1.

"Shareholder wealth" in a firm is represented by: (d)

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.

2. The long-run objective of financial management is to: (b)

a) Maximize earnings per share.

b) Maximize the value of the firm's common stock.

c) Maximize return on investment.

d) Maximize market share.

3. What are the earnings per share (EPS) for a company that earned Rs. 100,000 last year in After-tax
profits, has 200,000 common shares outstanding and Rs. 1.2 million in retained earnings at the year
end? (c)

a) Rs. 100,000

b) Rs. 6.00

c) Rs. 0.50

d) Rs. 6.50

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

a) shareholder; manager

b) Manager; owner

c) Accountant; bondholder

d) Shareholder; bondholder

5. The market price of a share of common stock is determined by: (d)

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.

6. The focal point of financial management in a firm is: (c)

a) The number and types of products or services provided by the firm.

b) The minimization of the amount of taxes paid by the firm.

c) The creation of value for shareholders.

d) The dollars profits earned by the firm.

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

a) Capitalisation

b) Over-capitalisation

c) Under-capitalisation

d) Market capitalization

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

a) Risk-free rate

b) Compounding technique

c) Discounting technique

d) Risk Premium

9. ______________ is the price at which the bond is traded in the stock exchange. (c)

a) Redemption value

b) Face value

c) Market value

d) Maturity value

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

a) Face value

b) Dividends

c) Redemption value

d) Book value
11. In _______________ approach, the capital structure decision is relevant to the valuation of the
firm. (a)

a) Net income

b) Net operating income

c) Traditional

d) Miller and Modigliani

12. When __________ is greater than zero the project should be accepted. (c)

a) Internal rate of return

b) Profitability index

c) Net present value

d) Modified internal rate of return

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

a) Payback-period

b) Inventory conversion period

c) Discounted payback-period

d) Budget period

14. _______________ refers to the amount invested in various components of current assets. (c)

a) Temporary working capital

b) Net working capital

c) Gross working capital

d) Permanent working capital

15. ____________ is the length of time between the firm’s actual cash expenditure and its own cash
receipt. (a)

a) Net operating cycle

b) Cash conversion cycle

c) Working capital cycle

d) Gross operating cycle

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

a) Speculative motive

b) Transaction motive

c) Precautionary motive

d) Compensating motive

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

a) Holding period

b) Pay-back period

c) Average collection period

d) Credit period

18. Amounts due from customers when goods are sold on credit are called _____________. (b)

a) Trade balance

b) Trade debits

c) Trade discount

d) Trade off

19. ____________________ and __________________________ are the two versions of goals of the
financial management of the firm. (a)

a) Profit maximisation, Wealth maximization

b) Production maximisation, Sales maximisation

c) Sales maximisation, Profit maximization

d) Value maximisation, Wealth maximisation

20. Consider the below mentioned statements: (b)

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 aredetrimental 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

21. Consider the below mentioned statements: (d)

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

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

a) Debentures, Dividends

b) Debentures, Bonds

c) Dividends, Bonds

d) Dividends, Treasury notes

23. Consider the below mentioned statements: (d)

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

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

_____________. (b)

a) Liquidity, accountability
b) Liquidity, profitability

c) Liability, profitability

d) Liability, liquidity

25. XYZ is an oil based business company, which does not have adequate working capital. It fails to
meet its current obligation, which leads to bankruptcy. Identify the type of decision involved to
prevent risk of bankruptcy. (c)

a) Investment decision

b) Dividend decision

c) Liquidity decision

d) Finance decision

26. 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? (d)

a) Rs. 28032

b) Rs. 24048

c) Rs. 22056

d) Rs. 25088

27. How are earnings per share calculated? (b)

a) 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.

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

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

d) 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

28. Which of the following would NOT improve the current ratio? (a)

a) Borrow short term to finance additional fixed assets.

b) Issue long-term debt to buy inventory.

c) Sell common stock to reduce current liabilities.

d) Sell fixed assets to reduce accounts payable.

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

a) Cost of goods sold increased relative to sales.

b) Sales increased relative to expenses.

c) Govt. increased the tax rate.

d) Dividends were decreased.

