Q41. Capital rationing refers to: Answer: b. Limiting the amount of capital available for investment in projects
a. Allocating capital to projects based on their profitability
b. Limiting the amount of capital available for investment in projects
c. Evaluating capital projects using discounted cash flow techniques
d. Deciding on the capital structure of a company
Answer
Q42. Which of the following is a non-discounted cash flow technique? Answer: b. Payback Period
a. NPV (Net Present Value)
b. Payback Period
c. IRR (Internal Rate of Return)
d. PI (Profitability Index)
Answer
Q43. Green capital budgeting focuses on: Answer: a. Evaluating projects based on their environmental impact
a. Evaluating projects based on their environmental impact
b. Allocating capital to renewable energy projects
c. Estimating cash flows for sustainable projects
d. Calculating the payback period for eco-friendly initiatives
Answer
Q44. Which technique takes into account the initial investment and the average annual profit of a project? Answer: a. ARR (Accounting Rate of Return)
a. ARR (Accounting Rate of Return)
b. NPV (Net Present Value)
c. Payback Period
d. IRR (Internal Rate of Return)
Answer
Q45. Which of the following is NOT a discounted cash flow technique? Answer: c. Payback Period
a. NPV (Net Present Value)
b. IRR (Internal Rate of Return)
c. Payback Period
d. PI (Profitability Index)
Answer
Q46. What is the key advantage of using NPV (Net Present Value) as a capital budgeting technique? Answer: a. It considers the time value of money
a. It considers the time value of money
b. It is easy to calculate and understand
c. It accounts for project risks
d. It provides a simple measure of project profitability
Answer
Q47. Which technique accounts for the possibility of multiple IRRs in a project? Answer: d. MIRR (Modified Internal Rate of Return)
a. Payback Period
b. ARR (Accounting Rate of Return)
c. NPV (Net Present Value)
d. MIRR (Modified Internal Rate of Return)
Answer
Q48. In capital budgeting, the term “cash flows” refers to: Answer: d. Net changes in cash position due to the project
a. Revenue generated by the project
b. Costs associated with the project
c. Profits earned from the project
d. Net changes in cash position due to the project
Answer
Q49. Which technique is useful for evaluating projects with different scales of investment? Answer: d. PI (Profitability Index)
a. Payback Period
b. ARR (Accounting Rate of Return)
c. NPV (Net Present Value)
d. PI (Profitability Index)
Answer
Q50. What does “PI” stand for in the context of capital budgeting? Answer: a. Profitability Index
a. Profitability Index
b. Payback Indicator
c. Project Investment
d. Percentage Increase
Answer
Q51. Which technique provides the rate of return that makes the NPV of a project zero? Answer: a. IRR (Internal Rate of Return)
a. IRR (Internal Rate of Return)
b. ARR (Accounting Rate of Return)
c. Payback Period
d. NPV (Net Present Value)
Answer
Q52. What is the major drawback of the payback period as a capital budgeting technique? Answer: a. It ignores the time value of money
a. It ignores the time value of money
b. It is difficult to calculate
c. It is biased towards short-term projects
d. It does not consider project risks
Answer
Q53. When using the NPV (Net Present Value) method, a project is considered acceptable if the NPV is: Answer: a. Greater than zero
a. Greater than zero
b. Less than zero
c. Equal to the initial investment
d. Equal to the IRR (Internal Rate of Return)
Answer
Q54. Which capital budgeting technique is often used to measure the liquidity of an investment? Answer: c. Payback Period
a. ARR (Accounting Rate of Return)
b. IRR (Internal Rate of Return)
c. Payback Period
d. NPV (Net Present Value)
Answer
Q55. In green capital budgeting, what factor is considered in addition to financial returns? Answer: a. Social impact
a. Social impact
b. Market demand
c. Technological advancements
d. Cost of capital
Answer
Q56. Which technique involves finding the present value of each cash flow and summing them up? Answer: c. NPV (Net Present Value)
a. Payback Period
b. ARR (Accounting Rate of Return)
c. NPV (Net Present Value)
d. IRR (Internal Rate of Return)
Answer
Q57. Capital budgeting decisions involve: Answer: b. Allocating resources to long-term investment projects
a. Short-term financial planning
b. Allocating resources to long-term investment projects
c. Analyzing daily operational expenses
d. Assessing shareholder dividends
Answer
Q58. What is the purpose of estimating cash flows in capital budgeting? Answer: c. To evaluate project profitability
a. To determine the payback period
b. To calculate the accounting rate of return
c. To evaluate project profitability
d. To assess the market demand for the project
Answer
Q59. Which technique is useful for projects that have significant cash inflows beyond the payback period? Answer: a. IRR (Internal Rate of Return)
a. IRR (Internal Rate of Return)
b. ARR (Accounting Rate of Return)
c. Payback Period
