Corporate Finance Basic Multiple Choice Question MCQ
Categories: Finance
Ques 1. Which of the following is not one of the three fundamental methods of firm valuation? a) Discounted Cash flow b) Income or earnings - where the firm is valued on some multiple of accounting income or earnings. c) Balance sheet - where the firm is valued in terms of its assets. d) Market Share Ans. d Ques 2. What is the value of the firm usually based on? a) The value of debt and equity. b) The value of equity. c) The value of debt. d) The value of assets plus liabilities. Ans. b Ques 3. Which of the following defines the market to book value? a) The ratio of stock market valuation divided by the value of its NAV. b) The ratio of NAV value divided by stock market valuation. c) The market value of tangible assets divided by the book value of tangible asset d) The market value of intangible assets divided by the book value of intangible assets. Ans. a Ques 4. Shareholders wealth increases with the increase in ___ a) EPS b) Market value of the firm c) Dividend & market value of the firm d) Market price of the equity share Ans. c Ques 5. Promotion of welfare of human by corporate is called as_______ a) Social service b) Philosophy c) NGO work d) Corporate philanthropy Ans. d Ques 6. Leasing of machinery can be categorized as______ a) Fixed asset b) Investment decision c) Financing decision d) Capital budgeting decision Ans. c Ques 7. A mutually exclusive decision means: a) Accepting of an alternative, leads to rejecting of other b) Accepting of both alternatives c) Rejecting of both alternatives d) Both c & d Ans. a Ques 8. Which of the following has Net profit as basis for calculation a) Net present value b) Average rate of return c) Internal rate of return d) Payback period Ans. b Ques 9. Internal rate of return is … a) Rate at which discounted cash inflow is more than discounted cash outflow b) Rate at which discounted cash inflow is less than discounted cash outflow c) Rate at which discounted cash inflow is equal to the discounted cash outflow d) Either a or b Ans. c Ques 10.Corporate wealth maximization is the value maximization for_____ a) Equity shareholders b) Stakeholders c) Employees d) Debt capital owners Ans. b Ques 11.Book value of assets includes a) Fixed assets, current asset b) Fixed assets, current asset, intangible asset c) Fixed assets, current asset, fictitious asset d) Fixed assets, current asset, intangible asset, fictitious asset Ans. b Ques 12.Listed companies can be valued at a) Book Value b) Market value c) Salvage value d) Liquidation value Ans. b Ques 13. Unlisted company can be valued at a) Net asset Method b) Market value method c) Both a & b d) None of the above Ans. a Ques 14.Which of the following valuation methods is based on “Going concern concept” a) Market value method b) Book value method c) Liquidation method d) Salvage value method Ans. b Ques 15. A company has a profit attributable to ordinary shareholders of £100,000. The number of ordinary shares of £1 in issue during the year was 300,000. The market value of the company’s shares at the year end was £6.50. The price/earnings ratio for this company is: a) 0.05 times b) 0.33 times c) 6.5 times d) 19.5 times Ans. d Ques 16.What does the price/earnings (PE) ratio measure? a) The multiple that the stock market places on a company’s earnings b) The number of times that dividends paid are covered by profits c) The return received by way of dividends as a percentage of current share price d) The amount of profits available to ordinary shareholders Ans. a Ques 17.What does the price-to-earnings ratio (P/E) tell you? a) How much each of a company's products sells for on average. b) How much investors are willing to pay per unit of a company's earnings. c) How much tax per unit investors are willing to pay. d) None of the above Ans. b Ques 18. How is the P/E ratio calculated? a) Market value/quick ratio b) Earnings per share/market capitalization c) Market value per share/earnings per share d) None of the above Ans. c Ques 19.What is the most important use of the P/E ratio for investors? a) It helps investors decide how much profit a company is likely to make in future. b) It helps investors decide whether a company's shares are overpriced or underpriced. c) It helps investors decide on the most appropriate risk to reward ratio. d) None of the above Ans. b Ques 20.What does a high P/E ratio suggest? a) A company shares are currently overpriced. b) A company shares are currently underpriced. c) No relation d) None of the above Ans. a