cash flow which company expects when it implements the project is classified as |
| A. | irrelevant cash flow |
| B. | relevant cash flow |
| C. | incremental cash flow |
| D. | decrease cash flow |
| Answer» D. decrease cash flow | |
| 26. |
The cash outflows are the costs of project and are represented by |
| A. | negative numbers |
| B. | positive numbers |
| C. | hurdle number |
| D. | relative number |
| Answer» B. positive numbers | |
| 27. |
The project which is started by the firm for increasing the sales is classified as |
| A. | new expansion project |
| B. | old expanded project |
| C. | firm borrowing project |
| D. | product line selection |
| Answer» B. old expanded project | |
| 28. |
The modified rate of return and modified internal rate of return with exceed cost of capital if the net present value is |
| A. | positive |
| B. | negative |
| C. | zero |
| D. | one |
| Answer» B. negative | |
| 29. |
The real rate expected cash flows and nominal rate expected cash flows must be |
| A. | accelerated |
| B. | equal |
| C. | different |
| D. | inflated |
| Answer» C. different | |
| 30. |
The process in which the managers of the company identify projects to add value is classified as |
| A. | capital budgeting |
| B. | cost budgeting |
| C. | book value budgeting |
| D. | equity budgeting |
| Answer» B. cost budgeting | |
| 31. |
The graph which is plotted for projected net present value and capital rates is called |
| A. | net loss profile |
| B. | net gain profile |
| C. | net future value profile |
| D. | net present value profile |
| Answer» E. | |
| 32. |
The situation in which one project is accepted while rejecting an other project in comparison is classified as |
| A. | present value consent |
| B. | mutually exclusive |
| C. | mutual project |
| D. | mutual consent |
| Answer» C. mutual project | |
| 33. |
The weighted average cost of debt, preferred stock and common equity is classified as |
| A. | cost of salvage |
| B. | cost of interest |
| C. | cost of taxation |
| D. | cost of capital |
| Answer» E. | |
| 34. |
In capital budgeting, a negative net present value results in |
| A. | zero economic value added |
| B. | percent economic value added |
| C. | negative economic value added |
| D. | positive economic value added |
| Answer» D. positive economic value added | |
| 35. |
In capital budgeting, the cost of capital is used as discount rate and is based on pre-determines |
| A. | cost of inflation |
| B. | cost of debt and equity |
| C. | cost of opportunity |
| D. | cost of transaction |
| Answer» C. cost of opportunity | |
| 36. |
The net investment in operating capital is $5000 and the net operating profit after taxes is $8000 then the free cash flow would be |
| A. | 13000 |
| B. | −$3000 |
| C. | 3000 |
| D. | −$13000 |
| Answer» D. −$13000 | |
| 37. |
If two independent projects having hurdle rate then both projects should |
| A. | be accepted |
| B. | not be accepted |
| C. | have capital acceptance |
| D. | have return rate acceptance |
| Answer» B. not be accepted | |
| 38. |
The cash flow which starts negative then positive then again positive cash flow is classified as |
| A. | normal costs |
| B. | non-normal costs |
| C. | non-normal cash flow |
| D. | normal cash flow |
| Answer» D. normal cash flow | |
| 39. |
A type of project whose cash flows would not depend on each other is classified as |
| A. | project net gain |
| B. | independent projects |
| C. | dependent projects |
| D. | net value projects |
| Answer» C. dependent projects | |
| 40. |
In cash flow estimation, the depreciation shelters company's income from |
| A. | expansion |
| B. | salvages |
| C. | taxation |
| D. | discounts |
| Answer» D. discounts | |
| 41. |
In capital budgeting, two projects having cost of capital as 12% is classified as |
| A. | hurdle rate |
| B. | capital rate |
| C. | return rate |
| D. | budgeting rate |
| Answer» B. capital rate | |
| 42. |
A discount rate which is equal to the present value of TV to the project cost present value is classified as |
| A. | negative internal rate of return |
| B. | modified internal rate of return |
| C. | existed internal rate of return |
| D. | relative rate of return |
| Answer» C. existed internal rate of return | |
| 43. |
In large expansion programs, the increased riskiness and the floatation cost associated with project can cause |
| A. | rise in marginal cost of capital |
| B. | fall in marginal cost of capital |
| C. | rise in transaction cost of capital |
| D. | rise in transaction cost of capital |
| Answer» B. fall in marginal cost of capital | |
| 44. |
In calculation of internal rate of return, an assumption states that received cash flow from the project must |
| A. | be reinvested |
| B. | not be reinvested |
| C. | be earned |
| D. | not be earned |
| Answer» B. not be reinvested | |
| 45. |
In capital budgeting, the number of non-normal cash flows having internal rate of returns are |
| A. | one |
| B. | multiple |
| C. | accepted |
| D. | non-accepted |
| Answer» C. accepted | |
| 46. |
The project whose cash flows are less than the capital invested for required rate of return then the net present value will be |
| A. | negative |
| B. | zero |
| C. | positive |
| D. | independent |
| Answer» B. zero | |
| 47. |
In estimating value of cash flows, the compounded future value is classified as its |
| A. | terminal value |
| B. | existed value |
| C. | quit value |
| D. | relative value |
| Answer» B. existed value | |
| 48. |
The free cash flow is $12000, an operating cash flow is $4000, an investment outlay cash flow is $5000 then the salvage cash flow would be |
| A. | −$21000 |
| B. | 21000 |
| C. | −$3000 |
| D. | 3000 |
| Answer» E. | |
| 49. |
The present value of future cash flows is $2000 and an initial cost is $1100 then the profitability index will be |
| A. | 0.55 |
| B. | 1.82 |
| C. | 0.55 |
| D. | 0.0182 |
| Answer» C. 0.55 | |
| 50. |
The project whose cash flows are sufficient to repay the capital invested for rate of return then the net present value will be |
| A. | negative |
| B. | zero |
| C. | positive |
| D. | independent |
| Answer» C. positive | |