Q121. The degree of operating leverage is calculated as: Answer: a. Percentage change in EBIT divided by percentage change in sales.
a. Percentage change in EBIT divided by percentage change in sales.
b. Percentage change in sales divided by percentage change in EBIT.
c. EBIT divided by net sales.
d. Net sales divided by EBIT.
Answer
Q122. The degree of financial leverage is calculated as: Answer: a. Percentage change in EPS divided by percentage change in EBIT.
a. Percentage change in EPS divided by percentage change in EBIT.
b. Percentage change in EBIT divided by percentage change in EPS.
c. EPS divided by EBIT.
d. EBIT divided by EPS.
Answer
Q123. Which of the following is not a factor affecting the cost of capital? Answer: d. Company’s net income.
a. Market interest rates.
b. Company’s credit rating.
c. Industry growth rate.
d. Company’s net income.
Answer
Q124. A company with a higher credit rating is likely to have: Answer: b. Lower cost of debt.
a. Higher cost of debt.
b. Lower cost of debt.
c. No impact on the cost of debt.
d. Cannot be determined.
Answer
Q125. Which of the following is not a source of long-term finance? Answer: c. Trade credit.
a. Equity shares.
b. Debt.
c. Trade credit.
d. Preference shares.
Answer
Q126. The cost of preference shares is calculated as: Answer: a. Annual dividend payment divided by current market price per share.
a. Annual dividend payment divided by current market price per share.
b. Annual dividend payment divided by par value per share.
c. Par value per share divided by current market price per share.
d. Current market price per share divided by annual dividend payment.
Answer
Q127. The market value of a company’s equity shares is influenced by: Answer: c. The company’s stock market performance
a. The company’s retained earnings.
b. The company’s dividend payout ratio.
c. The company’s stock market performance.
d. The company’s net fixed assets.
Answer
Q128. The concept of leverage analysis is useful in: Answer: c. Evaluating a company’s risk and return profile.
a. Assessing a company’s liquidity position.
b. Determining a company’s profitability.
c. Evaluating a company’s risk and return profile.
d. Calculating a company’s cost of capital.
Answer
Q129. The financial leverage ratio measures the extent to which a company relies on: Answer: b. Debt financing.
a. Equity financing.
b. Debt financing.
c. Internal sources of finance.
d. External sources of finance.
Answer
Q130. The operating leverage ratio is calculated as: Answer: b. Fixed costs divided by variable costs.
a. Total sales divided by total assets.
b. Fixed costs divided by variable costs.
c. EBIT divided by fixed costs.
d. Variable costs divided by total costs.
Answer
Q131. Which type of leverage involves the use of fixed costs in a company’s operations? Answer: a. Operating leverage.
a. Operating leverage.
b. Financial leverage.
c. Combined leverage.
d. Liquidity leverage.
Answer
Q132. The EBIT-EPS analysis helps in determining the impact of changes in: Answer: a. Sales volume on a company’s EBIT.
a. Sales volume on a company’s EBIT.
b. Debt-to-equity ratio on a company’s EPS.
c. Financial leverage on a company’s tax liabilities.
d. Market interest rates on a company’s profitability.
Answer
Q133. The weighted average cost of capital (WACC) represents the: Answer: b. Average cost of all the company’s sources of capital.
a. Average cost of all the company’s outstanding debts.
b. Average cost of all the company’s sources of capital.
c. Average cost of all the company’s fixed assets.
d. Average cost of all the company’s inventory items.