30. 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 (d)

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.

31. 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.) (b)

a) Rs. 26.1 million

b) Rs. 23.7 million

c) Rs. 7.4 million

d) Rs. 18.7 million

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

a) Borrow more.

b) Shift short-term to long-term debt.

c) Shift long-term to short-term debt.

d) Sell common stock.

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

a) A low receivables turnover is desirable.

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

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

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

34. 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

35. 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 it’s RTD minus its payable turnover in days (PTD).

d) Minus its RTD minus its PTD.

36. If the following are balance sheet changes:

Rs. 5,005 decrease in accounts receivable

Rs. 7,000 decrease in cash

Rs. 12,012 decrease in notes payable

Rs. 10,001 increase in accounts payable

a "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.

37. Uses of funds include a (an):

a) Decrease in cash.

b) Increase in any liability.

c) Increase in fixed assets.

d) Tax refund.

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

a) Depreciation charges.

b) Dividends.

c) Goodwill.

d) Patent amortization.

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

a) Depreciation.

b) Dividends.

c) Interest payments.

d) Taxes.

40. Which of the following would be considered an 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.

41. 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.

42. The estimated benefits from a project are expressed as cash flows instead of income

flows because:

a) it is simpler to calculate cash flows than income flows.

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

c) this is required by the Internal Revenue Service.

d) this is required by the Securities and Exchange Commission.

43. A capital investment is one that

a) has the prospect of long-term benefits.

b) has the prospect of short-term benefits.

c) is only undertaken by large corporations.

d) applies only to investment in fixed assets.

44. 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 invested.

d) the payback period is less than one year.

45. Which of the following statements is correct?

a) If the NPV of a project is greater than 0, its PI will equal 0.

b) If the IRR of a project is 0%, its NPV, using a discount rate, k, greater than 0, will be 0.

c) If the PI of a project is less than 1, its NPV should be less than 0.

d) If the IRR of a project is greater than the discount rate, k, its PI will be less than 1 and its

NPV will be greater than 0.

46. 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

47. 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
48. 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

49. 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

50. You are considering two mutually exclusive investment proposals, project A and project

B. B's expected value of net present value is $1,000 less than that for A and A has less

dispersion. On the basis of risk and return, you would say that

a) Project A dominates project B.

b) Project B dominates project A.

c) Project A is more risky and should offer greater expected value.

d) Each project is high on one variable, so the two are basically equal.

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

a) upward.

b) downward.

c) No change

d) constant

52. In finance, "working capital" means the same thing as

a) total assets.
b) fixed assets.

c) current assets.

d) current assets minus current liabilities.

53. Which of the following would be consistent with a more aggressive approach to financing
working capital?

a) Financing short-term needs with short-term funds.

b) Financing permanent inventory build up with long-term debt.

c) Financing seasonal needs with short-term funds.

d) Financing some long-term needs with short-term funds.

54. Which asset-liability combination would most likely result in the firm's having the

greatest risk of technical insolvency?

a) Increasing current assets while lowering current liabilities.

b) Increasing current assets while incurring more current liabilities.

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

d) Replacing short-term debt with equity.

55. Which of the following illustrates the use of a hedging (or matching) approach to

financing?

a) Short-term assets financed with long-term liabilities.

b) Permanent working capital financed with long-term liabilities.

c) Short-term assets financed with equity.

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

56. 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.

57. varies inversely with profitability.

a) Liquidity.

b) Risk.

c) Financing.

d) Liabilities.

58. Spontaneous financing includes

a) accounts receivable.

b) accounts payable.

c) short-term loans.

d) a line of credit.

59. 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

60. Financing a long-lived asset with short-term financing would be

a) an example of "moderate risk -- moderate (potential) profitability" asset financing.

b) an example of "low risk -- low (potential) profitability" asset financing.

c) an example of "high risk -- high (potential) profitability" asset financing.

d) an example of the "hedging approach" to financing.

61. Net working capital refers to

a) total assets minus fixed assets.

b) current assets minus current liabilities.

c) current assets minus inventories.

d) current assets.

