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ACC501 Quiz Conference
(lecture 1 to 18)
1. Which of the following issue is NOT covered by “Investment” area of finance?
Select correct option:

Best mixture of financial investment

International aspects of corporate finance
Associated risks and rewards
Pricing financial assets

2. Period costs include which of the following?

Select correct option:

Selling expense
Raw material
Direct labor
Manufacturing overhead

3. Product costs include which of the following?

Select correct option:
Selling expenses
General expenses
Manufacturing overhead
Administrative expenses

4. Financial policy is evaluated by which of the following?

Select correct option:

Profit Margin
Total Assets Turnover
Debt-equity ratio
None of the given options

5. Cash flow from assets involves which of the following component(s)?

Select correct option:
Operating cash flow
Capital spending
Change in net working capital
All of the given options

6. 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

7. Finance is vital for which of the following business activity (activities)?

Select correct option:
Marketing Research
Product Pricing
Design of marketing and distribution channels
All of the given options

8. Which of the following costs are reported on the income statement as the cost of goods
sold?
Select correct option:

Product cost
Period cost
Both product cost and period cost
Neither product cost nor period cost

9. Standard Company had net sales of Rs. 750,000 over the past year. During that time,
average receivables were Rs. 150,000. Assuming a 365-day year, what was the average
collection period?
Select correct option:

5 days
36 days
48 days
73 days

750000/150000=5
365/5=73days

10. Which of the following terms refers to the use of debt financing?
Select correct option:

Operating Leverage
Financial Leverage
Manufacturing Leverage
None of the given options
11. In which type of market, new securities are traded?
Select correct option:

Primary market
Secondary market
Tertiary market
None of the given options

12. 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
13. shows the sources from which cash has been generated and how it has been spent
during a period of time?
Select correct option:

Income Statement
Balance Sheet
Cash Flow Statement
Owner’s Equity Statement
14. Standard Corporation sold fully depreciated equipment for Rs. 5,000. This transaction
will be reported on the cash flow statement as a(n):
Select correct option:

Operating activity
Investing activity
Financing activity
None of the given options

15. me: Quick Ratio is also known as:

Select correct option:

Current Ratio
Acid-test Ratio
Cash Ratio

16. of the following statement measures performance over a specific period of time?
Select correct option:

Income Statement
Balance Sheet
Cash Flow Statement
Retained Earning Statement

17. A portion of profits, which a company retains itself for further expansion, is known as:
Select correct option:

Dividends
Retained Earnings
Capital Gain
None of the given options

18. Net Income after taxation differs from Net Cash Flow from operations because:
Select correct option:

Depreciation expense is shown in the Cash Flow Statement and not in the Income Statement
Non-cash items are included in the Income Statement, but not in the Cash Flow Statement
Cash sales are shown in the Cash Flow Statement but not in the Income Statement
Cash expenses are shown in the Cash Flow Statement but not in the Income Statement

19. Which of the following statement shows assets, liabilities, and net worth as of a specific
date?
Select correct option:

Income Statement
Balance Sheet
Owner’s Equity Statement
Cash Flow Statement

20. A portion of profits, which a company retains itself for further expansion, is known as:
Select correct option:

Dividends
Retained Earnings
Capital Gain
None of the given options

21. Which one of the following is NOT a liquidity ratio?

Select correct option:

Current Ratio
Quick Ratio
Cash Coverage Ratio
Cash Ratio

22. Which of the following ratio gives an idea as to how efficient management is at using its
assets to generate earnings?
Select correct option:
Profit Margin
Return on Assets
Return on Equity
Total Assets Turnover

23. Which of the following is an example of capital spending?

Select correct option:

Purchase of Fixed Assets

Decrease in Net Working Capital
Increase in Net Working Capital
None of the given options

24. Which of the following is measured by profit margin?

Select correct option:

Operating efficiency
Asset use efficiency
Financial policy
Dividend policy

25. Who of the following make a broader use of accounting information?

Select correct option:

Accountants
Financial Analysts
Auditors
Marketers

26. 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?
Select correct option:

Liquidity Ratios
Leverage Ratios
Profitability Ratios
Market Value Ratios

27. A company having a current ratio of 1 will have __________ net working capital.
Select correct option:

Positive
Negative
zero
None of the given options

28. which of the following is not a form of business organization

Select correct option:
sole proprietorship
partnership
joint stock company
cooperative Society

29. Which of the following ratios are intended to address the firm’s financial leverage?
Select correct option:

Liquidity Ratios
Long-term Solvency Ratios
Asset Management Ratios
Profitability Ratios

30. The accounting definition of income is:

Select correct option:

Income = Current Assets - Current Liabilities

Income = Fixed Assets - Current Assets
Income = Revenues - Current Liabilities
Income = Revenues - Expenses

31. Which of the following item(s) is(are) not included while calculating Operating Cash
Flows?
Select correct option:
Depreciation
Interest
Expenses related to firm’s financing of its assets
All of the given options

32. Suppose market value exceeds book value by Rs. 250,000. What will be the after-tax
proceeds if there is a tax rate of 34 percent ?
Select correct option:
Rs. 105,600
Rs. 148,500
Rs. 165,000
Rs. 225,000
Solution=250000*34%=85000
250,000-85000=165000
33. When a corporation wishes to borrow from public on a long-term basis, it does so by
issuing or selling:
Select correct option:

Debt securities or bonds lec 17

Common Stocks
Preferred Stock
All of the given options

34. 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?
Select correct option:
Liquidity Ratios
Leverage Ratios
Profitability Ratios
Market Value Ratios

35. In which type of market, used securities are traded?

Select correct option:

Primary market
Secondary market
Tertiary market
None of the given options

36. Who of the following make a broader use of accounting information?

Select correct option:

Accountants
Financial Analysts lec 2
Auditors
Marketers

37. Which of the following is (are) a non-cash item(s) ?

Select correct option:

Revenue
Expenses
Depreciation
All of the given options

38. What will be the coupon value of a Rs. 1,000 face-value bond with a 10% coupon rate?
Select correct option:

Rs. 100
Rs. 510
Rs. 1,000
Rs. 1,100
Solution:
=1000/10
=100

39. Which of the following comes under the head of discounted cash flow criteria for capital
budgeting decisions?
Select correct option:

Payback Period lec 28

Net Present Value
Average Accounting Return
None of the given options
40. Period costs include which of the following?
Select correct option:

Selling expense
Raw material
Direct labor
Manufacturing overhead

41. The value of net working capital will be greater than zero when:
Select correct option:

Current Assets > Current Liabilities

Current Assets < Current Liabilities
Current Assets = Current Liabilities
None of the given options

42. According to Du Pont Identity, ROE is affected by which of the following?

Select correct option:
Operating efficiency
Asset use efficiency
Financial Leverage
All of the given options
43. Which of the following issue is NOT covered by “Investment” area of finance?
Select correct option:
Best mixture of financial investment
International aspects of corporate finance
Associated risks and rewards
Pricing financial assets

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

45. 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?
Select correct option:
1.01
1.26
1.39
1.52
Solution= 700000/460000=1.52

46. In which type of business, all owners share in gains and losses and all have unlimited
liability for all business debts?
Select correct option:
Sole-proprietorship
General Partnership pg 6
Limited Partnerhsip
Corporation

47. a firm uses cash to purchase inventory, its current ratio will:
Select correct option:

Increase
Decrease
Remain unaffected
Become zero

48. Which of the following is a special case of annuity, where the stream of cash flows
continues forever?
Select correct option:

Ordinary Annuity
Special Annuity
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Annuity Due
Perpetuity

49. Which of the following is an example of positive covenant?

Select correct option:
Maintaining any collateral or security in good condition
Limiting the amount of dividend according to some formula Restricting pledging assets to other lenders
Barring merger with another firm
50. Which of the following refers to the difference between the sale price and cost of
inventory?
Select correct option:
Net loss
Net worth
Markup
Markdown

51. Which of the following allows a company to repurchase part or all of the bond issue at a
stated price?
Select correct option:
Repayment
Seniority
Call provision
Protective covenants
52. ____________ shows the sources from which cash has been generated and how it has
been spent during a period of time?
Select correct option:
Income Statement
Balance Sheet
Cash Flow Statement
Owner’s Equity Statement

53. Which of the following is a cash flow from financing activity?

Select correct option:
Cash outflow to the government for taxes
Cash outflow to shareholders as dividends
Cash outflow to lenders as interest
Cash outflow to purchase bonds issued by another company

54. Which of the following form of business organization is least regulated?

Select correct option:
Sole-proprietorship
General Partnership
Limited Partnership
Corporation
55. The principal amount of a bond at issue is called:
Select correct option:
Par value
Coupon value
Present value of an annuity
Present value of a lump sum

56. Which of the following relationships holds TRUE if a bond sells at a discount?
Select correct option:
Bond Price < Par Value and YTM > coupon rate
Bond Price > Par Value and YTM > coupon rate
Bond Price > Par Value and YTM < coupon rate
Bond Price < Par Value and YTM < coupon rate

57. When a corporation wishes to borrow from public on a long-term basis, it does so by
issuing or selling:
Select correct option:
Debt securities or bonds
Common Stocks
Preferred Stock
All of the given options

58. Which of the following item provides the important function of shielding part of income
from taxes?
Select correct option:

Inventory
Supplies
Machinery
Depreciation

59. 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?
Select correct option:

Rs. 300,000
Rs. 500,000
Rs. 800,000
Rs. 1100,000
sol
Asset= liabilities+ capital so 300+500=800,000

60. 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
61. in which form of Business, owners have limited libility.
Select correct option:
sole proprietorship
partnership
joint stock company
none of the above

62. 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

63. The difference between current assets and current liabilities is known as:
Select correct option:
Surplus Asset
Short-term Ratio
Working Capital
Current Ratio

64. A borrower is able to pay Rs. 40,000 in 5 years. Given a discount rate of 12 percent,
what amount of money the lender should lend?
Select correct option:
Rs. 14,186
Rs. 18,256
Rs. 22,697
Rs. 28,253
solution
40000*1/(1+0.12)^5=22697.07
65. Which of the following statement is considered as the accountant’s snapshot of firm’s
accounting value as of a particular date?
Select correct option:
Income Statement
Balance Sheet
Cash Flow Statement
Retained Earning Statement
66. The principal amount of a bond at issue is called:
Select correct option:
Par value
Coupon value
Present value of an annuity
Present value of a lump sum
67. Which of the following statement about bond ratings is TRUE?
Select correct option:
Bond ratings are typically paid for by a company’s bondholders.
Bond ratings are based solely on information acquired from sources other than the bond issuer.
Bond ratings represent an independent assessment of the credit-worthiness of bonds. None of the given options
68. 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
69. Which of the following is NOT an internal use of financial statements information?
Select correct option:
Planning for the future through historic information
Evaluation of performance through profit margin and return on equity Evaluation of credit standing of new
customer
None of the given options
70. 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?
Select correct option:
12 %
25 %
40 %
60 %
Solution
Net income-dividend / net income *100
250000-150000/250000*100=40%
A company having a current ratio of 1 will have __________ net working capital. Select correct option:

Positive
Negative
zero
None of the given options
71. A portion of profits, which a company distributes among its shareholders, is known as:
Select correct option:

Dividends
Retained Earnings
Capital Gain
None of the given options

72. 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
73. Which of the following ratios is NOT from the set of Asset Management Ratios?
Select correct option:

Inventory Turnover Ratio

Receivable Turnover
Capital Intensity Ratio
Return on Assets

74. 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

75. Which of the following terms refers to the use of debt financing?
Select correct option:

Operating Leverage
Financial Leverage
Manufacturing Leverage
None of the given options
b
76. 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?
Select correct option:

8.42 years
10.51 years
15.75 years
18.78 years
6000(1+5%)^10.51=around 10,000

77. Which of the following is an example of positive covenant?

Select correct option:

Maintaining firm’s working capital at or above some specified minimum level

Furnishing audited financial statements periodically to the lender Maintaining any collateral or security in good
condition
Restricting selling or leasing assets
78. Which of the following is measured by retention ratio?
Select correct option:
Operating efficiency
Asset use efficiency
Financial policy
Dividend policy

79. Which of the following statement shows assets, liabilities, and net worth as of a specific
date?
Select correct option:

Income Statement
Balance Sheet
Owner’s Equity Statement
Cash Flow Statement
Armaan: b

80. Product costs include which of the following?

Select correct option:

Selling expenses
General expenses
Manufacturing overhead
Administrative expenses

81. An account was opened with an investment of Rs. 3,000 ten years ago. The ending
balance in the account is Rs. 4,100. If interest was compounded, how much
compounded interest was earned?
Select correct option:
Rs. 500
Rs. 752
Rs. 1,052
Rs. 1,100
4100-3000=1100

82. 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

83. Which of the following cash flow activities are reported in the Cash Flow Statement and
Income Statement?
Select correct option:

Operating Activities
Investing Activities
Financing Activities
All of the given options
84. Which of the following term refers to establish of a standard to follow for comparison?
Select correct option:

Benchmarking 48
Standardizing
Comparison
Evaluation

85. Which of the following is measured by profit margin?

Select correct option:

Operating efficiency pg 44
Asset use efficiency
Financial policy
Dividend policy

86. Rule of 72 for finding the number of periods is fairly applicable to which of the
following range of discount rates?
Select correct option:

2% to 8%
4% to 25%
5% to 20%
10% to 50%

87. Which of the following refers to a conflict of interest between principal and agent?
Select correct option:

Management Conflict
Interest Conflict
Agency Problem
None of the given options

88. 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?
Select correct option:

Ordinary annuity 63
Annuity due
Perpetuity
None of the given options

89. Which of the following area of finance deals with stocks and bonds?
Select correct option:

Financial institutions
International finance
Investments
All of the given options

90. 7:03 AM Which of the following is NOT an external use of financial statements
information?
Select correct option:

Evaluation of credit standing of new customer

Evaluation of financial worth of supplier
Evaluation of potential strength of the competitor
Evaluation of performance through profit margin and return on equity

91. 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

92. If a firm has a ROA of 8 percent, sales of Rs. 100,000, and total assets of Rs. 75,000.
What is the profit margin?
Select correct option:

4.30%
6.00%
10.70%
16.73%
solution
Net income =ROA*total asset
Net income=8%*75000=6000
Profit margin=net income/ sales*100
Profit margin=6000/100000*100= 6%

93. 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
94. 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
95. Quick Ratio is also known as:
Select correct option:

Current Ratio
Acid-test Ratio
Cash Ratio
None of the given options
96. 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
97. 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%
98. When corporations borrow, they generally promise to: I. Make regular scheduled
interest payments II. Give the right of voting to bondholders III. Repay the original
amount borrowed (principal) IV. Give an ownership interest in the firm
Select correct option:
I and II
I and III
II and IV
I, III, and IV

99. Which of the following is NOT included in a bond indenture?

Select correct option:
The basic terms of bond issue
The total amount of bonds issued
A personal profile of the issuer
A description of the security
100. What would be the present value of Rs. 10,000 to be received after 6 years at a
discount rate of 8 percent?
Select correct option:

Rs. 6,302
Rs. 9,981
Rs. 14,800
Rs. 15,869
101. Which of the following statement is TRUE regarding debt?
Select correct option:

Debt is an ownership interest in the firm.

