Q#1 What is the primary goal of corporate finance?
(A) Maximizing market share
(B) Minimizing cost of capital
(C) Maximizing shareholder value
(D) Managing working capital
Answer: (C) Maximizing shareholder value
Q#2 Which of the following is a long-term source of finance?
(A) Trade credit
(B) Bank overdraft
(C) Equity shares
(D) Accrued expenses
Answer: (C) Equity shares
Q#3 What does the capital structure of a company represent?
(A) Total assets owned
(B) Mix of equity and debt financing
(C) Total sales revenue
(D) Fixed and current assets
Answer: (B) Mix of equity and debt financing
Q#4 Net Present Value (NPV) helps to:
(A) Calculate net profit
(B) Measure cash flows
(C) Assess project viability
(D) Determine tax liabilities
Answer: (C) Assess project viability
Q#5 The Payback Period is used to measure:
(A) Project profitability
(B) Time to recover initial investment
(C) Return on equity
(D) Internal rate of return
Answer: (B) Time to recover initial investment
Q#6 Which of the following is NOT a component of working capital?
(A) Cash
(B) Inventory
(C) Buildings
(D) Accounts receivable
Answer: (C) Buildings
Q#7 Cost of capital is best described as:
(A) The company’s profits
(B) Required rate of return by investors
(C) Depreciation expense
(D) Cost of goods sold
Answer: (B) Required rate of return by investors
Q#8 Internal Rate of Return (IRR) is the discount rate that:
(A) Maximizes NPV
(B) Equates NPV to zero
(C) Maximizes payback
(D) Minimizes investment
Answer: (B) Equates NPV to zero
Q#9 WACC stands for:
(A) Working Asset Capital Composition
(B) Weighted Average Capital Contribution
(C) Weighted Average Cost of Capital
(D) Working And Current Capital
Answer: (C) Weighted Average Cost of Capital
Q#10 Which ratio measures a company’s ability to meet short-term obligations?
(A) Return on Assets
(B) Debt-Equity Ratio
(C) Current Ratio
(D) Net Profit Margin
Answer: (C) Current Ratio
Q#11 Which of the following is a profitability ratio?
(A) Return on Equity
(B) Current Ratio
(C) Debt Ratio
(D) Inventory Turnover
Answer: (A) Return on Equity
Q#12 Capital budgeting decisions are based on:
(A) Historical performance
(B) Expected future cash flows
(C) Current liabilities
(D) Existing debt structure
Answer: (B) Expected future cash flows
Q#13 Which method considers the time value of money?
(A) Payback Period
(B) Accounting Rate of Return
(C) Net Present Value
(D) Profitability Index
Answer: (C) Net Present Value
Q#14 A project with a positive NPV:
(A) Should be rejected
(B) Is less risky
(C) Increases firm value
(D) Has negative IRR
Answer: (C) Increases firm value
Q#15 What does Beta measure in finance?
(A) Inflation
(B) Market volatility
(C) Systematic risk
(D) Return on capital
Answer: (C) Systematic risk
Q#16 The DuPont analysis breaks ROE into:
(A) Profit margin, asset turnover, equity multiplier
(B) Liquidity, solvency, efficiency
(C) NPV, IRR, payback
(D) Operating cost, net income, liabilities
Answer: (A) Profit margin, asset turnover, equity multiplier
Q#17 What is the main concern of dividend policy?
(A) Capital budgeting
(B) Cash flow management
(C) Earnings distribution
(D) Inventory control
Answer: (C) Earnings distribution
Q#18 Which one is a market-based ratio?
(A) Current Ratio
(B) Earnings per Share
(C) Price to Earnings Ratio
(D) Quick Ratio
Answer: (C) Price to Earnings Ratio
Q#19 The market value of a firm is maximized by:
(A) Minimizing risk
(B) Increasing debt
(C) Maximizing shareholder wealth
(D) Minimizing dividends
Answer: (C) Maximizing shareholder wealth
Q#20 What is leverage?
