Business Finance

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1. Which of the following is a series of constant cash flows that occur at the end of each period for some fixed number of periods?
A. Ordinary annuity
B. Annuity due
C. Perpetuity
D. None of the given options
Ordinary annuity.

2. During the accounting period, sales revenue is Rs. 25,000 and accounts receivable increases by Rs. 8,000. What will be the amount of cash received from customers for the period?
A. Rs. 33,000
B. Rs. 25,000
C. Rs. 17,000
D. Rs. 8,000
Right Answer: 17,000

Ref: Amount of cash received = total revenue increased - account receivable increased
= 25,000 - 8000 = 17,000.

3. The conflict of interest between stockholders and management is known as:
A. Agency problem
B. Interest conflict
C. Management conflict
D. Agency cost
Agency problem.

4. Which of the following form of business organization is least regulated?
A. Sole-proprietorship
B. General Partnership
C. Limited Partnership
D. Corporation
Sole-proprietorship.

5. Which of the following ratios are intended to address the firm’s financial leverage?
A. Liquidity Ratios
B. Long-term Solvency Ratios
C. Asset Management Ratios
D. Profitability Ratios
Long Term Solvency Measures
· These ratios are intended to address the firm’s long-run ability to meet its obligations, or its financial leverage..

6. Balance Sheet is based upon which of the following formula?
A. Assets = Liabilities – Stockholder’s equity
B. Assets + Liabilities = Stockholder’s equity
C. Assets + Stockholder’s equity = Liabilities
D. Assets = Liabilities + Stockholder’s equity
Assets = Liabilities + Stockholder’s equity.

7. Quick Ratio is also known as:
A. Current Ratio
B. Acid-test Ratio
C. Cash Ratio
D. None of the given options
Acid-test Ratio.

8. Which of the following is a special case of annuity, where the stream of cash flows continues forever?
A. Ordinary Annuity
B. Special Annuity
C. Annuity Due
D. Perpetuity
Perpetuity.

9. You just won a prize, you can either receive Rs. 1000 today or Rs. 1,050 in one year. Which option do you prefer and why if you can earn 5 percent on your money?
A. Rs. 1,000 because it has the higher future value
B. Rs. 1,000 because you receive it sooner
C. Rs. 1,050 because it is more money
D. Either because both options are of equal value
.
10. Which of the following ratios are particularly interesting to shortterm creditors?
A. Liquidity Ratios
B. Long-term Solvency Ratios
C. Profitability Ratios
D. Market Value Ratios
Liquidity Ratios.

SET-2

Practice This Quiz on-line and evaluate your performance

1. AST Company has a current ratio of 4:3. Current Liabilities reported by the company are Rs. 30,000. What would be the Net Working Capital for the company?
A. Rs. 40,000
B. (–Rs. 40,000)
C. Rs. 10,000
D. (–Rs. 10,000)
C .
Current ratio = Current Assets / Current Liabilities
4:3 =? / 30,000
If 1/3 of 100% is 30,000 then .

2. In which form of Business, owners have limited liability.
A. sole proprietorship
B. partnership
C. joint stock company
D. none of the above
C .
Share holders of a company have the liability up to the number of shares purchased or amount invested only.

3. Which of the following item provides the important function of shielding part of income from taxes?
A. Inventory
B. Supplies
C. Machinery
D. Depreciation
D.
Depreciation expenses are deducted from net income for tax purpose..

4. The process of determining the present value of a payment or a stream of payments that is to be received in the future is known as:
A. Discounting
B. Compounding
C. Factorization
D. None of the given options
A.
Future value is discounted back at the given interest rate to find out the current worth of the amount to be received in future..

5. You need Rs. 10,000 to buy a new television. If you have Rs. 6,000 to invest at 5 percent compounded annually, how long will you have to wait to buy the television?
A. 8.42 years
B. 10.51 years
C. 15.75 years
D. 18.78 years
B.
Using financial calculator, Put PV =6000, Rate = 5%, FV, 10,000 and solve for Nper. 10.47 Close to the 10.51.

6. Which of the following equation is known as Cash Flow (CF)
identity?
A. CF from Assets = CF to Creditors – CF to Stockholder
B. CF from Assets = CF to Stockholders – CF to Creditors
C. CF to Stockholders = CF to Creditors + CF from Assets
D. CF from Assets = CF to Creditors + CF to Stockholder
D.
It’s the accounting equation
Assets = Liability + Equity.

7. In which of the following type of annuity, cash flows occur at the beginning of each period?
A. Ordinary annuity
B. Annuity due
C. Perpetuity
D. None of the given options
A.
Annuity due is paid at the end of the year that’s why its called annuity due..