d. NPV (Net Present Value)
Answer
Q60. What is the key advantage of using discounted cash flow techniques in capital budgeting? Answer: a. They consider the time value of money
a. They consider the time value of money
b. They are easy to understand and apply
c. They provide immediate payback information
d. They focus solely on accounting profits
Answer
Q61. Which of the following is a source of finance categorized as debt? Answer: c) Debentures
a) Ordinary Shares
b) Preference Shares
c) Debentures
d) Convertible Securities
Answer
Q62. Which type of finance involves a fixed interest payment and repayment schedule? Answer: c) Term Loans
a) Ordinary Shares
b) Preference Shares
c) Term Loans
d) ADRs
Answer
Q63. What type of finance represents ownership in a company? Answer: d) Ordinary Shares
a) Debentures
b) Commercial Paper
c) Trade Credit
d) Ordinary Shares
Answer
Q64. Hybrid securities include which of the following? Answer: c) Convertible Securities
a) Commercial Paper
b) Accruals
c) Convertible Securities
d) Factoring
Answer
Q65. Which type of finance combines debt and equity characteristics? Answer: c) Hybrid Securities
a) Commercial Paper
b) Factoring
c) Hybrid Securities
d) Inter-corporate Deposits
Answer
Q66. What is the primary purpose of leasing in finance? Answer: b) Acquiring fixed assets temporarily
a) Long-term financing
b) Acquiring fixed assets temporarily
c) Raising capital through equity shares
d) Obtaining short-term loans
Answer
Q67. Hire purchase is commonly used for financing which type of assets? Answer: c) Long-term assets
a) Intangible assets
b) Current assets
c) Long-term assets
d) Trade receivables
Answer
Q68. Leverage buyouts involve the acquisition of a company using: Answer: d) Debt financing
a) Short-term loans
b) Equity shares
c) Convertible securities
d) Debt financing
Answer
Q69. What is the process of converting assets into tradable securities called? Answer: c) Securitization
a) Factoring
b) Leasing
c) Securitization
d) Hire purchase
Answer
Q70. Which of the following represents a source of short-term finance? Answer: a) Public Deposits
a) Public Deposits
b) Term Loans
c) Ordinary Shares
d) FII’s (Foreign Institutional Investors)
Answer
Q71. What is the primary purpose of trade credit in short-term financing? Answer: c) Financing trade receivables
a) Acquiring long-term assets
b) Obtaining equity shares
c) Financing trade receivables
d) Raising funds from banks
Answer
Q72. Which source of short-term finance involves the sale of accounts receivable to a third party? Answer: a) Factoring
a) Factoring
b) Leverage Buyouts
c) Hire purchase
d) Trade credit
Answer
Q73. What is the primary function of commercial paper? Answer: d) Meeting short-term funding requirements
a) Financing long-term projects
b) Raising capital through equity shares
c) Securing loans from financial institutions
d) Meeting short-term funding requirements
Answer
Q74. Institutional sources of funds include which of the following? Answer: d) Banks
a) Public Deposits
b) Inter-corporate deposits
c) Trade Credit
d) Banks
Answer
Q75. What is the term used for the process of pooling funds from various investors and investing them in businesses? Answer: a) Venture Capital Financing (VCF)
a) Venture Capital Financing (VCF)
b) Accruals
c) Trade Credit
d) ADRs (American Depositary Receipts)
Answer
Q76. A company issuing shares to the general public for the first time is known as an: Answer: a) Initial Public Offering (IPO)
a) Initial Public Offering (IPO)
b) Leverage Buyout (LBO)
c) Inter-corporate Deposit (ICD)
d) Ordinary Share Offering (OSO)
Answer
Q77. What is the term used for funds provided by foreign investors to domestic companies? Answer: a) FII’s (Foreign Institutional Investors)
a) FII’s (Foreign Institutional Investors)
b) Factoring
c) Commercial Paper
d) Accruals
Answer
Q78. Which of the following is a long-term debt instrument issued by a company? Answer: d) Debentures
a) ADRs
b) Commercial Paper
c) Public Deposits
d) Debentures
Answer
Q79. What type of finance allows the holder to convert their investment into equity shares of the issuing company? Answer: a) Hybrid Securities
a) Hybrid Securities
b) Trade Credit
c) Term Loans
d) Accruals
Answer
Q80. An American Depositary Receipt (ADR) represents: Answer: a) Ownership in a foreign company
a) Ownership in a foreign company
b) Equity shares of a domestic company
c) Short-term loans from financial institutions
d) Trade credit from suppliers
Answer
Study other MCQ Set of Fundamentals of Financial Management
- Fundamentals of Financial Management mcq practice set 1
- Fundamentals of Financial Management mcq practice set 2
- Fundamentals of Financial Management mcq practice set 3
- Fundamentals of Financial Management mcq practice set 4
- Fundamentals of Financial Management mcq practice set 5
- Fundamentals of Financial Management mcq practice set 6
- Fundamentals of Financial Management mcq practice set 7
- Fundamentals of Financial Management mcq practice set 8
