Financial Management Online MCQ Set 16

QN01. Which of the following does not cause a distortion in the reporting of income?

1. The reporting of revenue.
2. The treatment of non-recurring items.
3. The tax-write off policy.
4. The firm's dividend policy.

Answer

(D)The firm's dividend policy.

QN02. If there is one talent essential to the financial manager, it is:

1. the ability to plan ahead and make necessary adjustments before actual events occur
2. the ability to accurately determine the firm's earnings
3. the ability to prepare the firm's financial statements
4. the ability to effectively factor the firm's receivables

Answer

(A)the ability to plan ahead and make necessary adjustments before actual events occur

QN03. In a cash budget, net cash flow for the month is defined as:

1. revenues minus cost of goods sold
2. monthly receipts minus monthly payments
3. earning before taxes minus income taxes
4. operating profit minus interest expense and income taxes

Answer

(B)monthly receipts minus monthly payments

QN04. To determine production requirements, which of the following would be appropriate?

1. Beginning inventory-ending inventory.
2. Sales + beginning inventory-ending inventory.
3. Sales - ending inventory
4. Projected sales + desired ending inventory - beginning inventory.

Answer

(D)Projected sales + desired ending inventory - beginning inventory.

QN05. Degree of operating leverage may be defined as:

1. the extent to which the firm utilizes debt in its financing plan
2. the percent change in operating income/percent change in unit volume
3. the percent change in operating income/percent change in sales
4. the percent change in net income/percent change in unit volume

Answer

(B)the percent change in operating income/percent change in unit volume

QN06. The degree of financial leverage for the conservative firm:

1. is higher than the DFL for the highly leveraged firm
2. is the same as the DFL for the highly leveraged firm
3. is lower than the DFL for the highly leveraged firm
4. cannot be compared to the DFL for the highly leveraged firm

Answer

(C)is lower than the DFL for the highly leveraged firm

QN07. Working capital management is mainly concerned with:

1. the placement of the firm's debt and equity issues
2. the financing and management of the firm's current assets
3. inventory management
4. management of the firm's capital assets

Answer

(B)the financing and management of the firm's current assets

QN08. Level production methods tend to:

1. use manpower and equipment efficiently at a lower cost
2. be more difficult to manage than those matching sales and productions
3. result in a more stable value for current assets
4. eliminate seasonal bulges or reductions in current assets

Answer

(A)use manpower and equipment efficiently at a lower cost

QN09. The belief that current assets should always be financed by current liabilities:

1. is sound financial practice and should always be followed
2. doesn't necessarily hold true
3. is grounded in the belief that a permanent building of current assets occurs
4. will often result in bankruptcy for the firm

Answer

(B)doesn't necessarily hold true

QN10. Before establishing a collection center or lockbox system, the firm must:

1. obtain regulatory approval
2. establish that the benefits outweigh the substantial costs
3. survey its customers to determine if they are agreeable
4. set up an electronic funds transfer (EFT) system

Answer

(B)establish that the benefits outweigh the substantial costs

QN11. The primary focus of the Bank of Canada's short-term money policy is now

1. the overnight rate
2. the treasury bill rate
3. the prime rate
4. the bank rate

Answer

(A)the overnight rate

QN12. A series of consecutive cash flows of equal amounts is known as:

1. a present value
2. a compound sum
3. a present sum
4. an annuity

Answer

(D)an annuity

QN13. To an investor, the most desirable compounding period is:

1. Annually
2. semi-annually
3. monthly
4. daily

Answer

(D)daily

QN14. The market required rate of return depends on:

1. the present value of future cash flows
2. the market's perceived level of risk associated with the individual security
3. the yield to maturity
4. the valuation of the financial asset

Answer

(B)the market's perceived level of risk associated with the individual security

QN15. The yield to maturity on a bond:

1. is determined by government regulations
2. equates principal and interest payments to the price of the bond
3. is constant with varying maturities
4. tends to move inversely with share prices

Answer

(B)equates principal and interest payments to the price of the bond

QN16. The two most important measures of risk are:

1. the variance and standard deviation
2. the expected value and standard deviation
3. the arithmetic mean and variance
4. the arithmetic mean and standard deviation

Answer

(B)the expected value and standard deviation

QN17. The portfolio effect analyzes:

1. the return on the portfolio
2. the risk of the portfolio
3. the impact of a given investment on the overall risk level
4. none of the above are correct

Answer

(C)the impact of a given investment on the overall risk level

QN18. With respect to corporate bonds, all of the following are true except:

1. the market for corporate bonds dwarfs the market for stock
2. the percentage of bond financing is affected by common share prices
3. interest rate levels are less significant than common share prices
4. corporate bond markets are dominated in size by the stock market

Answer

(D)corporate bond markets are dominated in size by the stock market

QN19. Which of the following statements about securities markets is incorrect:

1. they aid in the allocation of capital
2. they provide liquidity to investors
3. securities are initially placed in the secondary market
4. the keep prices competitive among alternative security investments

Answer

(C)securities are initially placed in the secondary market

QN20. Perhaps the biggest change of all in the investment industry has been:

