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 30 of 49
- A. negative internal rate of return
- B. modified internal rate of return
- C. existed internal rate of return
- D. relative rate of return
Explanation: Modified internal rate of return is the discount rate that equates the present value of the terminal value of project cash flows with the…
Correct answer: modified internal rate of return- A. capital budgeting
- B. cost budgeting
- C. book value budgeting
- D. equity budgeting
Explanation: Capital budgeting is the process of evaluating and selecting long-term projects that are expected to add value to the company.
Correct answer: capital budgeting583. In capital budgeting, the term of bond which has great sensitivity to interest rates is __________?
- A. long-term bonds
- B. short-term bonds
- C. internal term bonds
- D. external term bonds
Explanation: Long-term bonds are more sensitive to interest-rate changes because their distant cash flows are discounted over a longer period.
Correct answer: long-term bonds- A. payback period
- B. forecasted period
- C. original period
- D. investment period
Explanation: The payback period is the number of years required for a project's cumulative cash inflows to recover its original investment.
Correct answer: payback period- A. zero economic value added
- B. percent economic value added
- C. negative economic value added
- D. positive economic value added
Explanation: A negative NPV means the project's discounted cash inflows are less than its investment cost, so it reduces value relative to the required…
Correct answer: negative economic value added- A. greater annual annuity method
- B. equivalent annual annuity
- C. lesser annual annuity method
- D. zero annual annuity method
Explanation: The equivalent annual annuity method converts an investment's cash flows into a constant annual amount with the same present value.
Correct answer: equivalent annual annuity- A. discounted payback period
- B. discounted rate of return
- C. discounted cash flows
- D. discounted project cost
Explanation: The discounted payback period measures how long it takes to recover the initial investment after discounting expected cash flows at the…
Correct answer: discounted payback period- A. positive
- B. negative
- C. zero
- D. one
Explanation: When NPV is positive, the project's return exceeds its cost of capital, so its modified internal rate of return is also above that…
Correct answer: positive- A. costs
- B. cash flows
- C. internal rate of return
- D. external rate of return
Explanation: The NPV profile shows NPV against the discount rate, and the point where it crosses the horizontal axis has an NPV of zero.
Correct answer: internal rate of return590. The set of projects or set of investments to maximize the firm value is classified as __________?
- A. optimal capital budget
- B. minimum capital budget
- C. maximum capital budget
- D. greater capital budget
Explanation: An optimal capital budget is the combination of projects or investments that maximizes the firm's value, subject to available funds and…
Correct answer: optimal capital budget591. The graph which is plotted for projected net present value and capital rates is called ___________?
- A. net loss profile
- B. net gain profile
- C. net future value profile
- D. net present value profile
Explanation: An NPV profile is a graph showing how a project's net present value changes as the discount rate or cost of capital changes.
Correct answer: net present value profile- A. positive rate of return
- B. negative rate of return
- C. external rate of return
- D. internal rate of return
Explanation: The internal rate of return is the discount rate that makes the present value of expected cash inflows equal to the initial investment…
Correct answer: internal rate of return- A. cash flow decision
- B. cost decision
- C. same decisions
- D. different decisions
Explanation: For independent projects with conventional cash flows, NPV and IRR normally give the same accept-or-reject decision because both compare…
Correct answer: same decisions594. In capital budgeting, an internal rate of return of the project is classified as its __________?
- A. external rate of return
- B. internal rate of return
- C. positive rate of return
- D. negative rate of return
Explanation: The rate that makes a project's NPV equal to zero is, by definition, its internal rate of return.
Correct answer: internal rate of return- A. shorter payback period
- B. greater payback period
- C. less project return
- D. greater project return
Explanation: Liquidity is lower when the payback period is longer because the initial investment remains tied up for more time before being recovered.
Correct answer: greater payback period- A. transaction approach
- B. replacement chain approach
- C. common life approach
- D. Both B and C
Explanation: The replacement chain approach repeats projects with unequal lives until they reach a common comparison period.
Correct answer: Both B and C- A. original period
- B. investment period
- C. payback period
- D. forecasted period
Explanation: The payback period equals the number of complete years before recovery plus the unrecovered amount at the start of the recovery year…
Correct answer: payback period- A. negative economic value added
- B. positive economic value added
- C. zero economic value added
- D. percent economic value added
Explanation: A positive NPV means the project earns more than the required return and adds value to the firm.
Correct answer: positive economic value added- A. 5 years
- B. 3.5 years
- C. 4 years
- D. 4.5 years
Explanation: Payback is calculated as three completed years plus the unrecovered fraction of the fourth year: $200 divided by $400 equals 0.5 year.
Correct answer: 3.5 years- A. valued relationship
- B. economic relationship
- C. direct relationship
- D. inverse relationship
Explanation: EVA and NPV both measure value created after charging for invested capital, so higher EVA is associated with higher NPV.
Correct answer: direct relationship