1. Profitability varies inversely with:
(a) Liquidity
(b) Risk
(c) Financing
d) Liabilities
Liquidity
2. Estimate In financial planning, the higher most option price will leads to:
(a) Longer option period
(b) Smaller option period
(c) Lesser price
(d) Higher price
Longer option period
3. Which of the following is the *principal advantage of high debt financing?
(a) Tax savings
(b) Low bankruptcy costs
(c) Minimum financial risk
(d) Low financial leverage
Tax savings
4. Developing a long term financial plan allows the firm to:
(a) See how investment and financing decisions interact
(b) See how decisions maximize shareholder wealth can
(c) Relate the acceptance of a positive NPV project with their determination of growth
(d) All of the above
All of the above
5. The most common cause(s) of financial problems are:
(a) Undercapitalization
(b) Inadequate expense control
(c) Credit terms
(d) All of the above
All of the above
6. The steps in financial planning are:
(a) Forecasting financial needs and developing budgets to meet those needs
(b) Identifying sources of financing
(c) Establishing financial controls to ensure the company is following the financial plans
(d) (a) & (c)
(a) Forecasting financial needs and developing budgets to meet those needs
7. Insurance companies would tend to invest in securities:
(a) Short-term
(b) Intermediate term
(c) Long-term
(d) Not enough information to
Long-term
8. Liquidity have: (a) High return and high risk
(b) Moderate return and moderate risk
(c) Low profit and low risk
(d) None of the above
Moderate return and moderate risk
9. Long-term financing plans with low liquidity have:
a) High return and high risk (
(b) Moderate return and moderate risk
(c) Low return and low risk
(d) None of the above
Moderate return and moderate risk
10. Concerning long, term financial planning models, which of following statements is generally not correct;
(a) They are a means of identifying positive NPV investments
(b) They are a means of identifying inconsistencies in spending and financial plans
(c) They are a means of analyzing risk and return on proposed capital spending
(d) Two of the above are generally not correct
Two of the above are generally not correct
11. Which forecast gives management some sense of the profit potential possible of different strategic plans?
(a) Short-term forecast
(b) Cash flow forecast
(c) Long-term forecast
(d) None of the above
Long-term forecast
12. What is it called when management projects revenue expectations and allocates resources accordingly?
(a) A cash flow
(b) A budget
(c) A resource plan
(d) A resource allocation
A budget
13. An budget is the plan of the various costs and expenses needed to operate the business, based on the short-term forecast:
(a) Capital budget
(b) Operating budget
(c) Cash budget
(d) Resource budget
Operating budget
14. Debt capital refers to:
(a) Money raised through the sale of shares
(b) Funds raised by borrowing that must be repaid
(c) Factoring accounts receivable
(d) Inventory loans
Funds raised by borrowing that must be repaid
15. The most widely used source of short-term funding is:
(a) Factoring
(b) Trade credit
(c) Family and friend
(d) Commercial banks
Trade credit
16. A loan backed by collateral is called a:
(a) Line of credit
(b) Dividend
(c) Secured loan
(d) Trade credit
Secured loan
17. Which of the following is a short-term source of funds?
(a) Issue corporate bonds
(b) Factor accounts receivable
(c) Issue common stock
(d) (a) & (b)
Factor accounts receivable
18. A short-term corporate equivalent of an IOU that is sold in the market place by a firm is called:
(a) Sinking bond
(b) Mortgage
(c) Commercial paper
(d) Convertible bond
Commercial paper
19. A bond backed by the company’s real assets is called a:
(a) Preferred bond
(b) Unsecured bond
(c) Convertible bond
(d) First mortgage bond
First mortgage bond
20. A firm’s profit that is distributed to shareholders is called:
(a) Interest
(b) Dividends
(c) Discounts
(d) Stock certificate
Dividends
21. What is the type of stock that gives owners preference over common shareholders in dividends and asset claims upon liquidation?
