Business Finance MCQs

Question 1

MM theory in perfect market suggests that dividend payment

Accepted Answer

has no impact on the value of a firm

Answer

has a positive impact on the value of a firm

Answer

has a negative impact on the value of a firm

Answer

has negligible impact on the firm

Question 2

Shareholders demand higher returns in compensation for increased levels of risk. It should be called

Accepted Answer

Risk-averse

Answer

Excess return

Answer

Risk-free rate

Answer

Diversification

Question 3

The presence of fixed costs in the total cost structure of firm results in

Accepted Answer

Operating leverage

Answer

Financial leverage

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Super leverage

Answer

None of the above

Question 4

A firm operating in India cannot hedge its foreign currency exposure through

Accepted Answer

options

Answer

forwards

Answer

futures

Answer

None of these

Question 5

'That personal leverage can replace corporate leverage' is assumed by

Accepted Answer

MM Model

Answer

Traditional Approach

Answer

Net Income Approach

Answer

Net Operating Income Approach

Question 6

Which of the following statements regarding covariance is correct?

Accepted Answer

Covariance can take on positive, negative, or zero values

Answer

Covariance always lies in the range -1 to +1

Answer

Covariance, because it involves a squared value, must always be a positive number (or zero)

Answer

Low covariance among returns for different securities leads to high portfolio risk

Question 7

. . . . . . . . is considered as a creative capital performing economic functions different from other investment vehicles, primarily serving as the expansion capital.

Accepted Answer

Venture Capital

Answer

Equity Capital

Answer

Fixed Capital

Answer

Share Capital

Question 8

In a certainty-equivalent approach, risk-adjusted cash flows are discounted at

Accepted Answer

Risk-free Rate

Answer

Accounting Rate of Return

Answer

Internal Rate of Return

Answer

Hurdle Rate

Question 9

While determining the normal rate of return for the valuation of shares in Market Value Method, which of the following should be taken into consideration?

Accepted Answer

All of the above

Answer

The degree of risk involved

Answer

The current rate of interest on gilt-edged securities

Answer

The weighted average cost of capital