Business Finance MCQs

Question 1

Which of the following is not a type of financial lease arrangement?

Accepted Answer

Indirect leasing

Answer

Sale and leaseback

Answer

Leveraged leasing

Answer

All of the above

Question 2

Interim cash inflows are reinvested at a rate of return equal to the internal rate of return is the built-in-mechanism for

Accepted Answer

Internal Rate of Return Method

Answer

Net Present Value Method

Answer

Profitability Index Method

Answer

None of the above

Question 3

Hedging in the futures market

Accepted Answer

Does both A and B

Answer

Eliminates the opportunity for gains

Answer

Eliminates the opportunity for losses

Answer

Increases the earnings potential of the portfolio

Question 4

When interest rates fall, a bank perfectly hedging its portfolio of treasury secure futures market

Accepted Answer

Has no change in its income

Answer

Suffers a loss

Answer

Experiences a gain

Answer

None of the above

Question 5

A profitability index (PI) of .95 for a project means

Accepted Answer

The project returns are 95 paise in present value for each current rupee invested

Answer

The project's costs (cash outlay) are less than the present value of the project's benefits

Answer

The project's NPV is greater than zero

Answer

The project's NPV is greater than one

Question 6

Which of the following is false? Companies repurchase their own shares:

Accepted Answer

To manipulate the share market price

Answer

To reduce the cost of capital when equity costs more than debt

Answer

To return surplus cash to shareholders

Answer

The shares are undervalued

Question 7

Arrange the following in chronological order about the events of operating cycle. 1. Conversion of accounts receivable into cash. 2. Conversion of finished goods into accounts receivable. 3. Conversion of raw materials into work-in-process. 4. Conversion of work-in-process into finished goods.

Accepted Answer

3, 4, 2, 1

Answer

3, 1, 4, 2

Answer

4, 3, 2, 1

Answer

1, 3, 2, 4

Question 8

Debt financing is a cheaper source of finance because of

Accepted Answer

Tax deductibility of interest

Answer

Time value of money

Answer

Rate of interest

Answer

Dividends are not payable to lenders

Question 9

Which of the following is not included in the assumptions on which Myron Gordon proposed a model on stock valuation?

Accepted Answer

Finite life of the firm

Answer

Retained earnings the only source of financing

Answer

Taxes do not exist

Answer

Constant rate of return on the firm's investment