Business Finance MCQs

Question 1

Examine the following statements.
(i) Payback Period Method measures the true profitability of a project.
(ii) Capital Rationing and Capital Budgeting mean the same.
(iii) Internal Rate of Return and Time Adjusted Rate of Return are the same.
(iv) Rate of Return Method takes into account the time value of money.

Accepted Answer

Only (iii) is correct

Answer

(i), (ii) and (iii) are correct

Answer

(ii) and (iii) are correct

Answer

All (i), (ii), (iii) and (iv) are false

Question 2

Assertion (A): Investors in the capital market seem to be inclined to fixed income securities. Reason (R): Debt instruments now have an active secondary market.

Accepted Answer

(A) is correct, but (R) is incorrect

Answer

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

Answer

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

Answer

(A) is not correct, but (R) is correct

Question 3

For the computation of cost of equity, arrange the following measures in the ascending order of accuracy
1. Capital Asset Pricing Model
2. Dividend-Price Ratio
3. Earning-Price Ratio
4. Dividend-Price Plus Growth Ratio

Accepted Answer

3, 2, 4, 1

Answer

1, 3, 2, 4

Answer

4, 1, 3, 2

Answer

2, 4, 1, 3

Question 4

Assertion (A): A furores contract specifies in advance the exchange rate to be used, but it is not as flexible as a forward contract. Reason (R): A futures contract is for a specific currency amount and a specific marurity date.

Accepted Answer

(R) is a correct explanation of (A)

Answer

(R) is not a correct explanation of (A)

Answer

(A) and (R) are not related to each other

Answer

(R) is irrelevant for (A)

Question 5

Statement-I: In the payback period method, the risk of the project is adjusted by lessening the target payback period. Statement-II: Sensitivity analysis helps in the calculation of the net present value of the proposal.

Accepted Answer

Statement-I is correct, but statement-II isincorrect

Answer

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

Answer

Statement-I and statement-II are correct

Answer

Statement-I and statement-II are incorrect

Question 6

Match the following. List-I List-II a. Net income approach 1. Also known as 'Intermediate Approach' b. Net operating income approach 2. Change in the capital structure of a company does not affect the market value of the company and overall cost of capital c. Traditional approach 3. It provide analytical sound and logically consistent behavioural justification for their hypothesis d. Modigliani Miller approach 4. A firm can minimise the overall cost of capital by using debt financing to the maximum extent

Accepted Answer

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

Answer

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

Answer

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

Answer

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

Question 7

Cash flow management involves 1. Lock-box system 2. Marketable securities 3. Playing the float 4. Concentration bank account Select the correct answer:

Accepted Answer

1, 3 and 4

Answer

1, 2 and 3

Answer

2, 3 and 4

Answer

1, 2 and 4

Question 8

Once the changeover to the euro was completed by 1 st July, 2002, the legal-tender status of national currencies in the euro zone

Accepted Answer

was cancelled, leaving the euro as the sole legal tender in the euro zone countries

Answer

was affirmed at the fixed exchange rate

Answer

was tied to gold

Answer

None of the above

Question 9

Which of the following are the main features of Zero Coupon Bonds?
1. They are called deep discount bonds.
2. The price paid by investors is less than their face value.
3. The bonds are redeemed at par.

Accepted Answer

1, 2 and 3

Answer

1 and 3

Answer

1 and 2

Answer

2 and 3

List-I	List-II
a. Net income approach	1. Also known as 'Intermediate Approach'
b. Net operating income approach	2. Change in the capital structure of a company does not affect the market value of the company and overall cost of capital
c. Traditional approach	3. It provide analytical sound and logically consistent behavioural justification for their hypothesis
d. Modigliani Miller approach	4. A firm can minimise the overall cost of capital by using debt financing to the maximum extent