Business Finance MCQs

Question 1

Operating leverage and financial leverage of a firm are 3 and 2, respectively. If the sale increases by 6%, then earnings before tax will rise by

Accepted Answer

36%

Answer

18%

Answer

12%

Answer

30%

Question 2

The following is an example of the core principle 'information is the basis for decisions.'

Accepted Answer

lenders requires credit scores on individuals who want to take out loans

Answer

Wealthy depositors are the bank's best customers

Answer

Payment made over time generally add upto more than the original loan amount

Answer

Car insurance is often required by law

Question 3

The maturity period of a commercial paper usually ranges from

Accepted Answer

90 to 364 days

Answer

20 to 40 days

Answer

60 to 90 days

Answer

120 to 365 days

Question 4

Which method of stock repurchase occurs when the buyer purchases securities through a brokerage house?

Accepted Answer

Open-market

Answer

Dutch-auction

Answer

Fixed-price

Answer

Fair-warning

Question 5

Which of the following is the critical assumption of Walter's Model?

Accepted Answer

All of the above

Answer

All financing is through retained earnings; external sources of funds like debt or new equity capital are not used

Answer

The retention ratio, once decided upon, is constant. Thus, the growth rate, (g = br) is also constant

Answer

The capital markets are perfect, and the investors behave rationally

Question 6

A portfolio having two risky securities can be turned risk less, if

Accepted Answer

the securities are completely negatively correlated

Answer

the correlation ranges between zero and one

Answer

the securities are completely positively correlated

Answer

None of the above

Question 7

The investors may be willing to pay a premium for stable dividends because of the informational content of . . . . . . . ., the desire of investors for . . . . . . . ., and certain . . . . . . . .

Accepted Answer

Dividends; current income; institutional considerations

Answer

Institutional considerations; dividends; current income

Answer

Current income; dividends; institutional considerations

Answer

Institutional considerations; current income; dividends

Question 8

Indicate the correct combination of discounting techniques from the following techniques of capital budgeting decision. I. Profitability Index II. Net Present Value III. Accounting Rate of Return IV. Internal Rate of Return

Accepted Answer

I, II, IV

Answer

I, II, III

Answer

II, III, IV

Answer

I, III, IV

Question 9

Assertion (A): The financial statements prepared on a historical cost basis, results in an erosion of capital in the long run. Reason (R): Maintaining the books of accounts as per the current purchasing power technique only may contain the inflationary pressure. Which is the correct statement?

Accepted Answer

Both (A) and (R) are true, but (R) is not the correct explanation of (A)

Answer

Both (A) and (R) are true, and (R) is the correct explanation of (A)

Answer

(A) is true, but (R) is false

Answer

(A) is false, but (R) is true