Department of Commerce Objective Paper

Time Allowed = 15 Minutes Class. Msc Acc & Finance 3 Year Name of Teacher: Mr. Shoaib Masood Marks= 08 Date: 31-10-2011 Subject: Financial Management

Q1a.) Attempt All Mcqs. Cutting and Overwriting is not allowed. Used of lead pencil is also prohibited. Encircle the write option. 1) Increasing Current ratios are likely to increase a) b) c) d) Neither profit or risk. Risk Profit both profit and risk

2) __________ is the process of selecting long-term investments that are consistent with the firm's goal of maximizing owner wealth. a) b) c) d) Valuation Capital budgeting Expensing Conversion

3) Which of the following sequences properly lay out the capital budgeting process? a) b) c) d) review and analysis, proposal generation, decision making, implementation, follow up proposal generation, decision making, implementation, review and analysis, follow-up proposal generation, review and analysis, decision making, implementation, follow-up decision making, implementation, follow-up, proposal generation, review and analysis

4) The acceptance of one ________ project eliminates from further consideration all similar projects. a) b) c) d) Independent Ranked Conventional Mutually Exclusive

5) The __________ is the amount of time required for a firm to recover its initial investment in a project from cash inflows. a) b) c) d) reimbursement interval calendar year payback period internal rate of return

6) If the net present value is greater than zero one should: a) accept the project. b) use a different discount rate until the value is less than zero. c) reject the project. d) conduct a payback analysis to estimate the payoff period.

7)

__________ is probably the most widely used sophisticated capital budgeting technique. a) b) c) d) payback period profitability index net present value internal rate of return

8) The internal rate of return is a __________. a) b) c) d) discount rate dollar amount. time period in years. time period in days.

9) Which of the following is not a source of long-term funds for a business? a) b) c) d) preferred stock accounts payable bonds retained earnings

10) Which of the following would be consistent with a conservative approach to financing working capital?

a) b) c) d)

Financing short-term needs with short-term funds. Financing short-term needs with long-term debt. Financing seasonal needs with short-term funds. Financing some long-term needs with short-term funds.

11) In regards to the sale or disposal of a depreciable asset, "recapture of depreciation" is __________. a) any amount realized in excess of its depreciated (tax) book value b) any amount realized in excess of its original depreciable basis c) any amount realized in excess of its depreciated (tax) book value, but less than its original depreciable basis d) any amount realized from the sale of the asset 12) The cash flow pattern for an independent project is Year 1: -$5000, Year 2: +$4000, Year 3: $6000, Year 4: -$1500, and Year 5: +$2000 This project has a __________ cash flow pattern. a) b) c) d) mutually exclusive nonconventional foreign conventional

13) To financial analysts, "net working capital" means the same thing as __________. a) b) c) d) total assets fixed assets current assets current assets minus current liabilities.

14)

Which of the following statements about the cost of capital is FALSE? a) b) c) d) The specific cost of each source of financing is the historical cost of obtaining funds. Firms must earn the cost of capital on new projects to maintain equity market value. Business risk is the possibility of being unable to cover operating costs. Financial risk includes is the possibility of being unable to cover interest payments.

15)

Which of the following are reasons for using the payback period? a) b) c) d) Any project with a payback period over five years can be automatically rejected. Payback analysis considers all cash flows Payback uses time value of money principles. Payback is a measure of risk exposure.

16) Economic Order Quantity gives us idea about a) b) c) d) At which level of inventory, the new order should be placed Numbers of Units to be ordered for best performance. Days require to process an order Amount of Units used per day