8. Between the two identical bonds having different maturity periods, the price of the ______ bond will change less than that of ______ bond.
A. long-term; short-term
B. short-term; long-term
C. lower-coupon; higher-coupon
D. None of the given options
B.
The longer the time to maturity, all else being equal, increases duration. Higher duration = higher sensitivity to interest rate changes.
Interest rates higher = price lower..

9. Which of the given area is NOT addressed by Business Finance?
A. Financing
B. Investing
C. Managing day today expenses
D. None of the given options
D.
All of the given areas are addressed by Business Finance..

10. Which of the following form of business organization is least regulated?
A. Sole-proprietorship
B. General Partnership
C. Limited Partnership
D. Corporation
A.
They don’t have any obligation to be regulated according to business laws..

11. Which of the following is measured by profit margin?
A. Operating efficiency
B. Asset use efficiency
C. Financial policy
D. Dividend policy
A.
Profit margin ratio is calculated to determine how efficiently the business is generating cash from operations (below taxes and interest).

12. A company having a current ratio of 1 will have ________ net working capital.
A. Positive
B. Negative
C. zero
D. None of the given options
C.
NWC = CA – CL
If Current ratio = 1:1, its means assets are equal to liabilities.
So, net working capital is zero..

13. Business Finance addresses which of the following?
A. Capital budgeting
B. Capital structure
C. Working capital management
D. All of the given options
D. .

14. In which type of business, all owners share in gains and losses and all have unlimited liability for all business debts?
A. Sole-proprietorship
B. General Partnership
C. Limited Partnerhsip
D. Corporation


15. Which of the following is measured by retention ratio?
A. Operating efficiency
B. Asset use efficiency
C. Financial policy
D. Dividend policy
D.
Retention ratio determines how much amount of net income is retained for re-investment and how much is paid as dividend..

16. How many years will it take to pay off a Rs. 11,000 loan with a Rs. 1,241.08 annual payment and a 5% interest rate?
A. 6 years
B. 12 years
C. 24 years
D. 48 years

Using financial calculator in excel, Put, PV = 11,000, PMT, 1241.08, Rate = 5% and solve for Nper = 12 Years.

17. Which one of the following terms refers to the risk arises for bond owners from fluctuating interest rates?
A. Fluctuations Risk
B. Interest Rate Risk 
C. Real-Time Risk
D. Inflation Risk


18. Which of the following set of ratios relates the market price of the firm's common stock to selected financial statement items?
A. Liquidity Ratios
B. Leverage Ratios
C. Profitability Ratios
D. Market Value Ratios

It determines the market price or fair value of the common stock of company and compare it with the items of balance sheet like shareholder’s equity etc.

19. If a firm uses cash to purchase inventory, its quick ratio will:
A. Increase
B. Decrease
C. Remain unaffected
D. Become zero

When inventory is purchased for cash, the cash is converted into inventories and there is no effect on net current assets. The current assets remain the same as before the purchase of inventory the current ratio will not be changed. Quick ratio, however, will be reduced if the cash is converted into inventories because while computing quick ratio inventories are not added but cash is included in quick assets. (Quick assets / current liab.) Quick assets = current assets-inventories.

20. Standard Corporation sold fully depreciated equipment for Rs.5,000. This transaction will be reported on the cash flow
statement as a(n):
A. Operating activity
B. Investing activity
C. Financing activity
D. None of the given options

Investing activities – changes in investments and long-term assets
Cash inflows:
From sale of property, plant, and equipment.
From sale of investments in debt or equity securities of other entities.
From collection of principal on loans to other entities.
Cash outflows:
To purchase property, plant, and equipment.
To purchase investments in debt or equity securities of other entities.
To make loans to other entities..

SET-3

1. Which of the following ratios are particularly interesting to short term creditors?
A. Liquidity Ratios
B. Long-term Solvency Ratios
C. Profitability Ratios
D. Market Value Ratios 

2. Financial policy is evaluated by which of the following?
A. Profit Margin
B. Total Assets Turnover
C. Debt-equity ratio
D. None of the given options
As this ratio determines how leveraged an organization is. Or how much an organization is relying on debt..

3. Mr. Y and Mr. Z are planning to share their capital to run a business. They are going to employ which of the following type of business?
A. Sole-proprietorship
B. Partnership
C. Corporation
D. None of the given options
Having more than 2 owners of a business entity is called “Partnership”. Having more than seven owners of a business entity is called corporation..
4. When the market's required rate of return for a particular bond is much less than its coupon rate, the bond is selling at:
A. Premium
B. Discount
C. Par
D. Cannot be determined without more information

If the bond's price is higher than its par value, it will sell at a premium because its interest rate is higher than current prevailing rates..