Unpaid debt can result in bankruptcy or financial failure.
Debt provides the voting rights to the bondholders.
Corporation’s payment of interest on debt is fully taxable.

102. 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

103. Which of the following is a special case of annuity, where the stream of cash flows
continues forever?
Select correct option:

Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity

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Date :25-11-2010
1.The time between sale of inventory and collection of receivable.
a account receivable
b operation cycle
c inventory period
d none of above

2. allow a bank to substitute its creditworthiness for the customer, for a fee is
called___________-

a open bank account

b commercial draft
c promisory note
d banker accetptance

3.Standard deviations for Investment A and Investment B are 25% and 12%
respectively. This indicates that :
Select correct option:
Investment A is less volatile than Investment B
Investment B is equally volatile to Investment A
Investment A is more volatile than Investment B
Investment B is more volatile than Investment A

4. find the average 2%,5%,6%,8%

a 5%
b 5.25 %
c 6%
d 8%
5 what is standard deviation of thise averages 2%,5%, 7%
6.As the dividend is always same for a zero growth stock, so the stock can also be
viewed as
7.Which of the following statement shows revenue, expense, and net worth as
of a specific date?

a balance sheet
b income statement
c cashflow
d none of above
8. which of the following character is not a systematic risk
market risk
interest risk
inflation risk
strike call in a company
9. A company has a two director and 1 shareholder which hav 25 power of share
the voter for director is
a 100
b150
c50
d25

10.An investment will be _________ if the IRR doesn’t exceeds the required
return and _________ otherwise.
Select correct option:
Accepted; rejected
Accepted; accepted
Rejected; rejected
Rejected; accepted

11. Which of the following is the overall return the firm must earn on its existing
assets to maintain the value of the stock?
Select correct option:
IRR (Internal Rate of Return)
MIRR (Modified Internal Rate of Return)
WACC (Weighted Average Cost of Capital)
AAR (Average Accounting Return)

12. 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

13.In which type of projects, the unequal lives of the projects do affect the analysis
?
Select correct option:
Mutually exclusive
Dependent
Independent
Correlated

14.Mr. Naveed has bought 100 shares of a corporation one year ago at Rs. 23 per
share. Over the last year, he received a dividend of Rs. 1.50 per share. At the end
of the year, the stock sells for Rs. 31. As per given information, what will be his
total percentage return ?
Select correct option:
10.63%
20.20%
35.12%
41.30%
 15.Which of the following is known as the group of assets such as stocks and
bonds held by an investor ?
Select correct option:
Stock Bundle
Portfolio
Capital Structure
None of the given options

16. Suppose the initial investment for a project is Rs. 16 million and the cash flows
are Rs. 4 million in the first year and Rs. 9 million in the second and Rs. 5 million in
the third. The project will have a payback period of:
Select correct option:
2.6 Years
3.1 Years
3.7 Years
4.1 Years

17. find the cash cycle inventory period is 38 days account payabel period is 50
days and average accoun receivable period is 30 days
a.68
b 18
c 80
d 118

1.
Choose the Most Appropriate Answer among the given choices.

1. The difference between the return on a risky investment and that on a risk-
free investment.

A. Risk Return
B. Risk Premium
C. Risk Factor
D. None of the above
2. A group of assets such as stocks and bonds held by an investor.

A. Portfolio
B. Capital Structure
C. Budget
D. None of the above
3. If the variance or standard deviation is larger then the spread in returns will
be:

A. Less
B. More
C. Same
D. None of the Above
4. The following risk is entirely wiped out by Diversification.

A. Systematic Risk
B. Unsystematic Risk
C. Portfolio Risk
D. Total Risk
5. The objective for using the concept of Diversification is to :

A. Minimize the Risk

B. Maximize the return
C. A&B
D. None of the Above
6. While studying the relationship in risk and return, It is commonly known
that:

A. Higher the risk, lower the return

B. Lower the risk, higher the return
C. Higher the risk, higher the return
D. None of the above
7. This type of risk affects almost all types of assets.

A. Systematic Risk
B. Unsystematic Risk
C. Total Risk
D. Portfolio Risk
MCQ # 08 – 10 are based on the following data:

Suppose you bought 1,500 shares of a corporation at Rs. 25 each. After a year,
you received Rs. 3000 (Rs. 2 per share) in dividends. At the end of year the
stock sells for Rs. 30 each. If you sell the stock at the end of the year, your
total cash inflow will be Rs. 48,000 (1500 shares @ 30 each = Rs. 45000 &
Dividend = 3000).

8. According to the given data, the Capital Gain will be:

A. 10,500
B. 7,500
C. 10,000
D. 7,000
9. According to the given data, the Dividend yield will be:

A. 8.50 %
B. 6.25%
C. 8.00%
D. 6.67%
10. According to the given data, Total Percentage Returns will be:

A. 20%
B. 28%
C. 32%
D. 35%
1. Which one of the given options involves the sale of new securities from the issuing company to general public?

A. Secondary market
B. Primary market
C. Capital market
D. Money market

2. In financial statement analysis, shareholders focus will be on the:

A. Liquidity of the firm

B. Long term cash flow of the firm
C. Profitability and long term health of the firm
D. Return on investment

3. The statement of cash flows helps users to assess and identify all of the following except:

A. The impact of buying and selling fixed assets.

B. The company's ability to pay debts, interest and dividends.
C. A company's need for external financing.
D. The company's reliance on capital leases.

4. Suppose Younas Corporation has balance of merchandise of 5000 units. It wants to sell 2000 units at 90% of its
cost on cash. What would be the affect of this transaction on the current ratio?

A. Fall
B. Rise
C. Remain unchanged
D. None of the given option

5. If the interest rate is 18% compounded quarterly, what would be the 8-year discount factor?

A. 1.42215
B. 2.75886
C. 3.75886
D. 4.08998
6. You have a cash of Rs.150, 000. If a bank offers four different compounding methods for interest, which
method would you choose to maximize the value of your Rs.150, 000?
A. Compounded daily
B. Compounded quarterly
C. Compounded semiannually
D. Compounded annually

7. Ali Corporation has a cash coverage ratio of 6.5 times. Whereas its earning before interest and tax is Rs.750
million and interest on long term loan is Rs.160 million. What would be the annual depreciation for the current
year?
A. a.Rs. 200 million
B. b.Rs.240 million
C. c.Rs.275 million
D. d.Rs.290 million

8. Suppose RZ Corporation sales for the year are Rs.150 million. Out of this 20% of the sales are on cash basis
while remaining sales are on credit basis. The past experience revealed that the average collection period is 45
days. What would be the receivable turnover ratio?
A. 6.12 times
B. 7.11 times
C. 8.11 times
D. 9.11 times

9. A bank offers 20% compounded monthly. What would be the effective annual rates of return?
A. 20.00%
B. 20.50%
C. 21.00%
D. 21.99%

10. Nz Corporation reported earning before interest and taxes of Rs.500, 000 for the current year. It has taken a
long term loan of Rs.2 million from a local bank @ 10% interest. The tax is charged at the rate of 32%.What will
be the saving in taxes due to presence of debt financing in the capital structure of the firm?
A. Rs.60, 000
B. Rs.64, 000
C. Rs.72, 000
D. Rs.74, 000

1. Ntp Corporation has decided to pay Rs.16 per share dividend every year. If this policy is to continue indefinitely, then
the value of a share of stock would be --------------, if the required rate of return is 25%?

a. Rs.60

b. Rs.64

c. Rs.68

d. Rs.74

2. MT Corporation has a previous year dividend of Rs.14 per share where as investors require a 17% return on the similar
stocks .The Company’s dividend grows by 7%.The price per share in this case would be______________.

a. Rs.149.8

b. Rs.184.9

c. Rs.198.4

d. Rs.229.9

3. RTU Corporation stock is selling for Rs.150 per share. The next dividend is Rs.35 per share and it is expected to grow
14% more or less indefinitely. What would be the return does this stock offer you if this is correct?
a. 17%

b. 27%

c. 37%

d. 47%

4. Suppose a Corporation has 3 shareholders; Mr.Salman with 25 shares, Mr. Kareem with 35 shares, and Mr.Amjad with
40 shares. Each wants to be elected as one of the six directors. According to cumulative voting rule Mr.Kareem would
cast

a. 150 votes

b. 210 votes

c. 240 votes

d. 300 votes

5. ________ is the market in which already issued securities are traded among investors.

a. Primary market

b. Secondary market

c. Financial market

d. Capital market

6. Suppose Mehran Corporation is dealing in the Automobile industry. Based on projected costs and sales, it expects that
the cash flows over the 3-year life of the project will be Rs.5, 000,000 in first year, Rs.7, 000,000 in the next year and
Rs.8, 000,000 in the last year. This project would cost about Rs. 10,000,000.The net present value of the project would
be ________, if discount rate is assumed to be 25%.

a. Rs.2, 576, 000

b. Rs.3, 576, 000

c. Rs.1, 576, 000

d. Rs.4, 576, 000

7. The Projected cash flows from a proposed investment are

Year Cash Flows

Rs.500,000
Rs.800,000
Rs.600,000
The projects costs are Rs.1, 500,000. The payback period for this investment would be ______________.

a. 1.50 years

b. 2.00 years

c. 2.33 years

d. 3.00 years

8. Suppose Z Corporation, has the present value of its future cash flows is Rs.450, 000 and the project has a cost of
Rs.300, 000, then the profitability index would be ________________.

a. 0.667

b. 1

c. 1.25

d. 1.50

9. Fee paid to the consultant for evaluating the project is an example of ______________.

a. Opportunity cost

b. Sunk cost

c. Decremental cost

d. None of the given option

10. If the sales of the AB corporation is Rs.20, 000,000 where as its cost is

Rs.12, 000,000 during the same period. Assume the annual tax rate is 37%.Its annual depreciation is Rs.5, 000, 000.The
operating cash flow of the organization would be _______________.

a. Rs. 3,810,000
 b. Rs. 4,810,000

c. Rs. 5,190,000

d. Rs. 6,890,000

Select the correct option form the following choices:

1. Treasury notes and bonds are:

a. Default free
b. Taxable
c. Highly liquid
d. All of the given options

2. The difference between an investment’s market value and its cost is called the __________ of the investment.
a. Net present value
b. Economic value
c. Book value
d. Future value

3. When real rate is high, all the interest rates tend to be _______.
a. Higher
b. Lower
c. Constant
d. None of the given options

4. _______ is a grant of authority by a shareholder to someone else to vote the shareholder’s share.
a. Cumulative voting
b. Straight voting
c. Proxy voting
d. None of the given options

5. The payment of the dividend is at the discretion of the:

a. Chairman
b. Board of directors
c. Shareholders
d. Stakeholders

6. Based on ________ the investment is accepted if the _____ exceeds the required return. It should be rejected
otherwise.
a. Profitability index
b. Payback period
c. Internal rate of return
d. Net present value

7. If two investments are mutually exclusive, then taking one of them means that:
a. We cannot take the other one
b. The other is pending for the next period
c. The projects are independent
d. None of the given options

8. Profitability index (PI) rule is to take an investment, if the index exceeds______:

a. -1
b. 0
c. 1
d. All of the given options

9. Average Accounting Return is a measure of accounting profit relative to:

a. Book value
b. Intrinsic value
c. Cost
d. Market value

10. It is not unusual for a project to have side or spillover effects both good and bad. This phenomenon is called:
a. Erosion
b. Piracy
c. Cannibalism
d. All of the given options

1. The average time between purchasing or acquiring inventory and receiving cash proceeds from its sale is called
--------------.

Operating Cycle
Cash Cycle
Receivable period
Inventory period

2. Which of the following does not affect cash cycle of a company?

a) Inventory period
b) Accounts receivable period
c) Accounts payable turnover
d) None of the given option

3. Mr.Munir purchased goods of Rs.100,000 on June01, 2006 from Zeeshan and brothers on credit terms of 3/10, net 30.
On June 09 Mr. Munir decided to make payment to Zeeshan and brothers. How much he would pay to Zeeshan and
brothers.
a) 100,000
b) 97,000
c) 103,000
d) 50,000

4. A firm has cash cycle of 100 days. It has an inventory turnover of 5 and receivable turnover of 2. What would be its
accounts payable turn over?
a) 3.347 approximately
b) 5.347 approximately
c) 2.347 approximately
d) 6.253 approximately
5. During the financial year 2005-2006 ended on June 30, the cash cycle of Climax company was 150 days, and its
payable turnover was 5. What was the operating cycle of the company during 2005-2006?
a) 234 days
b) 223 days
c) 245 days
d) 230 days

6. Which of the following is the cheapest source of financing available to a firm?

a) Bank loan
b) Commercial papers
c) Trade credit
d) None of the given options.

7. Which of the following illustrates the use of a hedging (or matching) approach to financing?
a) Short-term assets financed with long-term liabilities.
b) Permanent working capital financed with long-term liabilities.
c) Short-term assets financed with equity.
d) All assets financed with a 50 percent equity, 50 percent long-term debt mixture

8. --------------- is an incentive offered by a seller to encourage a buyer to pay within a stipulated time.
a) Cash discount
b) Quantity discount
c) Float discount
d) All of the given options

9. If a firm has a net float less than zero, then which of the following statements is true about the firm.
a) The firm’s disbursement float is less than its collection float.
b) The firm’s collection float is equal to zero.
c) The firm’s collection float is less than its disbursement float.
d) None of the given options.

10. Financing a long-lived asset with short-term financing would be

a) An example of "moderate risk -- moderate (potential) profitability" asset financing.
b) An example of "low risk -- low (potential) profitability" asset financing.
c) An example of "high risk -- high (potential) profitability" asset financing.
d) An example of the "hedging approach" to financing

Note: Correct options have been highlighted.

