Multiple Practice Questions.

 
1. Business Finance

1) Which of the following areas is not included in business finance?

a) Finance
b) Investment
c) Management of daily expenses
d) None of the above
 
2) Which of the following is included in business finance?
a) Capital estimates
b) Capital structure
c) Working capital management
d) All of the above
 
3) Which of the following cash flow occurs at the end of a certain period of time?
a) Ordinary Annuity
b) Annuity Due
c) Perpetuity
d) None of the above
 
4) Time value of money is indicated by ----------------------.
a) The money earned today will be more than the money received in the future
b) The money earned today is less than the money received in the future.
c) There is no difference in the value of money received today and tomorrow
d) None of the above
 
5) --------- Time value is supported by the cash flow that has occurred in different
periods.
A) Discount on all cash flows on shared time
B) Consolidation of all cash flows on shared time
C) Using A or B
D) None of the above
 
6) Estimated expenditure of money spent each year includes ----------.
a) Depreciation and debt relief
b) Net sales
c) Net profit
d) Net income
 
7) The company records entries of the shares sold in ----------.
a) Preferential Shares account
b) Equity Shares account
c) Balance Shares account
d) Previous Shares account
 
8) The company has purchased the goods but did not pay the suppliers immediately and
the record is kept ----.
a) Accounts payable
b) Account receivables
c) Current liabilities
d) Collected liabilities
 
9) According to the theory, the money that comes in the present time is more than the
money that comes in the future Money is worth it.
a) Cash value of money
b) Time value of money
c) Storage value of money
d) Preferred value of money
 
10) Any project is acceptable according to the net current value.
A) Positive net current value
b) Zero net current value
c) Negative net current value
d) Both A and B
 
11) Cash flows of the same number at regular intervals are -------
a) Compound
b) Future value
c) Present
d) Annuity  
 
12) Out of the following which Cash flow method uses internal rate of return and net
current value.
A) Future cash flow
b) Lean cash flow
c) Concessional cash flow
d) Vertical cash flow
 
13) Which method in capital budget is based on concessional cash flow?
a) Net Equity Budgeting Method
b) Net Capital Budgeting Method
c) Net Future Value Method
d) Net Present Value Method
 
14) Cash flows are project revenue and they are denoted by ----------.
a) Positive number
b) Negative number
c) Relative number
d) Hurdle number
 
14) In which repayment system the remaining cash flow is taken equal to the capital
expenditure of the project.
a) Concessional project expenses
b) Concessional cash flow
c) Concessional refund rate
d) Concessional repayment period
 
Ans: 1) D, 2) D, 3) A, 4) A, 5) A, 6) A, 7) B, 8) A, 9) B, 10) D, 11) D, 12) A, 13) D, 14) A, 15) A.
 Chapter 2 - Strategic Financial Planning
 
1) The highest alternative cost in financial planning goes to ----------. 
A) Long alternative period
b) Short alternative period 
c) Low cost
d) High cost 
 
2) Demand alternatives to high strike prices in financial planning are
a) High prices
b) Low rates
c) Low prices
d) High rates
 
3) Strategic plans are ----------.
a) Estimates
b) Forecast
c) Short term
d) Long term
 
4) Strategic planning of any business fails because ----
a) Impossible targets were given to managers
b) Provision of assumptions to all managers
c) There is gap between communication and inclusion
d) Difference between actual performance and estimated work presentation if so
 
5) Strategic planning is not a process of ---------.
a) Determination of resources required for fulfillment of objectives
b) Decision making according to salary level
c) Determination based on organizational objectives
d) Determination according to resource related policy
 
6) The following ……… is not included in the strategic planning objectives?
A) Expected growth
b) Dividend policy
c) Long term financing
d) Tax assessment methods
 
7) ------- By this the long term fund and capital structure of the industry organization is
formed.

a) Capitalization
b) Additional capitalization
c) Decreased capitalization
d) Market capitalization
 
8) Under------------- circumstances, the rate of return on capital is expected.
a) Less capitalization
b) Additional capitalization
c) Working capital
d) Fixed capital
 
9) In capitalization method, ----- formula is used to calculate goodwill value.
A) Super Profit Multiply Return Rate
b) Average Profit Multiply Return Rate
c) Super Profit Divided Return Rate
d) Average Profit Divided Return Rate
 
10) What are the sources of medieval finance?
a) Microfinance
b) Specialized financial institutions
c) Collection of advances from buyers
d) Discounts on bills received
 
11) Which of the following sources is not included as an external source of finance?
a) Retention income
b) Leasing
c) Overdraft
d) Debt securities
 