5. Which of the following statement is considered as the accountant’s snapshot of firm’s accounting value as of a particular date?
A. Income Statement
B. Balance Sheet
C. Cash Flow Statement
D. Retained Earning Statement
B. 

6. Finance is vital for which of the following business activity (activities)?
A. Marketing Research
B. Product Pricing
C. Design of marketing and distribution channels
D. All of the given options
D. 
Finance is important for all departments of an organization. 

7. The most important item that can be extracted from financial statements is the actual ________ of the firm.
A. Net Working Capital
B. Cash Flow
C. Net Present Value
D. None of the given options
B.

8. A firm has paid out Rs. 150,000 as dividends from its net income of Rs. 250,000. What is the retention ratio for the firm?
A. 12%
B. 25%
C. 40%
D. 60%
C. 
Retention ratio = Net income – Dividend / Net income
= 250 – 150 / 250 = 0.4 or 40%

9. If a firm’s debt ratio is 45%, this means _____ of the firm’s assets are financed by equity financing.
A. 50%
B. 55%
C. 45%
D. Cannot be determined without more information
B. 
The equity portion plus the debt portion must add up to 100%
Debt ratio = Debt / Total Assets
45% = 45 / 45 + 55 
45% = 45%

10. Which of the following ratios is NOT from the set of Asset Management Ratios?
A. Inventory Turnover Ratio
B. Receivable Turnover
C. Capital Intensity Ratio
D. Return on Assets
C. 
The capital intensity ratio is a financial calculation measuring how much a company is invested in total assets compared to how much it is earning in revenue. Where as Asset turn over ratio determines how efficiently or effectively an organization is using its assets.

11. Which of the following statement about bond ratings is TRUE?
A. Bond ratings are typically paid for by a company’s bondholders.
B. Bond ratings are based solely on information acquired from sources other than the bond issuer.
C. Bond ratings represent an independent assessment of the credit-worthiness of bonds.
D. None of the given options
C. 

12. If you plan to save Rs. 5,000 with a bank at an interest rate of 8%, what will be the worth of your amount after 4 years if
interest is compounded annually?
A. Rs. 5,400
B. Rs. 5,900
C. Rs. 6,600
D. Rs. 6,802
D. 
FV = PV * (1+ i) ^n
= 5,000 (1+0.08) ^4
= 6802

13. Which of the following statement is TRUE regarding debt?
A. Debt is an ownership interest in the firm.
B. Unpaid debt can result in bankruptcy or financial failure.
C. Debt provides the voting rights to the bondholders.
D. Corporation’s payment of interest on debt is fully taxable.
B. 

14. A firm reports total liabilities of Rs. 300,000 and owner’s equity of Rs. 500,000. What would be the total worth of the firm’s
assets?
A. Rs. 300,000
B. Rs. 500,000
C. Rs. 800,000
D. Rs. 1100,000
C. 
Assets = Liabilities + Owner’s Equity
= 300,000 + 500,000
= 800,000

15. Which of the following measure reveals how much profit a company generates with the money shareholders have invested?
A. Profit Margin
B. Return on Assets
C. Return on Equity
D. Debt-Equity Ratio
C. 

16. If you have Rs. 850 and you plan to save it for 4 years with an interest rate of 10%, what will be the future value of your
savings?
A. Rs. 1,000
B. Rs. 1,244
C. Rs. 1,331
D. Rs. 1,464

FV = PV * (1+ i) ^n
= 850 * (1+0.1)^4
= 1244

17. In case of international business which of the given factor(s) must be considered?
A. Role of foreign exchange
B. Balance of payments
C. Attitude of Governments
D. All of the given options


18. Which of the following refers to the difference between the sale price and cost of inventory?
A. Net loss
B. Net worth
C. Markup
D. Markdown

Mark up/margin is the extra amount charged by business to it customer to earn profit. It’s the difference between sales price and cost.

19. Who of the following make a broader use of accounting information?
A. Accountants
B. Financial Analysts
C. Auditors
D. Marketers
B. 
Financial analysts make extensive use of accounting information; they are some of the most important end users. Understanding finance helps accountants recognize what types of information are particularly valuable and, more generally, how accounting information is actually used (and abused) in practice.
20. Rule of 72 for finding the number of periods is fairly applicable
to which of the following range of discount rates?
A. 2% to 8%
B. 4% to 25%
C. 5% to 20%
D. 10% to 50%

This rule is fairly applicable to discount rates in 5% to 20% range. Finding the Number of Periods:.
21. A portion of profits, which a company distributes among its shareholders, is known as:
A. Dividends
B. Retained Earnings
C. Capital Gain
D. None of the given options