Answer
Q134. What is the primary objective of financial management? Answer: a) Maximizing shareholder wealth
a) Maximizing shareholder wealth
b) Maximizing market share
c) Minimizing expenses
d) Minimizing tax liabilities
Answer
Q135. Which statement provides information on the sources and uses of funds over a specific period? Answer: c) Fund flow statement
a) Income statement
b) Balance sheet
c) Fund flow statement
d) Cash flow statement
Answer
Q136. Which financial statement shows the financial position of a company at a specific point in time? Answer: b) Balance sheet
a) Income statement
b) Balance sheet
c) Fund flow statement
d) Cash flow statement
Answer
Q137. What does the current ratio measure? Answer: a) Liquidity
a) Liquidity
b) Profitability
c) Solvency
d) Efficiency
Answer
Q138. Which financial ratio measures a company’s ability to meet its short-term obligations? Answer: c) Current ratio
a) Return on investment (ROI)
b) Debt-to-equity ratio
c) Current ratio
d) Gross profit margin
Answer
Q139. The process of converting future cash flows into their present value is called: Answer: a) Discounting
a) Discounting
b) Compounding
c) Amortization
d) Depreciation
Answer
Q140. Which concept states that a dollar received in the future is worth less than a dollar received today? Answer: c) Time value of money
a) Present value
b) Future value
c) Time value of money
d) Opportunity cost
Answer
Q141. The future value of a single amount can be calculated using which formula? Answer: c) FV = PV x (1 + r)^n
a) PV = FV / (1 + r)^n
b) PV = FV / (1 – r)^n
c) FV = PV x (1 + r)^n
d) FV = PV x (1 – r)^n
Answer
Q142. What does an annuity refer to in financial terms? Answer: a) A series of equal cash flows occurring at regular intervals
a) A series of equal cash flows occurring at regular intervals
b) A lump sum payment
c) A one-time investment
d) A variable cash flow stream
Answer
Q143. The present value of an annuity can be calculated using which formula? Answer: a) PV = PMT x [(1 + r)^n – 1] / r
a) PV = PMT x [(1 + r)^n – 1] / r
b) PV = PMT x [1 – (1 + r)^-n] / r
c) PV = PMT x (1 + r)^n
d) PV = PMT x (1 – r)^n
Answer
Q144. What is the role of the financial system in an economy? Answer: b) Allocating financial resources efficiently
a) Facilitating exchange of goods and services
b) Allocating financial resources efficiently
c) Providing a medium of exchange
d) Regulating interest rates
Answer
Q145. Which statement provides information on the inflows and outflows of cash during a specific period? Answer: d) Cash flow statement
a) Income statement
b) Balance sheet
c) Fund flow statement
d) Cash flow statement
Answer
Q146. Which financial ratio measures a company’s overall profitability? Answer: a) Return on investment (ROI)
a) Return on investment (ROI)
b) Debt-to-equity ratio
c) Current ratio
d) Gross profit margin
Answer
Q147. What does the debt-to-equity ratio indicate? Answer: c) Leverage or financial risk
a) Liquidity position
b) Profitability
c) Leverage or financial risk
d) Efficiency
Answer
Q148. Which financial statement shows the revenues, expenses, and net income of a company over a specific period? Answer: a) Income statement
a) Income statement
b) Balance sheet
c) Fund flow statement
d) Cash flow statement
Answer
Q149. What does the gross profit margin measure? Answer: b) Profitability
a) Liquidity
b) Profitability
c) Solvency
d) Efficiency
Answer
Q150. Which financial ratio measures a company’s efficiency in generating sales from its assets? Answer: c) Inventory turnover ratio
a) Return on investment (ROI)
b) Debt-to-equity ratio
c) Inventory turnover ratio
d) Gross profit margin
Answer
Q151. The process of finding the present value of a future cash flow is known as: Answer: a) Discounting
a) Discounting
b) Compounding
c) Amortization
d) Depreciation
Answer
Q152. What does the return on investment (ROI) ratio indicate? Answer: b) Profitability
a) Liquidity
b) Profitability
c) Solvency
d) Efficiency
Answer
Q153. The future value of an annuity can be calculated using which formula? Answer: c) FV = PMT x (1 + r)^n
a) PV = PMT x [(1 + r)^n – 1] / r
b) PV = PMT x [1 – (1 + r)^-n] / r
c) FV = PMT x (1 + r)^n
d) FV = PMT x (1 – r)^n
Answer
Q154. Which financial ratio measures a company’s ability to generate profit from its sales? Answer: b) Gross profit margin
a) Return on investment (ROI)
b) Gross profit margin
c) Debt-to-equity ratio
d) Current ratio
Answer
Q155. Which financial statement provides information on a company’s revenues, expenses, and net income over a specific period? Answer: d) Income statement
a) Balance sheet
b) Cash flow statement
c) Fund flow statement
d) Income statement
Answer
Q156. What does the debt-to-equity ratio measure? Answer: c) Leverage or financial risk
a) Liquidity
b) Profitability
c) Leverage or financial risk
d) Efficiency
Answer
Q157. Which financial ratio measures a company’s efficiency in collecting its accounts receivable? Answer: d) Days sales outstanding (DSO)
a) Return on investment (ROI)
b) Debt-to-equity ratio
c) Inventory turnover ratio
d) Days sales outstanding (DSO)
Answer
Q158. Which financial statement provides information on the changes in a company’s working capital? Answer: c) Fund flow statement
a) Income statement
b) Balance sheet
c) Fund flow statement
d) Cash flow statement
Answer
Q159. The concept that a dollar today is worth more than a dollar in the future due to its potential earning capacity is known as: Answer: c) Time value of money
a) Present value
b) Future value
c) Time value of money
d) Opportunity cost
Answer
Q160. Which financial ratio measures a company’s efficiency in managing its inventory? Answer: d) Inventory turnover ratio
a) Return on investment (ROI)
b) Debt-to-equity ratio
c) Current ratio
d) Inventory turnover ratio
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