62. Marketable securities are primarily

a) short-term debt instruments.

b) short-term equity securities.

c) long-term debt instruments.

d) long-term equity securities.

63. 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.

64. 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

65. The basic requirement for a firm's marketable securities.

a) Safety

b) Yield

c) Marketability

d) All of the above.

66. A firm's inventory turnover (IT) is 5 times on a cost of goods sold (COGS) of $800,000.

If the IT is improved to 8 times while the COGS remains the same, a substantial amount

of funds is released from or additionally invested in inventory. In fact,

a) $160,000 is released.

b) $100,000 is additionally invested.

c) $60,000 is additionally invested.

d) $60,000 is released.
67. 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.

68. Costs of not carrying enough inventory include:

a) lost sales.

b) customer disappointment.

c) possible worker layoffs.

d) all of these.

69. 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.

70. 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.

71. The credit policy of Spurling Products is "1.5/10, net 35." At present 30% of the

customers take the discount, 62% pay within the net period, and the rest pay within 45

days of invoice. What would receivables be if all customers took the cash discount?
a) Lower than the present level.

b) No change from the present level.

c) Higher than the present level.

d) Unable to determine without more information.

72. 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.

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

a) it avoids the problem of computing the required rate of return for each

investment proposal.

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

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

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

74. The cost of equity capital is all of the following EXCEPT:

a) the minimum rate that a firm should earn on the equity-financed part of an investment.

b) a return on the equity-financed portion of an investment that, at worst, leaves the

market price of the stock unchanged.

c) by far the most difficult component cost to estimate.

d) generally lower than the before-tax cost of debt.

75. 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.

76. In calculating the costs of the individual components of a firm's financing, the corporate

tax rate is important to which of the following component cost formulas?

a) common stock.

b) debt.

c) preferred stock.

d) none of the above.

77. 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.

78. A quick approximation of the typical firm's cost of equity may be calculated by

a) adding a 5 percent risk premium to the firm's before-tax cost of debt.

b) adding a 5 percent risk premium to the firm's after-tax cost of debt.

c) subtracting a 5 percent risk discount from the firm's before-tax cost of debt.

d) subtracting a 5 percent risk discount from the firm's after-tax cost of debt.

79. 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.

80. 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.

81. 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'smarginal 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

82. The term "capital structure" refers to:

a) long-term debt, preferred stock, and common stock equity.

b) current assets and current liabilities.

c) total assets minus liabilities.

d) shareholders' equity.

83. A critical assumption of the net operating income (NOI) approach to valuation is:

a) that debt and equity levels remain unchanged.

b) that dividends increase at a constant rate.

c) that ko remains constant regardless of changes in leverage.

d) that interest expense and taxes are included in the calculation.

84. The traditional approach towards the valuation of a company assumes:

a) that the overall capitalization rate holds constant with changes in financial leverage.

b) that there is an optimum capital structure.

c) that total risk is not altered by changes in the capital structure.

d) that markets are perfect.

85. Two firms that are virtually identical except for their capital structure are selling in the

market at different values. According to M&M

a) one will be at greater risk of bankruptcy.

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

c) this proves that markets cannot be efficient.

d) this will not continue because arbitrage will eventually cause the firms to sell at the

same value.

86. What is the value of the tax shield if the value of the firm is $5 million, its value if

unlevered would be $4.78 million, and the present value of bankruptcy and agency costs

is $360,000?

a) $140,000

b) $220,000

c) $360,000

d) $580,000

87. Reserves & Surplus are which form of financing?

a) Security Financing

b) Internal Financing

c) Loans Financing

d) International Financing

88. 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

89. In Walter model formula D stands for

a) Dividend per share

b) Direct Dividend
c) Dividend Earning

d) None of these

90. 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

91. 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

92. 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

93. 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)?

a) 10.533%

b) 7.533%

c) 9.533%

d) 11.350%

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

a) Cash float.
b) Accounts receivable.

c) Credit sales.

d) A new personal computer for the office.

95. What is the difference between the current ratio and the quick ratio?

a) The current ratio includes inventories and the quick ratio does not.

b) The current ratio does not include inventories and the quick ratio does.

c) The current ratio includes physical capital and the quick ratio does not.

d) The current ratio does not include physical capital and the quick ratio does.