1. Suppose Flatiron Corporation has a debt-to- equity ratio of 2/3. You are analyzing the capital structure of this
Corporation. Base on debt-to- equity ratio of the corporation, how much portion of the capital structure is financed
through equity.
a) 66.67%
b) 33.34%
c) 0%
d) 60%
2. Suppose the common stocks of Bonanza Corporation have book value of $29 per share. The market price of these
common stocks is $69.50 per share. The corporation paid $5.396 per share in dividend last year and analysts estimate
that this dividend will grow at a rate of 6% through the next three years. Using the dividend growth model, estimated
cost of equity of Bonanza corporation would be
a) 11.15%
b) 16.13%
c) 15.80%
d) 13.14%

3. Which statement is true about the relationship between weighted average cost of capital and value of a firm in the eyes
of investors?
a) They have a direct relationship
b) They have an indirect relationship
c) They have spontaneous relationship
d) None of the given options

4. ---------------- refers to the extent to which fixed-income securities (debt and preferred stock) are used in a firm's capital
structure.

a) Financial risk
b) Portfolio risk
c) Operating risk
d) Market risk

5. Let’s imagine that Sony Corporation currently uses no-debt financing, it has decided to go for capital restructuring. As
result it would incorporate $ 1 billion of debt at 6.6% p.a in its capital structure. Sony Corporation has 30 million Shares
outstanding and the price per share is $ 125. If the restructuring is expected to increase EPS, what would be the
minimum level of EBIT that Sony management must be expecting?
a) $202,200,000
b) $247,500,000
c) $283,500,000
d) $321,250,000

6. A corporation has WACC of 13.5 %( excluding taxes). The current borrowing rate in the market is 9.25%.If the
corporation has a target capital structure of 65% equity (there is no preferred stock in the capital structure of the
corporation) and 35% debt, what would be the cost of equity of this corporation?
a) 13.5%
b) 17.75%
c) 15.79%
d) 17.13%

7. Suppose Dux Corporation has current assets of $44 Million. Cash is 25% of the total current assets. After one year the
cash item increase by 12%.This increase in cash item is a
a) Source of cash
b) Use of cash
c) Neither of the source of cash nor a use of cash
d) None of the given option

8. During 2005 a merchandize sales company had cash sales of $56.25 million, which were 15% of the total sales. During
this period accounts receivables of the company were13% of total sales. What was the average collection period of the
company during 2005?
a) 62 days
b) 18 days
c) 56 days
d) 19 days

9. Suppose that Pearson Corporation has a capital structure which consists of both equity and debt. It had issued two
million worth of bonds at 6.5 % p.a. The tax rate is 40%. Its EBIT is one million. The present value of tax shield for
Pearson corporation would be
a) Rs.1,000,000
b) Rs.1,200,000
c) Rs800,000
d) Rs.1,400,000
10. The use of Personal borrowing to alter the degree of financial leverage is called _________________.

a) Homemade leverage
b) Financial leverage
c) Operating leverage
d) None of the given option

Choose the Most Appropriate Answer among the given choices.

1. _______________ refers to the most valuable alternative that is given up if a

particular investment is undertaken.

E. Sunk cost
F. Opportunity cost
G. Financing cost
H. All of the given options
2. SNT company paid a dividend of Rs. 5 per share last year. The stock’s current price
is Rs. 50 per share. Assuming that the dividends are estimated to grow steadily at 8%
per year, the cost of the capital for SNT company will be?

E. 13.07 %
F. 15.67 %
G. 16.00 %
H. 18.80 %
3. ________________ is the group of assets such as stocks and bonds held by an
investor.

E. Portfolio
F. Diversification
G. Stock Bundle
H. None of the given options
4. Which of the following measures the present value of an investment per dollar
invested?

E. Net Present Value (NPV)

F. Profitability Index (PI)
G. Average Accounting Return (AAR)
H. Internal Rate of Return (IRR)
5. If we have Rs. 150 in asset A and Rs. 250 in asset B, then the percentage of asset B
in the portfolio will be:

E. 37.5 %
F. 47.5 %
G. 62.5 %
H. 72.5 %
6. A risk that influences a large number of assets is known as:

E. Systematic Risk
F. Market Risk
G. Non-diversifiable Risk
H. All of the given options
7. Which of the following risk can be eliminated by diversification?

E. Systematic Risk
F. Unsystematic Risk
G. A & B
H. None of the given options
8. Suppose the initial investment for a project is Rs. 160,000 and the cash flows are Rs.
40,000 in the first year and Rs. 90,000 in the second and Rs. 50,000 in the third. The
project will have a payback period of:

E. 2.6 Years
F. 3.1 Years
G. 3.6 Years
H. 4.1 Years
9. A model which makes an assumption about the future growth of dividends is known
as:

E. Dividend Price Model

I. Dividend Growth Model
F. Dividend Policy Model
G. All of the given options
10. Which of the following is not a quality of IRR ?

E. Most widely used

J. Ideal to rank the mutually exclusive investments
F. Easily communicated and understood
G. Can be estimated even without knowing the discount rate

Most Appropriate Answer among the given choices has been selected..

1. _________ is a special case of annuity, where the stream of cash flows continues
forever.

I. Ordinary Annuity
J. Perpetuity
K. Dividend
L. Interest
2. If a bank offers 15% annual rate of return compounded quarterly, what would be
the Effective Annual Rate (EAR)?

I. 15.00 %
J. 15.34 %
K. 15.87 %
L. 16.42 %
3. A bond represents a _______________ made by an investor to the
________________.

I. loan; receiver
J. dividend; issuer
K. dividend, receiver
L. loan; issuer
4. When the interest rates fall, the bond is worth ______________.

I. More
J. Less
K. Same
L. All of the given options.
5. If SNT Corporation pays out 30% of net income to its shareholders as dividends.
What would be the Retention Ratio for SNT Corporation?

I. 30 %
J. 50 %
K. 70 %
L. 90 %
6. If sales are to grow at a rate higher than the sustainable growth rate, the firm must:

I. Increase Profit Margin

J. Increase Total Assets Turnover
K. Sell new shares
L. All of the given options.
7. ____________ is the current value of the future cash flow discounted at an
appropriate discount rate.

I. Present Value
J. Future Value
K. Capital Gain
L. Net Profit
8. SUMI Inc. has outstanding bonds having a face value of Rs. 500. The promised annual
coupon is Rs. 50. The bonds mature in 30 years and the market’s required rate on
similar bonds is 12% p. a. What would be the present value of each bond?

K. Rs. 319.45
L. Rs. 390.75
M. Rs. 419.45
N. Rs. 463.75
9. The sensitivity of Interest Rate Risk of a bond directly depends upon:

H. Time to maturity
I. Coupon rate
J. A and B
K. None of the given options
10. An insurance company offers to pay you Rs. 1000 per year if you pay Rs. 6,710 up
front. What would be the rate applicable in this 10-year annuity?

H. 8%
I. 10 %
J. 12 %
K. 14 %

Choose the Most Appropriate Answer among the given choices.

1. In the formula ke >= (D1/P0) + g, what does (D1/P0) represent?

A. The expected capital gains yield from a common stock

B. The expected dividend yield from a common stock

C. The dividend yield from a preferred stock

D. The interest payment from a bond

2. If you owned 100 shares of a company and there are three directors to be elected.

How much votes you would have as per cumulative voting procedure?

A. 100 Votes

B. 200 Votes

C. 300 Votes

D. 400 Votes

3. SNT Corporation has policy of paying a Rs. 6 dividend per share every year. If

this policy is to continue indefinitely, what will be the value of a share of stock at a

15% required rate of return?

A. Rs. 30

B. Rs. 40

C. Rs. 50

D. Rs. 60

4. Which of the following is NOT a characteristic of preferred stock?

A. Dividends on these stocks cannot be cumulative

B. These stocks have dividend priority over common stocks

C. These stocks have stated liquidating value

D. These bonds hold credit ratings much like bonds

5. A project has an initial investment of Rs. 400,000. What would be the NPV for the

project if it has a profitability index of 1.15?

A. Rs. 30000

B. Rs. 40,500

C. Rs. 50,000

D. Rs. 60,000

6. What will be the proper order of completion regarding the capital budgeting

process?

( I ) Perform a post-audit for completed projects;

( II ) Generate project proposals; ( III ) Estimate appropriate cash flows;

( IV ) Select value-maximizing projects; ( V ) Evaluate projects.

A. II, V, III, IV, and I

B. III, II, V, IV, and I

C. II, III, V, IV, and I

D. II, III, IV, V, and I

7. Following are the two cases:

Case I: Mr. A, as a financial consultant, has prepared a feasibility report for a

project for ABC Company that the company is planning to undertake. He has

suggested that the project is feasible.

Case II: Mr. A, as a financial consultant, has prepared a feasibility report of a

project for XYZ Company that the company is planning to undertake. He has

suggested that the project is not feasible.

The consultancy fee paid to Mr. A will be considered as:

A. Sunk cost in Case I and opportunity cost in Case II

B. Opportunity cost in Case I and sunk cost in Case II

C. Sunk Cost in both Case I and Case II

D. Opportunity cost in both Case I and Case II

8. Suppose you buy some stock for Rs. 35 per share. At the end of the year, the price

is Rs. 43 per share. During the year, you get a Rs. 4 dividend per share. What will

be the total percentage return?

A. 22.85 %

B. 25.16 %

C. 30.52 %

D. 34.29 %

9. If you have a portfolio with Rs. 10,000 in asset A and Rs. 15,000 in another asset B

then what will be the weight of Asset B in your portfolio?

A. 0.30

B. 0.40

C. 0.60

D. 0.75

10. Which of the following set of cash flows represents the change in the firm’s total

cash flow that occurs as direct result of accepting the project?

A. Relevant Cash Flows

B. Incremental Cash Flows

C. Negative Cash Flows

D. All of the given option

Choose the Most Appropriate Answer among the given choices.

1. 2. Time value of money is an important finance concept because:

A. It takes risk into account

B. It takes time into account

C. It takes compound interest into account

D. All of the given options

2. The present value of a sum of Rs. 100 to be received in the future will be:

A. More than Rs. 100

B. Equal to Rs. 100

C. Less than Rs. 100

D. None of the given options

3. You want to buy an ordinary annuity that will pay you Rs. 3,000 a year for the

next 20 years. You expect annual interest rates will be 8 percent over that time

period. The maximum price you would be willing to pay for the annuity will be

closest to:

A. Rs. 29,454

B. Rs. 34,325

C. Rs. 39,272

D. Rs. 49,023

4. You have Rs. 1,000 that you want to save. If four different banks offer four

different compounding methods for interest, which method should you choose to

maximize your Rs. 1,000?

A. Compounding quarterly

B. Compounding monthly

C. Compounding semi-annually

D. Compounding annually
5. If a bond sells at a high premium, then which of the following relationships hold

true?

A. Bond Price < Par Value and YTM > coupon rate

B. Bond Price > Par Value and YTM > coupon rate

C. Bond Price > Par Value and YTM < coupon rate

D. Bond Price < Par Value and YTM < coupon rate

6. What will be the value to you of a Rs. 2,000 face-value bond with an 8% coupon

rate when your required rate of return is 12% and time till maturity is 5 years?

A. Rs. 1,556

B. Rs. 1,712

C. Rs. 2,082

D. Rs. 2,420

7. Which of the following carry the provision that within a stipulated time period,

the bond may be converted into a certain number of shares of the issuing

corporation's common stock at a pre-stated price?

A. Convertible Bonds

B. Income Bonds

C. Put Bonds

D. None of the given options

8. Interest rates and bond prices :

A. Move in the same direction

B. Move in the opposite direction

C. Sometimes move in the same and sometimes in the opposite direction

D. Have no relation with each other

9. Long-term bonds have _________ risk of loss resulting from changes in interest

rates than do short-term bonds.

A. Less

B. Zero

C. More

D. None of the given options

 10. What will be real rate if the nominal rate is 17%, and the inflation rate is 5% ?

A. 6.639%

B. 8.251%

C. 10.00%

D. 11.43%

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

Which one of the following costs refers to an outlay that has already occurred and hence is not affected by the decision under consideration ?

Select correct option:

Sunk

Opportunity

Highlight the correct option:

1) The alternative name used for Interest Coverage Ratio is _____________________.

a. Time interest earned

b. Cash coverage ratio
c. Profit margin ratio
d. None of the given option

2) If you want to evaluate the performance of an organization, which one of the following ratios will be helpful to
you in evaluating the performance of an organization?

a. Return on short as well as long term investments

b. Return on equity and return on debt
c. Return on equity and profit margin
d. All of the given options

3) Imran Corporation is a firm dealing in hardware industry. It sold 5000 units of its product to Mr. Younas for a
sum of Rs.150, 000 whose cost was Rs.160, 000.What would be the effect of this transaction on current ratio of
the company if the current ratio was 0.80 before this transaction?
a. Increase
b. Decrease
c. Remain unchanged
d. None of the given option

4) Mehran Corporation is dealing in furniture industry. It has an equity multiplier of 1.78 times. The debt to
equity ratio would be _________________?

a. 0.38 times
b. 0.58 times
c. 0.78 times
d. 0.98 times

5) What would be the level of EBIT if Imran Corporation uses both debt as well as equity financing in its capital
structure, it has a cash coverage ratio of 7.5 times, annual interest expense is Rs.1 million and annual
depreciation is Rs.3 million?

a. Rs. 2.5 million

b. Rs. 3 million
c. Rs. 3.5 million
d. Rs.4.5 million

6) Suppose, Neumann Corporation has a debt to equity ratio of 0.45 times. Its return on equity is 18%.The return
on assets would be _______________.

a. 9.414 %
b. 10.414 %
c. 11.412 %
d. 12.414 %

7) Suppose, Ilyas Corporation is one of the dominant firms in electronics equipment industry. Its policy is very
clear about dealing with stackholders. It pays out 30% of its income in the form of dividend. If it pays a total
sum of Rs.150 millions as a dividend, then what would be the amount transferred to the retained earning
balance from current year profit?

a. Rs.150 millions
b. Rs.250 millions
c. Rs.350 millions
d. Rs.500 millions

8) Sian Corporation is one of the largest firms in the electronics industry covering 70% of the market share.
During the current year its performance is analysed by judging the various indicators. It has return on assets of
12.5% and retention ratio is 3/5. What would be the internal growth rate of the Sian Corporation?

a. 12.29%
b. 14.29%
c. 16.29%
d. 18.92%

9) What would be the sustainable growth rate if the Corporation has a Return on equity (ROE) of 20% and a
retention ratio of 4/6?

a. 25 %
b. 35 %
c. 29%
d. 45%

10) Rehan Corporation is dealing in agriculture products. Its annual gross sales are Rs.1975 millions. Out of which
34% are on cash basis. Their past collection experiences show that it has an average collection period of 76
days. What would be the balance of accounts receivable at the end of the year?

a. Rs.251.415 millions

b. Rs.261.415 millions

c. Rs.271.415 millions

d. Rs.281.415 millions

Choose and highlight the right option:

1. ROE in DuPont identity is affected by:

a. Operating efficiency
b. Asset usage efficiency
c. Financial leverage
d. All of the given options

2. A decrease in the percentage of net income paid out as a dividend, will increase the:
a. Return on assets ratio
b. Retention ratio
c. Leverage ratio
d. Profit margin

