All Free Management Sciences MCQs with Answers

• A. 0.5:1
• B. 1:1
• C. 2:1
• D. 2.5:1

Explanation: The current ratio is calculated as current assets divided by current liabilities. Thus, Rs. 500,000 divided by Rs.

• A. Rs. 900
• B. Rs. 1,000
• C. Rs. 1,010
• D. Rs. 1,210

Explanation: Present value equals future value divided by one plus the discount rate. Therefore, Rs. 1,100 divided by 1.10 equals Rs. 1,000. Rs.

• A. Negative Rs. 41,000
• B. Zero
• C. Positive Rs. 41,000
• D. Positive Rs. 100,000

Explanation: The present value of the inflows is approximately Rs. 1,041,000, calculated by discounting each Rs. 600,000 receipt at 10%.

• A. Fixed assets minus long-term debt
• B. Current assets minus current liabilities
• C. Total assets minus total liabilities
• D. Current liabilities minus current assets

Explanation: Net working capital equals current assets minus current liabilities. It represents the short-term funds available to support routine…

• A. Bank overdraft
• B. Issue of ordinary shares
• C. Retained earnings
• D. Trade credit

Explanation: Retained earnings are profits kept in the business rather than distributed to owners, so they are an internal source of finance.

• A. Debt eliminates operating expenses
• B. Interest and principal payments are contractual obligations
• C. Debt always lowers the company’s sales
• D. Interest payments increase ordinary shareholders’ control

Explanation: Debt requires scheduled interest and principal payments even when profits are low.

• A. 7.2%
• B. 8.0%
• C. 9.6%
• D. 12.0%

Explanation: The after-tax cost of debt is 8% multiplied by 75%, or 6%. WACC is (60% × 12%) plus (40% × 6%), which equals 9.6%.

• A. Working capital management
• B. Capital budgeting
• C. Dividend administration
• D. Cash collection control

Explanation: Capital budgeting evaluates long-term investments such as factories, machinery and major expansion projects.

• A. To estimate future cash receipts and payments
• B. To calculate the depreciation of fixed assets
• C. To determine the market value of ordinary shares
• D. To record only completed credit sales

Explanation: A cash budget forecasts expected cash inflows, cash outflows and the resulting cash balance over a future period.

• A. Increase funds tied up in inventory
• B. Release cash from working capital
• C. Increase the company’s long-term debt automatically
• D. Eliminate the need for trade credit

Explanation: A shorter inventory holding period means goods are converted into sales more quickly, reducing funds tied up in stock.

• A. Income statement
• B. Statement of cash flows
• C. Balance sheet
• D. Statement of retained earnings

Explanation: The balance sheet presents the accounting equation, showing assets, liabilities and equity at a particular date.

• A. 1.25:1
• B. 1.38:1
• C. 1.63:1
• D. 2.00:1

Explanation: Quick assets equal Rs. 800,000 minus Rs. 200,000 inventory and Rs. 50,000 prepaid expenses, giving Rs. 550,000.

• A. Rs. 300,000
• B. Rs. 310,000
• C. Rs. 331,000
• D. Rs. 364,000

Explanation: This is the future value of an ordinary annuity. The value is Rs. 100,000 multiplied by the future value annuity factor for three years at…

• A. 2.20 years
• B. 2.50 years
• C. 2.60 years
• D. 3.00 years

Explanation: After two years, the project recovers Rs. 350,000, leaving Rs. 150,000 to recover.

• A. Less than zero
• B. Equal to its initial cost
• C. Greater than or equal to zero
• D. Greater than its accounting profit

Explanation: An NPV of zero means the project earns exactly the required return, while a positive NPV adds value to the firm.

• A. Trade credit
• B. Preference shares
• C. Debenture finance
• D. Retained earnings

Explanation: Trade credit arises when suppliers allow the buyer a period to pay for purchased goods or services.

• A. A larger percentage change in EBIT
• B. A smaller percentage change in EBIT
• C. No change in fixed operating cost
• D. A direct fall in financial risk

Explanation: Operating leverage results from fixed operating costs such as rent and depreciation.

• A. Financing permanent assets with long-term funds
• B. Financing some permanent current assets with short-term funds
• C. Holding large cash balances throughout the year
• D. Matching every asset with equity finance

Explanation: An aggressive financing policy uses more short-term finance, sometimes funding part of permanent current assets with short-term…

• A. New shares, debt, retained earnings
• B. Debt, new shares, retained earnings
• C. Retained earnings, debt, new shares
• D. Preference shares, retained earnings, debt

Explanation: The pecking order theory states that firms generally prefer internally generated funds first, followed by debt, and issue new equity as a…

• A. Creates a tax deduction
• B. Increases the firm's dividend rate
• C. Eliminates repayment obligations
• D. Raises the nominal value of shares

Explanation: Interest is generally deductible for corporate tax purposes, creating a tax shield.