FINANCE & FINANCIAL STATEMENT ANALYSIS PART-3

Q.1:- If during the accounting period the assets increased by $7,000, and the owner's equity decreased by $3,000, then the liabilities must have

• decreased by $4,000
• increased by $4,000
• increased by $10,000
• decreased by $10,000

Q.2:- The owner of a computer services business was able to acquire a new computer, valued at $5,000, by establishing an account with the computer vendor, Com Pewters Unlimited. There was no down payment. Recording the transaction will

• decrease an asset, decrease owner's equity
• increase an asset, increase owner's equity
• decrease an asset, decrease a liability
• increase an asset, increase a liability

Q.3:- If during the accounting period the assets increased by $5,000, and the owner's equity increased by $1,000, then the liabilities must have

• decreased by $6,000
• decreased by $4,000
• increased by $6,000
• increased by $4,000

Q.4:- Your required return is 15%. Should you accept a project with the following cashflows? Year 0 1 2 3 CashFlow –$25 $10 $10 $25

• Yes, because the IRR is20%.
• Yes, because the IRR is30%.
• No, because the IRR is10%.
• No, because the IRR is5%.

Q.5:- For a project with an initial investment of $8,000 and cash inflows of $2,000 each year for6 years, calculate NPV given a required return of13%.

• $149
• $0
• –$263
• –$846

Q.6:- What is the IRR of an investment that costs $18,500 and pays $5,250 a year for 5years?

• 25%
• 19%
• 15%
• 13%

Q.7:- All of the following are characteristics related to the ownership of a corporation EXCEPT:

• limited liability applies only to the minority shareholders.
• owners of the management. firm generally are entitled to vote on major issues regarding the
• ownership is easily transferable in a public market.
• the amount of control exerted by any individual over the firm is equal to the …..Percentage of shares owned by the individual.

Q.8:- Which of the following statements is FALSE?

• The Board of Directors declares dividends.
• Liquidating dividends get paid out of.
• . Dividends are subject to double taxation.
• . A corporation is not legally required to pay dividends.

Q.9:- Wouldyouacceptaprojectwhichisexpectedtopay$2,500a yearfor6yearsiftheinitial investment is $10,000 and your required return is8%?

• No; the NPV is–$346
• Yes; the NPV is$63
• Yes; the NPV is$928
• Yes; the NPV is$1,557

Q.10:- A project has an initial investment of $25,000, with $6,500 annual inflows for each of the subsequent 5 years. If the required return is 12%, what is theNPV?

• $ 215.46
• –$1,568.95
• –$2,447.02
• –$6,500.00

Q.11:- A project costs $300 and has cash flows of $75 for the first three years and $50 in each ofthe project's last three years. What is the payback period of theproject?

• 5.25years
• 4.50years
• 3.75years
• The project never paysback

Q.12:- The "cost" of this asset that, by law, may be written off over time "for tax purposes" is closest to

• $580,000.
• $480,000.
• $380,000.
• $280,000.

Q.13:- . With continuous compounding at 10 percent for 30 years, the future value of an initial investment of $2,000 is closest to

• $328,282.
• $164,500.
• $34,898.
• $40,171.

Q.14:- The credit term 5/10 net 60 signifies:

• Credit period 5 days, cash discount 10% cash discount period 60 days
• . Credit period 60 days, cash discount 5% cash discount period 10 days
• Credit period 60 days, cash discount 10% cash discount period 5 days
• Credit period 10 days, cash discount 5% cash discount period 60 days

Q.15:- In 3 years you are to receive $5,000. If the interest rate were to suddenly increase, the present value of that future amount to you would

• cannot be determined without more information.
• remain unchanged
• fall
• rise

Q.16:- You want to buy an ordinary annuity that will pay you $4,000 a year for the next 20 years. You expect annual interest rates will be 8 percent over that time period. The maximum price you would be willing to pay for the annuity is closest to

• $40,000.
• $80,000.
• $39,272.
• $32,000.

Q.17:- You want to buy an ordinary annuity that will pay you $4,000 a year for the next 20 years. You expect annual interest rates will be 8 percent over that time period. The maximum price you would be willing to pay for the annuity is closest to

• $40,000.
• $80,000.
• $39,272.
• $32,000.

Q.18:- For$ 1,000 you can purchase a 5-year ordinary annuity that will pay you a yearly payment of $263.80 for 5 years. The compound annual interest rate implied by this arrangement is closest to

• 11 percent.
• 10 percent.
• . 8 percent.
• 9 percent.

Q.19:- Mr. AR enters into a margin trading arrangement with his broker with the following margin requirements: initial margin = 40%, maintenance margin = 30%. If Mr. AR purchased 100 shares of ABC company at Rs. 60 per share, how much would his loanbe?

• Rs. 1,800
• Rs. 3,600
• Rs 6,000
• Rs. 2,400

Q.20:- A trial balance that is in balance proves that:

• All entries have been entered in the journal correctly
• No significant errors exist in the ledger accounts
• Total debits equal total credits in the ledger accounts
• All entries have been posted from the journal to the ledger correctly

Q.21:- Which of the following will not alter the total net assets of an enterprise?

