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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801. Markets dealing loans of autos, education, vacations and appliances are considered as__________?
- A. Consumer credit loans
- B. Commercial markets
- C. Residential markets
- D. Mortgage markets
Explanation: Loans for automobiles, education, vacations and appliances finance personal consumption, so they fall under consumer credit loans.
Correct answer: Consumer credit loans- A. Municipal bonds
- B. Corporate bonds
- C. U.S treasury bonds
- D. Mortgages
Explanation: A corporation raising funds by issuing bonds creates corporate bonds, regardless of whether individuals or institutions purchase them.
Correct answer: Corporate bonds- A. Liquid markets
- B. Short-term markets
- C. Capital markets
- D. Money markets
Explanation: Capital markets handle long-term securities such as corporate stocks and bonds.
Correct answer: Capital markets- A. Short-term
- B. Long-term
- C. Intermediate term
Explanation: Financial instruments maturing in less than one year are classified as short-term instruments.
Correct answer: Short-term- A. Debt rate
- B. Investment return
- C. Discount rate
- D. Interest rate
Explanation: The price paid for using borrowed funds is interest, normally expressed as an interest rate.
Correct answer: Interest rate- A. Agency governance
- B. Hiring governance
- C. Corporate governance
- D. External governance
Explanation: Corporate governance is the system of rules and relationships guiding a corporation’s dealings with directors, shareholders, creditors…
Correct answer: Corporate governance807. Notes, mortgages, bonds, stocks, treasury bills and consumer loans are classified as______________?
- A. Financial instruments
- B. Capital assets
- C. Primary assets
- D. Competitive instruments
Explanation: Notes, mortgages, bonds, stocks, Treasury bills and consumer loans represent claims or contracts with financial value, so they are…
Correct answer: Financial instruments- A. Controlled corporate business
- B. Corporation
- C. Limited corporate business
- D. Unlimited corporate business
Explanation: A corporation is a separate legal person created under state law, distinct from its owners and managers.
Correct answer: Corporation- A. Stock laws
- B. By laws
- C. Liability laws
- D. Corporate laws
Explanation: Bylaws are the corporation’s internal rules, covering matters such as electing directors, conducting meetings, and managing corporate…
Correct answer: By laws- A. 8.57 times
- B. 8.57%
- C. 0.11 times
- D. 11%
Explanation: The price-earnings ratio is calculated as market price per share divided by earnings per share: $30 ÷ $3.5 = 8.57.
Correct answer: 8.57 times- A. Graphical analysis
- B. Preference analysis
- C. Common size analysis
- D. Returning analysis
Explanation: Common-size analysis converts financial-statement figures into percentages of a common base, making comparison between periods or firms…
Correct answer: Common size analysis- A. 0.07%
- B. 7.14%
- C. 0.05 times
- D. 7.15 times
Explanation: Return on total assets equals net income available to stockholders divided by total assets: $150 ÷ $2,100 × 100 = 7.14%.
Correct answer: 7.14%- A. $22,275
- B. 15.71%
- C. 1.93%
- D. 1.925 times
Explanation: Return on assets gives income of $3,000 × 5.5% = $165; dividing this by common equity of $1,050 gives ROE of 15.71%.
Correct answer: 15.71%- A. Low dividends paid
- B. High risk prospect
- C. High growth prospect
- D. High marginal rate
Explanation: A high P/E ratio commonly means investors expect strong future earnings growth and are willing to pay more for each current dollar of…
Correct answer: High growth prospect- 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 a project’s net present value exactly zero.
Correct answer: Internal rate of return- 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 that best uses available investment funds and maximizes the firm’s value.
Correct answer: Optimal capital budget- A. Positive
- B. Negative
- C. Zero
- D. One
Explanation: When a project’s NPV is positive, its expected return exceeds the cost of capital; under the usual assumptions, its MIRR will therefore…
Correct answer: Positive- 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 is expected to reduce shareholder wealth after covering the cost of capital, which corresponds to…
Correct answer: Negative economic value added- A. Payback period
- B. Forecasted period
- C. Original period
- D. Investment period
Explanation: The payback period is the time required for a project's cumulative cash inflows to recover its initial investment.
Correct answer: Payback period820. Process in which managers of company identify projects to add value is classified as__________?
- A. Capital budgeting
- B. Cost budgeting
- C. Book value budgeting
- D. Equity budgeting
Explanation: Capital budgeting involves evaluating and selecting long-term investment projects that can add value to the company.
Correct answer: Capital budgeting