Accounting and Financial Management 8

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Objective Questions and Answers of MBA: Accounting and Financial Management 8

Subject: Objective Questions and Answers of MBA: Accounting and Financial Management 8

Part 8: Objective questions and answers of Accounting and Financial Management


Q1. Under the percent of sales method, the relationship between sales and what type accounts are assumed to maintain or constant relationship:

a) Income statement

b) Cash budget

c) Balance sheet

d) Cash flows.


Q2. In designing working capital policy, the financial manager is concerned with yield curve and:

a) Dividend policy

b) Balance of trade figures

c) The relative volatility of short and long term rates

d) The term structure of interest rates


Q3. As the least liquid of the current assets, inventory:

a) Could technically be classified as a capital asset and amortized

b) Should be managed using level production

c) Should be managed using seasonal production

d) Should provide the highest yield to justify investment


Q4. Future value of an amount allowed to grow at a given interest rate over a period of time is known as the:

a) Future value-single amount

b) Present value-single amount

c) Future value-annuity

d) Present value-annuity


Q5. Business risk relates to:

a) The ability of the firm to hold its competitive position

b) The ability of the firm to maintain growth in its earnings

c) The ability of the firm to maintain stability in the earnings

d) All of the above are correct


Q6. In determining the appropriate capital mix, the starting point for the firm is:

a) The cost of common equity

b) The optimum capital structure

c) The present capital structure

d) The after-tax cost of debt


Q7. In a replacement decision, all of the following should be considered except:

a) The cost of the new equipment

b) Interest costs

c) The capital loss or gain on the sale of the old equipment

d) The difference in capital cost allowance tax shields between the old and new equipment


Q8. A decision tree analysis:

a) Lays out the sequence of decisions and presents a graphical comparison

b) Is a form of simulation analysis

c) Tends to be more accurate than simulation techniques

d) Should be utilized as the sole input for the decision making process


Q9. Markets may be said to be efficient when:

a) Prices adjust rapidly to new information

b) There is a continuous market with successive trade at widely varying prices

c) The market absorbs only small dollar amounts without destabilizing prices

d) All of the above are correct


Q10. The major problem when a public firm issues new stock is:

a) Pricing the security

b) Underwriting the issue

c) Determining the spread

d) The dilution of existing stock


Q11. A call provision allows the firm to:

a) Call the bond and common stock

b) Redeem bonds prior to the call date

c) Pay a discount 5-10% below par

d) Redeem the bond prior to maturity


Q12. When a rights offering is announced:

a) Common shareholders may purchase one new share for each share owned

b) A stock will initially trade rights-on

c) The share price increases when the stock goes ex-rights

d) The shareholder increases the value of his holdings by exercising the rights


Q13. By maintaining a relatively stable dividend level, the firm:

a) Hopes to increase holdings of its common shares

b) Hopes to decrease holdings of its common shares

c) Hopes to increase the discount rate applied to future dividends

d) Hopes to decrease the discount rate applied to future dividends


Q14. Convertible securities are subject to all of the following disadvantages except:

a) Interest rates are normally below market rates

b) The convertible is purchased at a premium

c) The holder has no downside protection

d) The convertible may be subject to a call provision


Q15. If the acquiring firm has a higher p/e ratio than the acquired firm, the resulting earnings per share will be:

a) The same as pre-merger

b) Lower

c) Higher

d) Cannot be determined


Q16. The forward rate is:

a) Unrelated to the foreign exchange rate

b) The rate of exchange for future delivery

c) The rate of exchange for immediate delivery

d) The "black market" exchange rate


Q17. A main benefit to the corporate form of organization is:

a) Double taxation of corporate income

b) Simplicity of decision making and low organizational complexity

c) Limited liability for the corporate shareholders

d) A major management role exists for the firm's owners


Q18. The current cost method of financial reporting takes inflation into account and has the greatest impact on:

a) The valuation of accounts receivable and marketable securities

b) Inventory and plant and equipment

c) Current assets

d) The determination of dividend policy


Q19. All of the following are primary considerations for cash payments except:

a) Material costs

b) Labour and overhead costs

c) Receivable receipts

d) Disbursements for general & administrative expenses


Q20. A high degree of financial leverage:

a) Is a sign of astute financial management

b) Will always decrease the cost of financing for the firm

c) Will result in an increase of the firm's overall value in all cases

d) May increase the firm's risk and drive the price of the shares down


Part 8: Objective questions and answers of Accounting and Financial Management


Q1. Answer c


Q2. Answer c


Q3. Answer d


Q4. Answer a


Q5. Answer d


Q6. Answer c


Q7. Answer b


Q8. Answer a


Q9. Answer d


Q10. Answer d


Q11. Answer d


Q12. Answer b


Q13. Answer d


Q14. Answer c


Q15. Answer c


Q16. Answer b


Q17. Answer d


Q18. Answer b


Q19. Answer c


Q20. Answer d

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