• Receipts of interest from investments
• Charging depreciation on buildings
• Drawings by the owner
• Payments to trade payables

Q.22:- increase in capital may have an equivalent:An

• Increase in other item of equity
• Decrease in assets
• Increase in assets
• Increase in liabilities

Q.23:- A debit entry in the accounting records will:

• Increase assets and expenses only
• Increase assets and expenses or decrease liabilities and income
• Increase liabilities and income only
• Decrease assets and expenses or increase liabilities and income

Q.24:- Two mutually exclusive projects with different economic lives can be compared the basis of?

• Equivalent Annuity Value
• Profitability Index
• Net Present Value
• Internal Rate of Return

Q.25:- Which of the following is not shown in Cash Budget?

• Proposed issue of Capital
• Interest on Loan
• Loan Repayment
• Depreciation

Q.26:- Dividend Payout Ratio is:

• Pref. Dividend/Equity Dividend
• Pref. Dividend/Equity Dividend
• PAT /Capital
• Pref. Dividend/PAT

Q.27:- Risk arises when technology system may get malfunction is classified as:

• Operational risk
• Technology risk
• Support risk
• System risk

Q.28:- ........Method is the slight modification of the Net Present Value method:

• Sensitivity analysis
• Accounting Rate of Return
• Profitability index
• Internal Rate of Return

Q.29:- Which of the following decision rules is best for evaluating projects for which cash flowsbeyond a specified point in time, and the time value of money, can both beignored?

• Net presentvalue Profitabilityindex
• accountingnretur Average
• Payback
• Net presentvalue

Q.30:- Netpresentvalue .

• is equal to the present value of the projectbenefits
• is equal to the initial investment in aproject
• is simplified by the fact that future cash flows are easy toestimate
• is equal to zero when the discount rate used is equal to theIRR

Q.31:- The profitability index (PI) rule can be best statedas:

• An investment is acceptable if its PI is less than the net presentvalue
• An investment is acceptable if its PI is greater than the internal rate of return(IRR).
• An investment is acceptable if its PI is less thanone.
• An investment is acceptable if its PI is greater thanone.

Q.32:- The proposal is rejected in case the profitability index is

• More than 5
• More than 25
• Less than 1
• More than 10

Q.33:- Internal Rate of Return method is also known as:

• Sensitivity Analysis
• Time adjusted rate of return
• Net Profit Value
• Profitability index method

Q.34:- the return after the pay off period is not considered in case of:

• Discounted cash flow method
• Present value method
• Pay back period method
• Interest rate method

Q.35:- The discount rate that makes the net present value of an investment exactly equal to zero isthe

• Profitabilityindex.
• Average accountingreturn.
• Internal rate ofreturn.
• Paybackperiod.

Q.36:- The difference between the market value of an investment and its cost isthe:

• Profitabilityindex
• Paybackperiod.
• Internal rate ofreturn.
• Net presentvalue

Q.37:- In commercial real estate investment, the amount derived from discounting future cash flows of lease and rental payments plus capital appreciation represents the value of the:

• Reserve
• liability
• equity
• asset

Q.38:- Price per share divided by earnings per share is formula for calculating

• Earning price ratio
• Pricing ratio
• Earning ratio
• Price earnings ratio

Q.39:- Debt to Total asset ratio can be improved by:

• Redemption of Debt
• Borrowing more
• Issue of Debentures.
• Issue of Equity Shares

Q.40:- The symptom of large inventory accumulation in anticipation of price rise in future will be indicated by

• Asset Turnover ratio
• Inventory Turnover Ratio
• Working Capital Ratio
• All of these

Q.41:- The formula used to calculate current ratio is:

• Current Liabilities / Current Assets
• Inventory I Current Liabilities
• Current Assets / Current Liabilities
• Current Liabilities / Inventory

Q.42:- Dividend is:

• None the of above
• Part of the profits which are available for distribution to share holders
• Current assets of the business
• Fixed assets of the business

Q.43:- Financing Decision determines

• Equity
• Fixed Assets
• Mixed Finance
• Current Assets

Q.44:- Which of the following is included in short term assets:

• Raw material
• Debtor
• All of the above
• Cash

Q.45:- "Shareholder wealth" in a firm is represented by:

• the market price per share of the firm's common stock
• the amount of salary paid to its employees.
• the book value of the firm's assets less the book value of its liabilities.
• the number of people employed in the firm.

Q.46:- The long-run objective of financial management is to

• . maximize market share.
• maximize return on investment
• maximize the value of the firm's common stock.
• maximize earnings per share.

Q.47:- Which of the following is included in major categories of decision an entity required to take in business While performing finance function?

• All of the above
• Dividend decision
• Investment decision
• Financing decision

Q.48:- A(n)______would be an example of a principal, while a(n)____ would be an example of an agent.

• shareholder; bondholder
• accountant; bondholder
• manager; owner
• shareholder; manager

Q.49:- Which of the following is termed as Financing Decision?

• Raising funds
• Investing funds in assets
• Distributing returns earned from the assets to shareholders
• All of the above

Q.50:- . A company's ______ is (are) potentially the most effective instrument of good corporate governance.

• top executive officers
• . CEO, CFO, and COO
• board of directors
• common stock shareholders