12) Which of the following financial sources is not included as an internal financial
source?
a) Retention income
b) Good management of working capital
c) Equity Shares
d) Trade credit
 
13) Dividends ----------
a) Are not paid to ordinary shareholders
b) Are not paid to preference shareholder
c) Are not paid to money lenders / lenders
d) Do not allow corporate tax
 
14) Internal source of capital is the source which includes --------
a) Finance’s external sources like suppliers etc.
b) Loans taken by banks
c) Amount raised by operation of shares
d) The amount generated in the business

15) The steps in financial management are ---- ------.

a) To anticipate financial needs and develop budgets to meet those needs.
b) Finding the source of financing.
c) Establish financial control to ensure that the company is implementing financial planning
practices.
d) Both A and B.
 
16) The common cause of financial problems is ---------- Yes.
a) Low capitalization
b) Inadequate cost control
c) Debt matters
d) All of the above
 
Answers: 1) a, 2) a, 3) d, 4) a, 5) b, 6) d. 7) a. 8) a. 9) A, 10) B, 11) A, 12) A, 13) D, 14) D, 15)
D, 16) D
 

Case 3 - Sources of corporate securities and long term financing

1) The type of financial security secured by the debtor's property is classified as ---------.
a) Municipal bonds
b) Corporate bonds
c) US Treasury bonds
d) Mortgages 
 
2) Financial securities which mature within a period of 1 year are called --------
a) Savings intermediary
b) Concession intermediary
c) Money securities market
d) Capital market securities / securities
 
3) Ownership bonds are denoted by ----------.
A) Stocks
b) Loans
c) Loans
d) Debt securities
 
4) Financial Assets is called - --------.
A) Securities
b) Tangible assets
c) Real assets
d) Physical assets
 
5) ...... and ….... they charge a fixed rate of interest and their payment is in proportion to
the revenue of the industry organization.
a) Debenture and dividends
b) Debenture and bonds
c) Dividends and bonds
d) Dividends and fiscal letters
 
6) In the formula of Walter model, D means ----------.
a) Dividend per share
b) Direct dividend
c) Dividend income
d) None of the above
 
7) Trade securities are mainly ----------.
a) Short term debt securities
b) Short term equity securities
c) Long term debt instruments
d) Long term equity securities
8) Which of the following trading securities is the responsibility of a commercial bank?
a) Merchant letter
b) Deposit Deed
c) Repurchase agreement
d) Treasury-bills
 
9) The main requirement of the business securities of the industry is ------.
a) Security
b) Income
c) Market potential 
d) All of the above.
 
10) Preferred shareholder claims on the assets and income of any industry organization
belong to the shareholders' creditors.
a) Before and before
b) Before but after
c) After and more after
d) Same
 
11) The word company is defined by which section of the Act?
a) Section 3 (1)
b) Section 4 (2)
a) Section 2 (4)
d) Section 1 (3)
 
12) Which of the following statement is not true regarding Preference Shares?
a) Partly paid shares cannot be redeemed.
b) Redemption of preference shares is considered as reduction of authorized share capital of
the company.
c) It will not be seen as an increase in capital in the future when the shares will be issued for
redemption.
d) Preference shareholders redemption will be redeemed from capitalization of profits or from
prices of issue of new shares.
 
13) Which of the following will the company use to redeem preference shares in addition
to profit?
a) Share forfeiture Account
b) Development rebate reserve account
c) Capital redemption reserve account
d) Dividend equalization reserve
 
14) -------- shares are not variable.
a) Convertible Preference
b) Equity Shares
c) Preference Share
d) Preference Shares and Convertible Preference share
 
15) Equity Shares are not combined for ----------
a) Dividend
b) Profit
c) Loss
d) Stocks 
 
Answers: 1) D, 2) D, 3) A, 4) A, 5) B, 6) A, 7) A, 8) B, 9) D, 10) B, 11) A, 12) B, 13) d, 14) b,
15) a
 
 
 Chapter 4 - Short Term Finance and Working Capital

1) When the industry needs a guarantee of organization and short-term funding for
various reasons Banks provide loans to business entities in the form of ------
a) Compensating balance arrangement
b) Revolving credit arrangement
c) Exchange loan
d) Line of credit
 
2) Which of the following is not a type of short term instant loan?
A) Increased pay
b) Trade credit
c) Merchant letter
d) Increased tax
 
3) Which of the following statement is more correct for different types of Negotiable
instrument financing?
a) Merchant letters are instruments in the money market as a source of short term finances. It
can also be used by non-standard companies.
b) Banker acceptance consists of a large, well-known bank that replaces drawee
c) The main disadvantage of commercial paper as a source of short-term financing is that it is
usually more expensive than a commercial bank's short-term business loan.
d) Revolving credit agreement is an informal arrangement to extend credit up to a maximum
amount within a specified period.
 