(a) Preferred stock
(b) Common stock
(c) Bondholders
(d) Creditors
Preferred stock
22. The theory says that investors must be paid a premium to hold long- term securities:
(a) Expectations hypothesis
(b) Time value theory
(c) Segmentation
(d) Liquidity premium
Liquidity premium
23. Working capital management involves the financing and management of the firm:
(a) Fixed
(b) Total
(c) Current
(d) None of the above
Current
24. An asset sold at the end of a specified time period is called a asset:
(a) Temporary current
(b) Self-liquidating
(c) Current
(d) Permanent current
Self-liquidating
25. Fixed assets are usually financed with funds:
(a) Long-term
(b) Short-term
(c) Permanent
(d) None of the above
Long-term
26. Is usually used to finance self- liquidating assets:
(a) Long-term financing
(b) Short-term financing
(c) Permanent financing
(d) None of the above
Short-term financing
27. Short-term interest rates,’ in a normal economy, are generally than long term rates:
(a) Higher
(b) The same
(c) Lower
(d) None of the above
Lower
28. The expectations hypothesis says that interest rates are a function of assets of interest rates:
(a) Short-term; long-term
(b) Long-term; short-term (c) Short-term; short-term
(d) None of the above
Long-term; short-term
29. A key element in financial planning models is:
(a) That profit is all reinvested
(b) That all debt is fixed
(c) That the change in assets must equal the change in debt and equity
(d) None of the above Short-term financing plans with high
None of the above Short-term financing plans with high
30. Answer Planning for future growth is called:
(a) Capital budgeting
(b) Working capital management
(c) Financial forecasting
(d) None of the above
Financial forecasting
31. Which one of the following is not a tool of financial forecasting?
(a) Cash budget
(b) Capital budget
(c) Pro forma balance sheet
(d) Pro forma income statement
Capital budget
32. The first step in developing a proforma income statement is to:
(a) Build a sales forecast
(b) Determine schedule the production
(c) Determine cost of goods sold
(d) None of the above
Build a sales forecast
33. Proforma statements are statements:
(a) Actual
(b) Projected
(c) A previous year’s
(d) None of the above
Projected
34. Financial managers use the plan for monthly financing needs
(a) Capital budget
(b) Cash budget
(c) Pro forma income statement
(d) None of the above
Cash budget
35. The payments that a find collects from its customers are called:
(a) Cash disbursements
(b) Cash outflows
(c) Cash receipts
(d) None of these
Cash receipts
36. Examples of cash disbursements are all but:
(a) Payment for materials purchased
(b) Collection of accounts receivable
(c) Payment of dividends
(d) Payment of taxes in developing the pro forma balance
37. Sheet, we get common stock from:
(a) The firm’s previous balance sheet
(b) The firm’s cash budget
(c) The firm’s income statement
(d) None of the above
The firm’s cash budget
38. The percent of sales method of financial forecasting shows us the relationship between financing needs: and
(a) Changes in the level of liabilities
(b) Changes in the level of assets
(c) Changes in debt
(d) Changes in the level of sales
Changes in the level of liabilities
39. Which of the following are microeconomic variables that help define and explain the discipline of finance?
(a) Risk and return
(b) Capital structure
(c) Inflation
(d) All of the above
All of the above
40. The money markets deal with:
(a) Securities with a life of more than one year
(b) Short-term securities
(c) Securities such as common stock
(d) None of the above
Short-term securities
41. The ability of a firm to convert an asset to cash is called:
(a) Liquidity
(b) Solvency
(c) Return
(d) Marketability
Liquidity
42. Early in the history of finance, an important issue was:
(a) Liquidity
(b) Technology
(c) Capital structure
(d) Financing options
Liquidity
43. The appropriate firm goat in a capitalist society is:
(a) Profit maximization
(b) Shareholder wealth maximization
(c) Social responsibility
(d) None of the above’
Shareholder wealth maximization
44. The agency problem will occur in a business firm if the goals of shareholders do not agree:
(a) Investors
(b) The public
(c) Management
(d) None of these
Management
45. Source of funds is a:
(a) Decrease in a current asset
(b) Decrease in a current liability
(c) Increase in a current liability
(d) (a) and (c)
(a) and (c)
