Minimum Rate of Return that a firm must earn in order to satisfy its investors, is also known as:

Weighted Average Cost of Capital

In order to calculate the proportion of equity financing used by the company, the following should be used:

Equity Share Capital plus Preference Share Capital,

Equity Share Capital plus Reserves and Surplus,

Equity Share Capital plus Preference Share Capital,

Equity Share Capital plus Long-term Debt.

Which of the following is not a generally accepted approach for Calculation of Cost of Equity?

Rate of Pref. Dividend Plus Risk

Gross Profit Ratio for a firm remains same but the Net Profit Ratio is decreasing. The reason for such behavior could be:

Increase in Costs of Goods Sold

The gross profit margin is unchanged, but the net profit margin declined over the same period. This could have happened if

cost of goods sold increased relative to sales.

sales increased relative to expenses.

Proprietary ratio is calculated by

Total assets/Total outside liability

Total outside liability/Total tangible assets

Fixed assets/Long term source of fund

Which of the following would be considered a application of funds?

a decrease in accounts receivable.

an increase in account payable.

A capital investment is one that

has the prospect of short-term benefits.

has the prospect of long-term benefits.

has the prospect of short-term benefits.

is only undertaken by large corporations.

applies only to investment in fixed assets.

How are earnings per share calculated?

Use the income statement to determine earnings after taxes (net income) and divide by the number of common and preferred shares outstanding.

Use the income statement to determine earnings after taxes (net income) and divide by the previous period's earnings after taxes. Then subtract 1 from the previously calculated value.

Use the income statement to determine earnings after taxes (net income) and divide by the number of common shares outstanding.

Use the income statement to determine earnings after taxes (net income) and divide by the number of common and preferred shares outstanding.

Use the income statement to determine earnings after taxes (net income) and divide by the forecasted period's earnings after taxes. Then subtract 1 from the previously calculated value

Which of the following would NOT improve the current ratio?

Issue long-term debt to buy inventory.

Borrow short term to finance additional fixed assets.

Issue long-term debt to buy inventory.

Sell common stock to reduce current liabilities.

Sell fixed assets to reduce accounts payable.

Which of the following statements (in general) is correct?

An increase in net profit margin with no change in sales or assets means a poor ROI.

A low receivables turnover is desirable.

The lower the total debt-to-equity ratio, the lower the financial risk for a firm.

An increase in net profit margin with no change in sales or assets means a poor ROI.

The higher the tax rate for a firm, the lower the interest coverage ratio.

Which of the following is true regarding the measurement of cash inflows and out flows of a project?

Depreciation should neither be added nor be subtracted from PAT

Depreciation amount should be added to PBT

Depreciation amount should be added to PAT

Depreciation should neither be added nor be subtracted from PAT

A single, overall cost of capital is often used to evaluate projects because:

it is the only way to measure a firm's required return.

it avoids the problem of computing the required rate of return for each investment proposal.

it is the only way to measure a firm's required return.

it acknowledges that most new investment projects have about the same degree of risk.

it acknowledges that most new investment projects offer about the same expected return.

Two firms that are virtually identical except for their capital structure are selling in the market at different values. According to M&M

one will be at greater risk of bankruptcy.

the firm with greater financial leverage will have the higher value.

this proves that markets cannot be efficient.

this will not continue because arbitrage will eventually cause the firms to sell at the same value.

While calculating the weighted average cost of capital, market value weights are preferred because

Book value weights fluctuate violently.

Book value weights are historical in nature

It is vary difficult to estimate book value weights at the time of calculating the weighted average cost

This is in conformity with the definition of cost of capital as the investor s minimum required rate of return

Book value weights fluctuate violently.

182 + Mcqs in Financial Management in Bachelor of Business Administration (BBA) Page 1 McqOptions

1.	Two mutually exclusive projects with different economic lives can be compared on the basis of
A.	Internal Rate of Return
B.	Profitability Index
C.	Net Present Value
D.	Equivalent Annuity Value
Answer» E.

2.	If the Money Discount Rate is 19% and Inflation Rate is 12%, then the Real Discount Rate is:
A.	7%
B.	5%
C.	5.70%
D.	6.25%
Answer» E.

