All Free Management Sciences MCQs with Answers
Every Management Sciences question in the bank, across all chapters, each with the correct answer and a written explanation. Free and unlimited, with no account needed.
3,770 questions · page 2 of 189
- A. 30%
- B. 40%
- C. 50%
- D. 60%
Explanation: Gross profit is Rs. 800,000, calculated as sales minus cost of goods sold. Dividing Rs. 800,000 by Rs.
Correct answer: 40%- A. Income statement
- B. Cash flow statement
- C. Statement of changes in equity
- D. Statement of financial position
Explanation: The cash flow statement classifies cash movements into operating, investing and financing activities.
Correct answer: Cash flow statement- A. Increases sales revenue
- B. Is a non-cash expense
- C. Creates a financing inflow
- D. Reduces current liabilities
Explanation: Depreciation reduces reported profit but does not involve a current cash payment.
Correct answer: Is a non-cash expense- A. Rejected because IRR exceeds the required return
- B. Accepted because IRR exceeds the required return
- C. Rejected because IRR is a percentage measure
- D. Accepted only if its payback period is shortest
Explanation: Under the IRR decision rule, a project is normally accepted when its IRR is greater than the required rate of return.
Correct answer: Accepted because IRR exceeds the required return- A. Financial leverage
- B. Inventory turnover
- C. Gross profit margin
- D. Receivables collection period
Explanation: Fixed-interest debt creates compulsory finance costs and therefore increases financial leverage.
Correct answer: Financial leverage- A. Factoring
- B. Leasing
- C. Underwriting
- D. Securitisation of equity
Explanation: Factoring involves transferring receivables to a factor, often at a discount, in exchange for earlier cash.
Correct answer: Factoring- A. 10%
- B. 12%
- C. 15%
- D. 20%
Explanation: Return on equity is calculated as profit after tax divided by ordinary shareholders' equity. Rs. 300,000 divided by Rs.
Correct answer: 15%- A. Initial investment divided by present value of inflows
- B. Present value of inflows divided by initial investment
- C. Accounting profit divided by total assets
- D. Cash inflows divided by project life
Explanation: The profitability index compares the present value of future cash inflows with the initial investment.
Correct answer: Present value of inflows divided by initial investment- A. 10%
- B. 11%
- C. 12%
- D. 13.2%
Explanation: CAPM gives required return as risk-free rate plus beta multiplied by the market risk premium. Thus, 6% plus 1.2 multiplied by 5% equals 12%.
Correct answer: 12%- A. More conservative and less liquid
- B. More conservative and more liquid
- C. More aggressive and less liquid
- D. More aggressive and more profitable by definition
Explanation: A conservative working capital policy holds relatively more current assets, improving liquidity and reducing operating risk.
Correct answer: More conservative and more liquid- A. 0.4:1
- B. 0.6:1
- C. 1.7:1
- D. 2.4:1
Explanation: The debt-to-equity ratio is calculated as long-term debt divided by shareholders' equity. Thus, Rs. 900,000 divided by Rs.
Correct answer: 0.6:1- A. 35 days
- B. 55 days
- C. 75 days
- D. 95 days
Explanation: The cash conversion cycle equals inventory days plus receivable days minus payable days. Therefore, 45 plus 30 minus 20 equals 55 days.
Correct answer: 55 days- A. It transfers most ownership risks and rewards
- B. It requires payment only after the asset is sold
- C. It provides funds only for seasonal inventory
- D. It allows cancellation without significant penalty
Explanation: A finance lease substantially transfers the risks and rewards associated with ownership to the lessee, even though legal title may remain…
Correct answer: It transfers most ownership risks and rewards- A. 20%
- B. 25%
- C. 40%
- D. 75%
Explanation: The dividend payout ratio is ordinary dividends divided by profit after tax, multiplied by 100. Rs. 200,000 divided by Rs.
Correct answer: 25%- A. It uses accounting profit rather than cash flow
- B. It always includes the time value of money
- C. It discounts all cash flows at the cost of debt
- D. It measures only the project's payback period
Explanation: The accounting rate of return uses accounting profit and an accounting measure of investment.
Correct answer: It uses accounting profit rather than cash flow- A. Dividend payment schedule
- B. Operating investment decisions
- C. Debt-to-equity ratio
- D. Short-term borrowing policy
Explanation: In the basic Modigliani and Miller model, financing mix does not determine firm value under the stated ideal conditions.
Correct answer: Operating investment decisions- A. To adjust budgeted costs for the actual activity level
- B. To replace the firm's annual financial statements
- C. To estimate only the required cash balance
- D. To record transactions after they occur
Explanation: A flexible budget changes expected revenues and costs according to the actual level of activity.
Correct answer: To adjust budgeted costs for the actual activity level- A. 8%
- B. 10%
- C. 12%
- D. 20%
Explanation: The cost of irredeemable preference shares is calculated as the annual preference dividend divided by the current market price. Rs.
Correct answer: 12%- A. Accounting rate of return
- B. Payback period
- C. Net present value
- D. Average inventory period
Explanation: Net present value measures the amount by which a project is expected to increase wealth in present-value terms.
Correct answer: Net present value- A. Their voting and ownership percentage may be diluted
- B. Their dividend becomes legally guaranteed
- C. Their shares automatically become preference shares
- D. Their original share price is fixed permanently
Explanation: A rights issue offers new shares to existing shareholders, usually in proportion to their current holdings.
Correct answer: Their voting and ownership percentage may be diluted