1.

The difference between current assets and current liabilities is known as:
Select the correct option
Current Ratio
Net Working Capital
Short-term Ratio
Surplus Asset

The correct option is: Net Working Capital

Net Working Capital (NWC) is calculated as the difference between current assets and current

What would happen if a firm pays to its short-term creditors? Before this transaction current ratio
of the firm was 2:1 and quick ratio 1.5:1. Select the correct option
Current ratio decreases
Current ratio increases
Quick ratio decreases
No effect on quick and current ratio

The correct option is: No effect on quick and current ratio

Explanation: If a firm pays its short-term creditors (e.g., accounts payable) using its current
assets (e.g., cash or bank), the total current assets and current liabilities decrease by the same
amount.

 Current Ratio: Since both the numerator (current assets) and denominator (current
liabilities) decrease proportionately, the ratio remains unchanged.
 Quick Ratio: This is also unaffected because the payment does not impact quick assets
(cash and equivalents, accounts receivable, etc.) relative to current liabilities.

A company having a current ratio of 1 will have __________ net working capital.
Select the correct option
None of the given options
zero
Negative
Positive

The correct option is: Zero

Explanation:

 Current Ratio = 1 implies that Current Assets = Current Liabilities.

 Net Working Capital (NWC) is calculated as:
Net Working Capital=Current Assets−Current Liabilities\text{Net Working Capital} = \
text{Current Assets} - \text{Current
Liabilities}Net Working Capital=Current Assets−Current Liabilities
  If Current Assets and Current Liabilities are equal, then: Net Working Capital=0\text{Net
Working Capital} = 0Net Working Capital=0

Hence, a company with a current ratio of 1 will have zero net working capital.

The income statement of a company shows earnings before interest & tax (EBIT) of Rs. 5,000
and interest 4,000. What would be the cash coverage ratio if depreciation is Rs. 3,000?
Select the correct option
1/2 times
3 times
2 times
1.25 times

The Cash Coverage Ratio is calculated using the formula:

Cash Coverage Ratio=EBIT+ Depreciation Interest\text{Cash Coverage Ratio} = \frac{\

text{EBIT} + \text{Depreciation}}{\
text{Interest}}Cash Coverage Ratio=InterestEBIT+Depreciation

Given:

 EBIT = Rs. 5,000

 Depreciation = Rs. 3,000
 Interest = Rs. 4,000

Calculation:

Cash Coverage Ratio=5,000+3,0004,000\text{Cash Coverage Ratio} = \frac{5,000 + 3,000}

{4,000}Cash Coverage Ratio=4,0005,000+3,000 Cash Coverage Ratio=8,000/4,000=2 times\
text{Cash Coverage Ratio} = \frac{8,000}{4,000} = 2 \, \
text{times}Cash Coverage Ratio=4,0008,000=2times

Correct Option:

2 times

Which of the following issue is NOT covered by “Investment” area of finance?

Select the correct option
Best mixture of financial investment
Pricing financial assets
Associated risks and rewards
International aspects of corporate finance

The correct option is: International aspects of corporate finance

Explanation:
The "Investment" area of finance primarily deals with:

1. Best mixture of financial investments: Determining the optimal portfolio composition.

2. Pricing financial assets: Understanding how securities like stocks and bonds are valued.
3. Associated risks and rewards: Assessing risk-return trade-offs for different investment
opportunities.

On the other hand, "International aspects of corporate finance" falls under the corporate
finance area, not the investment area. It deals with managing a firm's finances across borders,
including foreign exchange risks, international funding, and global investment decisions.

1In which of the following type of annuity, cash flows occur at the beginning of each period?
Select the correct option
Ordinary annuity
Annuity due
Perpetuity
None of the given options

The correct option is: Annuity due

Explanation:

 In an annuity due, cash flows occur at the beginning of each period.

Example: Rent payments are often structured as annuities due since they are paid at the
start of the rental period.
 In contrast:
o Ordinary annuity: Cash flows occur at the end of each period.
o Perpetuity: A series of cash flows continues indefinitely, with no specified end.

Thus, the correct answer is Annuity due.

Which of the following is a series of constant cash flows that occur at the end of each period for
some fixed number of periods? Select the correct option
Ordinary annuity
None of the given options
Perpetuity
Annuity due

The correct option is: Ordinary annuity

Explanation:

 An ordinary annuity is a series of constant cash flows that occur at the end of each
period for a fixed number of periods.
Example: Loan payments or bond coupon payments typically follow this structure.
 In contrast:
 o Annuity due: Cash flows occur at the beginning of each period.
o Perpetuity: Cash flows continue indefinitely, with no fixed end.

Thus, the correct answer is Ordinary annuity.

Which of the following is NOT the advantage of “Sole proprietorship”? Select the correct option
Least regulated
None of the given options
Limited to life of the owner
Taxed once as personal income

The correct option is: Limited to life of the owner

Explanation:

The statement "Limited to life of the owner" is a disadvantage, not an advantage, of a sole
proprietorship. This is because the business ceases to exist upon the owner's death or inability to
manage it.

On the other hand, the following are advantages of a sole proprietorship:

1. Least regulated: It is simple to establish and operate, with minimal regulatory

requirements.
2. Taxed once as personal income: Profits are reported on the owner's personal income tax
return, avoiding double taxation.

Thus, "Limited to life of the owner" is NOT an advantage.

Which one of the following set of ratios is intended to measure how efficiently the firm uses its
assets and how efficiently the firm manages its operations? Select the correct option
Financial leverage ratios
Liquidity ratios
Profitability ratios
Turnover ratios

The correct option is: Turnover ratios

Explanation:

 Turnover ratios are designed to measure how efficiently a firm uses its assets and
manages its operations. These ratios assess the speed at which assets are converted into
sales or cash. Examples include:
o Inventory Turnover Ratio: Measures how quickly inventory is sold.
o Receivables Turnover Ratio: Measures how efficiently receivables are collected.
o Asset Turnover Ratio: Measures how efficiently the firm uses its total assets to
generate sales.
Other Ratios:

1. Financial Leverage Ratios: Measure the firm’s use of debt to finance assets (e.g., Debt-
to-Equity Ratio).
2. Liquidity Ratios: Assess the firm’s ability to meet short-term obligations (e.g., Current
Ratio, Quick Ratio).
3. Profitability Ratios: Evaluate the firm’s ability to generate profit (e.g., Net Profit
Margin, Return on Assets).

Thus, Turnover ratios are the correct answer.

Business Finance addresses which of the following? Select the correct option
All of the given options
Capital budgeting
Capital structure
Working capital management

The correct option is: All of the given options

Explanation:

Business Finance addresses all the following areas:

1. Capital budgeting: The process of evaluating and selecting long-term investments or

projects, such as purchasing new equipment or launching a new product line.
2. Capital structure: The mix of debt and equity financing used by a company to fund its
operations and growth.
3. Working capital management: The management of a company's short-term assets and
liabilities to ensure it has sufficient liquidity to run day-to-day operations.

Since all of these areas are part of business finance, the correct answer is All of the given
options.