Free Business Finance MCQs with Answers
975 Business Finance MCQs from Management Sciences, each with the correct answer and a written explanation of why it is correct. Free and unlimited, with no account needed.
Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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975 questions · page 28 of 49
541. If the trading of municipal bonds is infrequent, then secondary market is considered as __________?
- A. thin markets
- B. thick markets
- C. higher underwriting
- D. lower underwriting
Explanation: A secondary market with infrequent trading has few active buyers and sellers, making it a thin market.
Correct answer: thin markets- A. developed bonds
- B. developing bonds
- C. Brady bonds
- D. swapped bonds
Explanation: Brady bonds were issued in the restructuring of developing-country sovereign debt and commonly replaced bank loans with longer-maturity…
Correct answer: Brady bonds- A. reserve placement
- B. federal placement
- C. private placement
- D. government placement
Explanation: A private placement sells securities directly to a limited group of large investors rather than through a broad public offering.
Correct answer: private placement- A. pledged bonds
- B. serial bonds
- C. series bonds
- D. parallel bonds
Explanation: Serial bonds mature in installments, with part of the issue repaid on each scheduled maturity date.
Correct answer: serial bonds- A. 3800
- B. 2800
- C. 4800
- D. 5800
Explanation: Conversion value equals the common-stock price multiplied by the conversion ratio: $15 × 320 shares = $4,800.
Correct answer: 4800- A. floating market
- B. risky market
- C. secondary market
- D. primary market
Explanation: Exchange-traded and over-the-counter transactions generally involve securities that have already been issued, so they are secondary-market…
Correct answer: secondary market- A. Common Size Analysis
- B. Horizontal Analysis
- C. Vertical Analysis
- D. None of the Above
Explanation: Horizontal analysis compares financial statement figures across successive periods, making it useful for measuring performance trends over…
Correct answer: Horizontal Analysis- A. Capital Structure
- B. Debt Structure
- C. Asset Structure
- D. Capital Rationing
Explanation: Capital rationing is the process of selecting the most profitable investment projects when available capital is limited.
Correct answer: Capital Rationing- A. Systematic Risk
- B. Idiosyncratic Risk
- C. Financial Risk
- D. Business Risk
Explanation: Systematic risk, also called market risk, arises from broad price movements affecting many financial investments and cannot be eliminated…
Correct answer: Systematic Risk- A. Idiosyncratic Risk
- B. Portfolio Risk
- C. Capital Structure Risk
- D. Systematic Risk
Explanation: Market risk is another name for systematic risk because it results from economy-wide or market-wide factors such as inflation, interest…
Correct answer: Systematic Risk- A. Operating Risk
- B. Financial Risk
- C. Debt Risk
- D. Business Risk
Explanation: Operating risk in this context refers to losses caused by failures in internal processes, policies, systems, or business operations.
Correct answer: Operating Risk- A. Dividend
- B. Portfolio
- C. Investment
- D. BVPS
Explanation: A portfolio is a collection or group of securities held as investments, such as shares, bonds, and other financial assets.
Correct answer: Portfolio- A. clean price bonds
- B. discount index bonds
- C. premium index bonds
- D. inflation index bonds
Explanation: Inflation-index bonds, such as Treasury Inflation-Protected Securities, adjust their principal or returns in line with inflation.
Correct answer: inflation index bonds- A. finance bonds
- B. revenue bonds
- C. financing bonds
- D. project bonds
Explanation: Revenue bonds are repaid from the cash flows or revenues generated by a specific project, such as a toll road or power facility.
Correct answer: revenue bonds- A. evaluate cash flow
- B. evaluate projects
- C. evaluate budgeting
- D. evaluate equity
Explanation: NPV, profitability index, payback and discounted payback are capital-budgeting tools used to assess whether proposed investment projects…
Correct answer: evaluate projects556. A type of project whose cash flows would not depend on each other is classified as ____________?
- A. project net gain
- B. independent projects
- C. dependent projects
- D. net value projects
Explanation: Independent projects have cash flows and acceptance decisions that do not depend on one another, so accepting one does not automatically…
Correct answer: independent projects- A. negative
- B. zero
- C. positive
- D. independent
Explanation: When the present value of project inflows is below the required investment, the project destroys value at the required return.
Correct answer: negative- A. hurdle number
- B. relative number
- C. negative numbers
- D. positive numbers
Explanation: Cash inflows represent revenues or receipts entering the project and are recorded as positive cash flows.
Correct answer: positive numbers- A. rise in marginal cost of capital
- B. fall in marginal cost of capital
- C. rise in transaction cost of capital
- D. rise in transaction cost of capital
Explanation: Large expansion programs can increase perceived risk and flotation costs, raising the additional cost of obtaining capital.
Correct answer: rise in marginal cost of capital- A. 25000
- B. 28000
- C. 33600
- D. 30000
Explanation: The present value of cash flows equals the initial cost multiplied by the profitability index: 6000 × 5.6 = 33,600.
Correct answer: 33600