Business Finance MCQ Questions and Solutions with Explanations

31

Which combination represents the assumptions of Walter's Dividend Model?
I. The company has a very long or perpetual life.
II. All earnings are either reinvested internally or distributed as dividend.
III. There is no floatation cost for the company.
IV. The cost of capital of the company is constant.

A) I, III, IV B) III, IV C) I, II, IV D) I, III, V

Discuss

Answer & Solution

Answer: Option C

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32

Identity the incorrect statement from the following:

A) Broken-date contract is a full-month forward contract B) Currency arbitrage refers to making a profit by buying a currency cheap in one market and selling it dear in the other market at a particular point of time C) Currency Futures Market refers to organized foreign exchange market where a fixed amount of a currency is exchanged on a fixed maturity date in the pit D) Currency Options Market refers to the market for the exchange of currency where the option buyer enjoys the privilege of not exercising the option if the rate is not favourable

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Answer & Solution

Answer: Option A

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33

Operating leverage and financial leverage of a firm are 3 and 2, respectively. If the sale increases by 6%, then earnings before tax will rise by

A) 18% B) 12% C) 36% D) 30%

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Answer & Solution

Answer: Option C

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34

The following is an example of the core principle 'information is the basis for decisions.'

A) Wealthy depositors are the bank's best customers B) Payment made over time generally add upto more than the original loan amount C) lenders requires credit scores on individuals who want to take out loans D) Car insurance is often required by law

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Answer & Solution

Answer: Option C

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35

The maturity period of a commercial paper usually ranges from

A) 20 to 40 days B) 60 to 90 days C) 120 to 365 days D) 90 to 364 days

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Answer & Solution

Answer: Option D

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36

Which method of stock repurchase occurs when the buyer purchases securities through a brokerage house?

A) Dutch-auction B) Fixed-price C) Open-market D) Fair-warning

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Answer & Solution

Answer: Option C

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37

Which of the following is the critical assumption of Walter's Model?

A) All financing is through retained earnings; external sources of funds like debt or new equity capital are not used B) The retention ratio, once decided upon, is constant. Thus, the growth rate, (g = br) is also constant C) The capital markets are perfect, and the investors behave rationally D) All of the above

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Answer & Solution

Answer: Option D

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38

A portfolio having two risky securities can be turned risk less, if

A) the correlation ranges between zero and one B) the securities are completely positively correlated C) the securities are completely negatively correlated D) None of the above

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Answer & Solution

Answer: Option C

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39

The investors may be willing to pay a premium for stable dividends because of the informational content of . . . . . . . ., the desire of investors for . . . . . . . ., and certain . . . . . . . .

A) Institutional considerations; dividends; current income B) Dividends; current income; institutional considerations C) Current income; dividends; institutional considerations D) Institutional considerations; current income; dividends

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Answer & Solution

Answer: Option B

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40

Indicate the correct combination of discounting techniques from the following techniques of capital budgeting decision.
I. Profitability Index
II. Net Present Value
III. Accounting Rate of Return
IV. Internal Rate of Return

A) I, II, III B) II, III, IV C) I, II, IV D) I, III, IV

Discuss

Answer & Solution

Answer: Option C

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Business Finance MCQ Questions and Solutions with Explanations | Commerce