Accounting and Financial Management 2

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Objective Questions and Answers of MBA: Accounting and Financial Management 2

Subject: Objective Questions and Answers of MBA: Accounting and Financial Management 2

Part 2: Objective questions and answers of Accounting and Financial Management


Q1. The field of finance is closely related to the fields of:

a) Statistics and economics

b) Statistics and risk analysis

c) Economics and accounting

d) Accounting and comparative return analysis


Q2. Amortization is considered a source of funds to the firm because:

a) It is purely an accounting entry and doesn’t involve a direct disbursement of funds, freeing up these funds for other investments

b) It represents a reduction in asset holdings

c) It represents an increase in an asset account

d) Amortization is not a source of funds


Q3. Receivables turnover is:

a) A profitability ratio

b) A debt utilization ratio

c) An asset utilization ratio

d) A liquidity ratio


Q4. Financial ratios are used to:

a) Weigh and evaluate the operating performance of the firm

b) Provide an absolute benchmark of industry performance

c) Determine which firm will provide the highest return to investors

d) None of the above are correct


Q5. The primary purpose of the cash budget is:

a) To break the income statement down into monthly periods

b) To determine monthly cash receipts

c) To determine the collection pattern

d) To allow the firm to anticipate the need for outside funding


Q6. Financial leverage:

a) Reflects the firm’s commitment to fixed, financial assets

b) Has no impact on the earning of the firm

c) Reflects the amount of debt used in the capital structure of the firm

d) Primarily affects the left side of the balance sheet


Q7. The liquidity premium theory suggests that long-term interest rates are higher than short-term interest rates because:

a) Investors generally prefer to invest short periods of time

b) Government policy maintains this relationship

c) There is greater risk in long-term bonds

d) Exchange rate fluctuations establish this relationship


Q8. All of the following are factors influencing the choice of marketable securities except:

a) Yield

b) Maturity

c) Marketability

d) Maximum investment allowed


Q9. A cash discount may best be defined as:

a) A reduction in price if payment is made within the specified time period

b) A discount offered to critical suppliers

c) A discount applied to volume sales

d) A discount or the repayment of the firm’s debt


Q10. The extent to which inventory financing may be employed is based on all of the following, except:

a) The marketability of the pledged goods

b) Their associated price stability of the goods

c) The perishability of the goods

d) The control of the goods by the manufacturer


Q11. Annuity payments are generally assumed to occur:

a) During the period

b) At the beginning of the period

c) At the end of the period

d) It doesn’t matter when they occur


Q12. When the coupon rate on a bond is equal to the yield to maturity, the price of the bond will be:

a) Par

b) Above par

c) Below par

d) More information is required


Q13. One assumption underlying the use of the cost of capital to analyze capital projects is that:

a) Current costs will remain the same

b) Capital structure will vary with the type of financing

c) Different risk projects are required to diversify the firm

d) The analyzed projects are of comparable risk to existing projects


Q14. The capital budgeting decision involves the planning of expenditures for projects with

a life of at least:

a) One year

b) Five years

c) Ten years

d) Fifteen years


Q15. All of the following are true of capital cost allowance except:

a) It is a non-cash expense

b) It is not tax-deductible

c) It provides tax shield benefits

d) It should not be disregarded in capital budgeting decisions


Q16. The efficient frontier represents:

a) The difference between investment returns

b) Optimal risk-return tradeoffs

c) The correct investment for all firms to make

d) The correlation between profits and the portfolio effect


Q17. It would be fair to say that securities markets in the future:

a) Will become more competitive as an international market system develops

b) Will be less efficient

c) Will be more highly segregated than they are today

d) Will be less automated than today’s markets


Q18. Private placement involves selling securities directly to:

a) Insurance companies

b) Pension funds

c) Wealthy individuals

d) All of the above are correct


Q19. In a lease versus borrow to purchase decision the appropriate discount rate, except for the salvage value, is:

a) The cost of capital

b) The aftertax cost of debt

c) The cost of equity capital

d) The cost of the debt


Q20. Under the marginal principle of retained earnings:

a) The firm must compare what it can earn with what shareholders could earn on funds if they were distributed

b) All funds above and beyond retained earnings are paid to shareholders

c) Funds not paid to creditors and preferred shareholders belong to common shareholders

d) All projects are financed internally


Part 2: Objective questions and answers of Accounting and Financial Management


Q1. Answer c


Q2. Answer a


Q3. Answer c


Q4. Answer a


Q5. Answer d


Q6. Answer c


Q7. Answer c


Q8. Answer d


Q9. Answer a


Q10. Answer d


Q11. Answer c


Q12. Answer a


Q13. Answer d


Q14. Answer a


Q15. Answer b


Q16. Answer b


Q17. Answer a


Q18. Answer d


Q19. Answer b


Q20. Answer a

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