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Accounting, Banking and Finance MCQs

Corporate Finance

Quiz # 1, MCQs

NOTE: Attempt all Questions to see the Result at the bottom of this page.

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1)

Which of the following is a tool that identifies the strengths, weaknesses, opportunities and threats of an organization?
- A) SWOT Analysis
- B) Trend Analysis
- C) Fundamental Analysis
- D) Technical Analysis
Right Answer is the option "A". SWOT stands for • Strengths • Weaknesses • Opportunities • Threats

2)

Which one of the following terms refers to the variability of return on stocks or portfolios, associated with changes in return on the market as a whole?
- A) Unsystematic risk
- B) Unique risk
- C) Systematic risk
- D) Company specific risk
Right Answer is the option "C"

3)

What will be the taxable income of an Un-levered firm, if it has Earning Before Interest and Tax (EBIT) equal to Rs.50,000, and its tax rate is 35%?
- A) Rs.25,000
- B) Rs.45, 000
- C) Rs.50, 000
- D) Rs.60,000
Right Answer is the option "C". Earnings before Taxes (EBT) = Taxable Income

4)

Which of the following statements is TRUE regarding temporary working capital?
- A) Temporary working capital varies with seasonal requirements.
- B) Temporary working capital is the constant component of working capital.
- C) Temporary working capital excludes inventories.
- D) Temporary working capital should be financed with bonds or common stock
Right Answer is the option "A". The temporary or varying working capital varies with the volume of operations. It fluctuates with the scale of operations. This is the additional working capital required from time to time over and above the permanent or fixed working capital. During seasons, more production/sales take place resulting in larger working capital needs. The reverse is true during off-seasons. As seasons vary, temporary working capital requirement moves up and down

5)

Which of the following describes the hedging approach to financing?
- A) Maturity dates of financing instruments are spread over a period of time so that they mature in a steady, predictable fashion.
- B) Each asset is offset with a financing instrument of the same approximate maturity.
- C) Each asset is offset with a put or call option.
- D) The firm takes out insurance to protect itself against uneven cash flows.
Right Answer is the option "B"

6)

In which of the following acquisition strategies, a purchaser has complete knowledge of the acquiring firm?
- A) Management Buy-In
- B) Management buyout
- C) Consolidation
- D) Amalgamation
Right Answer is the option "B". Management buyouts are similar in all major legal aspects to any other acquisition of a company. The particular nature of the MBO lies in the position of the buyers as managers of the company and the practical consequences that follow from that. In particular, the due diligence process is likely to be limited as the buyers already have full knowledge of the company available to them. The seller is also unlikely to give any but the most basic warranties to the management, on the basis that the management knows more about the company than the sellers do and the Reference ore the sellers should not have to warrant the state of the company. In many cases, the company will already be a private company, but if it is public then the management will take it private.

7)

Which one of the following statements is CORRECT regarding exercise price?
- A) Exercise price is the price mentioned in the option at which the holder exercises his right
- B) Exercise price is the price mentioned in the option at which the holder exercises his obligation
- C) Exercise price is the price mentioned in the option at which the option seller exercises his right
- D) Exercise price is the price mentioned in the option at which the option writer exercises his right
Right Answer is the option "A". Strike or exercise price: The price mentioned in option at which the holder exercises his right is known as exercise or strike price.

8)

Which one of the following statements is CORRECT regarding Options Contacts?
- A) A put option gives the holder a right to sell underlying item at a specified price
- B) A put option gives its writer the right to sell underlying item at a specified price
- C) A call option gives its writer a right to sell underlying item
- D) A call option gives its holder a right to sell underlying item
Right Answer is the option "A"

9)

Which of the following is a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume?
- A) Technical analysis
- B) Fundamental analysis
- C) Common size analysis
- D) Ratio analysis
Right Answer is the option "A". Technical analysis is the method of evaluating traded products by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts believe that the price contains all known information and therefore technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity.

10)

Which of the following is NOT one of the common motives of holding cash?
- A) Personal Motives
- B) Safety Motives
- C) Transactions Motives
- D) Speculative Motives
Right Answer is the option "A". Transactions Motive ensures that the firm has enough funds to transact its routine, day-to-day business affairs. Safety Motive protects the firm against being unable to meet unexpected demands for cash. Speculative Motive allows the firm to take advantage of unexpected opportunities that may arise