Business Finance MCQs

Question 1

Match the following. List-I List-II a. Market risk 1. It is known as insolvency risk b. Inflation risk 2. Risk caused due to demand and supply pressure c. Credit risk 3. Risk due to inability to meet firm's financial obligations d. Financial risk 4. Exchange in real value of return as a result of rise in production cost

Accepted Answer

a-2, b-4, c-1, d-3

Answer

a-4, b-3, c-1, d-2

Answer

a-1, b-3, c-2, d-4

Answer

a-3, b-2, c-1, d-4

Question 2

Assertion (A): The IRR of a project is the discount rate which reduces its NPV to zero. Reason (R): A project is worth accepting if the IRR exceeds the cost of capital.

Accepted Answer

Both (A) and (R) are true

Answer

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

Answer

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

Answer

Both (A) and (R) are false

Question 3

Assertion (A): Weighted average cost of capital should be used as a hurdle rate for accepting or rejecting a capital budgeting proposal. Reason (R): It is because by financing in the proportions specified and accepting the project, yielding more than the weighted average required return, the firm is able to increase the market price of its stock.

Accepted Answer

Both (A) and (R) are true

Answer

Both (A) and (R) are false

Answer

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

Answer

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

Question 4

In which of the following stock exchanges, the GDRs are listed?
1. London Stock Exchange
2. New York Stock Exchange
3. Luxembourg Stock Exchange
4. Bombay Stock Exchange
5. Singapore Stock Exchange
6. Hong Kong Stock Exchange
Select the correct answer using the options given below

Accepted Answer

1, 3, 5 and 6

Answer

1, 2 and 3

Answer

1, 4, and 6

Answer

3, 5 and 6

Question 5

The main advantages of hedging are
(i) Limiting losses
(ii) Increases liquidity
(iii) Lowers margin outlay
(iv) Exchange rate fluctuations
(v) Application of different tax rates
(vi) Covering political risk in foreign investments

Accepted Answer

(i), (ii), (iii), (iv), (v) and (vi)

Answer

(i), (ii), (iv) and (v)

Answer

(i), (ii), (iii) and (iv)

Answer

(ii), (iii), (iv) and (v)

Question 6

The modern approach to financial management is (i) The total fund requirement of the firm. (ii) The asset to be acquired. (iii) The payment of dividend to the shareholders.

Accepted Answer

(i), (ii) and (iii)

Answer

(i) only

Answer

(ii) only

Answer

(ii) and (iii)

Question 7

Statement-I: Working capital leverage measures the responsiveness of return on equity for changes in current assets. Statement-II: When the annual demand for an item is 3,200 units, the unit cost is Rs. 6, inventory carrying charges is 25% p.a., and the cost of one procurementis Rs. 50, the economic ordering quantity would be 700 units.

Accepted Answer

Both statements are incorrect

Answer

Both statements are correct

Answer

Statement-I is correct, but Statement-II is incorrect

Answer

Statement-I is incorrect, but Statement-II is correct

Question 8

Which of the following statements are true on wealth maximization?
(i) It takes into account the long-term approach.
(ii) It recognizesthe risk of uncertainty.
(iii) It takes into account the time value of money.
(iv) It takes into account the returns.
(v) It ignores stock market prices.

Accepted Answer

(i), (ii), (iii) and (iv)

Answer

(i), (ii), (iii) and (v)

Answer

(i), (iii) and (iv)

Answer

(i), (ii), (iii) and (v)

Question 9

Which of the following are part of investment decision by an organization? (1) Cost of capital (2) Measuring risk (3) Expansion and contraction of business activities (4) Buy, hire, or lease an asset

Accepted Answer

1, 2, 3 and 4

Answer

1, 2 and 3

Answer

2, 3 and 4

Answer

2, 3 and 4

List-I	List-II
a. Market risk	1. It is known as insolvency risk
b. Inflation risk	2. Risk caused due to demand and supply pressure
c. Credit risk	3. Risk due to inability to meet firm's financial obligations
d. Financial risk	4. Exchange in real value of return as a result of rise in production cost