4) Which of the following concepts is related to the short term interest rate charged by
the bank which looks at the credibility of the customer?
a) Concessional interest rate
b) Long term bond rate
c) Prime rate
d) Fed fund rate
 
5) Money market transactions are related to ----------.
a) Securities for a period of more than one year
b) Short term securities
c) Securities in common stock
d) None of the above
 
6) Short term financing for industry organizations includes ----------.
a) Bonds
b) Account payable
c) Shareholder shares -
d) Mortgages
7) ---------- is used as a self-liquidating asset.
a) Long term financing
b) Short term financing
c) Permanent financing
d) None of the above
 
8) High liquidity of short term finance plan is --------
a) High returns and high risk
b) Medium return and medium risk
c) Low profit and low risk
d) None of the above
 
9) Working Capital in finance is -------
a) Total assets
b) Fixed
c) Current assets
d) None of the above
 
10) Which of the following approach is more important regarding working capital
financing?
a) Short-term funding to meet short-term needs
b) Long-term credit financing to build permanent goods
c) Short-term funding to meet seasonal needs financing to meet
d) Short-term funding to meet some long-term needs
 
11) Permanent working capital -----means
a) Various seasonal needs
b) Fixed assets included
c) Amount of current assets required to meet the minimum long term needs of the firm?
D) Includes account payable
 
12) Total working capital is
a) Total assets minus fixed assets
b) Current assets minus current liabilities
c) Current assets minus inventory
d) Current Assets
 
13) The sum of all types of current assets is known as ----------.
A) Total working capital
b) Gross working capital
c) Temporary working capital
d) All of the above
 
14) Which of the following is not financed from working capital? __
a) Cash liquidity
b) Account variables
c) Credit sales
d) New personal computer for office
 
15) ---------- is related to the amount invested on current assets.
a) Temporary working capital
b) Total working capital
c) Gross working capital
d) Permanent working capital
 
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More Questions for Practice

1. Which of the following is a series of constant cash flows that occur at the end of each
period for some fixed number of periods?
A. Ordinary annuity
B. Annuity due
C. Perpetuity
D. None of the given options

2. During the accounting period, sales revenue is Rs. 25,000 and accounts receivable
increases by Rs. 8,000. What will be the amount of cash received from customers for the
period?
A. Rs. 33,000
B. Rs. 25,000
C. Rs. 17,000
D. Rs. 8,000

Ref: Amount of cash received = total revenue increased - account receivable increased
= 25,000 - 8000 = 17,000.

3. The conflict of interest between stockholders and management is known as:

A. Agency problem
B. Interest conflict
C. Management conflict
D. Agency cost
4. Which of the following form of business organization is least regulated?
A. Sole-proprietorship
B. General Partnership
C. Limited Partnership
D. Corporation

5. Which of the following ratios are intended to address the firm’s financial leverage?
A. Liquidity Ratios
B. Long-term Solvency Ratios
C. Asset Management Ratios
D. Profitability Ratios
·

Ref.- These ratios are intended to address the firm’s long-run ability to meet its obligations, or its
financial leverage..

6. Balance Sheet is based upon which of the following formula?

A. Assets = Liabilities – Stockholder’s equity
B. Assets + Liabilities = Stockholder’s equity
C. Assets + Stockholder’s equity = Liabilities
D. Assets = Liabilities + Stockholder’s equity.

7. Quick Ratio is also known as:

A. Current Ratio
B. Acid-test Ratio
C. Cash Ratio
D. None of the given options

8. Which of the following is a special case of annuity, where the stream of cash flows
continues forever?
A. Ordinary Annuity
B. Special Annuity
C. Annuity Due
D. Perpetuity

9. Which of the following ratios are particularly interesting to short term creditors?
A. Liquidity Ratios
B. Long-term Solvency Ratios
C. Profitability Ratios
D. Market Value Ratios
10. Financial policy is evaluated by which of the following?
A. Profit Margin
B. Total Assets Turnover
C. Debt-equity ratio
D. None of the given options
As this ratio determines how leveraged an organization is. Or how much an organization is
relying on debt..

11. Mr. Y and Mr. Z are planning to share their capital to run a business. They are going
to employ which of the following type of business?
A. Sole-proprietorship
B. Partnership
C. Corporation
D. None of the given options
Having more than 2 owners of a business entity is called “Partnership”. Having more than seven
owners of a business entity is called corporation..