1. the consolidation of financial resources among a few large firms
2. the acquisition of retail brokerage firms
3. the increase in bond underwriting
4. the increasing generalization of investment firms

Answer

(A)the consolidation of financial resources among a few large firms

QN21. Under a leveraged buy-out scenario, all of the following are true except:

1. a public firm is taken private
2. cash is borrowed to finance the purchase
3. equity is usually sold to pay off the debt
4. a corporate restructuring normally follows

Answer

(C)equity is usually sold to pay off the debt

QN22. The document containing all of the legal details of the bond is:

1. the debenture
2. the indenture
3. the bond agreement
4. the debt agreement

Answer

(B)the indenture

QN23. A bond issue should be refunded when:

1. bondholders desire the return of their funds
2. it is too expensive to issue additional common stock
3. interest rates drop and you believe they will increase again
4. the existing bonds contain no call provision

Answer

(C)interest rates drop and you believe they will increase again

QN24. All income not paid out to creditors or preferred shareholders:

1. is paid out as common stock dividends
2. is distributed as interest to bondholders
3. automatically belongs to common shareholders
4. is subject to a higher federal income tax rate

Answer

(C)automatically belongs to common shareholders

QN25. Preferred stock may be justified in that it:

1. expands the capital base without diluting common equity
2. it is lower cost source of financing than debt
3. dividends are tax-deductible
4. really has no justification

Answer

(A)expands the capital base without diluting common equity

QN26. Which of the following statements is correct:

1. Dividend amounts are first determined, and the residual retained
2. In achieving the highest overall return, dividends are irrelevant
3. Most shareholders prefer retained earnings over dividends
4. There is conclusive proof that investors prefer dividends over retained earnings

Answer

(B)In achieving the highest overall return, dividends are irrelevant

QN27. All of the following are key dates associated with the declaration of a dividend except:

1. the ex-dividend date
2. the holder of record date
3. the payment date
4. the dividend receipt date

Answer

(D)the dividend receipt date

QN28. If a firm repurchases it own stock:

1. in theory, the action is equivalent to paying cash dividends
2. the price of the stock is lowered into a more popular trading range
3. shareholders benefit less than with a stock split
4. shareholders benefit less than with a stock dividend

Answer

(A)in theory, the action is equivalent to paying cash dividends

QN29. Rights, warrants and convertible securities behave like call options but are different from call options because:

1. they do not trade in a financial market
2. they are used by the firm to raise money
3. they do not trade at a speculative premium
4. they are less risky

Answer

(B)they are used by the firm to raise money

QN30. The speculative premium of a warrant is equal to

1. warrant price-intrinsic value
2. intrinsic value-warrant price
3. (Market Value of Common Stock-Warrant Option Price) X Number of Shares per warrant
4. the minimum value

Answer

(A)warrant price-intrinsic value

QN31. A firm with a tax loss carryforward:

1. is able to reduce their taxes for previous years
2. provides a tax motive and a cash flow opportunity for an acquiring firm
3. allows tax payments to be carried forward to the next year
4. is not a good merger target because they are unprofitable

Answer

(B)provides a tax motive and a cash flow opportunity for an acquiring firm

QN32. The cash purchase of another company may best be viewed as:

1. a necessary growth strategy
2. a capital budgeting problem
3. a cash budgeting problem
4. an undesirable alternative

Answer

(B)a capital budgeting problem

QN33. The main factor influencing foreign exchange rates is:

1. the supply and demand relationship
2. domestic policies
3. foreign government policies
4. banking activities

Answer

(A)the supply and demand relationship

QN34. The appropriate objective of an enterprise is;

1. Maximisation of sale
2. Maximisation of owners wealth
3. Maximisation of profits.
4. None of these

Answer

(B)Maximisation of owners wealth

QN35. Return on Investment may be improved by:

1. Increasing Turnover
2. Reducing Expenses
3. Increasing Capital Utilization
4. All of the above

Answer

(D)All of the above

QN36. A firm has Capital of 10,00,000; Sales of 5,00,000; Gross Profit of. 2,00,000 and Expenses of. 1,00,000. What is the Net Profit Ratio?

1. 20%
2. 50%
3. 10%
4. 40%

Answer

(A)20%

QN37. Which of the following helps analysing return to equity Shareholders?

1. Return on Assets
2. Earnings Per Share
3. Net Profit Ratio
4. Return on Investment

Answer

(B)Earnings Per Share

QN38. Which of the following is not used in Capital Budgeting?

1. Time Value of Money
2. Sensitivity Analysis
3. Net Assets Method
4. Cash Flows

Answer

(C)Net Assets Method

QN39. Which of the following does not effect cash flows proposal?

1. Salvage Value
2. Depreciation Amount
3. Tax Rate Change
4. Method of Project Financing

Answer

(D)Method of Project Financing

QN40. Which of the following is not applied in capital budgeting?

1. Cash flows be calculated in incremental terms
2. All costs and benefits are measured on cash basis
3. All accrued costs and revenues be incorporated
4. All benefits are measured on after-tax basis

Answer

(C)All accrued costs and revenues be incorporated