Palo Alto Industries has a debt-to-equity ratio of 1.6 compared with the industry average of 1.4. This means that the company

will not experience any difficulty with its creditors.

has less liquidity than other firms in the industry.

will be viewed as having high creditworthiness.

has greater than average financial risk when compared to other firms in its industry.

____________________ and __________________________ are the two versions of goals of the financial management of the firm.

Production maximisation, Sales maximisation

Profit maximisation, Wealth maximization

Production maximisation, Sales maximisation

Sales maximisation, Profit maximization

Value maximisation, Wealth maximisation

In deciding the appropriate level of current assets for the firm, management is confronted with

a trade-off between liquidity and marketability.

a trade-off between profitability and risk.

a trade-off between liquidity and marketability.

a trade-off between equity and debt.

a trade-off between short-term versus long-term borrowing.

If the following are balance sheet changes:Rs. 5,005 decrease in accounts receivableRs. 7,000 decrease in cashRs. 12,012 decrease in notes payableRs. 10,001 increase in accounts payablea "use" of funds would be the:

Rs. 5,005 decrease in accounts receivable.

Rs. 10,001 increase in accounts payable.

Rs. 12,012 decrease in notes payable.

Which of the following relationships hold true for safety stock?

the greater the risk of running out of stock, the smaller the safety of stock.

the larger the opportunity cost of the funds invested in inventory, the larger the safety stock.

the greater the uncertainty associated with forecasted demand, the smaller the safety stock.

the higher the profit margin per unit, the higher the safety stock necessary.

The treatment of interest and dividends received and paid depends upon the nature of the enterprise. For this purpose, the enterprises are classified as ____________.

(i) Financial enterprises, and (ii) Non-Financial enterprises

(i) Financial enterprises, and (ii) Operating enterprises

(i) Financial enterprises, and (ii) Other enterprises

(i) Financial enterprises, and (ii) Non-Financial enterprises

(i) Trading enterprises, and (ii) Non - Trading enterprises

Permanent working capital

is the amount of current assets required to meet a firm's long-term minimum needs.

Which of the following is not the responsibility of financial management?

development of an appropriate dividend policy

allocation of funds to current and capital assets

obtaining the best mix of financing alternatives

preparation of the firm's accounting statements

development of an appropriate dividend policy

Which would be an appropriate investment for temporarily idle corporate cash that will be used to pay quarterly dividends three months from now?

Common stock that has been appreciating in price 8 percent annually, on average, and paying a quarterly dividend that is the equivalent of a 5 percent annual yield.

A long-term AAA-rated corporate bond with a current annual yield of 9.4 percent.

A 30-year Treasury bond with a current annual yield of 8.7 percent.

Ninety-day commercial paper with a current annual yield of 6.2 percent.

Common stock that has been appreciating in price 8 percent annually, on average, and paying a quarterly dividend that is the equivalent of a 5 percent annual yield.

Ratio analysis is the process of determining and interpreting numerical relationships based on _______.

Financial numerical information

The long-run objective of financial management is to:

maximize the value of the firm's common stock.

"Shareholder wealth" in a firm is represented by:

the number of people employed in the firm.

the book value of the firm's assets less the book value of its liabilities

the amount of salary paid to its employees.

the market price per share of the firm's common stock.

Which of the following marketable securities is the obligation of a commercial bank?

Negotiable certificate of deposit

All of the following influence capital budgeting cash flows EXCEPT:

method of project financing used.

A firm's operating cycle is equal to its inventory turnover in days (ITD)

plus its receivable turnover in days (RTD).

plus its RTD minus its payable turnover in days (P

A company can improve (lower) its debt-to-total assets ratio by doing which of the following?

Shift short-term to long-term debt.

Shift long-term to short-term debt.

The estimated benefits from a project are expressed as cash flows instead of income flows because:

this is required by the Internal Revenue Service.

it is simpler to calculate cash flows than income flows.

it is cash, not accounting income, that is central to the firm's capital budgeting decision.

this is required by the Internal Revenue Service.

this is required by the Securities and Exchange Commission.

To judge the comparative risk of projects having same cost and different NPV which method is used

Coefficient of variation method

When __________ is greater than zero the project should be accepted.

Modified internal rate of return

Which of the following would not be financed from working capital?

A new personal computer for the office.

Which asset-liability combination would most likely result in the firm's having the greatest risk of technical insolvency?

Replacing short-term debt with equity.

Increasing current assets while lowering current liabilities.

Increasing current assets while incurring more current liabilities.

Reducing current assets, increasing current liabilities, and reducing long-term debt.

Replacing short-term debt with equity.

