Market values are often used in computing the weighted average cost of capital because

this is required in the U.S. by the Securities and Exchange Commission.

this is the simplest way to do the calculation.

this is consistent with the goal of maximizing shareholder value.

this is required in the U.S. by the Securities and Exchange Commission.

The market price of a share of common stock is determined by:

the board of directors of the firm.

the stock exchange on which the stock is listed.

individuals buying and selling the stock.

Increasing the credit period from 30 to 60 days, in response to a similar action taken by all of our competitors, would likely result in:

an increase in the average collection period.

In response to market expectations, the credit pence r j been increased from 45 days to 60 days. This would result in

Increase in Average Collection Period.

A firm has inventory turnover of 6 and cost of goods sold is 7,50,000. With better inventory management, the inventory turnover is increased to 10. This would result in:

Decrease in cost of goods sold,

Increase in inventory by 50,000,

Decrease in inventory by . 50,000,

Decrease in cost of goods sold,

Increase in cost of goods sold.

An increase in the firm's receivable turnover ratio means that:

it is collecting credit sales more quickly than before.

it has initiated more liberal credit terms.

Quick assets do not include

Advance for supply of raw materials

Which of the following are not among the daily activities of financial management?

the receipt and disbursement of funds

Which one of the following activities is outside the purview of dividend decision in financial management?

Identification of the profit after taxes

Measurement of the cost of funds

Considering issue of bonus shares to equity shareholders

Rank in ascending order (i.e., 1 = lowest, while 3 = highest) the likely after-tax component costs of a Company's long-term financing.

1 = common stock; 2 = preferred stock; 3 = bonds.

1 = bonds; 2 = common stock; 3 = preferred stock.

1 = bonds; 2 = preferred stock; 3 = common stock.

1 = common stock; 2 = preferred stock; 3 = bonds.

1 = preferred stock; 2 = common stock; 3 = bonds.

A project's profitability index is equal to the ratio of the of a project's future cash flows to the project's .

net present value; initial cash outlay

present value; initial cash outlay

net present value; initial cash outlay

present value; depreciable basis

net present value; depreciable basis

A profitability index of .85 for a project means that:

the present value of benefits is 85% greater than the project's costs.

the project's NPV is greater than zero.

the project returns 85 cents in present value for each current dollar invest

In calculating the proportional amount of equity financing employed by a firm, we should use:

the common stock equity account on the firm's balance sheet.

the sum of common stock and preferred stock on the balance sheet.

the current market price per share of common stock times the number of shares outstanding.

The common stock of a company must provide a higher expected return than the debt of the same company because

there is a market premium required for bonds.

there is less demand for stock than for bonds.

there is greater demand for stock than for bonds.

there is more systematic risk involved for the common stock.

there is a market premium required for bonds.

182 + Mcqs in Financial Management in Bachelor of Business Administration (BBA) Page 2 McqOptions

51.	Market values are often used in computing the weighted average cost of capital because
A.	this is the simplest way to do the calculation.
B.	this is consistent with the goal of maximizing shareholder value.
C.	this is required in the U.S. by the Securities and Exchange Commission.
D.	this is a very common mistake.
Answer» C. this is required in the U.S. by the Securities and Exchange Commission.

Discussion

52.	The discount rate at which two projects have identical is referred to as Fisher's rate of intersection.
A.	present values
B.	net present values
C.	IRRs
D.	profitability indexes
Answer» C. IRRs

Discussion

53.	If the sales of the firm are . 60,00,000 and the average debtors are . 15,00,000 then the receivables turnover is
A.	4 times
B.	25%
C.	400%
D.	0.25 times
Answer» B. 25%

Discussion

54.	_____________ enhance the market value of shares and therefore equity capital is not free of cost.
A.	Face value
B.	Dividends
C.	Redemption value
D.	Book value
Answer» C. Redemption value

Discussion

55.	Ninety-percent of X company's total sales of $600,000 is on credit. If its year-end receivables turnover is 5, the average collection period (based on a 365-day year) and the year-end receivables are, respectively:
A.	365 days and $108,000.
B.	73 days and $120,000.
C.	73 days and $108,000.
D.	81 days and $108,000.
Answer» D. 81 days and $108,000.