96. Which of the following working capital strategies is the most aggressive?

a) Making greater use of short term finance and maximizing net short term asset.

b) Making greater use of long term finance and minimizing net short term asset.

c) Making greater use of short term finance and minimizing net short term asset.

d) Making greater use of long term finance and maximizing net short term asset.

97. 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.

98. 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

99. 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

100. 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) d) none of the above.

101. Banks generally prefer Debt Equity Ratio at :

a) 1:1

b) 1:3

c) 2:1

d) 3:1

102. An asset is aa. Source of fund

b. Use of fund

c. Inflow of funds

d. none of the above.

103. 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.

104. 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) a)1;1

b) 1.5:1
c) c)2:1

d) none of the above.

105. 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

106. Authorised capital of a company is Rs.5 lac, 40% of it is paid up. Loss incurred

during the year is Rs.50,000. Accumulated loss carried from last year is Rs.2 lac. The

company has a Tangible Net Worth of

a. Nil

b. Rs.2.50 lac

c. (-)Rs.50,000

d. Rs.1 lac.

107. Proprietary ratio is calculated by

a. Total assets/Total outside liability

b. Total outside liability/Total tangible assets

c. Fixed assets/Long term source of fund

d. Proprietors’’ Funds/Total

108. Current ratio of a concern is 1,its net working capital will be

a) Positive

b) Negative

c) Nil

d) None of the above

109. 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

110. 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

111. Quick assets do not include

a) Govt.bond

b) Book debts

c) Advance for supply of raw materials

d) Inventories.

112. The ideal quick ratio is

a) 2:1

b) 1:1

c) 5:1

d) None of the above

1. Which from the following is NOT an example of intangible assets?

(A) Trademarks

(B) Patents

(C) Buildings

(D) Technical expertise

2. The following are the examples of financial assets except?

(A) Stocks

(B) Bank loan

(C) Bond

(D) Raw material

3. The following are important functions of financial markets:

I. Source of financing

II. Provide liquidity

III. Reduce risk

IV. Source of information

(A) I and IV only

(B) II and III only

(C) I, II and III only

(D) I, II, III and IV

4. The sale of financial assets is also referred to as the

(A) Capital decision

(B) CFO decision

(C) Financing decision

(D) Investment decision

5. The construction of new manufacturing plant is also referred to as the

(A) Capital decision

(B) CFO decision

(C) Financing decision

(D) Investment decision

ANSWERS: FINANCE MCQS

1. (C) Buildings

2. (D) Raw material

3. (D) I, II, III and IV

4. (C) Financing decision

5. (D) Investment decision.