Which of the following illustrates the use of a hedging (or matching) approach to financing?

Short-term assets financed with equity.

Short-term assets financed with long-term liabilities.

Permanent working capital financed with long-term liabilities.

Short-term assets financed with equity.

All assets financed with 50 percent equity, 50 percent long-term debt mixture.

182 + Mcqs in Financial Management in Bachelor of Business Administration (BBA) Page 3 McqOptions

101.	_______________ refers to a firm holding some cash to meet its routine expenses that are incurred in the ordinary course of business.
A.	Speculative motive
B.	Transaction motive
C.	Precautionary motive
D.	Compensating motive
Answer» C. Precautionary motive

102.	Palo Alto Industries has a debt-to-equity ratio of 1.6 compared with the industry average of 1.4. This means that the company
A.	will not experience any difficulty with its creditors.
B.	has less liquidity than other firms in the industry.
C.	will be viewed as having high creditworthiness.
D.	has greater than average financial risk when compared to other firms in its industry.
Answer» E.

103.	Amounts due from customers when goods are sold on credit are called _____________.
A.	Trade balance
B.	Trade debits
C.	Trade discount
D.	Trade off
Answer» C. Trade discount

104.	____________________ and __________________________ are the two versions of goals of the financial management of the firm.
A.	Profit maximisation, Wealth maximization
B.	Production maximisation, Sales maximisation
C.	Sales maximisation, Profit maximization
D.	Value maximisation, Wealth maximisation
Answer» B. Production maximisation, Sales maximisation

105.	The basic objective of Tandon Committee recommendations is that the dependence of industry on bank should gradually
A.	Increase,
B.	Remain Stable
C.	Decrease
D.	None of the above
Answer» D. None of the above

106.	In deciding the appropriate level of current assets for the firm, management is confronted with
A.	a trade-off between profitability and risk.
B.	a trade-off between liquidity and marketability.
C.	a trade-off between equity and debt.
D.	a trade-off between short-term versus long-term borrowing.
Answer» B. a trade-off between liquidity and marketability.

107.	Credit policy of every company is largely influenced by _____________ and _____________.
A.	Liquidity, accountability
B.	Liquidity, profitability
C.	Liability, profitability
D.	Liability, liquidity
Answer» C. Liability, profitability

108.	The rate of interest offered by the fixed deposit scheme of a bank for 365 days and above is 12%. What will be the status of Rs. 20000, after two years if it is invested at this point of time?
A.	Rs. 28032
B.	Rs. 24048
C.	Rs. 22056
D.	Rs. 25088
Answer» E.

109.	If the following are balance sheet changes:Rs. 5,005 decrease in accounts receivableRs. 7,000 decrease in cashRs. 12,012 decrease in notes payableRs. 10,001 increase in accounts payablea "use" of funds would be the:
A.	Rs. 7,000 decrease in cash.
B.	Rs. 5,005 decrease in accounts receivable.
C.	Rs. 10,001 increase in accounts payable.
D.	Rs. 12,012 decrease in notes payable.
Answer» E.

110.	______________ is the price at which the bond is traded in the stock exchange.
A.	Redemption value
B.	Face value
C.	Market value
D.	Maturity value
Answer» D. Maturity value

111.	____________ and____________ carry a fixed rate of interest and are to be paid off irrespective of the firm s revenues.
A.	Debentures, Dividends
B.	Debentures, Bonds
C.	Dividends, Bonds
D.	Dividends, Treasury notes
Answer» C. Dividends, Bonds

112.	Which of the following is NOT a cash outflow for the firm?
A.	depreciation.
B.	dividends.
C.	interest payments.
D.	taxes.
Answer» B. dividends.

113.	Collateralized borrowing and lending obligation (CBLO) is a discounted instrument available in electronic book entry for the maturity period ranging from __________.
A.	1 day to 19 days
B.	1 day to 15 days
C.	1 day to 30 days
D.	None of the above
Answer» B. 1 day to 15 days

115.	Which of the following would be included in a cash estimation/ budget?
A.	depreciation charges.
B.	dividends.
C.	goodwill.
D.	patent amortization.
Answer» C. goodwill.

126.	In the _______________, the future value of all cash inflow at the end of time horizon at a particular rate of interest is calculated.
A.	Risk-free rate
B.	Compounding technique
C.	Discounting technique
D.	Risk Premium
Answer» D. Risk Premium

114.	Which of the following relationships hold true for safety stock?
A.	the greater the risk of running out of stock, the smaller the safety of stock.
B.	the larger the opportunity cost of the funds invested in inventory, the larger the safety stock.
C.	the greater the uncertainty associated with forecasted demand, the smaller the safety stock.
D.	the higher the profit margin per unit, the higher the safety stock necessary.
Answer» E.

