Section.

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Chapter.1 Part.1
Introduction To Financial Management
1. Long-term sources of finance include all of the following EXCEPT:
a) Shares
b) Fixed deposits
c) Trade credit
d) Retained earnings

2. Borrowed funds can be short term, medium-term or long term, based on the
requirement of the business.
a) True
b) False

3. The source of borrowed funds includes all of the following EXCEPT:

a) Debenture
b) Venture Capital
c) Public deposits
d) Trade credit

4. Internal sources of finance include all of the following EXCEPT:

a) Shares of stock
b) Retained earnings
c) Owners capital or additional investments
d) Selling Assets

5. ___________ may be defined as the art and science of managing money. And also is
referred as the provision of money at the time when it is needed.
a) Equity
b) Investment
c) Finance
d) Accounting

6. _____________is contractual agreement between the owner of the assets and user of
the assets for a specific period by a periodical rent.
a) Finance
b) Lease
c) Debenture
d) None of the above

7. Long term financial requirement is also called as working capital requirements.

a) True
b) False

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8. Financial service
a) is concerned with the duties of the financial manager.
b) involves the design and delivery of advice and financial products.
c) provides guidelines for the efficient operation of the business.
d) handles accounting activities related to data processing.

9. Lessee is the person who

a) is owner of the asset
b) has right to use of asset and pays annual rentals
c) has right to use of assets and receive annual rentals
d) all of the above

10. A lease is a contractual arrangement between

A) Lessor and Lessee
B) Lessee and Buyer
C) Seller and Lessee
D) None of the Above

11. Ramy leases a car from Uptown Motors and pays $225 a month as a lease payment.
Which one of the following terms applies to Ramy?
A. lessee
B. lessor
C. Guarantor
D. Trustee

12. The party who owns a leased asset is called the:

A. lessee
B. lessor
C. Guarantor
D. Trustee

13. Aya is leasing some equipment from Ajax Leasing for a period of one-year. Ajax
pays the maintenance, taxes, and insurance costs for this equipment. The life of the
equipment is 7 years. Which type of lease does Aya have?
A. open
B. straight
C. operating
D. financial

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14. Ahmed has a non-cancelable, five-year lease on an industrial grade sewing
machine for stitching upholstery. For accounting purposes, this is considered to be
a capital lease. The life of the sewing machine is five years. Ahmed must pay all
taxes and insurances related to this lease. Which type of lease does Ahmed have on
this sewing machine?
A. open
B. straight
C. operating
D. financial

15. You are comparing a lease to a purchase. The NPV associated with this analysis is
referred to as the______________:
A. open interest net present value.
B. depreciated net present value.
C. net advantage to leasing.
D. profitability index.

16. An operating lease has which of the following characteristics?

I. lessee has responsibility for the maintenance and insurance

II. lease payments cover the full cost of the asset

III. economic life of the asset exceeds the lease term

IV. lessee can cancel the lease prior to the expiration date

A. I and III only

B. II and IV only
C. I and II only
D. III and IV only

17. A financial lease:

A. is generally called a capital lease by accountants.
B. requires the lessor to maintain the asset.
C. is a partially amortized lease.
D. is often called a single net lease.

18. Which one of the following statements is correct concerning the lease versus buy
decision?
A. The lessor is primarily concerned with returning the asset at the end of the lease term
without incurring any additional charges.
B. The lessor is primarily concerned about the use of the asset.
C. Lessors provide a source of financing for lessees
D. d. None of the above

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19. ABCD is trying to decide whether to lease or buy some new equipment. The
equipment costs $48,000 and has a 6-year life. The equipment will be worthless
after the 6 years and will have to be replaced. The company has a tax rate of 31
percent, a cost of borrowed funds of 7.5 percent, and uses straight-line
depreciation. The equipment can be leased for $10,600 a year. What is the amount of
the after tax lease payment?
A. $3,286.00
B. $7,314.00
C. $7,862.55
D. $8,406.16

20. External sources of finance do not include:

A) leasing
B) retained earnings
C) overdrafts
D) debentures

21. Internal sources of finance do not include:

A) retained earnings
B) ordinary shares
C) better management of working capital
D) trade credit

22. A debenture:
A) is a long-term loan
B) receives dividend payments
C) is a short-term loan
D) does not require security

23. ___________ lease is a long-term lease that is not cancelable and its life often
matches the useful life of the asset.
A) A financial
B) An operating
C) A net
D) None of the above answers are correct.

24. _____________ lease refers to a short-term lease that is often cancelable. For
example, a lease for office space represents this type of lease where the lease life
is less than the useful life of the asset.
a) A financial
b) An operating
c) A net
d) D)None of the above answers are correct.

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25. All of the following are characteristics of a financial lease, EXCEPT:
a) it is not cancellable
b) it is longer term than an operating lease
c) lessee makes payments to the lessor
d) the lessee is deemed to be the owner of the asset
e) the total payments over the term of the lease are greater than the lessor's initial cost of
the leased asset.

26. Among the issues included in public finance are EXCEPT :

a) tax systems
b) government expenditures
c) corporate financial activities
d) budget procedures

Answers to the MCQ Questions

Question Number Answer Question Number Answer
1 C 14 D
2 A 15 C
3 B 16 D
4 A 17 A
5 C 18 C
6 B 19 B
7 B 20 B
8 B 21 B
9 B 22 A
10 A 23 A
11 A 24 B
12 B 25 D
13 C 26 C