3.	Risk in Capital budgeting implies that the decision-maker knows___________of the cash flows.
A.	Variability
B.	Probability
C.	Certainty
D.	None of the above
Answer» C. Certainty

4.	Minimum Rate of Return that a firm must earn in order to satisfy its investors, is also known as:
A.	Average Return on Investment
B.	Weighted Average Cost of Capital
C.	Net Profit Ratio
D.	Average Cost of borrowing
Answer» C. Net Profit Ratio

5.	In order to calculate the proportion of equity financing used by the company, the following should be used:
A.	Authorised Share Capital,
B.	Equity Share Capital plus Reserves and Surplus,
C.	Equity Share Capital plus Preference Share Capital,
D.	Equity Share Capital plus Long-term Debt.
Answer» C. Equity Share Capital plus Preference Share Capital,

6.	In order to find out cost of equity capital under CAPM, which of the following is not required:
A.	Beta Factor
B.	Market Rate of Return,
C.	Market Price of Equity Share
D.	Risk-free Rate of Interest.
Answer» D. Risk-free Rate of Interest.

7.	Which of the following is not a generally accepted approach for Calculation of Cost of Equity?
A.	CAPM
B.	Dividend Discount Model
C.	Rate of Pref. Dividend Plus Risk
D.	Price-Earnings Ratio
Answer» D. Price-Earnings Ratio

8.	In MM Model with taxes, where 'r' is the interest rate, D is the total debt and 't' is tax rate, then present valued shields would be:
A.	r D t
B.	r D
C.	D t
D.	(D r)/(l-t).
Answer» D. (D r)/(l-t).

9.	Which of the following appearing in the balance! generates tax advantage and hence affects the c, structure decision ?
A.	Reserves and Surplus
B.	Long-term debt
C.	Preference Share Capital
D.	Equity Share Capital
Answer» C. Preference Share Capital

10.	Which of the following stresses on investor's preference reorient dividend than higher future capital gains ?
A.	Walter's Model
B.	Residuals Theory
C.	Gordon's Model
D.	MM Model
Answer» D. MM Model

11.	If 'r' = 'ke', than MP by Walter's Model and Gordon's Model for different payout ratios would be
A.	Unequal
B.	Zero
C.	Equal
D.	Negative
Answer» D. Negative

12.	Shares of face value of 10 are 80% paid up. The company declares a dividend of 50%. Amount of dividend per share is
A.	5
B.	4
C.	80
D.	50
Answer» C. 80

13.	A firm has Capital of 10,00,000; Sales of 5,00,000; Gross Profit of . 2,00,000 and Expenses of . 1,00,000. What is the Net Profit Ratio?
A.	20%
B.	50%
C.	10%
D.	40%
Answer» B. 50%

14.	A firm has a capital of Rs. 10 lakhs, sales of Rs. 5 lakhs, gross profit of Rs. 2 lakhs and expenses of Rs. 1 lakh. The Net Profit Ratio is:
A.	50%
B.	40%
C.	20%
D.	10%
Answer» D. 10%

15.	If EBIT = Rs. 1,00,000, Fixed Assets = Rs. 2,00,000, Sales = Rs. 10,00,000 and Variable Cost = Rs. 7,00,000. Then, the Operating Leverage will be
A.	2
B.	3
C.	6
D.	4
Answer» C. 6

16.	Kanji Company had sales last year of Rs. 265 million, including cash sales of Rs. 25 million. If its average collection period was 36 days, its ending accounts receivable balance is closest to . (Assume a 365-day year.)
A.	Rs. 26.1 million
B.	Rs. 23.7 million
C.	Rs. 7.4 million
D.	Rs. 18.7 million
Answer» C. Rs. 7.4 million

17.	Gross Profit Ratio for a firm remains same but the Net Profit Ratio is decreasing. The reason for such behavior could be:
A.	Increase in Costs of Goods Sold
B.	If Increase in Expense
C.	Increase in Dividend
D.	Decrease in Sales.
Answer» C. Increase in Dividend

19.	The addition of all current assets investment is known as...
A.	Net Working Capital
B.	Gross Working capital
C.	Temporary Working Capital
D.	All of these
Answer» C. Temporary Working Capital

20.	An asset is a
A.	Source of fund
B.	Use of fund
C.	Inflow of funds
D.	none of the above.
Answer» C. Inflow of funds

22.	Which of the following would be considered a application of funds?
A.	a decrease in accounts receivable.
B.	a decrease in cash.
C.	an increase in account payable.
D.	an increase in cash.
Answer» E.