116.	The treatment of interest and dividends received and paid depends upon the nature of the enterprise. For this purpose, the enterprises are classified as ____________.
A.	(i) Financial enterprises, and (ii) Operating enterprises
B.	(i) Financial enterprises, and (ii) Other enterprises
C.	(i) Financial enterprises, and (ii) Non-Financial enterprises
D.	(i) Trading enterprises, and (ii) Non - Trading enterprises
Answer» C. (i) Financial enterprises, and (ii) Non-Financial enterprises

117.	Permanent working capital
A.	varies with seasonal needs.
B.	includes fixed assets.
C.	is the amount of current assets required to meet a firm's long-term minimum needs.
D.	includes accounts payable
Answer» D. includes accounts payable

118.	Which of the following is not the responsibility of financial management?
A.	allocation of funds to current and capital assets
B.	obtaining the best mix of financing alternatives
C.	preparation of the firm's accounting statements
D.	development of an appropriate dividend policy
Answer» D. development of an appropriate dividend policy

119.	Which would be an appropriate investment for temporarily idle corporate cash that will be used to pay quarterly dividends three months from now?
A.	A long-term AAA-rated corporate bond with a current annual yield of 9.4 percent.
B.	A 30-year Treasury bond with a current annual yield of 8.7 percent.
C.	Ninety-day commercial paper with a current annual yield of 6.2 percent.
D.	Common stock that has been appreciating in price 8 percent annually, on average, and paying a quarterly dividend that is the equivalent of a 5 percent annual yield.
Answer» D. Common stock that has been appreciating in price 8 percent annually, on average, and paying a quarterly dividend that is the equivalent of a 5 percent annual yield.

120.	Ratio analysis is the process of determining and interpreting numerical relationships based on _______.
A.	Financial values
B.	Financial statements
C.	Financial numerical information
D.	All of the above
Answer» E.

121.	The long-run objective of financial management is to:
A.	maximize earnings per share.
B.	maximize the value of the firm's common stock.
C.	maximize return on investment.
D.	maximize market share.
Answer» C. maximize return on investment.

122.	"Shareholder wealth" in a firm is represented by:
A.	the number of people employed in the firm.
B.	the book value of the firm's assets less the book value of its liabilities
C.	the amount of salary paid to its employees.
D.	the market price per share of the firm's common stock.
Answer» E.

123.	Which of the following marketable securities is the obligation of a commercial bank?
A.	Commercial paper
B.	Negotiable certificate of deposit
C.	Repurchase agreement
D.	T-bills
Answer» C. Repurchase agreement

124.	The persons interested in the analysis of financial statements can be grouped as _________.
A.	Owners or investors
B.	Creditors
C.	Financial executives
D.	All of the above
Answer» E.

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

_______________ refers to a firm holding some cash to meet its routine expenses that are incurred in the ordinary course of business.

Palo Alto Industries has a debt-to-equity ratio of 1.6 compared with the industry average of 1.4. This means that the company

Amounts due from customers when goods are sold on credit are called _____________.

____________________ and __________________________ are the two versions of goals of the financial management of the firm.

The basic objective of Tandon Committee recommendations is that the dependence of industry on bank should gradually

In deciding the appropriate level of current assets for the firm, management is confronted with

Credit policy of every company is largely influenced by _____________ and _____________.

The rate of interest offered by the fixed deposit scheme of a bank for 365 days and above is 12%. What will be the status of Rs. 20000, after two years if it is invested at this point of time?

If the following are balance sheet changes:Rs. 5,005 decrease in accounts receivableRs. 7,000 decrease in cashRs. 12,012 decrease in notes payableRs. 10,001 increase in accounts payablea "use" of funds would be the:

______________ is the price at which the bond is traded in the stock exchange.

____________ and____________ carry a fixed rate of interest and are to be paid off irrespective of the firm s revenues.

Which of the following is NOT a cash outflow for the firm?

Collateralized borrowing and lending obligation (CBLO) is a discounted instrument available in electronic book entry for the maturity period ranging from __________.

Which of the following relationships hold true for safety stock?

Which of the following would be included in a cash estimation/ budget?

The treatment of interest and dividends received and paid depends upon the nature of the enterprise. For this purpose, the enterprises are classified as ____________.

Permanent working capital

Which of the following is not the responsibility of financial management?

Which would be an appropriate investment for temporarily idle corporate cash that will be used to pay quarterly dividends three months from now?

Ratio analysis is the process of determining and interpreting numerical relationships based on _______.

