Unit - 3

1. What prevents a seller in perfect competition to influence the price?

a. Large number of sellers
b. Similarity of products
c. Effective advertising the other sellers
d. Interdependence of firms

Ans: a. Large number of sellers

2. A new firm can easily enter a/an market.

a. Oligopoly
b. Monopoly
c. Perfectly competitive
d. Duopoly

Ans: c.Perfectly competitive

3. Which market structure is clearly visible in retail trade?

a. In perfect competition
b. Perfect competition
c. Oligopoly
d. Monopoly

Ans: d: Oligopoly

4. Which of the following are characteristics of a perfect competition except

a. There is large number of buyers
b. Every seller is price taker
c. Pricing policy of one seller will affect pricing policy of rivals
d. Products are homogenous

Ans: c. Pricing policy of one seller will affect pricing policy of rivals

5. The demand curve faced by an individual seller in perfect competition, is

a. Perfectly elastic
b. Perfectly inelastic
c. Relatively inelastic
d. Unitary inelastic

Ans: a.Perfectly elastic

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6. Pricing which is based on how much it costs to produce a product is called
a. Demand pricing
b. Cost-plus pricing
c. Marginal cost pricing
d. Multi-product pricing

Ans: c. Marginal cost pricing

7. Price discrimination refers to

a. charging different prices for different commodities
b. charging different prices for same buyers at different times
c. charging different prices for same commodity to different buyers
d. charging same price for all buyers

Ans: A. charging different prices for different commodities

8. Which pricing strategy uses various class distinction?

a. Marginal cost pricing
b. Price discrimination
c. Product line pricing
d. Mark-up pricing

Ans: d. Mark-up pricing

9. What is the other name for cost-plus pricing?

a. Mark up
b. Mark down
c. Revenue plus
d. revenue minus

Ans: a. Mark up

10. An example of pricing policy objective is to

a. Minimize cost
b. Maximize price
c. Minimize loss
d. Maintain or gain market share

Ans:d. Maintain or gain market share

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 Unit – 4

1. What are the aspects of working capital management?

a. Inventory management .
b. Receivable management
c. Cash management
d. All of the above

Ans: d. All of the above

2. What are the different types of underlying assets?

a. Stocks
b. Bonds
c. Currency
d. Stock indices

Ans: d. Stock indices

3. ________ Function includes a firm’s attempts to balance cash inflows and outflows.
a. Finance
b. Liquidity
c. Investment
d. Dividend

Ans: b. Liquidity

4. Firms which are capital intensive rely on _________.

a. Equity
b. Short term debt
c. Debt
d. Retained earnings

Ans: c. debt

5. The major current assets are _____

a. cash and marketable securities
b. accounts receivable (debtors)
c. inventory (stock)
d. All of the above

Ans D. All of the above

6. The basic current liabilities are _____

a. accounts payable and bills payable
b. bank overdraft
c. outstanding expenses.
d. All of the above

Ans D. All of the above

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 7. There are two concepts of working capital – gross and ____ .
a. Zero
b. Net
c. Cumulative
d. Distinctive

Ans: b. net.

8. Investment in current assets should be _____

a. just adequate
b. more
c. less
d. maximum

Ans A. just adequate

9. On the basis of _____, working capital is classified as gross working capital and net working
capital.
a. concept
b. time
c. future
d. work

Ans A. concept

10. On the basis of _____, working capital may be classified as: 1) Permanent or fixed working
capital. 2) Temporary or variable working capital.
a. Concept
b. time
c. future
d. work

Ans B. time

11. Payback period method of capital budgeting primarily focuses on

a. The current rate of interest
b. The rate of profitability of assets
c. Time period required to recover original investment
d. The costs of acquiring capital assets

Ans: c. Time period required to recover original investment

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 12. Consider the following data on a proposed investment:
1. Investment required: $160,000 2. Annual cash inflows: $40,000
Based on the above data, what is the payback period of the proposed investment project?
a. 2 years
b. 3years
c. 4 years
d. 5 years

Ans: c. 4 years

13. Which of the following capital budgeting techniques takes into account the incremental
accounting income rather than cash flows?
a. Net present value
b. Internal rate of return
c. Accounting/Simple rate of return
d. Cash payback period

Ans: a. Net present value

14. Which of the following techniques does not take into account the time value of money?
a. Internal rate of return method
b. Simple cash payback method
c. Net present value method
d. Discounted cash payback method

Ans: b. Simple cash payback method

15. A project is considered acceptable if its net present value is

a. negative or zero
b. negative or positive
c. positive or zero
d. negative

Ans: c. positive or zero

16. According to the IRR method of capital budgeting, a project will be accepted if
a. IRR is less than the market rate of interest
b. IRR is equal to market rate of interest
c. IRR is equal to NPV
d. IRR is greater than market rate of interest