3. Which of the following does not change Current ratio of a business:

a. Efficient usage of current assets
b. Change in the nature of the firm
c. Change in Accounting method of the firm
d. Change in the management of the firm

4. Present value factor is:

a. (1+r) t
b. (1-r) t
c. 1/ (1+r) t
d. 1/ (1+r) 1/t

5. Depreciation expense is:

a. Operating expense
b. Investing expense
c. Financing expense
d. All of the given options

6. Internal growth rate tell how rapidly:

a. The firm grows
b. Sales of the firm grows
c. Profit of the firm grows
d. None of the given options

7. You can determine the number of periods (n) in a present value calculation, if you know:
a. Future amount
b. Present value
c. Interest rate
d. All of the given options

8. Which one of the present value factor is larger?

a. PV of 1 factor for 10%
b. PV of 1 factor for 12%
c. Both have the same effect
d. It cannot be determined

9. If we deposit Rs. 5,000 toady in an account paying 10%, how long does it take to grow to Rs. 10,000?
a. 5.27 years
b. 6.27 years
c. 7.2 7 years
d. 7.57 years

10. The future value of first Rs. 100 in 2 years at 8% discount is:
a. Rs. 116.64
b. Rs. 111.64
c. Rs. 164.64
d. Rs. 164.61
 Total marks: 10

1. Investing activities include:

a. Purchase of property, plant and equipment

b. Cash received from the issuance of stock or equity in the business.
c. Purchases of stock or other securities (other than cash equivalents)
d. Both a & c

2. Changes in cash from financing are "cash in" when:

a. Capital is raised
b. Assets increased
c. Liabilities decreased
d. Cash withdrawn

3. Generally, changes made in cash, accounts receivable, depreciation, inventory and accounts payable are reflected in:

a. Cash from operations activities

b. Cash from financing activities
c. Cash from investing activities
d. None of the given options

4. _________are short-term, temporary investments that can be readily converted into cash.

a. marketable securities
b. Cash equivalents
c. Treasury bills
d. All of the given options
5. The Cash flow statement records your_________ and expenditure at the end of the 'forecast' period.

a. Actual cash income

b. Un earned income
c. Coming year income
d. Last year’s income

6. Ratios look at the relationships between individual values and relate them to how a company:

a. Has performed in the past

b. Might perform in the future
c. Both a & b
d. None of the given options

7. The current ratio is also known as:

a. Working capital ratio

b. Leverage ratio
c. Turnover ratio
d. None of the given options

8. __________is concerned with the relationship between the long terms liabilities that a business has and its capital
employed.

a. Gearing
b. Acid test ratio
c. Working capital management
d. All of the given options
9. ____________give a picture of a company's ability to generate cash flow and pay it financial obligations:

a. Management ratios
b. Working capital ratios
c. Net profit margin ratios
d. Solvency Ratios

10. Balance sheet items expressed as percentage of:

a. Net sales
b. Total revenue
c. Total assets
d. Total liabilities

1. Ann is interested in purchasing Ted's factory. Since Ann is a poor negotiator, she hires Mary to
negotiate a purchase price. Identify the parties to this transaction from the given options,
keeping in view the agency theory:

a. Ann is the principal and Mary is the agent.

b. Mary is the principal and Ann is the agent.
c. Ted is the agent and Ann is the principal.
d. Mary is the principal and Ted is the agent.

2. Which of the given options apply to auction markets?

a. Trading in a given auction exchange takes place at a single site on the floor of the exchange.
b. Transaction prices of shares are communicated almost immediately to the public.
c. Listing.
d. All of the given options (a, b and c).

3. Suppose a Corporation has a taxable income of $200,000 and the tax amount is as given in the
calculations:

$ 50,000 x 15% = $ 7,500

($ 75,000 – 50,000) x 25% = 6,250

($ 100,000 – 75,000) x 34% = 8,500

($ 200,000 – 100,000) x 39% = 39,000

$ 61,250

Total tax is $61,250.

Average tax rate is $61,250 / 200,000 = 30.625%. Marginal tax rate will be:

a. 39%
b. 34%
c. 15%
d. 25%

4. A document that includes corporation’s name, intended life, business purpose and number of shares
and is necessary to form a corporation is known as:

a. Charter
b. Set of bylaws
c. Regulations paper
d. None of the given options

5. According to the accounting profession, which of the given options would be considered a cash-
flow item from an "investing" activity in a cash flow statement?

a. Cash outflow to the government for taxes.

b. Cash outflow to shareholders as dividends.
c. Cash outflow to lenders as interest.
d. Cash outflow to purchase bonds issued by another company

6. Which one of the given options is generally considered the most liquid asset?

a. accounts receivable
b. inventory
c.net fixed assets
d. intangible assets

7. Which of the given options is an advantage of a corporation that is not an advantage as a

limited partner in a partnership?

a. Limited liability.
b. Easy transfer of ownership position.
c. Double taxation.
d. All of the options are advantages that the corporation has over the limited partner.

8. In finance we refer to the market for relatively long-term financial instruments as the
__________ market.

a. money
b. capital
c. primary
d. secondary

9. __________ is concerned with the branch of economics relating the behavior of principals and
their agents.

a. Financial management
b. Profit maximization
c. Agency theory
d. Social responsibility
 10. Which of the expenses in given options is not a cash outflow for the firm?

a. Depreciation
b. Dividends
c. Interest payments
d. Taxes

1. A standardized financial statement presenting all items of the statement as a percentage of total is:
a. a common-size statement
b. an income statement
c. a cash flow statement
d. a balance sheet
2. Ammar is running a company ‘Ammar & Co’. He has asked you to comment on company’s
ability to pay its bills over the short run without undue stress. For this purpose you will study
which category of ratios of the company?
a. Profitability Ratios
b. Liquidity ratios
c. Debt ratios
d. Turnover ratios
3. Which one of the given options describes desirable current ratio for a business?

e. 0
f. 0.2
g. 0.1
h. At least one
4. Interest Coverage Ratios are also known as:
a. Times Interest Earned (TIE) Ratios
b. Liquidity Ratios
c. Debt Ratios
d. Asset Management Ratios
5. The Du Pont Identity tells us that Return on Equity is affected by:
a. operating efficiency (as measured by profit margin)
b. asset use efficiency (as measured by total assets turnover)
c. financial Leverage (as measured by equity multiplier)
d. all of the given options (a, b and c)

6. Benchmarking is used to establish a standard to follow for:

a. comparison
b. identification
c. calculation
d. liability
7. A series of constant cash flows that occur at the end of each period for some fixed number of
periods is .

a. an ordinary annuity
b. annuity due
c. multiple cash flows
d. perpetuity
8. Suppose the total cost of a college education will be $50,000 in 12 years for a child. The Parents
have $5,000 to invest today. What rate of interest must they earn on investment to cover the cost of
child’s education?

a. 21.15%
b. 12%
c. 18%
d. 30%
9. If the bank loans out $10,000 for 90 days at 8% simple interest, the PV is:

a. $9,806.56
b. $9000
c. $10000
d. $9500
10. Suppose, you deposited an amount of Rs.1000 in Habib Bank at the start of year 2006. How
much interest amount will you have at the end of the year if the bank pays simple interest @10%
p.a.?

a. Rs.100
b. Rs.10
c. Rs.90
d. Rs.1000
 2. ____________ can be considered as a snapshot of a company's financial position?

A. Income Statement
B. Balance Sheet
C. Cash Flow Statement
D. Owner's Equity Statement
3. ______________ involves the sale of used securities from one investor to another?

A. Primary Market
B. Secondary Market
C. Tertiary Market
D. None of the given options
4. _______________ Ratios shows a firm's ability to pay its bills in short term?

A. Liquidity
B. Financial Leverage
C. Profitability
D. Market Value
5. The process of planning and managing a firm's long-term investments is called:

A. Planning Process
B. Capital Structure
C. Capital Budgeting
D. Managing Process
6. Income statement for Sumi Inc. shows the net income of Rs. 363,000 whereas the total sales are Rs.
2,311,000. The profit margin for the Sumi Inc. will be:

A. 6.37 %
B. 8.37 %
C. 15.7 %
D. 12.5 %
7. S&T Company have 35 thousands shares outstanding and the stock sold for Rs. 99 per share at the end of
year. Income Statement reported a net income of Rs. 385,000. The Price Earning Ratio for S&T Company
will be:

A. 8 times
B. 9 times
C. 10 times
D. 11 times
8. While making Common-Size statement, Balance Sheet items are shown as a percentage of :

A. Total Assets
B. Total Liabilities
C. Total Capital
D. Net Profit
9. A business, created as a distinct legal entity owned by one or more individuals or entities, is known as:

A. Sole Proprietorship
B. Partnership
C. Corporation
D. None of the given options
10. Which one of these is considered as a non-cash item?

A. Inventory
B. Accounts Payable
C. Accounts Receivable
D. Depreciation
Question No: 1 ( Marks: 1 ) - Please choose one

The accounting definition of income is:

►Income = Current Assets -Current Liabilities
►Income = Fixed Assets - Current Assets
►Income = Revenues - Current Liabilities
►Income = Revenues - Expenses pg 17
Question No: 2 ( Marks: 1 ) - Please choose one
What would be the capital spending for an organization who has purchased fixed assets of Rs. 200,000 and sold fixed assets of
Rs. 45,000?

►Rs. 245,000
►Rs. 200,000

►Rs.1 55 , 0 0 0

►Rs. 45,000
200000-
45000=155000
Question No: 3 ( Marks: 1 ) - Please choose one
Selected information from SNT Company's accounting records is as follows:
o Cash paid to retired common shares Rs. 15,000
o Proceeds from issuance of preferred shares Rs. 20,000 o Cash dividends paid Rs. 8,000
o Proceeds from sale of equipment Rs. 25,000
On its cash flow statement for the year, SNT Company should report net cash flow from financing activities as:
►Rs. 3,000 net cash inflow
►Rs. 3,000 net cash outflow
►Rs. 8,000 net cash inflow
►Rs. 8,000 net cash inflow

Question No: 4 ( Marks: 1 ) - Please choose one

SNT Company has a current ratio of 3:2. Current Liabilities reported by the company are Rs. 30,000 . What would be the Net
Working Capital for the
company?

►Rs. 45,000
►Rs. 15,000
► ( R s . 4 5 ,0 0 0 )
►( Rs. 15,000)

Question No: 5 ( Marks: 1 ) - Please choose one

Which of the following would not improve the current ratio?

►Borrow short-term to finance additional fixed assets

►Issue long-term debt to buy inventory

►Sell common stock to reduce current liabilities ►Sell fixed assets to reduce accounts payable

Question No: 6 ( Marks: 1 ) - Please choose one

Which of the following are incorporated into the calculation of the Du -Pont Identity?
I. Return on assets II.
Equity Multiplier
III. Total Assets Turnover
IV. Profit Margin
►I, II, and III only
►I, III, and IV only
► II, III and IV only pg 45

►I, II, III, a n d IV

Question No: 7 ( Marks: 1 ) - Please choose one

The concepts of present value and future value are:

►Directly related to each other

►Not related to each other

►Proportionately related to each other

►Inversely related to each other

Question No: 8 ( Marks: 1 ) - Please choose one

Which of the following is a special case of annuity, where the stream of cash flows continues forever?

►Special Annuity
►Ordinary Annuity

►Annuity Due
►Perpetuity

Question No: 9 ( Marks: 1 ) - Please choose one

Which of the following is an unsecured bond for which no specific pledge of property is made?

►Mortgage
►Debenture
►Collateral
►Note Payable
Debenture is an unsecured bond
for which no specific pledge of
property is made
Question No: 10 ( Marks: 1 ) - Please choose one

Which of the following type of return refers to the percentage change in the amount of money you have?

►Nominal return
►Real return

►Inflation return
►None of the given option
Your nominal return is the
percentage change in the amount
of money you have.
Question No: 11 ( Marks: 1 ) - Please choose one
When real rate is _____, all interest rates will tend to be _____.

►Low; higher
►High; lower
►High; higher
►None of the given options
When real rate is high, all interest
rates will tend to be higher and
vice versa.
Question No: 12 ( Marks: 1 ) - Please choose one

Which of the following is the extra yield that investors dem and on a taxable bond as a compensation for the unfavorable tax
treatment?

►Interest rate risk premium

►Inflation risk premium
►Default risk premium
►Taxability premium
Investors demand extra yield on a taxable bond as a compensation for the unfavorable tax
treatment, known as
taxability premium

Question No: 13 ( Marks: 1 ) - Please choose one

In which type of the market, previously issued securities are traded among investors ?

►Primary Market

►Secondary Market pg 100

►Tertiary Market

►None of the given options

Secondary Market
The market in which previously
issued securities are traded among
investors
Question No: 14 ( Marks: 1 ) - Please choose one

Place the following items in the proper order of completion regarding the capital budgeting process.
(I) Perform a post-audit for completed projects; (II) Generate project proposals;
(III) Estimate appropriate cash flows; (IV)
Select value-maximizing projects; (V)
Evaluate projects.
►II, V, III, IV, and I
►III, II, V, IV, and I
►II, III, V, IV, and I

►II, III, IV, V, and I

http://wps.pearsoned.co
.uk/wps/grader
Question No: 15 ( Marks: 1 ) - Please choose one
An investment w ill be ___________ if the IRR doesn’t exceed s the required return and ___________ otherwise.
►Accepted; rejected
►Accepted; accepted
►Rejected; rejected
►Rejected; accepted pg 109
Question No: 16 ( Marks: 1 ) - Please choose one

IRR and NPV rules always lead to identical decisions as long as :

►Cash flows are conventional

►Cash flows are independent

►Cash flows are both conventional and independent

►None of the given options

Question No: 17 ( Marks: 1 ) - Please choose one

A project whose acceptance does not prevent or require the acceptance of one or more alternative projects is referred to as :

►A mutually exclusive project

►An independent project
►A dependent project
►A contingent project

Question No: 18 ( Marks: 1 ) - Please choose one

Finding Net Present Value comes under which type of capital budgeting criteria
?

►Discounted Cash Flow Criteria pg 118

►Accounting Criteria

►Payback Criteria

►None of the given options

Question No: 19 ( Marks: 1 ) - Please choose one

___________ Cost is an outlay that has already occurred and hence is not affected by
the decision under consideration.
►Sunk
►Opportunity
►Fixed
►Variable
Question No: 20 ( Marks: 1 ) - Please choose one
Which of the following is the overall return the firm must earn on its existing assets to maintain the value of the stock ?