6. According to the Efficient Market Hypothesis, which from the following is NOT true?

(A) Analysis predicts price pattern

(B) No money machines

(C) No arbitrage opportunities

(D) Security prices reflect true underlying value of assets

7. According to the weak form of market efficiency __________ past information is included in the
stock price.

(A) no

(B) all

(C) marginal

(D) only a few

8. We say about a particular investment that it is risky, because

(A) it is dangerous

(B) it has low returns

(C) its returns are uncertain

(D) its raw material is unavailable

9. In Finance, risk is calculated by calculating the

(A) mean

(B) variance

(C) standard deviation

(D) kurtosis

10. The sale of bonds by a country or a corporation is referred to as the

(A) Investment decision

(B) financing decision

(C) offering loan

(D) capital structure

ANSWERS: FINANCE MCQS TEST

6. (A) Analysis predicts price pattern

7. (B) all

8. (C) its returns are uncertain

9. (C) standard deviation

10. (B) financing decision

11. Generally, a corporation is owned by the

I. Managers

II. Board of Directors

III. Stock holders

IV. stake holders

(A) II only

(B) I and II

(C) III only

(D) III and IV

12. A firm’s investment decision is also called the

(A) financing decision

(B) capital budgeting decision

(C) liquidity decision

(D) none of these

13. Conflicts between shareholders and managers’ interest is called

(A) management problem

(B) area of the board of directors

(C) risk

(D) agency problem

14. In the principle-agent framework

(A) managers are the principals

(B) directors are the principals

(C) shareholders are the principals

(D) shareholders are the agents

15. The risk that can be eliminated by diversification is called

(A) specific risk

(B) security risk

(C) market risk

(D) beta

ANSWERS: FINANCE QUIZ

11. (C) III only

12. (B) capital budgeting decision

13. (D) agency problem

14. (C) shareholders are the principals

15. (A) specific risk

16. The risk that cannot be eliminated by diversification is called

(A) specific risk

(B) security risk

(C) market risk

(D) beta

17. Which from the following is the safest investment?

(A) Treasury bills

(B) Government bond

(C) Corporate bond

(D) Stocks

18. The spread of possible outcomes of an investment returns is measured by

(A) variance

(B) standard deviation

(C) skewness

(D) kurtosis

19. Risk is best judged in

(A) portfolio context

(B) individual security context

(C) both of these

(D) none of these

20. In a well-functioning markets two investments that offer the same payoff must have the same
(A) beta

(B) return

(C) risk

(D) price

ANSWERS: CORPORATE FINANCE MCQS TEST

16. (C) market risk

17. (A) Treasury bills

18. (B) standard deviation

19. (A) portfolio context

20. (D) price

21. The mixture of debt and equity, used to finance a corporation is also known as

(A) capital structure

(B) capital budgeting

(C) investing

(D) treasury

22. The present value of $100 expected in two years from today at a discount rate of 5% is

(A) $105

(B) $110.7

(C) $95

(D) $90.7

23. What will be value of $100 after two years, if the interest rate during this period is 5%?

(A) $105

(B) $107.5

(C) $110.25

(D) $95
24. Investors require higher return on

(A) levered equity

(B) unlevered equity

(C) both levered and unlevered

(D) bond equity

25. In a well-functioning capital market if the firm pays no taxes then what is better about
borrowing?

(A) Borrowing is not a good idea in this case

(B) No difference who (firm or shareholders) borrows

(C) It is better that the firm borrows

(D) It is better that the shareholders borrow

ANSWERS: CORPORATE FINANCE QUIZ

26. Corporations can return cash to their shareholders by

(A) paying cash dividends

(B) stock repurchase

(C) both A and B

(D) none of these

27. Which from the following is true about stock repurchases?

(A) Repurchases are more flexible

(B) Repurchases are tax-advantaged

(C) both A and B

(D) none of these

28. What should be the goal of a corporation?

(A) to maximize the profit of the shareholders

(B) to maximize the value of the corporation

(C) both A and B

(D) to take care of the interests of the management

29. The money a investor receive for taking on a risk is called

(A) risk premium

(B) risk free rate

(C) option value

(D) arbitrage

30. An asset that pays a fixed amount of cash each year for a specified number of years is called

(A) perpetuity

(B) dividend

(C) liquidity

(D) annuity

ANSWERS: FINANCE QUIZ TEST

26. (C) both A and B

27. (C) both A and B

28. (C) both A and B

29. (A) risk premium

30. (D) annuity

31. Net Present Value is calculated as

(A) cash inflow – cash outflow

(B) cash outflow – cash inflow

(C) PV of cash inflow – PV of cash outflow

(D) PV of cash outflow – PV of cash inflow

32. An investment should be accepted if its NPV is

(A) 0

(B) 1

(C) positive

(D) negative

33. The ratio between the amount of profit and investment is called the

(A) NPV

(B) opportunity cost

(C) risk premium

(D) rate of return

34. An investment should be accepted if

(A) Rate of Return > Opportunity Cost

(B) Rate of Return < Opportunity Cost

(C) Rate of Return = Opportunity Cost

(D) A, B and C are irrelevant

35. Governments and corporations issue bonds to

(A) borrow money

(B) lend money

(C) both A and B

(D) none of these

ANSWERS: FINANCE QUIZZES

31. (C) PV of cash inflow – PV of cash outflow

32. (C) positive

33. (D) rate of return

34. (A) Rate of Return > Opportunity Cost

35. (A) borrow money

36. Regular interest payment to the bond holders is called

(A) principal

(B) coupon

(C) face value

(D) yield

37. At maturity the bond holders get back their principal. The principal is called

(A) coupon

(B) face value

(C) yield

(D) return

38. Any economic resource that can produce economic value to the holder is called

(A) asset

(B) return

(C) maturity

(D) yield

39. A collection of assets held by an investor is called

(A) corporate bond

(B) random returns

(C) risk premium

(D) portfolio
40. The risk of a well-diversified portfolio depends on the __________ of the securities included in
the portfolio.