46. Short-term financing for a business firm includes:
(a) Bonds
(b) Accounts payable
(c) Stockholder’s equity
(d) Mortgages
Accounts payable
47. Finance is vital for which of the following business activity?
(a) Marketing research
(b) Product pricing
(c) Design of marketing and distribution channels
(d) All of the given options
All of the given options
48. 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
Cash flow
49. 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
Capital intensity ratio
50. 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
Unpaid debt can result in bankruptcy or financial failure
51. Also are spontaneous financing: known as
(a) Current liabilities
(b) Current assets
(c) Fixed assets
(d) Long-term liabilities
Current liabilities
52. In financial statement analysis, shareholders focus will be on the:
(a) Liquidity of the firm
(b) Long term cash flow of the firm
(c) Profitability and long term health of the firm
(d) Return on investment
Profitability and long term health of the firm
53. Which of the following is the cheapest source of financing available to a firm?
(a) Bank loan
(b) Commercial papers
(c) Trade credit
(d) None of the given options
Trade credit
54. Refers to the extent to which fixed-income securities (debt and preferred stock) are used in a firm’s capital structure:
(a) Financial risk
(b) Portfolio risk
(c) Operating risk
(d) Market risk
Financial risk
55. Cash management involves all of the following except:
(a) Efficient disbursement of cash
(b) Efficient collection of cash
(c) Wise investment of temporarily surplus cash
(d) Raising cash through the sale of new stock and bonds
Raising cash through the sale of new stock and bonds
56. 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
Debt-equity ratio
57. Which of the following holds true regarding aggressive working capital policy?
(a) High liquidity: profitability; high risk high
(b) High liquidity; low profitability; low risk
(c) Low liquidity; low profitability; high risk
(d) Low liquidity; high profitability; high risk
High liquidity: profitability; high risk high
58. “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
The market price per share of the firm’s common stock
59 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
Maximize the value of the firm’s common stock
d. What is the EPS for a company with Rs. 100,000 in after-tax profits, 200,000 common shares outstanding, and Rs. 1.2 million in year-end retained earnings?
(a) Rs. 100,000
(b) Rs. 6.00
(c) Rs. 0.50 (d) Rs. 6.50
Rs. 0.50 (d) Rs. 6.50
61. The market price of a share of common stock is determined by:
(a) The board of directors of the firm
(b) The stock exchange on which the stock is listed
(c) The president of the company
(d) Individuals buying and selling the stock
Individuals buying and selling the stock
62. The key point management in a firm is of financial
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 of a firm refers to the
The creation of value for shareholders
63. Composition of its long-term fund and its capital structure:
(a) Capitalization
(b) Over-capitalization
(c) Under-capitalization
(d) Market capitalization
Capitalization
64. 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
Market value
65 enhance the market value of shares and therefore equity capital is not free of cost:
(a) Face value
(b) Dividends
(c) Redemption value
(d) Book value
Dividends
66. In approach, the capital structure decision is relevant to the valuation of the firm:
(a) Net income
(b) Net operating income
(c) Traditional
(d) Miller and Modigliani
Net income
67. When is greater than zero the project should be accepted:
(a) Internal rate of return
(b) Profitability index
(c) Net present value
(d) Modified internal rate of return
Net present value
68. Is defined as the length of time required to recover the initial cash out-lay:
(a) Payback:-period
(b) Inventory conversion period
(c) Discounted payback-period
(d) Budget period
Payback:-period
69. 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
Transaction motive
70. Refers to the length of time allowed by a firm for its customers to make payment for their purchases:
(a) Holding period
(b) Pay-back period
(c) Average collection period
(d) Credit period
Credit period
71. Amounts due from customers when goods are sold on credit are called:
(a) Trade balance
(b) Trade debts
(c) Trade discount
(d) Trade off
Trade debts
72. and are the two versions of goals of the financial management of the firm:
(a) Profit maximization, Wealth maximization
(b) Production maximization, Sales maximization
(c) Sales maximization, Profit maximization
(d) Value maximization, Wealth maximization.