Discussion

56.	The market price of a share of common stock is determined by:
A.	the board of directors of the firm.
B.	the stock exchange on which the stock is listed.
C.	the president of the company.
D.	individuals buying and selling the stock.
Answer» E.

Discussion

57.	A lease which is generally not cancellable and covers full economic life of the asset is known as
A.	Sale and leaseback,
B.	Operating Lease
C.	Finance Lease,
D.	Economic Lease
Answer» D. Economic Lease

Discussion

58.	In last year the current ratio was 3:1 and quick ratio was 2:1.Presently current ratio is 3:1 but quick ratio is 1:1.This indicates comparably
A.	high liquidity
B.	higher stock
C.	lower stock
D.	low liquidity
Answer» C. lower stock

Discussion

59.	Current ratio is 4:1.Net Working Capital is Rs.30,000.Find the amount of current Assets.
A.	Rs.10,000
B.	Rs.40,000
C.	Rs.24,000
D.	Rs.6,000
Answer» C. Rs.24,000

Discussion

60.	Debt Equity Ratio is 3:1,the amount of total assets Rs.20 lac,current ratio is 1.5:1 and owned funds Rs.3 lac.What is the amount of current asset?
A.	Rs.5 lac
B.	Rs.3 lac
C.	Rs.12 lac
D.	none of the above.
Answer» D. none of the above.

Discussion

61.	Current ratio is 2:5.Current liability is Rs.30000.The Net working capital is
A.	Rs.18,000
B.	Rs.45,000
C.	Rs.(-) 45,000
D.	Rs.(-)18000
Answer» E.

Discussion

62.	The net cash flows of the project and their present values are as follows Year 1 2 3 4 Net cash flow (Rs) 5100 5100 5100 7100 PVIF @12% 0.893 0.797 0.712 0.636 Present Value (Rs) 4554 4065 3631 4516 The initial investment in the project is Rs12500, What is the NPV of the project?
A.	4066
B.	4166
C.	4266
D.	4566
Answer» D. 4566

Discussion

63.	Increasing the credit period from 30 to 60 days, in response to a similar action taken by all of our competitors, would likely result in:
A.	an increase in the average collection period.
B.	a decrease in bad debt losses.
C.	an increase in sales.
D.	higher profits.
Answer» B. a decrease in bad debt losses.

Discussion

64.	The ratio which is obtained by dividing the present value of future cash inflows by the present value of cash out flows is called
A.	Net Present Value
B.	IRR
C.	Profitability Index
D.	Average rate of return
Answer» D. Average rate of return

Discussion

65.	In _______________ approach, the capital structure decision is relevant to the valuation of the firm.
A.	Net income
B.	Net operating income
C.	Traditional
D.	Miller and Modigliani
Answer» B. Net operating income

Discussion

66.	In response to market expectations, the credit pence r j been increased from 45 days to 60 days. This would result in
A.	Decrease in Sales,
B.	Decrease in Debtors,
C.	Increase in Bad Debts,
D.	Increase in Average Collection Period.
Answer» E.

Discussion

67.	When total current assets exceeds total current liabilities it refers to.
A.	Gross Working Capital
B.	Temporary Working Capital
C.	Both a and b
D.	Net Working Capital
Answer» E.

Discussion

68.	In the balance sheet amount of total assets is Rs.10 lac, current liabilities Rs.5 lac & capital & reserves are Rs.2 lac . What is the debt-equity ratio?
A.	1;1
B.	1.5:1
C.	2:1
D.	none of the above.
Answer» E.

Discussion

69.	Investment in a project is Rs. 200 lakhs and Net Present Value is Rs. 50 lakhs. Then the amount of inflows is :
A.	Rs. 150 lakhs
B.	Rs. 200 lakhs
C.	Rs. 100 lakhs
D.	Rs. 250 lakhs
Answer» E.