(A) specific risk

(B) market risk

(C) both A and B

(D) none of these

ANSWERS: CORPORATE FINANCE QUIZ TEST

36. (B) coupon

37. (B) face value

38. (A) asset

39. (D) portfolio

40. (B) market risk

41. The contribution of an individual security to the risk of a well-diversified portfolio

is measured by?
(A) beta
(B) variance
(C) standard deviation
(D) CAPM

42. The sensitivity of an asset to the market movements is called

(A) beta
(B) variance
(C) standard deviation
(D) CAPM

43. The average beta of all stocks in a market is

(A) –1
(B) 0
(C) 1
(D) 1.5

44. If the daily prices of a stock on 20 and 21 January are 90 and 100 respectively,
then what is the daily rate of return?
(A) 9.9%
(B) 10.10%
(C) 11.11%
(D) 12.12%

45. According to the MM proposition, dividend policy is

(A) correlated
(B) under-performed
(C) relevant
(D) irrelevant

ANSWERS: CORPORATE FINANCE QUIZZES

41. (A) beta
42. (A) beta
43. (C) 1
44. (C) 11.11%
45. (D) irrelevant

46. In portfolio analysis __________ curves play an important role.

(A) circle
(B) ellipse
(C) parabola
(D) hyperbola

47. If stock prices increases, dividend yield

(A) also increases
(B) decreases
(C) remains same
(D) increases to one and a half

48. According to residual dividend policy, a firm should pay a dividend of all left over
when
(A) zero NPV projects have been funded
(B) positive NPV projects have been funded
(C) projects with IRR equal to risk-free interest rate have been funded
(D) projects with IRR greater than risk-free interest rate have been funded

49. The value of probability is always between __________ (inclusive).

(A) –1 and 0
(B) 0 and 1
(C) –1 and 1
(D) none of these

50. The value of correlation is always between __________ (inclusive).

(A) –1 and 0
(B) 0 and 1
(C) –1 and 1
(D) none of these
ANSWERS: FINANCE ONLINE TEST MCQS
46. (D) hyperbola
47. (B) decreases
48. (B) positive NPV projects have been funded
49. (B) 0 and 1
50. (C) –1 and 1

51. If two firms in the same line of business merge together, it is called __________
merger.
(A) horizontal
(B) vertical
(C) straight
(D) conglomerate

52. If two firms at different stages of production merge together, it is called

__________ merger.
(A) horizontal
(B) vertical
(C) straight
(D) conglomerate

53. If two firms in unrelated line of business merge together, it is called __________
merger.
(A) horizontal
(B) vertical
(C) straight
(D) conglomerate

54. The measure for calculating how much two random variable change together is
called
(A) variance
(B) covariance
(C) skewness
(D) kurtosis

55. The normalized version of covariance is called

(A) regression
(B) correlation
(C) cross-section
(D) spread

ANSWERS: CORPORATE FINANCE MCQS

51. (A) horizontal
52. (B) vertical
53. (D) conglomerate
54. (B) covariance
55. (B) correlation
56. Suppose our portfolio consists of two stocks A and B. What should be the
correlation between them so that we have no risk in our portfolio?
(A) –1
(B) 0
(C) 1
(D) risk cannot be eliminated

57. In the beginning, some companies receive equity investment from wealthy
individuals. The wealthy individuals are called
(A) angel investors
(B) corporate investors
(C) venture capitalists
(D) venture capital firms

58. Firms that invest in new companies as they try to grow are called
(A) spinning
(B) underwriters
(C) venture capitalists
(D) venture capital firms