(A) Equity investment
(B) Use of debt in capital structure
(C) Dividend payout
(D) Net sales growth
Answer: (B) Use of debt in capital structure
Q#21 What is a bond?
(A) Equity instrument
(B) Derivative instrument
(C) Debt instrument
(D) Preferred stock
Answer: (C) Debt instrument
Q#22 A firm increases leverage by:
(A) Issuing equity
(B) Paying dividends
(C) Borrowing funds
(D) Reducing debt
Answer: (C) Borrowing funds
Q#23 Capital structure decisions affect:
(A) Sales volume
(B) Shareholder wealth
(C) Asset depreciation
(D) Production cost
Answer: (B) Shareholder wealth
Q#24 What is financial risk?
(A) Business operation risk
(B) Liquidity risk
(C) Risk from debt financing
(D) Investment risk
Answer: (C) Risk from debt financing
Q#25 Which of the following is a cash inflow?
(A) Buying inventory
(B) Paying dividends
(C) Sale of fixed assets
(D) Repayment of loan
Answer: (C) Sale of fixed assets
Q#26 Dividend yield is calculated as:
(A) Dividend / Earnings
(B) Earnings / Share Price
(C) Dividend / Share Price
(D) Share Price / Dividend
Answer: (C) Dividend / Share Price
Q#27 Which statement shows the financial position of a company at a point in time?
(A) Income Statement
(B) Cash Flow Statement
(C) Balance Sheet
(D) Profit and Loss Statement
Answer: (C) Balance Sheet
Q#28 An increase in accounts receivable is:
(A) A source of cash
(B) A use of cash
(C) No effect on cash
(D) A revenue item
Answer: (B) A use of cash
Q#29 Risk that affects the entire market is called:
(A) Unsystematic risk
(B) Systematic risk
(C) Operational risk
(D) Financial risk
Answer: (B) Systematic risk
Q#30 What is flotation cost?
(A) Cost of raw material
(B) Cost of advertising
(C) Cost to issue new securities
(D) Cost of machinery
Answer: (C) Cost to issue new securities
Q#31 Retained earnings are:
(A) Liabilities
(B) Dividends paid
(C) Profits not distributed
(D) Loan repayments
Answer: (C) Profits not distributed
Q#32 A decrease in WACC will:
(A) Lower project NPV
(B) Increase firm valuation
(C) Increase interest expense
(D) Have no effect
Answer: (B) Increase firm valuation
Q#33 Interest is tax deductible in:
(A) Equity financing
(B) Debt financing
(C) Dividend payments
(D) Retained earnings
Answer: (B) Debt financing
Q#34 A firm’s liquidity position is measured by:
(A) Return on investment
(B) Debt to equity ratio
(C) Current and quick ratios
(D) Gross profit margin
Answer: (C) Current and quick ratios
Q#35 The primary financial goal of a firm is to:
(A) Maximize sales
(B) Maximize profit
(C) Maximize value of the firm
(D) Maximize assets
Answer: (C) Maximize value of the firm
Q#36 What is the book value of equity?
(A) Market value of assets
(B) Assets – Liabilities
(C) Total liabilities
(D) Revenue – Expenses
Answer: (B) Assets – Liabilities
Q#37 What is a sunk cost?
(A) Cost yet to be incurred
(B) Future cost
(C) Irrecoverable past cost
(D) Opportunity cost
Answer: (C) Irrecoverable past cost
Q#38 A company with high fixed costs is said to have:
(A) High operating leverage
(B) High financial leverage
(C) Low profitability
(D) Low risk
Answer: (A) High operating leverage
Q#39 Which of these reduces the cost of equity?
(A) Higher risk
(B) Higher dividend
(C) Lower beta
(D) More equity issuance
Answer: (C) Lower beta
Q#40 Market capitalization is calculated as:
(A) Net profit × Total assets
(B) Total debt + equity
(C) Share price × Number of shares
(D) Revenue – Expenses