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 32 of 49
- A. bullish
- B. bearish
- C. hawkish
- D. none of this
Explanation: A rising stock market is described as bullish, while bearish refers to falling prices and pessimistic market expectations.
Correct answer: bullish- A. Booming
- B. Bullish
- C. Upward tendency
- D. Hawkish
Explanation: Bullish is the standard financial term for expectations or conditions associated with rising stock prices.
Correct answer: Bullish- A. Dividends
- B. No dividends
- C. Current price
- D. Past price
Explanation: The original Black-Scholes model assumes that the underlying stock pays no dividends during the option period.
Correct answer: No dividends- A. Interest rate-tax savings
- B. Marginal tax-required return
- C. Interest rate + tax savings
- D. Borrowing cost + embedded cost
Explanation: After-tax cost of debt equals the interest rate less the tax saving on interest, commonly written as kd(1 − tax rate).
Correct answer: Interest rate-tax savings- A. Industry Beta
- B. Market Beta
- C. Subtracted Beta
- D. Fundamental Beta
Explanation: Fundamental beta reflects company-specific fundamentals, including changes in capital structure, operating risk and financial risk.
Correct answer: Fundamental Beta626. Cost of capital is equal to required return rate on equity in case if investors are only__________?
- A. Valuation manager
- B. Common stockholders
- C. Asset seller
- D. Equity dealer
Explanation: If the firm's investors consist only of common stockholders, the firm's required overall return is the required return on common equity.
Correct answer: Common stockholders- A. Sunk cost
- B. Occurred cost
- C. Weighted cost
- D. Mean cost
Explanation: A sunk cost has already been incurred and cannot be changed by a current decision, so it should be excluded from relevant decision…
Correct answer: Sunk cost- A. New expansion project
- B. Old expanded project
- C. Firm borrowing project
- D. Product line selection
Explanation: An expansion project involves increasing the firm’s existing sales or operating capacity, making “new expansion project” the best option.
Correct answer: New expansion project- A. Relevant cash flows
- B. Irrelevant cash flows
- C. Marginal cash flows
- D. Transaction cash flows
Explanation: Relevant cash flows are future cash flows that differ between decision alternatives, so they can affect the choice.
Correct answer: Relevant cash flows- A. Present value bond
- B. Original issue discount bond
- C. Coupon issued bond
- D. Discounted bond
Explanation: An original issue discount bond is issued below its face value, with the investor’s return including the difference between the purchase…
Correct answer: Original issue discount bond631. In capital budgeting, number of non-normal cash flows have internal rate of returns are____________?
- A. One
- B. Multiple
- C. Accepted
- D. Non-accepted
Explanation: Non-normal cash flows change sign more than once, which can cause the NPV profile to cross the zero line multiple times.
Correct answer: Multiple- A. External rate of return
- B. Internal rate of return
- C. Positive rate of return
- D. Negative rate of return
Explanation: The internal rate of return is the discount rate that makes a project’s net present value equal to zero, so it is itself called the…
Correct answer: Internal rate of return- A. Original period
- B. Investment period
- C. Payback period
- D. Forecasted period
Explanation: The payback period adds the complete years before recovery to the unrecovered investment at the start of the recovery year divided by that…
Correct answer: Payback period634. Return on assets = 6.7% and equity multiplier = 2.5% then return on equity will be ______________?
- A. 16.75%
- B. 2.68%
- C. 0.37%
- D. 9.20%
Explanation: The DuPont relationship is return on equity = return on assets × equity multiplier.
Correct answer: 16.75%- A. Short-term options
- B. Long-term options
- C. Short money options
- D. Yearly call
Explanation: LEAPS stands for Long-Term Equity Anticipation Securities and refers to options with substantially longer maturities than standard…
Correct answer: Long-term options- A. Put option
- B. Call option
- C. Money back options
- D. Out of money options
Explanation: A put option gives its holder the right to sell the underlying stock at a specified price, called the exercise or strike price.
Correct answer: Put option- A. Low volatility
- B. Interest rates are high
- C. Interest rates are low
- D. High volatility
Explanation: Higher interest rates reduce the present value of the exercise price, making a call option more valuable because the payment is…
Correct answer: Interest rates are high- A. Longer option period
- B. Smaller option period
- C. Lesser price
- D. Higher price
Explanation: A longer time until expiration generally raises an option's price because it gives more opportunity for the underlying asset to move…
Correct answer: Longer option period- A. Due option
- B. Covered option
- C. Undue option
- D. Uncovered option
Explanation: Writing a call while owning the underlying stock is a covered call, because the shares are available to deliver if the option is…
Correct answer: Covered option- A. Put investor
- B. Call investor
- C. Hedger
- D. Volatile hedge
Explanation: Buying shares and writing a call on those shares is a covered-call strategy, commonly used as a hedging or income strategy.
Correct answer: Hedger