59. An investor will receive $5,000 and $10,000 after one and two years from today
respectively. If the interest rate during this period is 10% then what is the present
value of this cash flow?
(A) $12000
(B) $12450
(C) $12810
(D) $13705

60. What is volatility if the duration of a bond is 4 years and yield to maturity is 8%?
(A) 3.1%
(B) 3.4%
(C) 3.7%
(D) 4.0%

ANSWERS: CORPORATE FINANCE ONLINE TEST MCQS

56. (A) –1
57. (A) angel investors
58. (D) venture capital firms
59. (C) $12810
60. (C) 3.7%

61. The success of a new company critically depends on

(A) managers
(B) board of directors
(C) shareholders
(D) venture capitalists

62. Companies go public in order to

(A) avoid taxes
(B) reduce management cost
(C) raise more cash
(D) get merge

63. Companies go public with the help of

(A) venture capital firms
(B) underwriters
(C) shareholders
(D) A, B and C

64. If beta of a stock is __________ then it tends to amplify the overall market
movement.
(A) 0
(B) 1
(C) greater than 1
(D) between 0 and 1

65. What is the real rate of interest if nominal rate is 10% and inflation rate is 5%?
(A) 4.3%
(B) 4.8%
(C) 5.3%
(D) 5.8%

ANSWERS: FINANCE MULTIPLE CHOICE QUESTIONS

61. (A) managers
62. (C) raise more cash
63. (B) underwriters
64. (C) greater than 1
65. (B) 4.8%

66. The relationship between short and long term interest rates is called __________
of interest rates.
(A) yield to maturity
(B) duration
(C) volatility
(D) term structure

67. Financial managers are interested in __________ when see bond market.

(A) yield to maturity
(B) duration
(C) volatility
(D) term structure

68. Underwriters are also called

(A) bookrunner
(B) venture capitalists
(C) subscribers
(D) angel investors
69. Which from the following is not the role of an underwriter?
(A) They provide procedural and financial advice
(B) They buy the issue
(C) They resell the issue to the public
(D) They provide funds to the corporation

70. Risk __________ with the duration of bond.

(A) remains same
(B) increases
(C) decreases
(D) multiplied

ANSWERS: FINANCE MULTIPLE CHOICE TEST QUESTIONS

66. (D) term structure
67. (A) yield to maturity
68. (A) bookrunner
69. (D) They provide funds to the corporation
70. (B) increases

71. The difference between the public-offer price and the price paid by the
underwriter is called
(A) underpricing
(B) spread
(C) commission
(D) margin

72. The underwriters receive their payments in the shape of

(A) underpricing
(B) spread
(C) commission
(D) margin

73. Rights issues are for

(A) managers
(B) directors
(C) existing shareholders
(D) new shareholders

74. The interest rate earned if a financial asset is held until its maturity is called
(A) term structure
(B) spinning
(C) yield
(D) spread

75. The price of a stock is $100, and it could be $95 or $115 the next year. What is
the expected return?
(A) 5%
(B) 6%
(C) 7%
(D) 7.5%

ANSWERS: CORPORATE FINANCE MULTIPLE CHOICE QUESTIONS

71. (B) spread
72. (B) spread
73. (C) existing shareholders
74. (C) yield
75. (A) 5%

76. The price of a stock is $100, and there are 40% chances that it would be $95 and
60% chances that it would be $115 the next year. What is the expected return?
(A) 5%
(B) 6%
(C) 7%
(D) 7.5%

77. A company’s agreement with the underwriter include

(A) spread
(B) greenshoe option
(C) A and B
(D) whiteshoe option

78. The long-run returns of Initial Public Offerings (IPOs) tend to __________ the
market.
(A) underperform
(B) accelerate
(C) amplify
(D) none of these

79. Spread is __________ for IPOs.

(A) highest
(B) lowest
(C) average
(D) uncertain

80. The value of a financial derivative depends on the

(A) maturity
(B) duration
(C) forward interest rate
(D) underlying

ANSWERS: CORPORATE FINANCE MULTIPLE CHOICE QUESTIONS TEST

76. (C) 7%
77. (C) A and B
78. (A) underperform
79. (A) highest
80. (D) underlying
81. Which from the following statements is incorrect?
(A) A European option can only be exercised at expiry
(B) An American option can only be exercised at expiry
(C) A European option is a right but not obligation
(D) An American option is a right but not obligation

