Business Finance MCQ Questions and Solutions with Explanations

21

The issues in international capital budgeting include
1. Exchange rate risk
2. Political risk
3. Geographical risk
4. Parent vs project cash flow

A) Both 1 and 2 B) Both 2 and 4 C) 1, 2 and 4 D) 1, 2 and 3

Discuss

Answer & Solution

Answer: Option C

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22

Which of the following sources of finance has an implicit cost ofcapital?

A) Equity share capital B) Preference share capital C) Debentures D) Retained earnings

Discuss

Answer & Solution

Answer: Option D

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23

Negative net working capital means assets are not being used effectively, and a company may face a liquidity crisis. This implies

A) Long-term funds have been used for fixed assets B) Short-term funds have been used for fixed assets C) Long-term funds have been used for current assets D) Short-term funds have been used for current assets

Discuss

Answer & Solution

Answer: Option B

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24

When assessing economic exposure, financial managers should consider how variations in exchange rates influence . . . . . . . .

A) A company's sales prospects in foreign markets B) The product market, the factor market and the capital market C) The home-currency value of financial assets and liabilities denominated in foreign D) The costs of labor and other inputs to be used in overseas production

Discuss

Answer & Solution

Answer: Option A

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25

Dividend irrelevance argument of MM model is based on

A) Hedging B) Issue of debentures C) Liquidity D) Arbitrage

Discuss

Answer & Solution

Answer: Option D

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26

Negative net working capital implies that

A) Long-term funds have been used for fixed assets B) Short-term funds have been used for fixed assets C) Long-term funds have been used for current assets D) Short-term funds have been used for current assets

Discuss

Answer & Solution

Answer: Option B

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27

Which of the following is not true with reference to capital budgeting?

A) Capital budgeting is related to asset replacement decisions B) Cost of capital is equal to minimum required rate of return C) Timing of cash flows is relevant D) Existing investment in a project is not treated as sunk cost

Discuss

Answer & Solution

Answer: Option D

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28

The conflicts in project ranking in capital budgeting as per NPV and IRR may arise because of

A) Size disparity B) Time disparity C) Life disparity D) All of these

Discuss

Answer & Solution

Answer: Option D

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29

What are the main objectives of financing decision?
1. To get optimal working capital figure.
2. To get optimal capital structure.
3. To make the company exposed to high risk.
4. To keep the cost of capital lowest.
5. To make the value of share highest.

A) 1, 2, 4 and 5 B) 1, 2, 3, 4 and 5 C) 2, 3, 4 and 5 D) 2, 4 and 5

Discuss

Answer & Solution

Answer: Option A

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30

Assertion (A): The important aspect of dividend policy is to determine the amount of earnings to be distributed to shareholders and the amount to be retained in the firm.
Reason (R): Dividend policy of the firm has its effect on both the long term financing and the wealth of shareholders.

A) Both (A) and (R) are correct and (R) is the correct explanation of (A) B) Both (A) and (R) are correct, but (R) is not the correct explanation of (A) C) (A) is correct, but (R) is incorrect D) (R) is correct, but (A) is incorrect

Discuss

Answer & Solution

Answer: Option A

No explanation is given for this question. Let's Discuss on Board

Business Finance MCQ Questions and Solutions with Explanations | Commerce