Free Business Finance MCQs with Answers

• A. Long-term bonds
• B. Short-term bonds
• C. Internal term bonds
• D. External term bonds

Explanation: Long-term bonds are generally more sensitive to interest-rate changes because their cash flows extend further into the future and have a…

• 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 accounting measures such as book value per share, cash flow and…

• 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 future cash flows at the…

• A. Return on turnover
• B. Return on stock
• C. Return on assets
• D. Return on equity

Explanation: This is the DuPont identity: profit margin multiplied by total asset turnover gives return on assets, and multiplying by the equity…

• A. Costs
• B. Cash flows
• C. Internal rate of return
• D. External rate of return

Explanation: Where the NPV profile crosses the horizontal axis, NPV equals zero. The discount rate at which NPV becomes zero is the project's internal…

• 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 produce the same accept-or-reject decision: accept when NPV is…

• A. Price earnings ratio
• B. Earning price ratio
• C. Pricing ratio
• D. Earning ratio

Explanation: The price-earnings ratio is calculated as market price per share divided by earnings per share.

• 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 by shareholders'…

• A. competitive companies
• B. Benchmark companies
• C. Analytical companies
• D. Return companies

Explanation: Benchmark companies are selected as reference points whose performance or practices can be compared with those of another firm.

• A. Common size analysis
• B. Percent change analysis
• C. Returning ratios analysis
• D. Both A and B

Explanation: Common-size analysis expresses statement items as percentages of a base figure, while percent-change analysis compares figures across…

• A. Dividend to stock ratio
• B. Sales to growth ratio
• C. Cash flow to price ratio
• D. Price to cash flow ratioHire An Accountant

Explanation: Dividing price per share by cash flow per share produces the price-to-cash-flow ratio, a valuation multiple showing how much investors pay…

• A. Return on total assets
• B. Return on total equity
• C. Return on debt
• D. Return on sales

Explanation: Net income available to common stockholders divided by total assets measures return on total assets, indicating how efficiently the asset…

• A. 72 divided by the annual interest rate
• B. Annual interest rate dividend by 72
• C. 72 divided by (annual interest rate multiplied by discount factor)
• D. None of these

Explanation: The Rule of 72 estimates the number of years needed to double an investment by dividing 72 by the annual interest rate expressed as a…

• A. Improve if assets are revalued upward
• B. Remain unaffected
• C. Improve if assets are revalued downwards
• D. Undergo change only if liabilities are remaining constant

Explanation: Revaluing fixed assets changes non-current assets and equity, but the current ratio uses only current assets divided by current…

• A. Sources of funds
• B. Use of funds
• C. Inflow of funds
• D. None of theseCompare Business Loans

Explanation: An asset is something in which funds are invested or used, such as cash, inventory, or equipment.

• A. It increases the real value of cash flows received in the future
• B. It reduces the real value of cash flows received in the future
• C. It has no effect on real value of cash flow received in the future
• D. None of these

Explanation: Inflation reduces purchasing power, so a fixed amount of cash received in the future has lower real value when expressed in today's…

• A. CF1 / (1+r)n
• B. C2 / (1+r)
• C. C0 + C (1+r)n
• D. None of theseGet Executive Coaching

Explanation: A single future cash flow is discounted as CFₙ/(1+r)ⁿ, where r is the discount rate and n is the number of periods.

• A. Cash shortage
• B. Low inventory turnover ratio
• C. Low current ratio
• D. High inventory turnover ratiO

Explanation: Overtrading commonly causes cash shortages, a low current ratio, and a high inventory turnover ratio because sales expand faster than…

• A. The present value of the bond
• B. The bonds internal rate of return
• C. The future value of the bond
• D. None of these Hire An Accountant

Explanation: Yield to maturity is the discount rate that makes a bond's current price equal to the present value of its future payments, so it is the…

• A. Accountants
• B. Financial Analysts
• C. Auditors
• D. Marketers

Explanation: Financial analysts use accounting information broadly to evaluate profitability, risk, performance, and investment prospects.