In the name of ALLAH, the most beneficient, the most merciful

Business Finance (ACC501)

Multiple Choice Questions (MCQs)

Objective Questions

  1. Decisions about “how to raise money” and “what to do with it” are part of which of the following?

    1. Business Finance
    2. Change management
    3. Costing for accounting
    4. All of the given
  2. If a firm’s debt ratio is 45%, this means _______ of the firm’s assets are financed by equity financing.

    1. 50%
    2. 55%
    3. 45%
    4. Cannot be determined without more information
  3. XYZ Company has a ROE of 12 percent and a dividend payout ratio of 40 percent. What is the firm’s maximum sustainable rate of growth?

    1. 3.73%
    2. 5.93%
    3. 7.76%
    4. 9.17%
  4. Which of the following statement measures performance over a specific period of time?

    1. Income Statement
    2. Balance Sheet
    3. Cash Flow Statement
    4. Retained Earning Statement
  5. Business Finance addresses which of the following?

    1. Capital budgeting
    2. Capital structure
    3. Working capital management
    4. All of the given
  6. Who of the following make a broader use of accounting information?

    1. Accountants
    2. Financial Analysts
    3. Auditors
    4. Marketers
  7. Agency problems can be controlled by which of the way?

    1. Monitor what the agent is doing?
    2. Employ auditors to review company books to make sure funds are used properly
    3. Pay bonus share to manager as compensation plan
    4. All of the given
  8. Which of the following measure reveals how much profit a company generates with the money shareholders have invested?

    1. Profit Margin
    2. Return on Assets
    3. Return on Equity
    4. Debt-Equity Ratio
  9. A business owned by a single person is known as:

    1. Sole-proprietorship
    2. General partnership
    3. Limited partnership
    4. Corporation
  10. In how many years, an amount will be doubled at a discount rate of 8 percent?

    1. 3 years
    2. 6 years
    3. 9 years
    4. Cannot be determined without more information
  11. Between the two identical bonds having different coupon, the price of the ________ bond will change less than that of ________ bond.

    1. Higher-coupon; lower-coupon
    2. Lower-coupon; higher-coupon
    3. Long-term; short-term
    4. None of the given
  12. Balance sheet for a company reports current assets of Rs. 700,000 and current liabilities of Rs. 460,000. What would be the Current Ratio for the company if there is an inventory level of Rs. 120,000?

    1. 1.01 times
    2. 1.26 times
    3. 1.39 times
    4. 1.52 times
  13. Which of the following ratios is NOT from the set of Asset Management Ratios?

    1. Inventory Turnover Ratio
    2. Receiveable Turnover
    3. Capital Intensity Ratio
    4. Return on Assets
  14. 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?

    1. Rs. 33,000
    2. Rs. 25,000
    3. Rs. 17,000
    4. Rs. 8,000
  15. 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 bank offers simple interest?

    1. Rs. 5,400
    2. Rs. 5,900
    3. Rs. 6,600
    4. Rs. 6,802
  16. Which of the given is (are) major difference(s) between net income and cash flow of the company?

    1. Accounts receivable only
    2. Depreciation only
    3. Accounts payable only
    4. All of the given
  17. Which of the following best represents the term "Financing"?

    1. It means raising money to acquire something.
    2. It is an object that provides services.
    3. It is trade license to trade securities on behalf of investors.
    4. It represents an ownership interest.
  18. Standard Corporation sold fully depreciated equipment for Rs. 5,000. This transaction will be reported on the cash flow statement as a(n):

    1. Operating activity
    2. Investing activity
    3. Financing activity
    4. None of the given
  19. The most important item that can be extracted from financial statements is the actual ________ of the firm.

    1. Net Working Capital
    2. Cash Flow
    3. Net Present Value
    4. None of the given
  20. The most common application of term "Finance" involves raising money to acquire _________.

    1. Land & Building
    2. Machinery & Equipment
    3. Inventory
    4. All of the given
  21. Which of the following issue is NOT covered by "Investment" area of finance?

    1. Best mixture of financial investment
    2. International aspects of corporate finance
    3. Associated risks and rewards
    4. Pricing financial assets
  22. Cash flow to the creditors can be calculated by using which one of the following expressions?

    1. Interest paid - retirement of debt - new borrowings + dividends
    2. Interest paid + retirement of debt + new borrowings - dividends
    3. Interest paid - retirement of debt - proceed from new borrowings
    4. Interest paid + retirement of debt - proceed from new borrowings
  23. 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?

    1. Sole-proprietorship
    2. Partnership
    3. Corporation
    4. None of the given
  24. In which of the following tax system, a tax payer is charged uniformly for all levels of his taxable income?

    1. Progressive Tax Rate
    2. Marginal Tax Rate
    3. Flat Tax Rate
    4. Average Tax Rate
  25. All of the followings are tax admissible items EXCEPT:

    1. Interest
    2. Dividend
    3. Salaries payable
    4. Depreciation
  26. Which of the following equation best represents Net Working Capital?