Discussion

70.	Preferred shareholders' claims on assets and income of a firm come those of creditors those of common shareholders.
A.	before; and also before
B.	after; but before
C.	after; and also after
D.	equal to; and equal to
Answer» C. after; and also after

Discussion

71.	If risk free rate of return is 8%, Return on market portfolio is 12%, beta = 1.5, then the expected rate of return according to CAPM is equal to
A.	10%
B.	14%
C.	18%
D.	24%
Answer» C. 18%

Discussion

72.	Consider the below mentioned statements: 1. The dividends are not cumulative for equity shareholders, that is, they cannot be accumulated and distributed in the later years. 2. Dividends are taxable. 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.

Discussion

73.	A firm has inventory turnover of 6 and cost of goods sold is 7,50,000. With better inventory management, the inventory turnover is increased to 10. This would result in:
A.	Increase in inventory by 50,000,
B.	Decrease in inventory by . 50,000,
C.	Decrease in cost of goods sold,
D.	Increase in cost of goods sold.
Answer» C. Decrease in cost of goods sold,

Discussion

74.	An increase in the firm's receivable turnover ratio means that:
A.	it is collecting credit sales more quickly than before.
B.	cash sales have decreased.
C.	it has initiated more liberal credit terms.
D.	inventories have increased.
Answer» B. cash sales have decreased.

Discussion

75.	A project costs Rs50,000 and will yield annual cash inflows of Rs20,000 for 5years. Calculate its payback period.
A.	2 years
B.	5 years
C.	2.5 years
D.	3 years
Answer» D. 3 years

Discussion

76.	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

Discussion

77.	If the present value of cash in flows from a project is Rs4.50 crore, initial outlay is Rs3.75 crore then the net benefit cost ratio is
A.	0.17
B.	0.20
C.	0.75
D.	0.83
Answer» C. 0.75

Discussion

78.	Quick assets do not include
A.	Govt.bond
B.	Book debts
C.	Advance for supply of raw materials
D.	Inventories.
Answer» E.

Discussion

79.	Debt-to-total assets (D/TA) ratio is .4. What is its debt-to-equity (D/E) ratio?
A.	.2
B.	.6
C.	.667
D.	.333
Answer» D. .333

Discussion

80.	If a company issues bonus shares the debt equity ratio will
A.	Remain unaffected
B.	Will be affected
C.	Will improve
D.	none of the above.
Answer» D. none of the above.

Discussion

81.	_______________ refers to the amount invested in various components of current assets.
A.	Temporary working capital
B.	Net working capital
C.	Gross working capital
D.	Permanent working capital
Answer» D. Permanent working capital

Discussion

82.	Which of the following are not among the daily activities of financial management?
A.	sale of shares and bonds
B.	credit management
C.	inventory control
D.	the receipt and disbursement of funds
Answer» B. credit management

Discussion

83.	Which one of the following activities is outside the purview of dividend decision in financial management?
A.	Identification of the profit after taxes
B.	Measurement of the cost of funds
C.	Deciding on the pay-out ratio
D.	Considering issue of bonus shares to equity shareholders
Answer» C. Deciding on the pay-out ratio

Discussion

84.	Which of the following forms of equity financing is especially designed for funding High Risk & High Reward projects?
A.	ADR
B.	GDR
C.	FCCB
D.	Venture Capital
Answer» E.

Discussion

85.	Rank in ascending order (i.e., 1 = lowest, while 3 = highest) the likely after-tax component costs of a Company's long-term financing.
A.	1 = bonds; 2 = common stock; 3 = preferred stock.
B.	1 = bonds; 2 = preferred stock; 3 = common stock.
C.	1 = common stock; 2 = preferred stock; 3 = bonds.
D.	1 = preferred stock; 2 = common stock; 3 = bonds.
Answer» C. 1 = common stock; 2 = preferred stock; 3 = bonds.