12. When the market's required rate of return for a particular bond is much less than its
coupon rate, the bond is selling at:
A. Premium
B. Discount
C. Par
D. Cannot be determined without more information

If the bond's price is higher than its par value, it will sell at a premium because its interest rate is
higher than current prevailing rates..

13. Which of the following statement is considered as the accountant’s snapshot of

firm’s accounting value as of a particular date?
A. Income Statement
B. Balance Sheet
C. Cash Flow Statement
D. Retained Earnings Statement

14. Finance is vital for which of the following business activity (activities)?
A. Marketing Research
B. Product Pricing
C. Design of marketing and distribution channels
D. All of the given options
.
Finance is important for all departments of an organization. 

15. The most important item that can be extracted from financial statements is the actual
_______ of the firm.
A. Net Working Capital
B. Cash Flow
C. Net Present Value
D. None of the given options

16. A firm has paid out Rs. 150,000 as dividends from its net income of Rs. 250,000. What
is the retention ratio for the firm?
A. 12%
B. 25%
C. 40%
D. 60%. 
Retention ratio = Net income – Dividend / Net income
= 250 – 150 / 250 = 0.4 or 40%

17. If a firm’s debt ratio is 45%, this means _____ of the firm’s assets are financed by
equity financing.
A. 50%
B. 55%
C. 45%
D. Cannot be determined without more information. 
The equity portion plus the debt portion must add up to 100%

18. Which of the following ratios is NOT from the set of Asset Management Ratios?
A. Inventory Turnover Ratio
B. Receivable Turnover
C. Capital Intensity Ratio
D. Return on Assets

The capital intensity ratio is a financial calculation measuring how much a company is invested
in total assets compared to how much it is earning in revenue. Whereas Asset turnover ratio
determines how efficiently or effectively an organization is using its assets.

19. Which of the following statement about bond ratings is TRUE?

A. Bond ratings are typically paid for by a company’s bondholders.
B. Bond ratings are based solely on information acquired from sources other than the bond
issuer.
C. Bond ratings represent an independent assessment of the credit-worthiness of bonds.
D. None of the given options

20. If you plan to save Rs. 5,000 with a bank at an interest rate of 8%, what will be the
worth of your amount after 4 years if interest is compounded annually?
A. Rs. 5,400
B. Rs. 5,900
C. Rs. 6,600
D. Rs. 6,802

FV = PV * (1+ i) ^n
= 5,000 (1+0.08) ^4
= 6802

21. Which of the following statement is TRUE regarding debt?

A. Debt is an ownership interest in the firm.
B. Unpaid debt can result in bankruptcy or financial failure.
C. Debt provides the voting rights to the bondholders.
D. Corporation’s payment of interest on debt is fully taxable.

22. A firm reports total liabilities of Rs. 300,000 and owner’s equity of Rs. 500,000. What
would be the total worth of the firm’s assets?
A. Rs. 300,000
B. Rs. 500,000
C. Rs. 800,000
D. Rs. 1100,000
C. 
Assets = Liabilities + Owner’s Equity
= 300,000 + 500,000
= 800,000

23. Which of the following measure reveals how much profit a company generates with
the money shareholders have invested?
A. Profit Margin
B. Return on Assets
C. Return on Equity
D. Debt-Equity Ratio 

24. If you have Rs. 850 and you plan to save it for 4 years with an interest rate of 10%,
what will be the future value of your savings?
A. Rs. 1,000
B. Rs. 1,244
C. Rs. 1,331
D. Rs. 1,464

FV = PV * (1+ i) ^n
= 850 * (1+0.1)^4
= 1244
25. In case of international business which of the given factor(s) must be considered?
A. Role of foreign exchange
B. Balance of payments
C. Attitude of Governments
D. All of the given options

26. Which of the following refers to the difference between the sale price and cost of
inventory?
A. Net loss
B. Net worth
C. Markup
D. Markdown

Mark up/margin is the extra amount charged by business to it customer to earn profit. It’s the
difference between sales price and cost.

27. Who of the following make a broader use of accounting information?

A. Accountants
B. Financial Analysts
C. Auditors
D. Marketers 
Financial analysts make extensive use of accounting information; they are some of the most
important end users. Understanding finance helps accountants recognize what types of
information are particularly valuable and, more generally, how accounting information is actually
used (and abused) in practice.

28. Rule of 72 for finding the number of periods is fairly applicable to which of the
following range of discount rates?
A. 2% to 8%
B. 4% to 25%
C. 5% to 20%
D. 10% to 50%

This rule is fairly applicable to discount rates in 5% to 20% range. Finding the Number of
Periods.

29. A portion of profits, which a company distributes among its shareholders, is known
as
A. Dividends
B. Retained Earnings
C. Capital Gain
D. None of the given options