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Accounting, Banking and Finance MCQs

Corporate Finance

Quiz # 3, MCQs

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

The Timer has started 10:00

1)

All of the following could be the reasons for a subsidiary buyout EXCEPT
- A) The parent company is in financial distress
- B) The parent company needs cash
- C) The parent company prefers to sell the firm rather that liquidation
- D) The parent company wants liquidation
Right Answer is the option "D"

2)

A firm can fix effective interest rate on its short-term investment to be made at some future date by doing which of the following?
- A) Borrowing local currency
- B) Borrowing base currency
- C) Selling a forward rate agreement
- D) Investing in liquid assets
Right Answer is the option "C"

3)

Which one of the following statements is CORRECT regarding Option?
- A) An option creates an obligation for the holder
- B) An option creates a right and not the obligation for the holder
- C) Option seller is the option holder
- D) Option writer is the option holder
Right Answer is the option "B". An option is a contract that confers a right to buy or sell a specific quantity or asset – but not the obligation, at agreed price on or before the specified future date.

4)

Which of the following could be used as a hedging tool against unfavorable movement in interest rate?
- A) Currency option
- B) Currency futures
- C) Interest rate option
- D) Currency SWAP
Right Answer is the option "C". When borrowing on variable interest rates, a firm may want to utilize option as hedging tool against the unfavorable interest rate movements over the full term of loan or deposit

5)

Which of the following focuses on long-term investment decision-making process?
- A) Working Capital Management
- B) Capital Budgeting
- C) Cash Budgeting
- D) None
Right Answer is the option "B". Capital Budgeting is the planning process used to determine a firm's long term investments such as new machinery, replacement machinery, new plants, new products, and research and development projects.

6)

“The firm has a reasonable amount of net working capital that leads to a low-risk position”.
The above statement belongs to:
- A) Aggressive working capital policy
- B) Conservative working capital policy
- C) Moderate working capital policy
- D) The statement is not related to any of the working capital
Right Answer is the option "B". Conservative working capital policy is described as the firm has a large amount of net working capital. It is a relatively low-risk position

7)

Which of the following type of mergers occurs when one firm purchases other firms that produce similar or competing products?
- A) Horizontal
- B) Vertical
- C) Financial
- D) Conglomerate
Right Answer is the option "A". Horizontal merger: Two companies that are in direct competition and share the same product lines and markets.

8)

The experts hired in evaluation stage of a public take over process DO NOT include which of the following?
- A) Legal consultants
- B) Accountants
- C) Shareholders
- D) Stock Brokers
Right Answer is the option "C". Predator company appoints experts – legal consultants, banks, accountants and stock brokers

9)

Which of the following would be the outcome if the fixed rate in the forward rate agreement (FRA) is lower than the reference rate?
- A) The seller of the FRA makes a cash payment to the buyer.
- B) Both buyer and seller make payments to each other
- C) The buyer of the FRA makes a cash payment to the seller.
- D) Neither buyer nor seller makes any payment to each other.
Right Answer is the option "A"

10)

A project would be financially feasible in which of the following situations?
- A) If Internal Rate of Return of a project is greater than zero
- B) If Net Present Value of a project is less than zero
- C) If the project has Profitability Index less than one
- D) If the project has Profitability Index greater than one
Right Answer is the option "D". The Projects with a profitability index ratio of more than one (PI >= 1.0) are considered