82. An agreement on a telephone or email to buy/sell an asset at an agreed future

time for an agreed price is called
(A) spot contract
(B) forward contract
(C) future contract
(D) swap

83. When forward contract is traded on an exchange, it is called

(A) spot contract
(B) future contract
(C) call option
(D) put option

84. On 1 January you enter a contract to buy 1 million barrel of oil for $80 per barrel
to be delivered on 1 March. The price on 1 March is $82 per barrel. Your gain is
(A) $200
(B) $20000
(C) $200000
(D) $2000000

85. Allocating stock in popular new issues to manager of their important corporate

clients is called
(A) subscription
(B) under-performance
(C) rights
(D) spinning

ANSWERS: FINANCE QUESTIONS

81. (B) An American option can only be exercised at expiry
82. (B) forward contract
83. (B) future contract
84. (D) $2000000
85. (D) spinning

86. Which from the following issues has the lowest total direct cost?
(A) straight bonds
(B) corporate stocks
(C) all issues have same cost
(D) none of these

87. An option that allows the underwriter to increase the number of shares bought by
15% is called
(A) spread
(B) spinning
(C) whiteshoe
(D) greenshoe

88. A four year zero-coupon bond has 6% yield. What is its duration in years?
(A) 4
(B) 5
(C) 6
(D) 7

89. Changes in interest rates have a __________ impact on the prices of long-term

bonds than the short-term bonds.
(A) greater
(B) smaller
(C) both have same impact
(D) interest rate does not matter

90. An investment of $9,000 today will yield $10,000 after one year. What is the Net
Present Value if the interest rate is 10%?
(A) $71
(B) $81
(C) $91
(D) $101

ANSWERS: MCQS OF FINANCE

86. (A) straight bonds
87. (D) greenshoe
88. (A) 4
89. (A) greater
90. (C) $91

91. The return that is forgone by investing in the project rather than investing in
financial markets at the same level of risk is called
(A) internal rate of return
(B) capital saving
(C) opportunity cost
(D) opportunity saving

92. The party that agrees to buy the underlying asset in a forward contract is said to
assumes
(A) forward position
(B) backward position
(C) long position
(D) short position

93. The party that agrees to sell the underlying asset in a forward contract is said to
assumes
(A) forward position
(B) backward position
(C) long position
(D) short position

94. If the spot price is $1200 and the exercise price is $1000 then the payoff of a
party assuming a long position is
(A) -$200
(B) $0
(C) $1
(D) $200

95. If the spot price is $1200 and the exercise price is $1000 then the payoff of a
party assuming a short position is
(A) –$200
(B) $0
(C) $1
(D) $200

ANSWERS: CORPORATE FINANCE QUESTIONS

91. (C) opportunity cost
92. (C) long position
93. (D) short position
94. (D) $200
95. (A) –$200

96. If the co-variance between stock A and market returns is 12, and the standard
deviation of market returns is 3 then what is the value of beta?
(A) 0.96
(B) 1.0
(C) 1.33
(D) 1.45

97. Difference between strike price and stock price is called

(A) intrinsic value
(B) option premium
(C) time premium
(D) none of these

98. Option value at expiration is a function of:

(I) interest rate
(II) volatility
(III) stock price
(IV) exercise price
(A) I only
(B) III only
(C) I and II
(D) III and IV

99. If market price of the share at expiration is $100 and exercise price is $80, then
value of a call option at expiration is
(A) –$20
(B) $0
(C) $1
(D) $20

100. If market price of the share at expiration is $100 and exercise price is $80, then
value of a put option at expiration is
(A) –$20
(B) $0
(C) $1
(D) $20

ANSWERS: MCQS OF CORPORATE FINANCE

96. (C) 1.33
97. (A) intrinsic value
98. (D) III and IV
99. (D) $20
100. (B) $0