24.	A(n) would be an example of a principal, while a(n) would be an example of an agent.
A.	shareholder; manager
B.	manager; owner
C.	accountant; bondholder
D.	shareholder; bondholder
Answer» B. manager; owner

25.	Uses of funds include a (an):
A.	decrease in cash.
B.	increase in any liability.
C.	increase in fixed assets.
D.	tax refund.
Answer» D. tax refund.

27.	In MM model MM stands for...
A.	M.Khan and Modigiliani
B.	Miller and M.Khan
C.	Modigiliani and M.Khan
D.	Miller and Modigliani
Answer» E.

28.	varies inversely with profitability.
A.	Liquidity.
B.	Risk.
C.	Financing.
D.	Liabilities.
Answer» B. Risk.

29.	Between two capital plans, if expected EBIT is more than indifference level of EBIT, then
A.	Both plans be rejected
B.	Both plans are good
C.	One is better than other
D.	None of the above
Answer» D. None of the above

Explore topic-wise MCQs in Bachelor of Business Administration (BBA).

Two mutually exclusive projects with different economic lives can be compared on the basis of

If the Money Discount Rate is 19% and Inflation Rate is 12%, then the Real Discount Rate is:

Risk in Capital budgeting implies that the decision-maker knows___________of the cash flows.

Minimum Rate of Return that a firm must earn in order to satisfy its investors, is also known as:

In order to calculate the proportion of equity financing used by the company, the following should be used:

In order to find out cost of equity capital under CAPM, which of the following is not required:

Which of the following is not a generally accepted approach for Calculation of Cost of Equity?

In MM Model with taxes, where 'r' is the interest rate, D is the total debt and 't' is tax rate, then present valued shields would be:

Which of the following appearing in the balance! generates tax advantage and hence affects the c, structure decision ?

Which of the following stresses on investor's preference reorient dividend than higher future capital gains ?

If 'r' = 'ke', than MP by Walter's Model and Gordon's Model for different payout ratios would be

Shares of face value of 10 are 80% paid up. The company declares a dividend of 50%. Amount of dividend per share is

A firm has Capital of 10,00,000; Sales of 5,00,000; Gross Profit of . 2,00,000 and Expenses of . 1,00,000. What is the Net Profit Ratio?

A firm has a capital of Rs. 10 lakhs, sales of Rs. 5 lakhs, gross profit of Rs. 2 lakhs and expenses of Rs. 1 lakh. The Net Profit Ratio is:

If EBIT = Rs. 1,00,000, Fixed Assets = Rs. 2,00,000, Sales = Rs. 10,00,000 and Variable Cost = Rs. 7,00,000. Then, the Operating Leverage will be

Kanji Company had sales last year of Rs. 265 million, including cash sales of Rs. 25 million. If its average collection period was 36 days, its ending accounts receivable balance is closest to . (Assume a 365-day year.)

Gross Profit Ratio for a firm remains same but the Net Profit Ratio is decreasing. The reason for such behavior could be:

The gross profit margin is unchanged, but the net profit margin declined over the same period. This could have happened if

The addition of all current assets investment is known as...

An asset is a

Proprietary ratio is calculated by

Which of the following would be considered a application of funds?

A capital investment is one that

A(n) would be an example of a principal, while a(n) would be an example of an agent.

Uses of funds include a (an):

How are earnings per share calculated?

In MM model MM stands for...

varies inversely with profitability.

Between two capital plans, if expected EBIT is more than indifference level of EBIT, then

If a firm has no Preference share capital, Financial Break even level is defined as equal to -

Which of the following would NOT improve the current ratio?

A point where profile of net present value crosses horizontal axis at plotted graph indicates project

Which of the following is not a metric to use for measuring the length of the cash cycle?

Difference between between the bank balance as per Cash Book and Pass Book may be due to:

If no information is available, the General Rule for valuation of stock for balance sheet is

Cash & Bank Rs. 20,000; Debtors Rs. 2,00,000; Stock Rs. 2,80,000 and Current Liabilities: Creditors Rs. 1,00,000; Bills Payable Rs. 50,000. Then the working capital is:

Current Assets Rs. 20,00,000; Current Liabilities Rs. 10,00,000 and Stock Rs. 2,00,000, then what is liquid ratio?

