ACC501 Final Term Solved MCQs

Q1. ____________give a picture of a company's ability to generate cash flow and pay it financial obligations:

1. Management ratios
2. Working capital ratios
3. Net profit margin ratios
4. Solvency Ratios

Q2. Balance sheet items expressed as percentage of:

1. Net sales
2. Total revenue
3. Total assets
4. Total liabilities

Q1. Ann is interested in purchasing Ted's factory. Since Ann is a poor negotiator, she hires Mary to negotiate a purchase price. Identify the parties to this transaction from the given options, keeping in view the agency theory:

1. Ann is the principal and Mary is the agent.
2. Mary is the principal and Ann is the agent.
3. Ted is the agent and Ann is the principal.
4. Mary is the principal and Ted is the agent.

Correct answer: Ann is the principal and Mary is the agent.

Q2. Which of the given options apply to auction markets?

1. Trading in a given auction exchange takes place at a single site on the floor of the exchange.
2. Transaction prices of shares are communicated almost immediately to the public.
3. Listing.
4. All of the given options (a, b and c).

Correct answer: All of the given options (a, b and c).

3. Suppose a Corporation has a taxable income of $200,000 and the tax amount is as given in the calculations:

$ 50,000 · x 15% · = $ 7,500 · ($ 75,000 – 50,000) · x 25% · = 6,250 · ($ 100,000 – 75,000) x 34% · = 8,500 · ($ 200,000 – 100,000) x 39% · = 39,000 · $ 61,250

Total tax is $61,250.

Average tax rate is $61,250 / 200,000 = 30.625%. Marginal tax rate will be:

a. 39% b. 34% c. 15% d. 25%

Q4. A document that includes corporation’s name, intended life, business purpose and number of shares and is necessary to form a corporation is known as:

1. Charter

ACC501 Finalterm Solved mcq's

b. Set of bylaws c. Regulations paper d. None of the given options

5. According to the accounting profession, which of the given options would

be considered a cash-flow item from an "investing" activity in a cash flow

statement?

1. Cash outflow to the government for taxes.
2. Cash outflow to shareholders as dividends.
3. Cash outflow to lenders as interest.
4. Cash outflow to purchase bonds issued by another company

Correct answer: Cash outflow to purchase bonds issued by another company

Q6. Which one of the given options is generally considered the most liquid asset?

1. accounts receivable
2. inventory
3. net fixed assets
4. intangible assets

Correct answer: accounts receivable

Q7. Which of the given options is an advantage of a corporation that is not an advantage as a limited partner in a partnership?

1. Limited liability.
2. Easy transfer of ownership position.
3. Double taxation.
4. All of the options are advantages that the corporation has over the limited partner.

Correct answer: Easy transfer of ownership position.

Q8. In finance we refer to the market for relatively long-term financial instruments as the __________ market.

1. money
2. capital
3. primary
4. secondary

Correct answer: capital

Q9. __________ is concerned with the branch of economics relating the behavior of principals and their agents.

1. Financial management
2. Profit maximization
3. Agency theory
4. Social responsibility

Correct answer: Agency theory

Q10. Which of the expenses in given options is not a cash outflow for the firm?

1. Depreciation
2. Dividends
3. Interest payments
4. Taxes

Correct answer: Depreciation

1. During 2005 a merchandize sales company had cash sales of $56.25 million, which were 15% of the total sales. During this period accounts receivables of the company were13% of total sales. What was the average collection period of the company during 2005?

1. 62 days
2. 18 days
3. 56 days
4. 19 days

Correct answer: 56 days

Q2. Suppose that Pearson Corporation has a capital structure which consists of both equity and debt. It had issued two million worth of bonds at 6.5 % p.a. The tax rate is 40%. Its EBIT is one million. The present value of tax shield for Pearson corporation would be

1. Rs.1,000,000
2. Rs.1,200,000
3. Rs800,000
4. Rs.1,400,000

Correct answer: Rs800,000

Q3. The use of Personal borrowing to alter the degree of financial leverage is called

1. Homemade leverage
2. Financial leverage
3. Operating leverage
4. None of the given option

Correct answer: Homemade leverage

Choose the Most Appropriate Answer among the given choices.

Q1. _______________ refers to the most valuable alternative that is given up if a particular investment is undertaken.

1. Sunk cost
2. Opportunity cost
3. Financing cost
4. All of the given options

Correct answer: Opportunity cost

Q2. SNT company paid a dividend of Rs. 5 per share last year. The stock’s current price is Rs. 50 per share. Assuming that the dividends are estimated to grow steadily at 8% per year, the cost of the capital for SNT company will be?

1. 13.07 %
2. 15.67 %
3. 16.00 %
4. 18.80 %

Correct answer: 18.80 %

3. ________________ is the group of assets such as stocks and bonds held by an investor.