►WACC (Weighted Average Cost of Capital)

►AAR (Average Accounting Return)
►IRR (Internal Rate of Return)
►MIRR (Modified Internal Rate of Return)
Question No: 21 ( Marks: 1 ) - Please choose one
Mr. A, as a financial consultant, has prepared a feasibility report of a project for XYZ Company that the company is
planning to undertake. He has suggested that the project is feasible. The consultancy fee paid to Mr. A will be considered as:

►Sunk cost

►Opportunity cost
►Both sunk cost and opportunity cost
►Neither sunk cost nor opportunity cost

Question No: 22 ( Marks: 1 ) - Please choose one

The current price of SNT stock is Rs. 50. Dividends are expected to grow at 7 percent indefinitely and the most current
dividend was Rs. 1.00. What is the
required rate of return on SNT stock?

►9.00 percent
►9.14 percent

►9.33 percent

►10.65 percent

Question No: 23 ( Marks: 1 ) - Please choose one

Which of the following are rights of an owner of a share of common stock for firm which has no preferred share?

►The right to vote for directors

►The right to share proportionately in dividend paid

►The right to vote on stockholder matters of great importance ►All of the given options

Question No: 24 ( Marks: 1 ) - Please choose one

Which one of the following typically applies to preferred stock but not to common stock?

►Dividend yield

►Cumulative dividends

►Voting rights

►Tax deductible dividends

Question No: 25 ( Marks: 1 ) - Please choose one

You must own which of the following to vote against a merger proposal from another corporation?
►Preferred share
►A debenture
►Common stock
►Cumulative dividend stock

Question No: 26 ( Marks: 1 ) - Please choose one

Which of the following strategy belongs to flexible policy regarding size of investments in current assets ?

►To maintain a high ratio of current assets to sales

►To maintain a low ratio of current assets to sales

►To maintain less short-term debt and more long-term debt ►To maintain more short-term debt and less long-term debt

Size of investments in current assets

•Flexible policy
•maintain a high ratio of current assets to sales
•Restrictive policy
•maintain a low ratio of current assets to sales Financing of current assets
•Flexible policy
•less short-term debt and more long-term debt
•Restrictive policy
•more short-term debt and less long-term debt
If policies
Question No: 27 ( Marks: 1 ) - Please choose one
Which of the following strategy belongs to flexible policy regarding financing of
current assets ?
►To maintain a high ratio of current assets to sales
►To maintain a low ratio of current assets to sales
►To maintain less short-term debt and more long-term debt

►To maintain more short-term debt and less long-term debt

Question No: 28 ( Marks: 1 ) - Please choose one

Suppose you have Rs. 10,000 on deposit. One day, you write a cheque for Rs. 2,000 and deposit Rs. 4,000. What is your
collection float ?

►Rs. 4,000
►+ Rs. 2,000
►Rs. 2,000
►+ Rs. 4,000

Question No: 30 ( Marks: 1 ) - Please choose one

Which of the following is known as the group of assets such as stocks and bonds held by an investor ?

►Stock Bundle

►Portfolio

►Capital Structure

►None of the given options

Question No: 31 ( Marks: 1 ) - Please choose one
Which of the following is referred as the ratio of the standard deviation of a distribution to the mean of that distribution ?

►Probability distribution

►The expected return

►The standard deviation

►Coefficient of variation

Question No: 32 ( Marks: 1 ) - Please choose one

The MC Inc. purchased a share of common stock exactly one year ago for Rs. 45.
During the past year the common stock paid an annual dividend of Rs. 2.40. The
firm sold the stock today for Rs. 80. What is the rate of return the firm has
earned?

►5.3%

►194.2%
►83.11%
►94.2%

Question No: 33 ( Marks: 1 ) - Please choose one

Mr. Sami has bought 50 shares of a corporation one year ago at Rs. 20 per share. Over
the last year, he received a dividend of Rs. 2 per share. At the end of the
year, the stock sells for Rs. 25. As per given information, what will be his total percentage return ?

►10 %

►20 %
►35 %

►45 %
Dividend yield= 2/20=0.1%
Capital gain yield =(25-20)/20=0.25%
Total percentage return 0.1+0.25*100=35%

Question No: 34 ( Marks: 1 ) - Please choose one

While performing the feasibility analysis for a project, an operating cash flow of Rs.
225,000 has been calculated. Net working cap ital has declined by Rs. 40,000. There w as a net capital sp ending of Rs. 100,000 d
u ring the year. What w ill be the
total cash flow for the project?

►Rs. 85,000
►Rs. 165,000

►Rs. 285,000

►Rs. 365,000
Operating cash
flow - change in
NWC - Capital
spending
225000-(-40000)-
100000=165000
Question No: 35 ( Marks: 1 ) - Please choose one
The total market value of a company s stocks is calculated as Rs. 250 million and the total market value of the company s debt are
calculated as Rs. 150 million.
What percent of the firm s financing is debt?

►37.50%

►50.00%
►62.50%

►70.00%

250+150=400
250/400=0.625
0.625*100=62.5 is equity and
100-62.5=37.5 is debt
Question No: 36 ( Marks: 1 ) - Please choose one

Suppose a firm borrow s Rs. 800,000 at 7%. What w ill be the after -tax interest rate if tax rate is 34%?

►3.00%

►4.62%

►5.20%

►8.00%
RD x (1
- TC).
7%X(1-
0.34)=4
.62

Question No: 37 ( Marks: 1 ) - Please choose one

Opportunity losses from having inadequate inventory are termed as:

►Carrying costs

►Opportunity costs
►Restocking costs

►Safety reserve costs

Restocking costs - costs of placing an order with suppliers or the cost of setting up a production
run
•Safety reserve costs - opportunity losses from having inadequate inventory e.g. lost sales and goodwill
•A trade-off
•Carrying costs increase with inventory levels and shortage or restocking costs decline with inventory levels
•The goal of inventory
management is to minimize
the sum of these two costs
Question No: 38 ( Marks: 1 ) - Please choose one
What w ill be the Economic Order Quantity (EOQ) if total u nit sales (T) = 400, fixed costs (F) = Rs. 30 and carrying costs (CC)
= Rs. 5 ?

►65 units

►69 units

►89 units

►95 units
EOQ = (2T x F
/ CC)1/2
2*400=800
800*30=24000
24000/5=4800
4800^0.5=69.28

Question No: 39 ( Marks: 1 ) - Please choose one

The cost of common equity for a firm is:

►The required rate of return on the company's stock ►The yield to maturity on the bond
►The risk-free rate

►The market risk premium

Question No: 40 ( Marks: 1 ) - Please choose one

A firm has 3 million in comm on stock, 1 million in preferred stock and 2 million in debt. What is the percentage of firm s
financing that is debt ?

►20%
►33%
►40%
►67%

Question No: 41 ( Marks: 1 ) - Please choose one

The book value of a system is Rs. 50,350 at the end of year 3 of its life. What will be the
total after-tax cash flow from sale if we sell this system for Rs. 30,000 at this time? (Tax rate is 34%)
►Rs. 20,350
►Rs. 30,919
►Rs. 36,919

►Rs. 80,350
50350-30000=20350x34%=6919
30000+6919=36919

Question No: 42 ( Marks: 1 ) - Please choose one

What w ill be the variance if standard deviation for the returns of an investment is
0.2829 ?

►0.0800
►0.0892

►0.5319

►Cannot be estimated without more information

Which of the following is the difference between current assets and current? Liabilities?

►Surplus Asset
►Short-term Ratio
►Working Capital
►Current Ratio

Question No: 2 ( Marks: 1 ) - Please choose one

A business owned by a single person is known as:

►Sole-proprietorship
►General partnership
►Limited partnership
►Corporation

Question No: 3 ( Marks: 1 ) - Please choose one

In a common-size balance sheet, all items are shown as a percentage of:

►Total Assets
►Total Liabilities
►TotalOwnersEquity
►None of the given options

Question No: 4 ( Marks: 1 ) - Please choose one

A company's ability to meet long-term obligations can be estimated by using
which of the following set of ratios?

►Liquidity Ratio

►Solvency Ratios
pg 34
►Asset Management Ratios
►Market Value Ratios

Question No: 5 ( Marks: 1 ) - Please choose one

According to Du Pont Identity, ROE is affected by which of the following?

►Operating efficiency
►Asset use efficiency
►Financial Leverage
►All of the given options
The Du Pont identity tells us that ROE is affected by three things:
Operating efficiency (as measured by profit margin)
Asset use efficiency (as measured by total assets turnover)
Financial Leverage (as
measured by equity multiplier)
Question No: 6 ( Marks: 1 ) - Please choose one

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?

►Ordinary annuity
►Annuity due
►Perpetuity
►None of the given options
A series of constant, or level, cash flows that occur at the end of each period for some fixed number of
periods is called an ordinary
Annuity
Question No: 7 ( Marks: 1 ) - Please choose one
A portion of profits, which a company distributes among its shareholders, is known as:
►Dividends
►Retained Earnings
►Capital Gain
►nterest

Question No: 8 ( Marks: 1 ) - Please choose one

What amount a borrower would pay at the end of fourth year with a 4 -year, 12%, interest-only loan of Rs. 3,000?

►Rs. 360
►Rs. 2,000
►Rs. 3,000
►Rs. 3,360
Question No: 9 ( Marks: 1 ) - Please choose one

A company issues bonds with a Rs. 1,000 face value. What is the coupon rate if the coupon payments of Rs. 45 are paid every
6 months?

►3 percent
►6 percent
►9 percent
►12 percent

Question No: 10 ( Marks: 1 ) - Please choose one

Given two bonds identical but for maturity, the price of the longer-term bond will change _ _ _ _ _ _ _ _ that of the
shorter-term bond, for a given change in market interest rates.

►More than
►Lessthan
►Equal to
►None of the given options

Question No: 11 ( Marks: 1 ) - Please choose one

When corporations borrow, they generally promise to:
I. Make regular scheduled interest payments
II. Give the right of voting to bondholders
III. Repay the original amount borrowed (principal) IV. Give an ownership interest in the firm

►I and II

►I and III pg
77
►II and IV
►I, III, and IV

Question No: 12 ( Marks: 1 ) - Please choose one

Which of the following allows a company to repurchase part or all of the bond? issue at a stated price?
►Repayment
►Seniority
►Call provision
►Protective covenants

Question No: 13 ( Marks: 1 ) - Please choose one

Sumi Inc. has policy of paying a Rs. 9 per share dividend every year. If this
policy is to continue indefinitely, what will be the value of a share of stock at a 12% required rate of return?

►Rs. 30
►Rs. 45
►Rs. 60
►Rs. 75
9/0.12=75

Question No: 14 ( Marks: 1 ) - Please choose one

In which type of the market, previously issued securities are traded among investors ?

Primary Market
Secondary Market
Tertiary Market
None of the given options

Question No: 15 ( Marks: 1 ) - Please choose one

An investment should be accepted if the net present value is __________ and rejected if it is ________.

Positive; positive
Positive; negative
Negative; negative
Negative; positive

Question No: 16 ( Marks: 1 ) - Please choose one

The XYZ Corporation is considering an investment that will cost Rs. 80,000 and have a useful life of 4 years. During the
first 2 years, the net incremental after-tax cash flows are Rs. 25,000 per year and for the last two years they are Rs. 20,000
per year. What is the payback period for this investment ?

3.2 Years
3.5 Years
4.0 Years
Cannot be determined from the given information

Question No: 17 ( Marks: 1 ) - Please choose one

Which of the following statement is INCORRECT regarding a normal project ?

If the IRR of a project is greater than the discount rate, k, then its PI will be
greater than 1

If the NPV of a project is greater than 0, then its PI will exceed 1

If the IRR of a project is 8%, its NPV, using a discount rate, k, greater than 8%, will be less than 0
If the PI of a project equals 0, then the project's initial cash outflow equals the PV of its cash flows

Question No: 18 ( Marks: 1 ) - Please choose one

Which of the following set of cash flows represent the change in the firm s total cash flow that occurs as direct result of
accepting the project ?

Relevant Cash Flows

Incremental Cash Flows
Negative Cash Flows
All of the given options

Question No: 19 ( Marks: 1 ) - Please choose one

Which of the following is NOT a problem while determining incremental cash flows?

Merchandize cost
Sunk cost
Opportunity cost
None of the given options

Question No: 20 ( Marks: 1 ) - Please choose one

___________ Cost refers to the cash flows that could be generated from an asset the firm already owns provided it is not used
for the project in question.
Sunk
Opportunity
Fixed
Variable

Question No: 21 ( Marks: 1 ) - Please choose one

The overall (weighted average) cost of capital is composed of a weighted average

of :

The cost of common equity and the cost of debt pg

146
The cost of common equity and the cost of preferred stock The cost of preferred stock and the cost of debt
The cost of common equity, the cost of preferred stock, and the cost of debt

Question No: 22 ( Marks: 1 ) - Please choose one

Which of the following is a characteristic of preferred stock?

These stocks have not stated liquidating value

Dividends on these stocks can be cumulative pg100
These stocks hold credit ratings quite different from bonds
These stocks have not any kind of priority over common stocks

Question No: 23 ( Marks: 1 ) - Please choose one

Mr. A, as a financial consultant, has prepared a feasibility report of a project for
XYZ Company that the company is planning to undertake. He has suggested that the project is feasible. The
consultancy fee paid to Mr. A will be considered as:

Sunk cost
Opportunity cost
Both sunk cost and opportunity cost
Neither sunk cost nor opportunity cost

Question No: 24 ( Marks: 1 ) - Please choose one

One would be indifferent between taking and not taking the investment when:

NPV is greater than Zero

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

Question No: 25 ( Marks: 1 ) - Please choose one

Which of the following is a measure of accounting profit relative to book value?

Net Present Value

Profitability Index
Internal Rate of Return
Average Accounting Return
Average Accounting Return
•AAR is a measure of accounting profit relative to book value
•AAR rule is to take an investment
if its AAR exceeds a benchmark
AAR
Question No: 26 ( Marks: 1 ) - Please choose one
Which of the following M&M propositions states that it is completely irrelevant how a firm chooses to arrange its finances ?

1st proposition
2nd proposition
3rd proposition
None of the given options

Question No: 27 ( Marks: 1 ) - Please choose one

According to 2nd M&M proposition, cost of equity does NOT depend upon which of the following ?
The required return of firm s assets
The firm s cost of debt
The firm s stockholders pg 153
The firm s debt-equity ratio

Question No: 28 ( Marks: 1 ) - Please choose one

Which of the following risk is associated with the unique circumstances of a particular company ?

Financial Risk

Business Risk found

on internet
Functional Risk
None of the given options
Question No: 29 ( Marks: 1 ) - Please choose one
Which of the following type of risk influences a large number of assets ?

Systematic Risk
Unsystematic Risk
Diversifiable Risk
Asset-specific risk
The true risk of an investment is the unanticipated or surprising part of the return.
•If we always receive exactly what we expect then the investment will be risk-free.
•Systematic Risk
•A risk that influences a
large number of assets. It is
also called market risk
Question No: 30 ( Marks: 1 ) - Please choose one
Which of the following is an example of unsystematic risk ?