The long-run objective of financial management is to:

"Shareholder wealth" in a firm is represented by:

Which of the following marketable securities is the obligation of a commercial bank?

The persons interested in the analysis of financial statements can be grouped as _________.

The basic requirement for a firm's marketable securities.

In the _______________, the future value of all cash inflow at the end of time horizon at a particular rate of interest is calculated.

All of the following influence capital budgeting cash flows EXCEPT:

Find the present value of Rs. 1,000 receivable 6 years hence if the rate of discount is 10 percent.

To increase a given present value, the discount rate should be adjusted

If A = Annual Requirement, O = Order Cost and C = Carrying Cost per unit per annum, then EOQ

A firm's operating cycle is equal to its inventory turnover in days (ITD)

A company can improve (lower) its debt-to-total assets ratio by doing which of the following?

Costs of not carrying enough inventory include:

1,00,000; 10% Debentures of Rs. 100 each of company, the interest payable for quarter is:

Axis Ltd is issuing 15% debentures ( face value Rs60). The net amount realized per debenture is Rs54 and they are redeemable at par after 6 years. At a corporate tax rate of 40%, what is the cost of debt?

In case of the indivisible projects, which of the following may not give the optimum result?

Funds Flow Statement reveals the change in _______________ between two Balance Sheet dates.

Which of the following is true for a company which uses continuous review inventory system

The lease period in such a contract is less than the useful life of asset. Here we are talking about _______.

Spontaneous financing includes

Present value of inflows Rs. 10 lakhs from a project and initial investment is Rs. 7.5 lakhs. The NPV is:

The estimated benefits from a project are expressed as cash flows instead of income flows because:

___________________ of a firm refers to the composition of its long-term funds and its capital structure.

To judge the comparative risk of projects having same cost and different NPV which method is used

The cash inflows on account of operations are presumed to have been reinvested at the cut off rate in case of

According to ------ method it is assumed that each of the future cash flows is immediately reinvested in another project at a certain rate of return until the termination of the project

When __________ is greater than zero the project should be accepted.

Which of the following would not be financed from working capital?

Which asset-liability combination would most likely result in the firm's having the greatest risk of technical insolvency?

Which of the following illustrates the use of a hedging (or matching) approach to financing?

and ______ are the two versions of goals of the financial management of the firm.

Credit policy of every company is largely influenced by _ and _.

and carry a fixed rate of interest and are to be paid off irrespective of the firm s revenues.

125.	The basic requirement for a firm's marketable securities.
A.	Safety
B.	Yield
C.	Marketability
D.	All of the above.
Answer» E.

127.	All of the following influence capital budgeting cash flows EXCEPT:
A.	accelerated depreciation.
B.	salvage value.
C.	tax rate changes.
D.	method of project financing used.
Answer» E.

128.	Find the present value of Rs. 1,000 receivable 6 years hence if the rate of discount is 10 percent.
A.	564.5
B.	554.5
C.	574.5
D.	600
Answer» B. 554.5

129.	To increase a given present value, the discount rate should be adjusted
A.	upward.
B.	downward.
C.	No change.
D.	constant
Answer» C. No change.

130.	If A = Annual Requirement, O = Order Cost and C = Carrying Cost per unit per annum, then EOQ
A.	(2AO/C) 2
B.	2AO/C
C.	2A OC
D.	2AOC
Answer» C. 2A OC

131.	A firm's operating cycle is equal to its inventory turnover in days (ITD)
A.	plus its receivable turnover in days (RTD).
B.	minus its RTD.
C.	plus its RTD minus its payable turnover in days (P
D.	.
Answer» B. minus its RTD.

132.	A company can improve (lower) its debt-to-total assets ratio by doing which of the following?
A.	Borrow more.
B.	Shift short-term to long-term debt.
C.	Shift long-term to short-term debt.
D.	Sell common stock.
Answer» E.

133.	Costs of not carrying enough inventory include:
A.	lost sales.
B.	customer disappointment.
C.	possible worker layoffs.
D.	all of these.
Answer» E.

134.	1,00,000; 10% Debentures of Rs. 100 each of company, the interest payable for quarter is:
A.	Rs. 10,00,000
B.	Rs. 2,50,000
C.	Rs. 5,00,000
D.	None of these
Answer» C. Rs. 5,00,000

135.	Axis Ltd is issuing 15% debentures ( face value Rs60). The net amount realized per debenture is Rs54 and they are redeemable at par after 6 years. At a corporate tax rate of 40%, what is the cost of debt?
A.	16.54%
B.	17.54%
C.	10%
D.	14.74%
Answer» D. 14.74%