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 47 of 49
- A. Capital budgeting
- B. Capital structure
- C. Working capital management
- D. All of the given optionsAccounting & Auditing
Explanation: Business finance covers decisions about long-term investment through capital budgeting, funding mix through capital structure, and…
Correct answer: All of the given optionsAccounting & Auditing- A. Positive
- B. Negative
- C. zero
- D. None of the given options
Explanation: A current ratio of 1 means current assets equal current liabilities. Since net working capital is current assets minus current…
Correct answer: zero- A. Financing
- B. Investing
- C. Managing day today expenses
- D. None of the given options
Explanation: Business finance covers raising funds, investing them, and managing working capital for routine operating expenses.
Correct answer: None of the given options- A. long-term; short-term
- B. short-term; long-term
- C. lower-coupon; higher-coupon
- D. None of the given options
Explanation: For the same change in interest rates, a short-term bond has less time for its discounted cash flows to be affected, so its price changes…
Correct answer: short-term; long-term- A. Ordinary annuity
- B. Annuity due
- C. Perpetuity
- D. None of the given optionsAccounting & Auditing
Explanation: An annuity due pays at the beginning of each period, whereas an ordinary annuity pays at the end.
Correct answer: Annuity due- A. 8.42 years
- B. 10.51 years
- C. 15.75 years
- D. 18.78 years
Explanation: Use the compound-growth equation 6,000(1.05)^n = 10,000, which gives n approximately 10.5 years. Thus, option b is the closest listed value.
Correct answer: 10.51 years- A. Discounting
- B. Compounding
- C. Factorization
- D. None of the given options
Explanation: Discounting converts a future payment into its value today by applying an interest or discount rate.
Correct answer: Discounting928. Which of the following item provides the important function of shielding part of income from taxes?
- A. Inventory
- B. Supplies
- C. Machinery
- D. Depreciation
Explanation: Depreciation is a non-cash expense that reduces taxable income, creating a depreciation tax shield.
Correct answer: Depreciation- A. sole proprietorship
- B. partnership
- C. joint stock company
- D. none of the aboveBusiness Formation
Explanation: A joint stock company is a separate legal entity, so its shareholders generally risk only the amount they invested.
Correct answer: joint stock company- A. Liquidity Ratios
- B. Long-term Solvency Ratios
- C. Profitability Ratios
- D. Market Value Ratios
Explanation: Short-term creditors focus on whether a business can meet near-term obligations, which is measured by liquidity ratios such as the current…
Correct answer: Liquidity Ratios- A. Rs. 1,000 because it has the higher future value
- B. Rs. 1,000 because you receive it sooner
- C. Rs. 1,050 because it is more money
- D. Either because both options are of equal valueFinance
Explanation: At a 5% return, Rs. 1,000 received today becomes Rs. 1,050 after one year, so both alternatives have equal value.
Correct answer: Either because both options are of equal valueFinance- A. Ordinary Annuity
- B. Special Annuity
- C. Annuity Due
- D. Perpetuity
Explanation: A perpetuity is an annuity whose equal cash flows continue indefinitely.
Correct answer: Perpetuity- A. Current Ratio
- B. Acid-test Ratio
- C. Cash Ratio
- D. None of the given optionsGet Executive Coaching
Explanation: The quick ratio is the acid-test ratio, which measures the ability to meet short-term obligations using highly liquid assets while…
Correct answer: Acid-test Ratio- A. Assets = Liabilities - Stockholder's equity
- B. Assets + Liabilities = Stockholder's equity
- C. Assets + Stockholder's equity = Liabilities
- D. Assets = Liabilities + Stockholder's equity
Explanation: The accounting equation must balance as Assets = Liabilities + Stockholders' Equity.
Correct answer: Assets = Liabilities + Stockholder's equity- A. Liquidity Ratios
- B. Long-term Solvency Ratios
- C. Asset Management Ratios
- D. Profitability Ratios
Explanation: Long-term solvency ratios assess the firm's use of debt and its ability to meet long-term obligations, so they directly address financial…
Correct answer: Long-term Solvency Ratios- A. Agency problem
- B. Interest conflict
- C. Management conflict
- D. Agency costHire An Accountant
Explanation: The agency problem arises when managers, acting as agents, pursue interests that differ from those of stockholders, the owners.
Correct answer: Agency problem- A. Rs. 33,000
- B. Rs. 25,000
- C. Rs. 17,000
- D. Rs. 8,000
Explanation: Cash received equals sales revenue minus the increase in accounts receivable: Rs. 25,000 − Rs. 8,000 = Rs. 17,000.
Correct answer: Rs. 17,000- A. Ordinary annuity
- B. Annuity due
- C. Perpetuity
- D. None of the given optionsTry Prep Courses
Explanation: An ordinary annuity consists of equal cash flows paid at the end of each period for a fixed number of periods.
Correct answer: Ordinary annuity- A. Most widely used
- B. Ideal to rank the mutually exclusive investments
- C. Easily communicated and understood
- D. Can be estimated even without knowing the discount rate
Explanation: IRR should not be used as an ideal ranking method for mutually exclusive investments because it can conflict with NPV and may produce…
Correct answer: Ideal to rank the mutually exclusive investments- A. Dividend Price Model
- B. Dividend Growth Model
- C. Dividend Policy Model
- D. All of the given optionsForm An LLC
Explanation: The dividend growth model values a share by making an assumption about the future growth of its dividends, commonly using a…
Correct answer: Dividend Growth Model