Discussion

86.	____________ is the length of time between the firm s actual cash expenditure and its own cash receipt.
A.	Net operating cycle
B.	Cash conversion cycle
C.	Working capital cycle
D.	Gross operating cycle
Answer» B. Cash conversion cycle

Discussion

87.	____________ is defined as the length of time required to recover the initial cash out-lay.
A.	Payback-period
B.	Inventory conversion period
C.	Discounted payback-period
D.	Budget period
Answer» B. Inventory conversion period

Discussion

88.	_______________ refers to the length of time allowed by a firm for its customers to make payment for their purchases.
A.	Holding period
B.	Pay-back period
C.	Average collection period
D.	Credit period
Answer» E.

Discussion

89.	SPO refers to ________, the second and subsequent time a company raises money from the public directly.
A.	Second Public Offering
B.	Subsequent Public Offering
C.	Subsequent Public Offer
D.	Seasonal Public Offering
Answer» C. Subsequent Public Offer

Discussion

90.	In a single projects situation, 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

Discussion

91.	Consider the below mentioned statements: 1. A company is considered to be overcapitalised when its actual capitalisation is lower than the proper capitalisation as warranted by the earning capacity 2. Both over-capitalisation and under-capitalisation are detrimental to the interests of the society. 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» C. 1-False, 2-False

Discussion

92.	A project's profitability index is equal to the ratio of the of a project's future cash flows to the project's .
A.	present value; initial cash outlay
B.	net present value; initial cash outlay
C.	present value; depreciable basis
D.	net present value; depreciable basis
Answer» B. net present value; initial cash outlay

Discussion

93.	A profitability index of .85 for a project means that:
A.	the present value of benefits is 85% greater than the project's costs.
B.	the project's NPV is greater than zero.
C.	the project returns 85 cents in present value for each current dollar invest
Answer» D.

Discussion

94.	What are the different options other than cash used for distributing profits to shareholders?
A.	Bonus shares
B.	Stock split
C.	Stock purchase
D.	All of these
Answer» E.

Discussion

95.	In calculating the proportional amount of equity financing employed by a firm, we should use:
A.	the common stock equity account on the firm's balance sheet.
B.	the sum of common stock and preferred stock on the balance sheet.
C.	the book value of the firm.
D.	the current market price per share of common stock times the number of shares outstanding.
Answer» E.

Discussion

96.	Reserves & Surplus are which form of financing?
A.	Security Financing
B.	Internal Financing
C.	Loans Financing
D.	International Financing
Answer» C. Loans Financing

Discussion

97.	The common stock of a company must provide a higher expected return than the debt of the same company because
A.	there is less demand for stock than for bonds.
B.	there is greater demand for stock than for bonds.
C.	there is more systematic risk involved for the common stock.
D.	there is a market premium required for bonds.
Answer» D. there is a market premium required for bonds.

Discussion

98.	Banks generally prefer Debt Equity Ratio at :
A.	1:1
B.	1:3
C.	2:1
D.	3:1
Answer» D. 3:1

Discussion

99.	In case of divisible projects, which of the following can be used to attain maximum NPV?
A.	Feasibility Set Approach
B.	Internal Rate of Return
C.	Profitability Index Approach
D.	Any of the above
Answer» D. Any of the above

Discussion

100.	Two mutually exclusive investment proposals have "scale differences" (i.e., the cost of the projects differ). Ranking these projects on the basis of IRR, NPV, and PI methods give contradictory results.
A.	will never
B.	will always
C.	may
D.	will generally
Answer» D. will generally

Discussion

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

Market values are often used in computing the weighted average cost of capital because

The discount rate at which two projects have identical is referred to as Fisher's rate of intersection.

If the sales of the firm are . 60,00,000 and the average debtors are . 15,00,000 then the receivables turnover is

_____________ enhance the market value of shares and therefore equity capital is not free of cost.

Ninety-percent of X company's total sales of $600,000 is on credit. If its year-end receivables turnover is 5, the average collection period (based on a 365-day year) and the year-end receivables are, respectively:

The market price of a share of common stock is determined by:

A lease which is generally not cancellable and covers full economic life of the asset is known as

In last year the current ratio was 3:1 and quick ratio was 2:1.Presently current ratio is 3:1 but quick ratio is 1:1.This indicates comparably

Current ratio is 4:1.Net Working Capital is Rs.30,000.Find the amount of current Assets.

