Business Finance MCQ Questions and Solutions with Explanations

41

Statement I: Working capital leverage measures the responsiveness of return on equity for changes in current assets.
Statement II: When the annual demand for an item is 3,200 units, unit cost Rs. 6, inventory carrying charges 25% per annum and cost of one procurement Rs. 150, the economic ordering quantity would be 700 units.

A) Both statements are true B) Both statements are false C) Statement I is true, but Statement II is false D) Statement I is false, but Statement II is true

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Answer & Solution

Answer: Option B

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42

Which of the following is not a feature of payback period method?

A) It is simply a method of cost recovery and not of profitability B) It does not consider the time value of money C) It does not consider the risk associated with the projects D) It is very difficult to calculate

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Answer & Solution

Answer: Option D

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43

Concentration banking is a method of

A) Decentralised collection B) Centralised collection C) Direct collection D) Payment only through cheques

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Answer & Solution

Answer: Option A

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44

In certainty equivalent approach, adjusted cash flows are discounted at

A) Accounting rate of return B) Internal rate of return C) Hurdle rate D) Risk free rate

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Answer & Solution

Answer: Option B

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45

Which of the following equations gives the amount of operating cycle where,
R stands for raw material storage period
W for work in progress holding period
F for finished goods storage period
D for receivables (debtors) collection period
C for credit period allowed by suppliers (creditors)?

A) R + W + F + D - C B) R + W + F + D + C C) R + W - F + D - C D) R + W + F - D - C

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Answer & Solution

Answer: Option A

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46

Which one of the following is not matched?

List I	List II
i. Interest is a deductible expense	a. Cost of debt capital
ii. Realized Yield Approach	b. Cost of equity capital
iii. Extended Yield Approach	c. Retained earnings
iv. Dividend Capitalization Approach	d. Cost of preference share capital

A) i and a B) ii and b C) iii and c D) iv and d

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Answer & Solution

Answer: Option D

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47

. . . . . . . . means using short-term forward contracts to off set 'paper' gains and losses on the long-term assets and liabilities of foreign subsidiaries.

A) Hedging transaction exposure B) Hedging balance sheet exposure C) Hedging economic exposure D) Hedging cost exposure

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Answer & Solution

Answer: Option B

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48

Match the items of List-I with the items of List-II and select the correct answer:

List-I	List-II
a. Liquidity risk	1. Risk related to purchasing power of income
b. Business risk	2. Risk related to firm's capital structure
c. Financial risk	3. Risk related to inability to pay its dues on time
d. Inflation risk	4. Risk related to fluctuation in profits

A) a-2, b-3, c-4, d-1 B) a-1, b-4, c-3, d-2 C) a-3, b-2, c-4, d-1 D) a-3, b-4, c-2, d-1

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Answer & Solution

Answer: Option D

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49

The payoffs for financial derivatives are linked to

A) Securities that will be issued in the future B) The volatility of interest rates C) Previously issued securities D) Government regulations specifying allowable rates of return

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Answer & Solution

Answer: Option C

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50

Which of the following is not an approach to the capital structure?

A) Gross Profit approach B) Net Operating Income approach C) Net Income approach D) Modigliani and Miller approach

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Answer & Solution

Answer: Option A

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Business Finance MCQ Questions and Solutions with Explanations | Commerce