Business Finance MCQs

Question 1

Dividend policy of a company mainly concerns with 1. Dividend payout and/or 2. Stability of dividend Select the correct answer using the options given below

Accepted Answer

Both 1 and 2

Answer

Only 1

Answer

Only 2

Answer

None of the above

Question 2

On the basis of the following information, what will be the EBIT corresponding to financial indifference point?
Total capital outlay is Rs. 60,00,000
Financing Plans is 100% Equity is at Rs. 10/- per share
Debt-equity ratio is 2 : 1
Rate of interest is 18% p.a.
Corporate tax rate is 40%

Accepted Answer

Rs. 10,80,000

Answer

Rs. 10,00,000

Answer

Rs. 12,00,000

Answer

Rs. 12,80,000

Question 3

Arrange the following in the proper order for decision under capital budgeting.
(i) Estimating the cost and benefits of proposals.
(ii) Deciding the investment objective.
(iii) Selecting the best investment proposal.
(iv) Applying the capital budgeting decision technique.

Accepted Answer

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

Answer

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

Answer

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

Answer

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

Question 4

Arrange the following steps involved in capital budgeting in order of their occurrence i. Project selection ii. Project appraisal iii. Project generation iv. Follow up v. Project execution

Accepted Answer

iii, ii, i, v, iv

Answer

ii, iii, i, v, iv

Answer

i, iii, ii, v, iv

Answer

i, ii, iii, v, iv

Question 5

Assertion (A): The weighted average cost of capital should be used as a hurdle rate for accepting or rejecting a capital budgeting proposal. Reason (R): 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 6

Assertion (A): When two or more investment proposals are mutually exclusive, ranking the proposals on the basis of IRR, NPV, and PI methods may give contradictory results. Reason (R): The contradictory results in the ranking are due to differing dimensions relating to the scale of investments, cash flow patterns, and project lives. Indicate the correct answer.

Accepted Answer

(A) is true, (R) is a necessary condition, but not a sufficient condition

Answer

Both (A) and (R) are true

Answer

Both (A) and (R) are false

Answer

Both (A) and (R) are true, and (R) explains the reason sufficiently

Question 7

The issues in international capital budgeting include 1. Exchange rate risk 2. Political risk 3. Geographical risk 4. Parent vs project cash flow

Accepted Answer

1, 2 and 4

Answer

Both 1 and 2

Answer

Both 2 and 4

Answer

1, 2 and 3

Question 8

Which of the following techniques for appraisal of investment proposals are based on time value of money?
1. Accounting rate of return
2. Internal rate of return
3. Profitability index method
4. Earnings per share
Select the correct answer:

Accepted Answer

Both 2 and 3

Answer

Both 1 and 2

Answer

Both 1 and 4

Answer

1, 2 and 4

Question 9

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

Accepted Answer

Statement I is correct, but Statement II is wrong

Answer

Statement I is wrong, but Statement II is correct

Answer

Both statements are correct

Answer

Both statement are wrong