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.
Last updated
975 questions · page 44 of 49
- A. Standing bonds
- B. Outdated bonds
- C. Dated bonds
- D. Seasoned bonds
Explanation: A bond that has already been issued and is trading in the market is called an outstanding or seasoned bond.
Correct answer: Seasoned bonds- A. Higher
- B. Lower
- C. Variable
- D. Stable
Explanation: A convertible bond usually offers a lower coupon rate because investors also receive the valuable option to convert it into ordinary…
Correct answer: Lower- A. Current yield
- B. Maturity yield
- C. Return yield
- D. Earning yield
Explanation: Current yield measures the bond’s annual interest payment relative to its current market price, so it changes as the bond price changes.
Correct answer: Current yield- A. Reinvestment risk
- B. Interest rate risk
- C. Investment risk
- D. Both A and B
Explanation: Treasury bonds are generally free from default risk, but they remain exposed to interest-rate risk and reinvestment risk.
Correct answer: Both A and B- A. Inflated trading
- B. Default free trading
- C. Less frequently traded
- D. Frequently traded
Explanation: A high liquidity premium compensates investors for the difficulty of buying or selling the bond quickly at a fair price.
Correct answer: Less frequently traded- A. Reduction in income
- B. Increment in income
- C. Matured income
- D. Frequent income
Explanation: Falling interest rates reduce the return available when coupon payments are reinvested, so the bondholder's overall income may decline.
Correct answer: Reduction in income- A. Corporation bonds
- B. Default bonds
- C. Risk bonds
- D. Zero risk bonds
Explanation: Bonds issued by companies are called corporate bonds, and unlike government bonds they carry a risk that the issuer may default.
Correct answer: Corporation bonds868. Net present value, profitability index, payback and discounted payback are methods to______________?
- A. Evaluate cash flow
- B. Evaluate projects
- C. Evaluate budgeting
- D. Evaluate equity
Explanation: Net present value, profitability index, payback period and discounted payback period are capital-budgeting techniques used to assess…
Correct answer: Evaluate projects- A. Hurdle number
- B. Relative number
- C. Negative numbers
- D. Positive numbers
Explanation: Cash inflows add money to a project and are conventionally recorded as positive numbers, while cash outflows are recorded as negative…
Correct answer: Positive numbers- A. Terminal value
- B. Existed value
- C. Quit value
- D. Relative value
Explanation: The compounded future value of a project's cash flows at the end of the forecast period is its terminal value.
Correct answer: Terminal value- 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 its required return and adds value to the firm.
Correct answer: Positive economic value added- A. Minimum life
- B. Present value life
- C. Economic life
- D. Transaction life
Explanation: The economic life of an asset is the period for which its use produces the highest present value of benefits relative to costs.
Correct answer: Economic life- A. Present value of equity
- B. Future value of equity
- C. Present value cash flow
- D. Future value of cash flow
Explanation: NPV compares the present value of expected future cash inflows with the initial investment, so the calculation begins by discounting the…
Correct answer: Present value cash flow874. Present value of future cash flows is divided by an initial cost of project to calculate_______?
- A. Negative index
- B. Exchange index
- C. Project index
- D. Profitability index
Explanation: Profitability index is calculated as the present value of future cash flows divided by the initial project cost.
Correct answer: Profitability index- A. Valued relationship
- B. Economic relationship
- C. Direct relationship
- D. Inverse relationship
Explanation: EVA and NPV generally have a direct relationship because both increase when a project earns returns above its cost of capital.
Correct answer: Direct relationship- A. Negative projects
- B. Relative projects
- C. Evaluate projects
- D. Earned projects
Explanation: The profitability index is a capital-budgeting tool used to evaluate and rank investment projects, especially when capital is limited.
Correct answer: Evaluate projects- A. Higher net present value
- B. Lower net present value
- C. Zero net present value
- D. All of above
Explanation: Mutually exclusive projects cannot all be accepted, so they are compared and the project with the highest positive NPV is normally…
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 excess is a positive net present value.
Correct answer: Positive- A. Low dividends paid
- B. High risk prospect
- C. High growth prospect
- D. High marginal rate
Explanation: A high price-earnings ratio means investors are paying a high price for each unit of current earnings, usually because they expect strong…
Correct answer: High growth prospect- A. Marginal ratios
- B. Equity ratios
- C. Return ratios
- D. Market value ratios
Explanation: The price-earnings and price-to-cash-flow ratios relate a company's market price to earnings or cash flow, so they are market value, or…
Correct answer: Market value ratios