Business Finance MCQs

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       ACC 501 mcqs

1.    Which of the following is the process of planning and managing a firm’s long-term investments? 
Select correct option: 

Capital Structuring 
Capital Rationing 
Capital Budgeting 
Working Capital Management 

2.    Which of the following refers to the cash flows that result from the firm’s day-to-day activities of producing and selling? 
Select correct option: 

Operating Cash Flows 
Investing Cash Flows 
Financing Cash Flows 
All of the given options 

3.    The coupon rate of a floating-rate bond is capped and upper and lower rates are called: 
Select correct option: 

Float 
Collar 
Limit 
Surplus 

4.    Which of the following is the acronym for GAAP? 
Select correct option: 

Generally Applied Accountability Principles 
General Accounting Assessment Principles 
Generally Accepted Accounting Principles 
General Accepted Assessment Principles 

5.    Which of the following strategy belongs to restrictive policy regarding size of investments in current assets? 
Select correct option: 

To maintain a high ratio of current assets to sales 
To maintain a low ratio of current assets to sales 
To less short-term debt and more long-term debt 
To more short-term debt and less long-term debt 

6.    Quick Ratio is also known as: 
Select correct option: 

Current Ratio 
Acid-test Ratio 
Cash Ratio 
None of the given options 

7.    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? 
Select correct option: 

Sole-proprietorship 
Partnership 
Corporation 
None of the given options 

8.    If you have Rs. 30 in asset A and Rs. 120 in another asset B, the weights for assets A and B will be __ and __ respectively. 
Select correct option: 

20%; 80% 
37%; 63% 
63%; 37% 
80%; 20% 

9.    Which of the following terms refers to the costs to store and finance the assets? 
Select correct option: 

Carrying costs 
Shortage costs 
Storing costs 
financing costs 

10. Which one of the following statement is INCORRECT regarding MACRS depreciation? 
Select correct option: 

Every asset is assigned to a particular class which establishes asset’s life for tax purposes.

11.
Depreciation is computed for each year by multiplying the cost of the asset by a fixed percentage. 

     Annual depreciation remains constant every year even by using different rates. 

     The expected salvage value and the actual expected economic life are not explicitly           considered in calculation of depreciation. 

12. Which of the following statement is CORRECT regarding compound interest? 
Select correct option: 

It is the most basic form of calculating interest.
It earns profit not only on principal but also on interest. 
It is calculated by multiplying principal by rate multiplied by time. 
It does not take into account the accumulated interest for calculation. 

13. Mr. A has just recently started a business by investing a capital of Rs. 500,000. He will be the only owner of the business and also enjoy all the profits of the business. Which type of business is being employed by Mr. A? 
Select correct option: 

Sole-proprietorship 
Partnership 
Corporation 
None of the given options 

14. Time value of money is an important finance concept because: 
Select correct option: 

It takes risk into account 
It takes time into account 
It takes compound interest into account 
All of the given options 

15. The preferred stock of a company currently sells for Rs. 25 per share. The annual dividend of Rs. 2.50 is fixed. Assuming a constant dividend forever, what is the rate of return on this stock? 
Select correct option: 

5.00 percent 
7.00 percent 
8.45 percent 
10.0 percent 

16. Which of the following ratios are particularly interesting to short-term creditors? 
Select correct option: 

Liquidity Ratios 
Long-term Solvency Ratios 
Profitability Ratios 
Market Value Ratios 

17. Which of the following equation is known as Cash Flow (CF) identity? 
Select correct option: 

CF from Assets = CF to Creditors – CF to Stockholder 
CF from Assets = CF to Stockholders – CF to Creditors 
CF to Stockholders = CF to Creditors + CF from Assets 
CF from Assets = CF to Creditors + CF to Stockholder

18. One would be indifferent between taking and not taking the investment when: 
Select correct option: 

NPV is greater than Zero 
NPV is equal to Zero 
NPV is less than Zero 
All of the given options

19. Which of the following is (are) a non-cash item(s) ? 
Select correct option: 

Revenue 
Expenses 
Depreciation 
All of the given options

20. Which of the following is NOT a shortcoming of Payback Rule? 
Select correct option: 

Time value of money is ignored 
It fails to consider risk differences 
Simple and easy to calculate 
None of the given options

21. 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? 
Select correct option: 

Rs. 1,000 because it has the higher future value 
Rs. 1,000 because you receive it sooner 
Rs. 1,050 because it is more money 
Either because both options are of equal value

22. What is the effective annual rate of 7 percent compounded monthly? 
Select correct option: 

7.00 percent 
7.12 percent 
7.19 percent 
7.23 percent

23. Which of the following forms of business organizations is created as a distinct legal entity owned by one or more individuals or entities? 
Select correct option: 

Sole-proprietorship 
General Partnership 
Limited Partnership 
Corporation

24. Business risk depends on which of the following risk of the firm’s assets ? 
Select correct option: 

Systematic Risk 
Diversifiable Risk 
Unsystematic Risk 
None of the given options

25. Which of the following type of risk can be eliminated by diversification? 
Select correct option: 

Systematic Risk 
Market Risk 
Unsystematic Risk 
None of the given options

26. Which of the following measure reveals how much profit a company generates with the money shareholders have invested? 
Select correct option: 

Profit Margin 
Return on Assets 
Return on Equity 
Debt-Equity Ratio

27. Which of the following is(are) the basic area(s) of Finance? 
Select correct option: 

Financial institutions 
International finance 
Investments 
All of the given options

28. Which of the following is the return that firm’s creditors demand on new borrowings ? 
Select correct option: 

Cost of debt 
Cost of preferred stock 
Cost of common equity 
Cost of retained earnings

29. Systematic Risk is also known as: 
Select correct option: 

Diversifiable Risk 
Market Risk 
Residual Risk 
Asset-specific Risk

30.  ABC Corporation has two shareholders; Mr. Aamir with 50 shares and Mr. Imran with 70 shares. Both want to be elected as one of the four directors but Mr. Imran doesn’t want Mr. Aamir to be director. How much votes would Mr. Aamir be able to cast as per cumulative voting procedure? 
Select correct option: 

70 
120 
200 
280