Profit maximization, Wealth maximization
73. 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) Dividend, Treasury notes
Debentures, Bonds
74. Credit policy of every company is largely influenced by and
(a) Liquidity, Accountability
(b) Liquidity, Profitability
(c) Liability, Profitability
(d) Liability, Liquidity
Liquidity, Profitability
75. What type of decision is needed for XYZ, an oil-based business with inadequate working capital and facing bankruptcy, to prevent this risk?
(a) Investment decision
(b) Dividend decision
(c) Liquidity decision
(d) Finance decision
Liquidity decision
76. How are earnings per share calculated?
(a) Use the income statement to determine earnings after taxes (net income) and divide by the previous period’s earnings after taxes
(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 com on 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.
Use the income statement to determine earnings after taxes (net income) and divide by the number of common shares outstanding
77. Which of the following would not improve the current ratio?
(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
Borrow short term to finance additional fixed assets
78. The gross profit margin is unchanged, but the net profit margin declined over the same period. This could have happened if:
(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.
Govt. increased the tax rate
79. XYZ Industries has a debt-to-equity ratio, of 1.8 compared with the industry average of 1.6. 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
Has greater than average financial risk when compared to other firms in its industry
80. If REX Company had sales of Rs. 265 million last year, including Rs. 25 million in cash sales, and an average collection period of 36 days, what is its closest ending accounts receivable balance?
(2) Rs. 26.1 million
(b) Rs. 23.7 million
(c) Rs. 7.4 million
(d) R. 18.7million
Rs. 23.7 million
81. 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
Sell common stock
82. Which of the following statements (in general) is correct?
(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
The lower the total debt-to- equity ratio, the lower the financial risk for a firm
83. Debt-to-total assets (D/TA) ratio is 4. What is its debt-to-equity (DIE) ratio?
(a) 2
(c).667
(b) .6
(d) .333
.667
84. Inventory holding period plus receivable collection period is called:
(a) Operating cycle
(b) Cash conversion cycle
(c) Cash cycle
(d) None of the above
Operating cycle
85. Uses of funds include a (an)
(a) Decrease in cash
(b) Increase in any liability (c) Increase in fixed assets
(d) Tax refund
Increase in fixed assets
86. Which of the following would be included in a cash estimation budget?
(a) Depreciation charges
(b) Dividends (c) Goodwill
(d) Patent amortization
Dividends
87. Which of the following is not a cash outflow for the firm?
(a) Depreciation
(b) Dividends
(c) Interest payments
(d) Taxes
Depreciation
88. 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
Method of project financing used
89. 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
It is cash, ‘not accounting income that is central to the firm’s capital budgeting decision
90. Commission 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
Has the prospect of long-term benefits
91. 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 paisa in present value for each current rupee invested.
(d) The payback period is less than one year.
The project returns 85 paisa in present value for each current rupee invested.
92. 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 win be greater than 0
If the PI of a project is less than 1, its NPV should be less than 0
93. Based on risk and return, you would say that Project A is preferred over Project B because it has lower dispersion and a higher expected net present value by Rs. 1,000.
(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
Project A dominates project B
94. To decrease a given present value, the discount rate should be adjusted:
(a) Upward
(b) Downward
(c) No change
(d) Constant
Upward
95. Process of evaluating financing and investing options available to a firm is :
(a) Planning
(b) Budgeting called
(d) None of these
Planning
96. 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 buildup with long-term debt
(c) Financing seasonal needs with short-term funds
(d) Financing some long term needs with short-term funds
Financing some long term needs with short-term funds
97. 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 more current liabilities
(c) Reducing current assets, increasing, current liabilities, and reducing long-term debt
(d) Replacing short-term debt with equity
Reducing current assets, increasing, current liabilities, and reducing long-term debt
98. In deciding the appropriate level of current assets for the firm, management s 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
A trade-off between profitability and risk
99. In finance “working capital” means the same thing as:
(4) Total assets
(b) Fixed assеть
(2) Current assets
(d) Current assets minus current habilities
Current assets