ACC501 Business Finance Quiz # 01 Fall 2012

 

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

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 

 

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

Float
Collar
Limit
Surplus

 

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 


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

 

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

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

 

Quick Ratio is also known as: 
Select correct option:

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

 

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

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%

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

Carrying costs
Shortage costs
Storing costs
financing costs

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

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


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


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


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

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

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

 

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

Sole-proprietorship
Partnership
Corporation
None of the given options

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

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

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 

 

 

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

Revenue
Expenses
Depreciation
All of the given options

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

 

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

  A company having a current ratio of 1 will have __________ net working capital.

   Select correct option:

    Positive

   Negative

   zero

   None of the given options

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

 

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

Systematic Risk
Diversifiable Risk
Unsystematic Risk
None of the given options

 

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

Systematic Risk
Market Risk
Unsystematic Risk
None of the given options

 

 

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

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

 

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

 

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

 

Systematic Risk is also known as: 
Select correct option:

Diversifiable Risk
Market Risk
Residual Risk
Asset-specific Risk

 

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

 

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

 39%

 34%

 15%

 25%

 

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

 

Which of the following is disadvantage of sole proprietor business?

Select correct option:

Easy to start

Business income is considered as personal income

Limited sources

None of the given options

 

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

 

Which one of the given options is generally considered the most liquid

asset?

 accounts receivable

 inventory

 net fixed assets

 intangible assets

 

Which of the following is the most significant financial advantage of corporate form?

Select correct option:

Easy to raise money

Double taxation

Easy to start

 

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?

.Return on short as well as long term investments

 Return on equity and return on debt

Return on equity and profit margin

 All of the given options

 

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 _______________.

   9.414 %

. 10.414 %

 11.412 %

 12.414 %

 

In finance we refer to the market for relatively long-term financial

instruments as the __________ market.

 money

 capital

primary

secondary

 

AST Company’s debt-to-total assets ratio is 0.45. What is its debt -to-equity

ratio?

Select correct option:

0.101

0.220

0.667

0.818

 

A given rate is quoted as 9 percent APR, but the EAR is 9.38 percent. What

is the compounding period?

Select correct option:

Semiannually

Quarterly

Month

SNT Corporation has policy of paying a Rs. 6 per share dividend 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?

Select correct option:

Rs. 30

Rs. 40

Rs. 50

Rs. 60

 

Which of the following is the amount of cash we would get if we actually sell

an asset?

Select correct option:

Market Value

Book Value

Intrinsic Value

None of the given options

 

 

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

 

f 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

 

A ______ covenant limits or prohibits actions that company might take.

 

Select correct option:

Positive

Negative

Neutral

None of the given options

 

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

investors?

Select correct option:

Primary Market

Secondary Market

Tertiary Market

None of the given options’

 

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

Average Accounting Return

 

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)

 

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

 

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

 

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

None of the given options

 

In which of the following type of annuity, cash flows occur at the beginning of

each period?

Select correct option:

Ordinary annuity

Annuity due

Perpetuity

None of the given options

 

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

 

Which one of the following is NOT a liquidity ratio?

Select correct option:

Current Ratio

Quick Ratio

Cash Coverage Ratio

Cash Ratio

 

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

 

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

Annuity due

Perpetuity

None of the given options

 

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)

 

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

 

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

 

 

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

 

In which type of market, new securities are traded?

Select correct option:

Primary market

Secondary market

Tertiary market

None of the given options

 

  A company having a current ratio of 1 will have __________ net working capital.

   Select correct option:

    Positive

   Negative

   zero

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

Float
Collar
Limit
Surplus 

 

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 

 

 

In which type of market, new securities are traded?

Select correct option:

Primary market

Secondary market

Tertiary market

 

 

In finance we refer to the market for relatively long-term financial

instruments as the __________ market.

 money

 capital

primary

secondary

 

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

 

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

 

Quick Ratio is also known as:

Select correct option:

Current Ratio

Acid-test Ratio

Cash Ratio

me:c

 

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

 

 

hich one of the following is NOT a liquidity ratio?

Select correct option:

Current Ratio

Quick Ratio

Cash Coverage Ratio

Cash Ratio

 

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

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

 

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

 

 

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

 

 

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

Revenue
Expenses
Depreciation
All of the given options

 

 

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

Average Accounting Return

 

 

 

 

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 _______________.

   9.414 %

. 10.414 %

 11.412 %

 12.414 %

 

 

Which of the following is the amount of cash we would get if we actually sell

an asset?

Select correct option:

Market Value

Book Value

Intrinsic Value

None of the given options

 

 

 

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

Revenue
Expenses
Depreciation
All of the given options

 

 

 

 

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

None of the given options

 

 

 

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

 

 

In which of the following type of annuity, cash flows occur at the beginning of

each period?

Select correct option:

Ordinary annuity

Annuity due

Perpetuity

None of the given options

 

 

 

 

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 

 

 

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

 

 

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