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 31 of 49
- A. higher net present value
- B. lower net present value
- C. zero net present value
- D. all of the above
Explanation: For mutually exclusive projects, only one can be chosen, so the financially preferred project is normally the one with the highest NPV.
Correct answer: higher net present value- A. positive
- B. independent
- C. negative
- D. zero
Explanation: When the present value of project cash inflows exceeds the capital invested, the project creates value and its NPV is positive.
Correct answer: positive- A. low dividends paid
- B. high risk prospect
- C. high growth prospect
- D. high marginal rate
Explanation: A high price-to-earnings ratio commonly reflects investors' expectations of strong future earnings growth.
Correct answer: high growth prospect- A. 22275
- B. 0.1571
- C. 0.01925
- D. 1.925 times
Explanation: Using the DuPont relation, ROE = ROA × total assets/common equity = 0.055 × (3,000/1,050) = 0.1571, or 15.71%.
Correct answer: 0.1571- A. marginal ratios
- B. equity ratios
- C. return ratios
- D. market value ratios
Explanation: The price-earnings ratio and price-to-cash-flow ratio use the market price of a company's equity, so they are market value ratios.
Correct answer: market value ratios- A. du DuPont equation
- B. turnover equation
- C. preference equation
- D. common equation
Explanation: The DuPont equation decomposes return measures by combining profit margin with asset turnover, linking profitability and asset use.
Correct answer: du DuPont equation- A. return ratios
- B. market value ratios
- C. marginal ratios
- D. equity ratios
Explanation: Market value ratios compare the market price of a firm’s stock with measures such as book value per share, earnings, and cash flow.
Correct answer: market value ratios- A. return on turnover
- B. return on stock
- C. return on assets
- D. return on equity
Explanation: The DuPont identity calculates return on equity as profit margin multiplied by total asset turnover and the equity multiplier.
Correct answer: return on equity- A. price earnings ratio
- B. earnings price ratio
- C. pricing ratio
- D. earnings ratio
Explanation: Price per share divided by earnings per share shows how many times investors are paying the company’s current earnings, which is the…
Correct answer: price earnings ratio- A. equity multiplier
- B. graphical multiplier
- C. turnover multiplier
- D. stock multiplier
Explanation: The equity multiplier equals total assets divided by common equity and indicates the extent to which assets are financed through…
Correct answer: equity multiplier- A. competitive companies
- B. benchmark companies
- C. analytical companies
- D. return companies
Explanation: Benchmark companies are selected as comparison standards so that a firm can measure its performance against relevant industry or market…
Correct answer: benchmark companies- A. return on earnings power
- B. return on investment
- C. return on common equity
- D. return on interest
Explanation: Net income available to common shareholders divided by common equity measures the return earned on the owners’ invested equity.
Correct answer: return on common equity- A. 0.0007
- B. 0.0714
- C. 0.05 times
- D. 7.15 times
Explanation: Return on total assets is calculated as 150 ÷ 2,100 = 0.0714, or about 7.14%. The answer is expressed as a decimal rather than a multiple.
Correct answer: 0.0714- A. common size analysis
- B. percent change analysis
- C. returning ratios analysis
- D. Both A and B
Explanation: Common-size analysis converts statement items into percentages of a common base, while percent-change analysis tracks movement across…
Correct answer: Both A and B615. The price per ratio is divided by cash flow per share ratio, is used for calculating __________?
- A. dividend to stock ratio
- B. sales to growth ratio
- C. cash flow to price ratio
- D. price to cash flow ratio
Explanation: The price-to-cash-flow ratio is calculated by dividing price per share by cash flow per share.
Correct answer: price to cash flow ratio- A. return on total assets
- B. return on total equity
- C. return on debt
- D. return on sales
Explanation: Dividing net income available to common stockholders by total assets gives return on total assets, also called return on assets.
Correct answer: return on total assets- A. 0.24 times
- B. 4.16 times
- C. 0.0416
- D. 0.24
Explanation: The price-to-cash-flow ratio is price per share divided by cash flow per share: 25 ÷ 6 = 4.1667, approximately 4.16 times.
Correct answer: 4.16 times- A. 8.57 times
- B. 0.0857
- C. 0.11 times
- D. 0.11
Explanation: The price-to-earnings ratio is calculated as market price per share divided by earnings per share: 30 ÷ 3.5 = 8.57 times.
Correct answer: 8.57 times- A. graphical analysis
- B. preference analysis
- C. common size analysis
- D. returning analysis
Explanation: Common-size analysis expresses each financial statement item as a percentage of a base figure, such as sales or total assets, making…
Correct answer: common size analysis- A. Chief Financial Officer
- B. Vice President of Operations
- C. Chief Executive Officer
- D. Board of Directors
Explanation: The treasurer normally manages cash, financing, banking relationships, and financial risk under the chief financial officer.
Correct answer: Chief Financial Officer