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Mcq’s
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..
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.
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
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
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
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 .
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..
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.
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..
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..
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
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
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.
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..
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.
Practice This Quiz on-line and evaluate your performance Start
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.
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..
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
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 .
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.
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..
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..
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
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
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
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..
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.
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.
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