Ans: IRR is greater than market rate of interest

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17. The process of planning expenditures that will influence the operation of a firm
over a number of years is called
a. Investment
b. Capital budgeting
c. Net present value
d. Dividend valuation

Ans: b. Capital budgeting

18. Which of the following is an example of a capital investment project?

a. Replacement of worn out equipment
b. Expansion of production facilities
c. Development of employee training programs
d. All of the above are examples of capital investment projects

Ans: a. Replacement of worn out equipment

19. The net present value method and the internal rate of return method will always yield the
same decision when
a. a single project is evaluated
b. mutually exclusive projects are evaluated
c. a limited number of projects must be selected from a large number of
opportunities
d. Different projects are evaluated

Ans: b. mutually exclusive projects are evaluated

20. Present value may be defined as

a. The discounted value of future cash flows
b. The interest rate earned on future cash flows
c. The compounded value of future cash flows
d. The opportunity costs of future cash flows
Ans: a. The discounted value of future cash flows

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 Unit 5
1. Decrease in the amount of creditors results in
a. Increase in assets
b. Increase in cash
c. Decrease in cash
d. No change in assets

Ans: c. Decrease in cash

2. Which of the following is an accounting equation?

a. Capital = Assets + Liabilities
b. Capital = Assets – Liabilities
c. Assets = Liabilities – Capital
d. Liabilities = Assets + Capital

Ans: b. Capital = Assets – Liabilities

3. Bills Receivable books is part of the

a. Journal
b. Ledger
c. Profit & Loss Account
d. Balance

Ans: a. Journal

4. A bad debt recovered during the year will be

a. Capital Expenditure
b. Revenue Expenditure
c. Capital Receipt
d. Revenue Receipt.

Ans: d. Revenue Receipt.

5. Nominal Account represents

a. Profit & Gain
b. Loss / Expenses
c. Both (A) and (B)
d. None of the above

Ans: c Both (A) and (B)

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6. Prepaid rent is a
a. Nominal Account
b. Representative Personal Account
c. Tangible Assets Account
d. None of the above

Ans: b. Representative Personal Account

7. Purchases book is used to record

a. All purchases of goods
b. All credit purchases
c. All credit purchases of goods
d. All credit purchases of assets other than goods

Ans: c. All credit purchases of goods

8. Accounting does not record non-financial transactions because of

a. Entity concept
b. Accrual concept
c. Cost concept
d. Money measurement concept

Ans: a Entity concept

9. Narration is given at the end of

a. Final accounts
b. Trial balance
c. Each ledger account
d. Each journal entry

Ans: d Each journal entry

10. Which one of the following is an example of Personal Account?

a. Machinery
b. Rent
c. Cash
d. Creditor

Ans: d Creditor

11. Working Capital Turnover measures the relationship of Working Capital with:
a. Fixed Assets
b. Sales,
c. Purchases
d. Stock

Ans: a. Fixed Assets

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12. Dividend Payout Ratio is:
a. PAT Capital,
b. DPS ÷ EPS,
c. Pref. Dividend ÷ PAT,
d. Pref. Dividend ÷ Equity Dividend.

Ans: b. DPS ÷ EPS

13. The ideal quick ratio is

a. 2:1
b. 1:1
c. 5:1
d. None of the above

Ans: b. 1:1

14. Quick assets do not include

a. Govt.bond
b. Book debts
c. Advance for supply of raw materials
d. Inventories.

Ans: d Inventories.

15. The degree of solvency of two firms can be compared by measuring

a. Net worth
b. Tangible Net Worth
c. Asset coverage ratio
d. Solvency Ratio.

Ans: d. Solvency Ratio.

16. Properietory ratio is calculated by

a. Total assets/Total outside liability
b. Total outside liability/Total tangible assets
c. Fixed assets/Long term source of fund
d. Properietors’Funds/Total Tangible Assets.

Ans: d. Properietors’Funds/Total Tangible Assets

17. Banks generally prefer Debt Equity Ratio at:

a. 1:1
b. 1:3
c. 2:1
d. 3:1

Ans: c. 2:1

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18. If a company revalues its assets, its net worth:
a. Will improve
b. Will remain same
c. Will be positively affected
d. None of the above.

Ans: a. will improve

19. If a company issues bonus shares the debt equity ratio will
a. Remain unaffected
b. Will be affected
c. Will improve
d. none of the above.

Ans: c. Will improve

20. An asset is a
a. Source of fund
b. Use of fund
c. Inflow of funds
d. none of the above.

Ans: b. Use of fund

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