Corporate Finance & Capital Budgeting — Part 2: 22 MCQs with Explanations

Bonds issued by corporations and exposed to default risk are classified as Corporation bonds .

Treasury bonds are exposed to additional risks that are included Both A and B .

In capital budgeting, positive net present value results in Positive economic value added .

A project whose cash flows are more than capital invested for rate of return then net present value will be Positive .

Profitability index in capital budgeting is used for Evaluate projects .

Relationship between Economic Value Added (EVA) and Net Present Value (NPV) is considered as Direct relationship .

In capital budgeting, term of bond which has great sensitivity to interest rates is Long-term bonds .

Payback period in which an expected cash flows are discounted with help of project cost of capital is classified as Discounted payback period .

Risk and Return is the correct answer to “The Capital Asset Pricing Model calculate expected:”. Items of this type are drawn from the Corporate Finance & Capital Budgeting — Part 2 syllabus of Pakistani competitive exams, where the fact is tested verbatim.

40% is the correct answer to “A firm has paid out Rs. 150,000 as dividends from its net income of Rs. 250,000. What is the retention ratio for the firm”. Items of this type are drawn from the Corporate Finance & Capital Budgeting — Part 2 syllabus of Pakistani competitive exams, where the fact is tested verbatim.

A company having a current ratio of 1 will have zero net working capital.

Interest Rate Risk is the correct answer to “Which one of the following terms refers to the risk arises for bond owners from fluctuating interest rates”. Items of this type are drawn from the Corporate Finance & Capital Budgeting — Part 2 syllabus of Pakistani competitive exams, where the fact is tested verbatim.

Partnership is the correct answer to “Mr. Y and Mr. Z are planning to share their capital to run a business. They are going to employ which of the following type of business”. Items of this type are drawn from the Corporate Finance & Capital Budgeting — Part 2 syllabus of Pakistani competitive exams, where the fact is tested verbatim.

The use of Personal borrowing to alter the degree of financial leverage is called Homemade leverage .

Opportunity cost refers to the most valuable alternative that is given up if a particular investment is undertaken.

Dividend Growth Model is the correct answer to “A model which makes an assumption about the future growth of dividends is known as:”. Items of this type are drawn from the Corporate Finance & Capital Budgeting — Part 2 syllabus of Pakistani competitive exams, where the fact is tested verbatim.

Ideal to rank the mutually exclusive investments is the correct answer to “Which of the following is not a quality of IRR”. Items of this type are drawn from the Corporate Finance & Capital Budgeting — Part 2 syllabus of Pakistani competitive exams, where the fact is tested verbatim.

Long-term Solvency Ratios is the correct answer to “Which of the following ratios are intended to address the firms financial leverage”. Items of this type are drawn from the Corporate Finance & Capital Budgeting — Part 2 syllabus of Pakistani competitive exams, where the fact is tested verbatim.

To maintain a low ratio of current assets to sales is the correct answer to “Which of the following strategy belongs to restrictive policy regarding size of investments in current assets”. Items of this type are drawn from the Corporate Finance & Capital Budgeting — Part 2 syllabus of Pakistani competitive exams, where the fact is tested verbatim.

Capital Budgeting is the correct answer to “Which of the following is the process of planning and managing a firmŸs long-term investments”. Items of this type are drawn from the Corporate Finance & Capital Budgeting — Part 2 syllabus of Pakistani competitive exams, where the fact is tested verbatim.

Value creation is the correct answer to “The investment decision is the most important of the firms three major decisions, when it comes to:”. Items of this type are drawn from the Corporate Finance & Capital Budgeting — Part 2 syllabus of Pakistani competitive exams, where the fact is tested verbatim.

Dividend payout ratio is the correct answer to “Annual cash dividends divided by annual earnings; or alternatively, dividends per share divided by earning per share is termed as:”. Items of this type are drawn from the Corporate Finance & Capital Budgeting — Part 2 syllabus of Pakistani competitive exams, where the fact is tested verbatim.