If the average balance of debtors has increased, which of the following might not show a change in general?

Which of the following statements (in general) is correct?

Consider the below mentioned statements: 1. A debt-equity ratio of 2:1 indicates that for every 1 unit of equity, the company can raise 2 units of debt. 2. The cost of floating a debt is greater than the cost of floating an equity issue. State True or False:

Which of the following is true regarding the measurement of cash inflows and out flows of a project?

The value of a firm on the basis of net operating income approach can be determined by dividing the earnings before interest and taxes by

According to MM approach, two identical firms in all respects except their capital structure can not have different market values or cost of capital because of-----

Overall cost of capital, according to ------ approach, decreases up to a certain point, remains unchanged for moderate increase in debt thereafter, and increase beyond a certain point

If the weighting of equity in total capital is 1/3, that of debt is 2/3, the return on equity is 15% that of debt is 10% and the corporate tax rate is 32%, what is the Weighted Average Cost of Capital (WACC)?

The overall cost of capital, according to which theory, decreases up to a certain point, remains more or less unchanged for moderate increase in debt thereafter and increases a certain point

A single, overall cost of capital is often used to evaluate projects because:

Two firms that are virtually identical except for their capital structure are selling in the market at different values. According to M&M

While calculating the weighted average cost of capital, market value weights are preferred because

30.	If a firm has no Preference share capital, Financial Break even level is defined as equal to -
A.	EBIT
B.	Interest liability
C.	Equity Dividend
D.	Tax Liability
Answer» C. Equity Dividend

32.	A point where profile of net present value crosses horizontal axis at plotted graph indicates project
A.	costs
B.	cash flows
C.	internal rate of return
D.	external rate of return
Answer» D. external rate of return

33.	Which of the following is not a metric to use for measuring the length of the cash cycle?
A.	Acid test days.
B.	Accounts receivable days.
C.	Accounts payable days.
D.	Inventory days.
Answer» B. Accounts receivable days.

34.	Difference between between the bank balance as per Cash Book and Pass Book may be due to:
A.	Overdraft,
B.	Float,
C.	Factoring,
D.	None of the above.
Answer» C. Factoring,

35.	Lei-Feng, Inc.'s $100 par value preferred stock just paid its $10 per share annual dividend. The preferred stock has a current market price of $96 a share. The firm's marginal tax rate (combined federal and state) is 40 percent, and the firm plans to maintain its current capital structure relationship into the future. The component cost of preferred stock to Lei-Feng, Inc. would be closest to .
A.	6 percent
B.	6.25 percent
C.	10 percent
D.	10.4 percent
Answer» E.

36.	If no information is available, the General Rule for valuation of stock for balance sheet is
A.	Replacement Cost
B.	Realizable Value,
C.	Historical Cost
D.	Standard Cost
Answer» D. Standard Cost

37.	Cash & Bank Rs. 20,000; Debtors Rs. 2,00,000; Stock Rs. 2,80,000 and Current Liabilities: Creditors Rs. 1,00,000; Bills Payable Rs. 50,000. Then the working capital is:
A.	Rs. 4,00,000
B.	Rs. 3,80,000
C.	Rs. 3,50,000
D.	Rs. 70,000
Answer» D. Rs. 70,000

38.	Current Assets Rs. 20,00,000; Current Liabilities Rs. 10,00,000 and Stock Rs. 2,00,000, then what is liquid ratio?
A.	2 times
B.	1.8 times
C.	1.4 times
D.	None of these
Answer» C. 1.4 times

39.	If the average balance of debtors has increased, which of the following might not show a change in general?
A.	Total Sales,
B.	Average Payables
C.	Current Ratio
D.	Bad Debt loss
Answer» C. Current Ratio

41.	Consider the below mentioned statements: 1. A debt-equity ratio of 2:1 indicates that for every 1 unit of equity, the company can raise 2 units of debt. 2. The cost of floating a debt is greater than the cost of floating an equity issue. State True or False:
A.	1-True, 2-True
B.	1-False, 2-True
C.	1-False, 2-False
D.	1-True, 2-False
Answer» E.