Accounting and Financial Management 1

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Objective Questions and Answers of MBA: Accounting and Financial Management 1

Subject: Objective Questions and Answers of MBA: Accounting and Financial Management 1

Part 1: Objective questions and answers of Accounting and Financial Management


Q1. Which of the following properly lists balance sheet items in order of liquidity, from most liquid to least liquid?

a) Accounts receivable, inventory, marketable securities, cash.

b) Cash, marketable securities, accounts receivable, inventory.

c) Inventory, marketable securities, cash, accounts receivable.

d) Cash, inventory, accounts receivable, marketable securities.


Q2. Profitability ratios measure:

a) The speed at which the firm is turning over its assets

b) The ability of the firm to earn an adequate return on sales, total assets, and invested capital

c) The firm's ability to pay off short term obligations as they are due

d) The debt position of the firm in light of its assets and earning power


Q3. The construction of the pro forma income statement is based on:

a) The prior year's income statement

b) Sales projections and the production plan

c) The cash budget

d) The cash budget and prior year's income statement


Q4. Operating leverage may be defined as:

a) The degree to which debt is used in financing the firm

b) The difference between price and variable costs

c) The extent to which capital assets and fixed costs are utilized

d) The difference between fixed costs and the contribution margin


Q5. Most retail stores are mainly concerned with:

a) Their buyers' forecasts for the coming season

b) Matching sales and inventory levels

c) Decreasing inventory turnover

d) Their investment in capital assets


Q6. Using a lockbox system to improve collections:

a) Is more expensive than the use of collection centers

b) Utilizes local banks to clear local payments made to the collection center

c) Provides more float than collection centers

d) Results in checks being forward to a P.O. box and clearing through local banks


Q7. In establishing credit standards, the firm must consider the nature of the credit risk based on all of the following, except:

a) Prior record of payment

b) Terms of credit

c) Financial stability

d) Current net worth


Q8. Commercial paper may best be defined as:

a) A short term obligation of the government issued to commercial investors

b) Short term unsecured promissory notes issued by corporations

c) An insignificant source of funds to large corporations

d) The debt obligations of chartered banks


Q9. If interest or compounding is done on other than an annual basis, adjust by:

a) Dividing the number of years by the number of compounding periods

b) Multiplying the number of years by the number of compounding periods

c) Dividing the interest rate by the number of compounding period

d) Multiplying the years and dividing the interest rate by the number of compounding periods


Q10. The valuation of a financial asset is based on determining:

a) The present value of future cash flows

b) The current yield to maturity on long term corporate bonds

c) The capital budgeting process

d) What the corporation is paying to attract preferred shareholders


Q11. To determine the price of preferred stock:

a) Divide the rate of return by the dividend amount

b) Divide the dividend amount by the rate of return

c) Divide the dividend amount by the rate of return minus the growth rate

d) Divide the dividend amount by the growth rate


Q12. The cost of retained earnings is equal to:

a) The return on new common stock

b) The return on preferred stock

c) The return on existing common stock

d) It does not have a cost.


Q13. Under the payback period:

a) We compute the time required to recoup the original investment

b) There is no consideration of inflows after the cutoff period

c) The time value of money is ignored

d) All of the above are correct


Q14. The standard deviation:

a) Is the square root of the variance

b) Measures dispersion or variability around the expected value

c) May be used to compare investments with the same expected return

d) All of the above are correct


Q15. Which of the following constitutes an internal source of funds?

a) Corporate bonds

b) Common stock

c) Commercial paper

d) Retained earnings and amortization cash flow


Q16. The spread may best be defined as:

a) The compensation due the lead underwriter

b) The total compensation for those participating in the distribution process

c) The price finally paid by the public for the shares

d) The proceeds from the distribution received by the firm


Q17. Debt that is not secured by specific assets is called:

a) An indenture

b) A debenture

c) A mortgage agreement

d) Common stock


Q18. Preferred equity has all of the following characteristics except:

a) Fixed dividends

b) The cumulative right to annual dividends

c) Precedence over common stock dividends

d) Residual claim to income


Q19. A stock dividend:

a) Represents a distribution of additional shares to common shareholders

b) Differs from a stock split largely in size

c) Normally has no real value to the investor

d) All of the above are correct


Q20. The first area of study to benefit from the focus in the 1950's to a more analytical, decision oriented approach was:

a) Cash and inventory management

b) Capital budgeting (allocating financial capital to the purchase of plant and equipment)

c) Capital structure formulation (the balance between liabilities and equity)

d) Dividend policy (the relationship between dividends and earnings)


Part 1: Objective questions and answers of Accounting and Financial Management


Q1. Answer b


Q2. Answer b


Q3. Answer b


Q4. Answer c


Q5. Answer b


Q6. Answer d


Q7. Answer b


Q8. Answer b


Q9. Answer d


Q10. Answer a


Q11. Answer b


Q12. Answer c


Q13. Answer d


Q14. Answer d


Q15. Answer d


Q16. Answer b


Q17. Answer b


Q18. Answer d


Q19. Answer d


Q20. Answer b

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