Increasing Recession
Rise in Interest Rate
Rise in Inflation
Strike call in a company pg
140

Question No: 31 ( Marks: 1 ) - Please choose one

A set of possible values that a random variable can assume and their associated probabilities of occurrence are referred as :

Probability distribution
The expected return
The standard deviation
Coefficient of variation

Question No: 32 ( Marks: 1 ) - Please choose one

Mr. Sami has bought 50 shares of a corporation one year ago at Rs. 20 per share.
Over the last year, you received a dividend of Rs. 2 per share. At the end of the year, the stock sells for Rs. 25. If Mr. Sami
sells the stock at the end of the year,
what will be his total cash inflow ?
Rs. 100
Rs. 250
Rs. 1,000
Rs. 1,350
50*20=1000
50*25=1250
1250-1000=250
Question No: 33 ( Marks: 1 ) - Please choose one

While performing the feasibility analysis for a project, an operating cash flow of Rs.
250,000 has been calculated . Net working capital has increased by Rs. 50,000. There was no capital spending during the year.
What w ill be the total cash flow
for the project?

Rs. 170,000
Rs. 200,000
Rs. 215,000
Rs. 230,000
2050000-
(+50000)
200000
Question No: 34 ( Marks: 1 ) - Please choose one
Autos & computers are included in which of the following MACRS property
class?

3-year
5-year
7-year
None of the given options
3-year Equipment used in research
5-year Autos, Computers
7-year Most industrial equipment
Question No: 35 ( Marks: 1 ) - Please choose one

The next dividend for a company is Rs. 5 per share. The stock current price is Rs. 50 per share. What w ill be the cost of capital
if the dividend s are estimated to
Grow steadily at 5%?

12.88%
13.07%
14.22%

15.00% pg
142

Question No: 36 ( Marks: 1 ) - Please choose one

Trade credit is more likely to be granted if:
The selling firm has a cost advantage over other lenders
The selling firm can engage in price discrimination
The selling firm can obtain favorable tax treatment
All of the given options
Trade Credit is more likely to be granted if:
•The selling firm has a cost advantage over other lenders.
•The selling firm can engage in price discrimination.
•The selling firm can obtain favorable tax treatment.
•The selling firm has no established reputation for quality products or services.
•The selling firm perceives a long-term strategic relationship.
•The optimal credit policy depends on the characteristics of particular firms.
•Excess capacity
Question No: 37 ( Marks: 1 ) - Please choose one
A firm makes a sale of Rs. 2,000 on January 05, 2005. The firm is offering credit term of 3/10 net 30. How much it will
receive if the customer makes the payment on January 09, 2005 ?

Rs. 1,000
Rs. 1,940
Rs. 2,000
Rs. 2,100

Question No: 38 ( Marks: 1 ) - Please choose one

Shortage or Restocking costs with inventory
levels
Rise
Decline
Remain unaffected
None of the given options
Carrying costs increase with
inventory levels and shortage or
restocking costs decline with
inventory levels
Question No: 39 ( Marks: 1 ) - Please choose one
Which one of the following motives refers to the need for holding cash to satisfy norm al disbursement and collection
activities associated with a firm s ongoing Operations?

Speculative motive
Transaction motive
Precautionary motive
Personal motive
Speculative Motive - the need to hold cash to take advantage of additional investment opportunities,
such as bargain purchases, attractive interest rates and favorable exchange rater fluctuations.
•Reserve borrowing utility and Marketable securities
•Transaction Motive - the need to hold cash to satisfy normal disbursement and collection activities
associated with a firm’s
ongoing operations.
Question No: 40 ( Marks: 1 ) - Please choose one
What would be the standard deviationof returns for aninvestmentthat has a Variance of 0.008?

0.08944
0.09101
0.09487
0.10521

Question No: 41 ( Marks: 1 ) - Please choose one

A firm has 3 million in common stock, 1 million in preferred stock and 2 million in debt. What is the that is debt ?
20%

33%
40%

67%
Question No: 42 ( Marks: 1 ) - Please choose one
Which of the following statement is INCORRECT regarding financial leverage ?
Financial leverage can dramatically alter the payoffs to the shareholders. Financial leverage refers to the extent to which a
firm relies on the debt.

Financial leverage must affect the overall cost of capital in any condition. pg 149
Financial leverage may not affect the overall cost of capital.
Which of the following refers to a conflict of interest between principal and agent?
Management Conflict
Interest Conflict
Agency Problem
None of the given options
The Agency Problem
Agency relationship
Principal hires an agent to represent their interest
Stockholders (principals) hire managers (agents) to run the company
Agency problem
Conflict of interest between principal and agent
Management goals and agency
costs
Question No: 2 ( Marks: 1 ) - Please choose one

Which of the following term refers to the ease and quickness with which assets can be converted to cash?

Analysis
Structuring
Budgeting
Liquidity pg 14

Question No: 3 ( Marks: 1 ) - Please choose one

Product costs do NOT include which of the following?

Raw material
Direct labor
Manufacturing overhead
Administrative expenses
Question No: 4 ( Marks: 1 ) - Please choose one

Which of the following can be computed by using the information only from balance sheet?
Equity multiplier
Inventory turnover
Receivable turnover
Return on equity

Question No: 5 ( Marks: 1 ) - Please choose one

Which of the following is CORRECT regarding the present value discount factor?

It is always greater than 1.0

It decreases as the discount rate increases
It is equal to zero when discount rate is zero
It increases as the time period increases
Question No: 6 ( Marks: 1 ) - Please choose one

How much must be deposited at 8% each of the next 20 years to have Rs. 10,296.44?

Rs. 225
Rs. 341
Rs. 410
Rs. 452

Question No: 7 ( Marks: 1 ) - Please choose one

In order to compare different investment opportunities (each with the same risk) with interest rates reported in different manners you
should:

Convert each interest rate to an effective annual rate Convert each interest rate to a monthly nominal rate Convert each
interest rate to an annual nominal rate Compare the published annual rates

Question No: 8 ( Marks: 1 ) - Please choose one

You have Rs. 1,0 0 0 to invest. You have 2 choices; first is the savings account A, which
earns 8.75 percent com pounded annually and second is the savings account B, which earns
8.50 percent com pounded monthly. Which account
should you choose and why?

Account A; because it has a higher effective annual rate

Account B; because it has a higher effective annual rate Account A; because it has the higher quoted rate Account B; because the
quoted rate is higher

Question No: 9 ( Marks: 1 ) - Please choose one

What will be the value of a Rs. 1,0 0 0 face-value bond with an 8% coupon rate at
8% required rate of return?
More than its face value
Less than its face value
Equal to its face value
Cannot be determined without more information

Question No: 10 ( Marks: 1 ) - Please choose one

Which of the following statement is FALSE regarding debt?

Debt is not an ownership interest in the firm.

Unpaid debt can result in bankruptcy or financial failure.

Debt provides the voting rights to the bondholders. pg

78
Corporations payment of interest on debt is fully tax deductible.

Question No: 11 ( Marks: 1 ) - Please choose one

The relationship between real and nominal returns is described by the:

M&M Proposition
Capital Asset Pricing Model
Fisher s Effect
BCG Matrix

Question No: 12 ( Marks: 1 ) - Please choose one

Investors dem and a higher yield as compensation to the risk of possible default. This extra premium is called:

Default risk premium

Taxability premium
Interest rate risk premium
Inflation risk premium

Question No: 13 ( Marks: 1 ) - Please choose one

For which type of stocks, the dividends grow at a constant rate?

Zero Growth Stocks pg 91

Constant Growth Stocks

Non-Constant Growth Stocks
None of the given options

Question No: 14 ( Marks: 1 ) - Please choose one

In which type of voting, each shareholder is entitled one vote per share times the number of directors to be elected?

Straight Voting
Statutory Voting
Cumulative Voting
None of the given options

Question No: 15 ( Marks: 1 ) - Please choose one

In which of the following procedure of voting for a company's directors, each shareholder is entitled to one vote per share ?

Straight Voting
Proportional Voting
Cumulative Voting
None of the given options

Question No: 16 ( Marks: 1 ) - Please choose one

Which of the following is the price that the dealer wishes to pay for a share ?

Simple Price
Bid Price
Strike Price pg 100

Complex Price

Question No: 17 ( Marks: 1 ) - Please choose one

Suppose the initial investment for a project is Rs. 160,000 and the cash flows are Rs. 40,000 in the first year and Rs. 90,000 in
the second and Rs. 50,000 in the third. The project will have a payback period of:
2.6 Years
3.1 Years

3.6 Years
4.1 Years

Question No: 18 ( Marks: 1 ) - Please choose one

The XYZ Corporation is considering an investment that will cost Rs. 80,000 and have a useful life of 4 years. During the first 2
years, the net incremental after-tax cash flows are Rs. 25,000 per year and for the last two years they are Rs. 20,000 per year.
What is the payback period for this investment ?

3.2 Years
3.5 Years
4.0 Years

Cannot be determined from the given information

Question No: 19 ( Marks: 1 ) - Please choose one

Which of the following measures the present value of an investment per dollar invested ?

Net Present Value (NPV)

Average Accounting Return (AAR)
Internal Rate of Return (IRR)
Profitability Index (PI) pg
119

Question No: 20 ( Marks: 1 ) - Please choose one

Which of the following set of cash flows should be considered in the decision at
hand?

Relevant Cash Flows

Incremental Cash Flows
Negative Cash Flows
All of the given options

Question No: 21 ( Marks: 1 ) - Please choose one

___________ Cost is an outlay that has already occurred and hence is not affected by the decision under consideration.

Sunk
Opportunity
Fixed
Variable

Question No: 22 ( Marks: 1 ) - Please choose one

The overall (weighted average) cost of capital is composed of a weighted average

of :

The cost of common equity and the cost of debt

The cost of common equity and the cost of preferred stock The cost of preferred stock and the cost of debt
The cost of common equity, the cost of preferred stock, and the cost of debt

Question No: 23 ( Marks: 1 ) - Please choose one

Over the past four years, a company has paid dividends of Rs. 1.00, Rs. 1.10, Rs.
1.20 and Rs. 1.30 respectively. This pattern is expected to continue into the future. This is an example of a company pay a dividend
that grows:

By 10 percent each year

At a constant rate
By a decreasing amount
At a decreasing rate

Question No: 24 ( Marks: 1 ) - Please choose one

Which of the following statement is INCORRECT regarding Average Accounting Return?

AAR is a rate that makes the NPV equal to zero

AAR is a measure of accounting profit relative to book value

An investment is acceptable if its AAR is greater than a benchmark AAR

None of the given options

worng questions

Question No: 25 ( Marks: 1 ) - Please choose one

Which of the following M&M propositions states that it is completely irrelevant how a firm chooses to arrange its finances ?
1st proposition
2nd proposition
3rd proposition
None of the given options

Question No: 26 ( Marks: 1 ) - Please choose one

SNT Corporation has a WACC of 16% (ignoring taxes). It can borrow at 9% . Assuming that SNT has a target capital
structure of 75% equity and 25% debt, what will be its cost of equity ?

13.00%

15.23%

18.33%

20.98%
25%/75%==0.33
16%+(16%-9%)x0.33
0.16+(0.16-0.09)x0.33
0.16+0.0231=18.31%

Question No: 27 ( Marks: 1 ) - Please choose one

Which of the following activities decreases cash ?

Increasing current liabilities

Decreasing long term debt

Decreasing fixed assets

Increasing equity
Activities that decrease cash (uses of cash)
•Decreasing long term debt
•Decreasing equity
•Decreasing current liabilities
•Increasing current assets other than cash
•Increasing fixed assets
Question No: 28 ( Marks: 1 ) - Please choose one
Which of the following describes how a product moves through the current asset accounts ?

Cash Cycle
Operating Cycle
Current Cycle

None of the given options

An operating cycle describes how a product moves through the current asset accounts
•It begins life as inventory
•Converted to a receivable when it is sold
•Converted to cash when we
collect from the sale
Question No: 29 ( Marks: 1 ) - Please choose one

Which of the following is the time between sale of inventory and collection of receivables ?
Inventory period

Accounts receivable period pg 164

Collection period

Accounts payable period

Question No: 30 ( Marks: 1 ) - Please choose one

Suppose you have Rs. 10,000 on deposit. One day, you write a cheque for Rs. 2,000 and deposit Rs. 4,000. What is your
disbursement float ?

Rs. 4,000
+ Rs. 2,000
Rs. 2,000

+ Rs. 4,000

Question No: 31 ( Marks: 1 ) - Please choose one

Suppose you have Rs. 70 in stock A and Rs. 120 in another stock B in your
portfolio. Stock A has an expected return of 25% and stock B has an expected return of 20%. What will be the portfolio expected
return ?

18.27%

21.84%

22.50%

25.13%

Question No: 32 ( Marks: 1 ) - Please choose one

Which of the following statement(s) is (are) true regarding Return on Investment?

One of the responsibilities of the financial manager is to assess the value of the proposed investment

The return consists of income earned and capital gain

 The dollar returns are the sum of the cash received and the change in dollar value of the asset

All of the given options

Question No: 33 ( Marks: 1 ) - Please choose one

The MC Inc. purchased a share of common stock exactly one year ago for Rs. 45.
During the past year the common stock paid an annual dividend of Rs. 2.40. The firm sold the stock today for Rs. 80. What is the
rate of return the firm has earned?

5.3%

194.2%

83.11%

94.2%

Question No: 34 ( Marks: 1 ) - Please choose one

What will be the cash inflow if we have sales of Rs. 400,000 and accounts receivable are increased by Rs. 70,000?

Rs. 70,000
Rs. 230,000
Rs. 330,000

Rs. 470,000

Question No: 35 ( Marks: 1 ) - Please choose one

What will be the cash inflow if we have sales of Rs. 300,000 and accounts receivable are decreased by Rs. 70,000?

Rs. 70,000
RS 230000

Rs. 370,000
correct

Rs. 470,000
300000-
70000=230000
Question No: 36 ( Marks: 1 ) - Please choose one
Su p pose a firm borrow s Rs. 800,000 at 7%. What w ill be the total interest bill p er year if tax rate is 34% ?

Rs. 19,040
Rs. 36,960
Rs. 56,000
Rs. 800,000
800000*7%=56000
56000*34%=19040

Question No: 37 ( Marks: 1 ) - Please choose one

Which one of the following motives refers to the need for holding cash as a safety margin to act as a financial reserve?