    1. Current liabilities - current assets
    2. Current assets - current liabilities
    3. Current assets = current liabilities
    4. None of the given
  27. Which of the following is a non-cash item?

    1. Tax
    2. Depreciation
    3. Account Receivables
    4. All of the given
  28. Period costs include which of the following?

    1. Selling expense
    2. Raw material
    3. Direct labor
    4. Manufacturing overhead
  29. Which of the following has "Limited liability" for business debts?

    1. Sole proprietorship
    2. General partnership
    3. Corporation
    4. All of the givem
  30. Net Income after taxation differs from Net Cash Flow from operations because:

    1. Depreciation expense is shown in the Cash Flow Statement and not in the Income Statement
    2. Non-cash items are included in the Income Statement, but not in the Cash Flow Statement
    3. Cash sales are shown in the Cash Flow Statement but not in the Income Statement
    4. Cash expenses are shown in the Cash Flow Statement but not in the Income Statement
  31. Mr. Ahmed wants to receive Rs. 1,800 forever at the end of each year. What will be the present value of this series of cash flow if rate of interest is 10%?

    1. Rs. 180
    2. Rs. 1,800
    3. Rs. 1,980
    4. Rs. 18,000
  32. Which of the following diffulty(ies) is(are) faced while valuing a common stock?

    1. Unknown future cash flows
    2. Life of investment is limited
    3. Coupon rate is difficult to determine
    4. All of the given
  33. Which of the following ratio is a way to measure a company's performance?

    1. Short-term solvency ratio
    2. Turnover ratio
    3. Profitability ratio
    4. Market value ratio
  34. Which one of the following formula will be used to calculate profit margin ratio?

    1. Profit Margin Ratio = Sales / Net income
    2. Profit Margin Ratio = Net income / Sales
    3. Profit Margin Ratio = Net income / CGS
    4. Profit Margin Ratio = Net income / Operating profit
  35. Time trend analysis of financial statements is used to compare the performance of firm with:

    1. Firm's own previous performance
    2. Performance of similar firms
    3. Performance of the industry
    4. Performance of all firms in country
  36. Which of the following set of ratios is used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time?

    1. Liquidity Ratios
    2. Leverage Ratios
    3. Profitability Ratios
    4. Market Value Ratios
  37. Mr. Ali has an opprtunity to invest Rs. 45,000 in a local bank at 13% compound interest rate for 6 years. What amount he will receive after 6 years?

    1. Rs. 93,690
    2. Rs. 80,100
    3. Rs. 97,500
    4. Rs. 65,770
  38. All of the following are the features of privately placed bonds EXCEPT:

    1. Pay regular interest payments as decided
    2. Pay principle amoumt at the time of maturity
    3. Offered to general public
    4. Cost of bonds considered as cost of doing business
  39. 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?

    1. 5.00 percent
    2. 7.00 percent
    3. 8.45 percent
    4. 10.0 percent
  40. Finance is vital for which of the following business activity (activities)?

    1. Marketing Research
    2. Product Pricing
    3. Design of marketing and distribution channels
    4. All of the given
  41. Which of the following form of business organization is least regulated?

    1. Sole proprietorship
    2. General Partnership
    3. Limited Partnership
    4. Corporation
  42. In which of the following form of business "All business income is not considered as personal income"?

    1. Corporate form
    2. Partnership
    3. Sole proprietorship
    4. None of the given
  43. In which form of business organizations, owners have limited liability?

    1. Sole proprietorship
    2. Partnership
    3. Joint stock company
    4. None of the given
  44. In which type of business, all owners share in gains and losses and all have unlimited liability for all business debts?

    1. Sole-proprietorship
    2. General Partnership
    3. Limited Partnership
    4. Corporation
  45. The conflict of interest between stockholders and management is known as:

    1. Agency problem
    2. Interest conflict
    3. Management conflict
    4. Agency cost
  46. Which of the following is the amount of cash we would get if we actually sell an asset?

    1. Market Value
    2. Book Value
    3. Intrinsic Value
    4. None of the given
  47. Which of the following item provides the important function of shielding part of income from taxes?

    1. Inventory
    2. Supplies
    3. Machinery
    4. Depreciation
  48. If a firm uses cash to purchase inventory, its current ratio will:

    1. Increase
    2. Decrease
    3. Remain unaffected
    4. Become zero
  49. JJ Inc. has a 4 percent return on total assets of Rs. 500,000 and a net profit margin of 5 percent. Total sales for JJ Inc. would be :

    1. Rs. 150,000
    2. Rs. 200,000
    3. Rs. 250,000
    4. Rs. 400,000
  50. Which of the following terms refers to the use of debt financing?

    1. Operating Leverage
    2. Financial Leverage
    3. Manufacturing Leverage
    4. None of the given
  51. Time value of money is an important finance concept because:

    1. It takes risk into account
    2. It takes time into account
    3. It takes compound interest into account
    4. All of the given
  52. 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:

    1. Discounting
    2. Compounding
    3. Factorization
    4. None of the given