Debt Equity Ratio is 3:1,the amount of total assets Rs.20 lac,current ratio is 1.5:1 and owned funds Rs.3 lac.What is the amount of current asset?

Current ratio is 2:5.Current liability is Rs.30000.The Net working capital is

The net cash flows of the project and their present values are as follows Year 1 2 3 4 Net cash flow (Rs) 5100 5100 5100 7100 PVIF @12% 0.893 0.797 0.712 0.636 Present Value (Rs) 4554 4065 3631 4516 The initial investment in the project is Rs12500, What is the NPV of the project?

Increasing the credit period from 30 to 60 days, in response to a similar action taken by all of our competitors, would likely result in:

The ratio which is obtained by dividing the present value of future cash inflows by the present value of cash out flows is called

In _______________ approach, the capital structure decision is relevant to the valuation of the firm.

In response to market expectations, the credit pence r j been increased from 45 days to 60 days. This would result in

When total current assets exceeds total current liabilities it refers to.

In the balance sheet amount of total assets is Rs.10 lac, current liabilities Rs.5 lac & capital & reserves are Rs.2 lac . What is the debt-equity ratio?

Investment in a project is Rs. 200 lakhs and Net Present Value is Rs. 50 lakhs. Then the amount of inflows is :

Preferred shareholders' claims on assets and income of a firm come those of creditors those of common shareholders.

If risk free rate of return is 8%, Return on market portfolio is 12%, beta = 1.5, then the expected rate of return according to CAPM is equal to

Consider the below mentioned statements: 1. The dividends are not cumulative for equity shareholders, that is, they cannot be accumulated and distributed in the later years. 2. Dividends are taxable. State True or False:

A firm has inventory turnover of 6 and cost of goods sold is 7,50,000. With better inventory management, the inventory turnover is increased to 10. This would result in:

An increase in the firm's receivable turnover ratio means that:

A project costs Rs50,000 and will yield annual cash inflows of Rs20,000 for 5years. Calculate its payback period.

Payback period in which an expected cash flows are discounted with the help of project cost of capital is classified as

If the present value of cash in flows from a project is Rs4.50 crore, initial outlay is Rs3.75 crore then the net benefit cost ratio is

Quick assets do not include

Debt-to-total assets (D/TA) ratio is .4. What is its debt-to-equity (D/E) ratio?

If a company issues bonus shares the debt equity ratio will

_______________ refers to the amount invested in various components of current assets.

Which of the following are not among the daily activities of financial management?

Which one of the following activities is outside the purview of dividend decision in financial management?

Which of the following forms of equity financing is especially designed for funding High Risk & High Reward projects?

Rank in ascending order (i.e., 1 = lowest, while 3 = highest) the likely after-tax component costs of a Company's long-term financing.

____________ is the length of time between the firm s actual cash expenditure and its own cash receipt.

____________ is defined as the length of time required to recover the initial cash out-lay.

_______________ refers to the length of time allowed by a firm for its customers to make payment for their purchases.

SPO refers to ________, the second and subsequent time a company raises money from the public directly.

In a single projects situation, results of internal rate of return and net present value lead to

A project's profitability index is equal to the ratio of the of a project's future cash flows to the project's .

A profitability index of .85 for a project means that:

What are the different options other than cash used for distributing profits to shareholders?

In calculating the proportional amount of equity financing employed by a firm, we should use:

Reserves & Surplus are which form of financing?

The common stock of a company must provide a higher expected return than the debt of the same company because

Banks generally prefer Debt Equity Ratio at :

In case of divisible projects, which of the following can be used to attain maximum NPV?

Two mutually exclusive investment proposals have "scale differences" (i.e., the cost of the projects differ). Ranking these projects on the basis of IRR, NPV, and PI methods give contradictory results.