Speculative motive
Transaction motive

Precautionary motive
Personal motive
•Precautionary
Motive - the need to
hold cash as a safety
margin to act as a
financial reserve
Question No: 38 ( Marks: 1 ) - Please choose one
Suppose market value exceed s book value by Rs. 225,000. What w ill be the aftertax proceeds if there is a tax rate of 34 percent?

Rs. 105,600
Rs. 148,500
Rs. 191,000
Rs. 225,000
225000*34%=765,00
225000-765000=148500
Question No: 39
( Marks: 1 ) - Please choose one

Su p pose you have bou ght 100 shares of a corporation one year ago at Rs. 18 per share.
Over the last year, you have received a d ivid end of Rs. 2 p er share. At the end of the year, the stock sells for Rs. 27. As p er given
inform ation, w hat w ill be
the capital gains yield?

15
%

25
%

35
%

50
%
(27-18)/18=0.5%
Question No: 40 ( Marks: 1 ) - Please choose one
SN T Com pany p u rchased a vehicle for Rs. 450,000. Based on historical averages, this vehicle is w orth 25% of the p u rchase
price now and it is being sold at this
p rice. What is the vehicle s m arket valu e ?

Rs. 14,875
Rs. 112,500
Rs. 337,500
Rs. 230,000

Question No: 41 ( Marks: 1 ) - Please choose one

Standard deviations for Investment A and Investment B are 19% and 28% respectively. This indicates that:
Investment A is more volatile than Investment B
Investment A is equally volatile to Investment B
Investment B is less volatile than Investment A
Investment B is more volatile than Investment A

Question No: 42 ( Marks: 1 ) - Please choose one

Which of the following statement is INCORRECT regarding financial leverage ?

Financial leverage can dramatically alter the payoffs to the shareholders. Financial leverage refers to the extent to which a firm
relies on the debt.
Financial leverage must affect the overall cost of capital in any condition.
Financial leverage may not affect the overall cost of capital.

Business Finance (ACC501) Solution quiz 01

Fall Semester 2006

a. Cash from operations activities

b. Cash from financing activities
c. Cash from investing activities
d. None of the given options

4. _________are short-term, temporary investments that can be readily converted

into cash.
a. marketable securities
b. Cash equivalents
c. Treasury bills
d. All of the given options

12
Business Finance (ACC501) Solution quiz 01
Fall Semester 2006

5. The Cash flow statement records your_________ and expenditure at the end of
the 'forecast' period.

a. Actual cash income

b. Un earned income
c. Coming year income
d. Last year’s income

6. Ratios look at the relationships between individual values and relate them to
how a company:

a. Has performed in the past

b. Might perform in the future
c. Both a & b
d. None of the given options

7. The current ratio is also known as:

a. Working capital ratio
b. Leverage ratio
c. Turnover ratio
d. None of the given options

8. __________is concerned with the relationship between the long terms liabilities
that a business has and its capital employed.

a. Gearing
b. Acid test ratio
c. Working capital management
d. All of the given options

13
Business Finance (ACC501) Solution quiz 01
Fall Semester 2006

9. ____________give a picture of a company's ability to generate cash flow and

pay it financial obligations:

a. Management ratios
b. Working capital ratios
c. Net profit margin ratios
d. Solvency Ratios

10. Balance sheet items expressed as percentage of:

a. Net sales
b. Total revenue
c. Total assets
d. Total liabilities

1.The time between sale of inventory and collection of receivable.

a account receivable
b operation cycle
c inventory period
d none of above

2. allow a bank to substitute its creditworthiness for the customer, for a fee is
called___________-

a open bank account

b commercial draft
c promisory note
d banker accetptance

3.Standard deviations for Investment A and Investment B are 25% and 12%
respectively. This indicates that :
Select correct option:
Investment A is less volatile than Investment B
Investment B is equally volatile to Investment A
Investment A is more volatile than Investment B
Investment B is more volatile than Investment A

4. find the average 2%,5%,6%,8%

a 5%
b 5.25 %
c 6%
d 8%

5 what is standard deviation of thise averages 2%,5%, 7%

6.As the dividend is always same for a zero growth stock, so the stock can also
be viewed as
7.Which of the following statement shows revenue, expense, and net worth as
of a specific date?

a balance sheet
b income statement
c cashflow
d none of above
8. which of the following character is not a systematic risk
market risk
interest risk
inflation risk
strike call in a company
9. A company has a two director and 1 shareholder which hav 25 power of
share the voter for director is
a 100
b150
c50
d25

10.An investment will be _________ if the IRR doesn’t exceeds the required
return and _________ otherwise.
Select correct option:
Accepted; rejected
Accepted; accepted
Rejected; rejected
Rejected; accepted

11. Which of the following is the overall return the firm must earn on its existing
assets to maintain the value of the stock?
Select correct option:
IRR (Internal Rate of Return)
MIRR (Modified Internal Rate of Return)
WACC (Weighted Average Cost of Capital)
AAR (Average Accounting Return)

12. 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

13.In which type of projects, the unequal lives of the projects do affect the
analysis ?
Select correct option:
Mutually exclusive
Dependent
Independent
Correlated

14.Mr. Naveed has bought 100 shares of a corporation one year ago at Rs. 23
per share. Over the last year, he received a dividend of Rs. 1.50 per share. At the
end of the year, the stock sells for Rs. 31. As per given information, what will be
his total percentage return ?
Select correct option:
10.63%
20.20%
35.12%
41.30%

15.Which of the following is known as the group of assets such as stocks and
bonds held by an investor ?
Select correct option:
Stock Bundle
Portfolio
Capital Structure
None of the given options

16. Suppose the initial investment for a project is Rs. 16 million and the cash
flows are Rs. 4 million in the first year and Rs. 9 million in the second and Rs. 5
million in the third. The project will have a payback period of:
Select correct option:
2.6 Years
3.1 Years
3.7 Years
4.1 Years

17. find the cash cycle inventory period is 38 days account payabel period is 50
days and average accoun receivable period is 30 days
a.68
b 18
c 80
d 118

ACC 501 Quiz Conference This Mcqs for Final Term

1. 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 pg 106

2. When a corporation wishes to borrow from public on a long-term basis, it does so by

issuing or selling:
Select correct option:

Debt securities or bonds pg 71

Common Stocks
Preferred Stock
All of the given options

3. Treasury notes and bonds are examples of which of the following types of bonds?
Select correct option:

Government bonds 85
Zero coupon bonds
Floating-rate bonds
Euro bonds

4. When real rate is _____, all interest rates will tend to be _____.
Select correct option:

Low; higher
High; lower
High; higher pg 88
None of the given options

5. Which of the following statements is(are) CORRECT regarding a bond?

Select correct option:
A bond is an evidence of debt issued by a corporation or a governmental body. A bond represents a loan made by
investors to the issuer.
When a corporation wishes to borrow from public on a long term basis, it does so by issuing or selling bonds.
All of the given options
6. Between the two identical bonds having different coupon, the price of the ________ bond
will change less than that of ________ bond.
Select correct option:

Higher-coupon; lower-coupon
Lower-coupon; higher-coupon
Long-term; short-term
None of the given options

7. As the dividend is always same for a zero growth stock, so the stock can also be viewed as:
Select correct option:
Ordinary Annuity
Annuity Due
Ordinary perpetuity pg 91
None of the given options

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

Float
Collar pg 86
Limit
Surplus

9. Internal Rate of Return (IRR) is sometimes referred to as:

Select correct option:

Simple Interest Rate

Compound Interest Rate
Economic Rate of Return
Required Rate of Return

10. If the dividend for a share is growing at a steady rate then which of the following
formula(s) can be used to find the dividend in two periods?
Select correct option:
D2 = D1 x (1 + g )
D2 = Do x ( 1 + g )2
D2 = Do x ( 1 + g )2
All of the given options pg 92

11. A project whose acceptance does not prevent or require the acceptance of one or more
alternative projects is referred to as a(n):
Select correct option:

mutually exclusive project

independent project
dependent project
contingent project

12. A project has an initial investment of Rs. 600,000. What would be the NPV for the project
if it has a profitability index of 1.12?
Select correct option:

Rs. 40,000
Rs. 55,000
Rs. 65,000
Rs. 72,000

Reference=600000*1.12=672000-600000=72000

13. Which of the following statement is TRUE regarding debt?

Select correct option:

Debt is an ownership interest in the firm.

Unpaid debt can result in bankruptcy or financial failure. Pg 78
Debt provides the voting rights to the bondholders.
Corporation’s payment of interest on debt is fully taxable.

14. If a firm is allowed to miss a coupon payment on a bond in a year in which it reports an
operating loss, the bond is most likely a(n) _______ bond.
Select correct option:

Income
Zero coupon
Floating-rate
Put
15. A ______ covenant limits or prohibits actions that company might take.
Select correct option:

Positive
Negative pg 80
Neutral
None of the given options

16. IRR and NPV rules always lead to identical decisions as long as:
Select correct option:

Cash flow s are conventional

Cash flow s are independent
Cash flow s are both conventional and independent pg 110
None of the given options

17. Which of the following allows a company to repurchase part or all of the bond issue at a
stated price?
Select correct option:
Repayment
Seniority
Call provision
Protective covenants
18. Which of the following is NOT a quality of IRR?
Select correct option:
Most widely used
Ideal to rank the mutually exclusive investments pg 116
Easily communicated and understood
Can be estimated even without knowing the discount rate
19. In which type of the market, previously issued securities are traded among investors?
Select correct option:
Primary Market
Secondary Market pg 100
Tertiary Market
None of the given options
20. A model which makes an assumption about the future growth of dividends is known as:
Select correct option
Dividend Price Model
Dividend Growth Model
Dividend Policy Model
All of the given options
21. Which of the following represents the linear relation between Net Present Value (NPV) and
Profitability Index (PI)?
Select correct option:
If Profitability Index > 1, NPV is Negative (-)
If Profitability Index < 1, NPV is Positive (+)
If Profitability Index > 1, NPV is Positive (+)
If Profitability Index > 1, NPV is Zero (0)

22. Which of the following comes under the head of discounted cash flow criteria for capital
budgeting decisions?
Select correct option:
Payback Period
Net Present Value pg 118
Average Accounting Return

23.
Which of the following is NOT included in discounted cash flow criteria for capital budgeting decision?
Select correct option:
Payback Period pg 119
Net Present Value
Profitability Index
Internal Rate of Return

24. Which of the following is an example of positive covenant?

Select correct option:
Maintaining any collateral or security in good condition
Limiting the amount of dividend according to some formula Restricting pledging assets to other lenders
Barring merger with another firm

25. Which of the following is the most common capital budgeting technique?
Select correct option:
Payback Period
Net Present Value
Internal Rate of Return
Profitability Index

26. Which of the following measures the present value of an investment per dollar invested?
Select correct option:
Net Present Value (NPV)
Average Accounting Return (AAR)
Internal Rate of Return (IRR)
Profitability Index (PI) pg 119
27. Which of the following is a measure of accounting profit relative to the book value?
Select correct option:
Net Present Value
Profitability Index
Internal Rate of Return
Average Accounting Return pg 119

28. Which one of the following typically applies to preferred stock but not to common stock?
Select correct option:
Dividend yield
Cumulative dividends
Voting rights
Tax deductible dividends
29. Treasury notes and bonds are examples of which of the following types of bonds?
Select correct option:
Government bonds pg 86
Zero coupon bonds
Floating-rate bonds
Euro bonds

30. Expectation of a ____ inflation rate will push long term interest rates ____ than short term
rates reflected by an upward term structure.
Select correct option:
Lower; higher
Higher; lower
Higher; higher pg 88
None of the given options

31. A company issues bonds with a Rs. 1,000 face value. What is the coupon rate if the coupon
payments of Rs. 60 are paid every 6 months?
Select correct option:
3 percent
6 percent
9 percent
12 percent
60+60=120/1000=12%

32. The projected cash flows from a project are: Year 1: Rs. 100 Year 2: Rs. 300 Year 3: Rs.
400 Year 4: Rs. 800 The Project cost is Rs. 800. What would be the payback period for the
project?
Select correct option:
2.00 Years
2.67 Years
3.00 Years
3.67 Years
Project=800 paid in 1 year=100, 2nd year=300 and 3rd year=400 total 800 paid in 3rd year

In which of the following type of annuity, cash flows occur at the beginning of each period?
Select correct option:
Ordinary annuity
Annuity due pg 66
Perpetuity
None of the given options

33. Which of the following is NOT an important feature of treasury notes and bonds?
Select correct option:
Default free
Taxable
Least liquid pg 90
Highly liquid

Which of the following is NOT a determinant of term structure?

Select correct option:
Real rate of interest
Internal rate of interest pg 88
Expected inflation
Interest rate risk

34. Which of the following is the amount of time required for an investment to generate cash
flows sufficient to recover its initial cost?
Select correct option:
Yield to maturity
Maturity Period
Payback period pg 104
Accounts Receivable period

m.q .z

35. In which type of the market, securities are originally sold to the investors?
Select correct option:
Primary Market
Secondary Market
Tertiary Market
None of the given options

36. A _________ is an agent who arranges security transactions among investors.

Select correct option:
Broker pg 100
Dealer
Member
Specialist
37. Which of the following is a characteristic of preferred stock?
Select correct option:
These stocks have not stated liquidating value
Dividends on these stocks can be cumulative pg 100
These bonds hold credit ratings quite different from bonds
These stocks have not any kind of priority over common stocks
m.c.z.e

38. In which of the following procedure of voting for a company's directors, each shareholder
is entitled to one vote per share?
Select correct option:
Straight Voting
Proportional Voting
Cumulative Voting
None of the given options

39. When the market's required rate of return for a particular bond is much less than its
coupon rate, the bond is selling at:
Select correct option:
Premium
Discount
Par
Cannot be determined without more information
40. Which of the following type of bond pays no coupon at all and are offered at a price that is
much lower than its stated value?
Select correct option:
Government bonds
Zero coupon bonds pg 85
Floating-rate bonds
Euro bonds

41. An investment will be _________ if the IRR doesn’t exceeds the required return and
_________ otherwise.
Select correct option:
Accepted; rejected
Accepted; accepted
Rejected; rejected
Rejected; accepted pg 109 conceptual

42. Which of the following comes under the head of accounting criteria for capital budgeting
decision?
Select correct option:
Payback Period
Net Present Value
Profitability Index
Average Accounting Return pg 119
43. 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?
Select correct option:
Ordinary annuity pg 63
Annuity due
Perpetuity
None of the given options

44. Which of the following term refers to the difference between the present value of cash
inflows and the present value of cash outflows?
Select correct option:
Net Present Value (NPV)
Average Accounting Return (AAR)
Internal Rate of Return (IRR)
Profitability Index (PI)

45. 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 pg 104 doubt ask question in mdb NPV is less than Zero
All of the given options
46. Which one of the following terms refers to the risk arises for bond owners from fluctuating
interest rates?
Select correct option:

Fluctuations Risk
Interest Rate Risk pg75
Real-Time Risk
Inflation Risk

47. All else equal, the market value of a corporate bond is always inversely related to its:
Select correct option:
Time to maturity
Coupon rate
Yield to maturity
All of the given options

Date :25-11-2010
ACC 501 Quiz Conference lecture 1 to 18
This Mcqs for Midterm

48. Which of the following issue is NOT covered by “Investment” area of finance?
Select correct option:

Best mixture of financial investment

International aspects of corporate finance
Associated risks and rewards
Pricing financial assets
49. Period costs include which of the following?
Select correct option:
Selling expense
Raw material
Direct labor
Manufacturing overhead

50. Product costs include which of the following?

Select correct option:

Selling expenses
General expenses
Manufacturing overhead
Administrative expenses
51. Financial policy is evaluated by which of the following?
Select correct option:
Profit Margin
Total Assets Turnover
Debt-equity ratio
None of the given options

52. Cash flow from assets involves which of the following component(s)?
Select correct option:

Operating cash flow

Capital spending
Change in net working capital
All of the given options
53. 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

54. Finance is vital for which of the following business activity (activities)?
Select correct option:

Marketing Research
Product Pricing
Design of marketing and distribution channels
All of the given options
55. Which of the following costs are reported on the income statement as the cost of goods sold?
Select correct option:
Product cost
Period cost
Both product cost and period cost
Neither product cost nor period cost

56. Standard Company had net sales of Rs. 750,000 over the past year. During that time,
average receivables were Rs. 150,000. Assuming a 365-day year, what was the average
collection period?
Select correct option:

5 days
36 days
48 days
73 days
750000/150000=5
365/5=73days
57. Which of the following terms refers to the use of debt financing?
Select correct option:
Operating Leverage
Financial Leverage
Manufacturing Leverage
None of the given options
58. In which type of market, new securities are traded?
Select correct option:

Primary market
Secondary market
Tertiary market
None of the given options
59. 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

60. shows the sources from which cash has been generated and how it has been spent during a
period of time?
Select correct option:

Income Statement
Balance Sheet
Cash Flow Statement
Owner’s Equity Statement
61. Standard Corporation sold fully depreciated equipment for Rs. 5,000. This transaction will
be reported on the cash flow statement as a(n):
Select correct option:

Operating activity
Investing activity
Financing activity
None of the given options
62. me: Quick Ratio is also known as:
Select correct option:

Current Ratio
Acid-test Ratio
Cash Ratio
63. of the following statement measures performance over a specific period of time?
Select correct option:

Income Statement
Balance Sheet
Cash Flow Statement
Retained Earning Statement

64. A portion of profits, which a company retains itself for further expansion, is known as:
Select correct option:

Dividends
Retained Earnings
Capital Gain
None of the given options
65. Net Income after taxation differs from Net Cash Flow from operations because:
Select correct option:
Depreciation expense is shown in the Cash Flow Statement and not in the Income Statement
Non-cash items are included in the Income Statement, but not in the Cash Flow Statement
Cash sales are shown in the Cash Flow Statement but not in the Income Statement
Cash expenses are shown in the Cash Flow Statement but not in the Income Statement

66. Which of the following statement shows assets, liabilities, and net worth as of a specific
date?
Select correct option:
Income Statement
Balance Sheet
Owner’s Equity Statement
Cash Flow Statement

67. A portion of profits, which a company retains itself for further expansion, is known as:
Select correct option:

Dividends
Retained Earnings
Capital Gain
None of the given options

68. Which one of the following is NOT a liquidity ratio?

Select correct option:

Current Ratio
Quick Ratio
Cash Coverage Ratio
Cash Ratio

69. Which of the following ratio gives an idea as to how efficient management is at using its
assets to generate earnings?
Select correct option:

Profit Margin
Return on Assets
Return on Equity
Total Assets Turnover

70. Which of the following is an example of capital spending?

Select correct option:

Purchase of Fixed Assets

Decrease in Net Working Capital
Increase in Net Working Capital
None of the given options

71. Which of the following is measured by profit margin?

Select correct option:

Operating efficiency
Asset use efficiency
Financial policy
Dividend policy

72. Who of the following make a broader use of accounting information?

Select correct option:

Accountants
Financial Analysts
Auditors
Marketers

73. 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?
Select correct option:

Liquidity Ratios
Leverage Ratios
Profitability Ratios
Market Value Ratios

74. A company having a current ratio of 1 will have __________ net working capital.
Select correct option:

Positive
Negative
zero
None of the given options
75. which of the following is not a form of business organization
Select correct option:

sole proprietorship
partnership
joint stock company
cooperative Society

76. Which of the following ratios are intended to address the firm’s financial leverage?
Select correct option:

Liquidity Ratios
Long-term Solvency Ratios
Asset Management Ratios
Profitability Ratios

77. The accounting definition of income is:

Select correct option:

Income = Current Assets - Current Liabilities

Income = Fixed Assets - Current Assets
Income = Revenues - Current Liabilities
Income = Revenues - Expenses

78. Which of the following item(s) is(are) not included while calculating Operating Cash
Flows?
Select correct option:

Depreciation
Interest
Expenses related to firm’s financing of its assets
All of the given options
79. Suppose market value exceeds book value by Rs. 250,000. What will be the after-tax
proceeds if there is a tax rate of 34 percent ?
Select correct option:

Rs. 105,600
Rs. 148,500
Rs. 165,000
Rs. 225,000
Solution=250000*34%=85000
250,000-85000=165000
80. When a corporation wishes to borrow from public on a long-term basis, it does so by
issuing or selling:
Select correct option:

Debt securities or bonds lec 17

Common Stocks
Preferred Stock
All of the given options
81. 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?
Select correct option:

Liquidity Ratios
Leverage Ratios
Profitability Ratios
Market Value Ratios

82. In which type of market, used securities are traded?

Select correct option:

Primary market
Secondary market
Tertiary market
None of the given options

83. Who of the following make a broader use of accounting information?

Select correct option:
Accountants
Financial Analysts lec 2
Auditors
Marketers

84. Which of the following is (are) a non-cash item(s) ?

Select correct option:
Revenue
Expenses
Depreciation
All of the given options
85. What will be the coupon value of a Rs. 1,000 face-value bond with a 10% coupon rate?
Select correct option:

Rs. 100
Rs. 510
Rs. 1,000
Rs. 1,100
Solution:
=1000/10
=100

86. Which of the following comes under the head of discounted cash flow criteria for capital
budgeting decisions?
Select correct option:

Payback Period lec 28

Net Present Value
Average Accounting Return
None of the given options
87. Period costs include which of the following?
Select correct option:

Selling expense
Raw material
Direct labor
Manufacturing overhead

88. The value of net working capital will be greater than zero when:
Select correct option:

Current Assets > Current Liabilities

Current Assets < Current Liabilities
Current Assets = Current Liabilities
None of the given options
89. According to Du Pont Identity, ROE is affected by which of the following?
Select correct option:
Operating efficiency
Asset use efficiency
Financial Leverage
All of the given options
90. Which of the following issue is NOT covered by “Investment” area of finance?
Select correct option:
Best mixture of financial investment
International aspects of corporate finance
Associated risks and rewards
Pricing financial assets
91. Standard Corporation sold fully depreciated equipment for Rs. 5,000. This transaction will
be reported on the cash flow statement as a(n):
Select correct option:
Operating activity
Investing activity
Financing activity
None of the given options

92. 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?
Select correct option:
1.01
1.26
1.39
1.52
Solution= 700000/460000=1.52

93. In which type of business, all owners share in gains and losses and all have unlimited
liability for all business debts?
Select correct option:
Sole-proprietorship
General Partnership pg 6
Limited Partnerhsip
Corporation

94. a firm uses cash to purchase inventory, its current ratio will:
Select correct option:

Increase
Decrease
Remain unaffected
Become zero
95. Which of the following is a special case of annuity, where the stream of cash flows
continues forever?
Select correct option:

Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity
96. Which of the following is an example of positive covenant?
Select correct option:
Maintaining any collateral or security in good condition
Limiting the amount of dividend according to some formula Restricting pledging assets to other lenders
Barring merger with another firm

97. Which of the following refers to the difference between the sale price and cost of inventory?
Select correct option:
Net loss
Net worth
Markup
Markdown

98. Which of the following allows a company to repurchase part or all of the bond issue at a
stated price?
Select correct option:
Repayment
Seniority
Call provision
Protective covenants

99. ____________ shows the sources from which cash has been generated and how it has been
spent during a period of time?
Select correct option:
Income Statement
Balance Sheet
Cash Flow Statement
Owner’s Equity Statement

100. Which of the following is a cash flow from financing activity?

Select correct option:
Cash outflow to the government for taxes
Cash outflow to shareholders as dividends
Cash outflow to lenders as interest
Cash outflow to purchase bonds issued by another company

101. Which of the following form of business organization is least regulated?

Select correct option:
Sole-proprietorship
General Partnership
Limited Partnership
Corporation

102. The principal amount of a bond at issue is called:

Select correct option:
Par value
Coupon value
Present value of an annuity
Present value of a lump sum

103. Which of the following relationships holds TRUE if a bond sells at a discount?
Select correct option:
Bond Price < Par Value and YTM > coupon rate
Bond Price > Par Value and YTM > coupon rate
Bond Price > Par Value and YTM < coupon rate
Bond Price < Par Value and YTM < coupon rate

104. When a corporation wishes to borrow from public on a long-term basis, it does so
by issuing or selling:
Select correct option:
Debt securities or bonds
Common Stocks
Preferred Stock
All of the given options

105. Which of the following item provides the important function of shielding part of
income from taxes?
Select correct option:

Inventory
Supplies
Machinery
Depreciation

106. 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?
Select correct option:

Rs. 300,000
Rs. 500,000
Rs. 800,000
Rs. 1100,000
sol
Asset= liabilities+ capital so 300+500=800,000

107. 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
108. in which form of Business, owners have limited libility.
Select correct option:

sole proprietorship
partnership
joint stock company
none of the above

124. Which of the following is an example of positive covenant?

Select correct option:

Maintaining firm’s working capital at or above some specified minimum level

Furnishing audited financial statements periodically to the lender Maintaining any collateral or security in good
condition
Restricting selling or leasing assets

125. Which of the following is measured by retention ratio?

Select correct option:

Operating efficiency
Asset use efficiency
Financial policy
Dividend policy

126. Which of the following statement shows assets, liabilities, and net worth as of a
specific date?
Select correct option:

Income Statement
Balance Sheet
Owner’s Equity Statement
Cash Flow Statement
Armaan: b

127. Product costs include which of the following?

Select correct option:
Selling expenses
General expenses
Manufacturing overhead
Administrative expenses

128. An account was opened with an investment of Rs. 3,000 ten years ago. The ending
balance in the account is Rs. 4,100. If interest was compounded, how much compounded
interest was earned?
Select correct option:

Rs. 500
Rs. 752
Rs. 1,052
Rs. 1,100
4100-3000=1100
129. 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

130. Which of the following cash flow activities are reported in the Cash Flow Statement
and Income Statement?
Select correct option:

Operating Activities
Investing Activities
Financing Activities
All of the given options

131. Which of the following term refers to establish of a standard to follow for
comparison?
Select correct option:

Benchmarking 48
Standardizing
Comparison
Evaluation

132. Which of the following is measured by profit margin?

Select correct option:

Operating efficiency pg 44
Asset use efficiency
Financial policy
Dividend policy

133. Rule of 72 for finding the number of periods is fairly applicable to which of the
following range of discount rates?
Select correct option:
2% to 8%
4% to 25%
5% to 20%
10% to 50%

134. Which of the following refers to a conflict of interest between principal and agent?
Select correct option:
Management Conflict
Interest Conflict
Agency Problem
None of the given options
135. 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?
Select correct option:

Ordinary annuity 63
Annuity due
Perpetuity
None of the given options

136. Which of the following area of finance deals with stocks and
bonds?
Select correct option:

Financial institutions
International finance
Investments
All of the given options

137. 7:03 AM Which of the following is NOT an external use of

financial statements
information?
Select correct option:
Evaluation of credit standing of new customer
Evaluation of financial worth of supplier
Evaluation of potential strength of the competitor
Evaluation of performance through profit margin and return on equity

138. 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

139. If a firm has a ROA of 8 percent, sales of Rs. 100,000, and total
assets of Rs. 75,000.
What is the profit margin?
Select correct option:
4.30%
6.00%
10.70%
16.73%
solution
0000*100= 6%

140. 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

141. 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
142. Quick Ratio is also known as:
Select correct option:

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

143. 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

144. 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%
145. When corporations borrow, they generally promise to: I. Make regular
scheduled
interest payments II. Give the right of voting to bondholders III. Repay the
original
amount borrowed (principal) IV. Give an ownership interest in the firm
Select correct option:
I and II
I and III

II and IV
I, III, and IV

146. Which of the following is NOT included in a bond indenture?

Select correct option:
The basic terms of bond issue
The total amount of bonds issued
A personal profile of the issuer
A description of the security
147. What would be the present value of Rs. 10,000 to be received after
6 years at a
discount rate of 8 percent?
Select correct option:

Rs. 6,302
Rs. 9,981
Rs. 14,800
Rs. 15,869
148. Which of the following statement is TRUE regarding debt?
Select correct option:

Debt is an ownership interest in the firm.

Unpaid debt can result in bankruptcy or financial failure.
Debt provides the voting rights to the bondholders.
Corporation’s payment of interest on debt is fully taxable.

149. 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

150. Which of the following is a special case of annuity, where the

stream of cash flows
continues forever?
Select correct option:

Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity

151. 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 :
Select correct option:

Rs. 150,000
Rs. 200,000
Rs. 250,000
Rs. 400,000
ROTA = N.P / Total Assets
4 % = N.P / 500,000
4% * 500,000 = N.P
N.P = Rs. 20,000

N.P Margin = N.P / Sales

5 % = 20,000 / Sales
5% * Sales = 20,000
Sales = 20,000 / 5%
Sales = 400,000

;;
152. Which of the following rate makes the Net Present Value (NPV)
equal to zero?
Select correct option:

Average Accounting Return (AAR)

Internal Rate of Return (IRR) pg 109
Required Rate of Return (RRR)
Weighted Average Cost of Capital (WACC)

153. Which of the following is the expected rate of return on a bond if

bought at its
current market price and held to maturity
Select correct option:
Current Yield
Yield To Maturity
Coupon Yield
Capital Gains Yield

154. If a firm uses cash to purchase inventory, its quick ratio will:
Select correct option:
Increase
Decrease
Remain unaffected
Become zero

155. a firm uses cash to purchase inventory, its current ratio will:
Select correct option:

Increase
Decrease
Remain unaffected
Become zero