FOUNDATIONS OF BUSINESS FINANCE (PEREGRINE)
QUESTIONS AND CORRECT ANSWERS (VERIFIED
ANSWERS) PLUS RATIONALES 2026 Q&A | INSTANT
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1. Which of the following best describes the primary goal of
financial management?
A. Maximizing sales
B. Minimizing costs
C. Maximizing shareholder wealth
D. Increasing market share
Rationale: The main objective of financial management is to
maximize the value of the firm to its shareholders through long-
term profitability and value creation.
2. The balance sheet equation is:
A. Assets + Liabilities = Equity
B. Assets = Liabilities + Equity
C. Assets = Liabilities − Equity
D. Assets − Liabilities = Equity
Rationale: The balance sheet reflects a firm’s financial position
where assets are funded by liabilities and equity.
,3. Which of the following is considered a current asset?
A. Buildings
B. Accounts receivable
C. Bonds payable
D. Patents
Rationale: Accounts receivable are short-term assets expected
to be converted to cash within a year.
4. Which financial statement shows a company’s profitability
over a period?
A. Balance sheet
B. Income statement
C. Cash flow statement
D. Statement of retained earnings
Rationale: The income statement summarizes revenues and
expenses to show net income over a specific period.
5. Depreciation is classified as what type of expense?
A. Cash expense
B. Non-cash expense
C. Operating cash outflow
D. Financing expense
,Rationale: Depreciation reduces taxable income but doesn’t
involve actual cash flow.
6. Which financial ratio measures a firm's liquidity?
A. Debt-to-equity ratio
B. Current ratio
C. Return on equity
D. Profit margin
Rationale: The current ratio compares current assets to current
liabilities to assess liquidity.
7. The cost of capital represents:
A. The price of issuing equity
B. The return investors require for providing funds
C. The accounting cost of operations
D. The book value of liabilities
Rationale: Cost of capital is the return required by investors for
investing in a business.
8. Which of the following would decrease a company's
working capital?
, A. Selling stock
B. Paying off short-term debt
C. Purchasing inventory on credit
D. Collecting receivables
Rationale: Purchasing inventory increases current assets but
also increases liabilities, which can reduce net working capital.
9. Which principle states that a dollar today is worth more
than a dollar tomorrow?
A. Compounding principle
B. Time value of money
C. Liquidity principle
D. Risk-return tradeoff
Rationale: Time value of money recognizes that money now has
more earning potential than in the future.
10. The discount rate used in present value calculations
represents:
A. The inflation rate
B. The required rate of return
C. The growth rate
D. The depreciation rate
QUESTIONS AND CORRECT ANSWERS (VERIFIED
ANSWERS) PLUS RATIONALES 2026 Q&A | INSTANT
DOWNLOAD PDF
1. Which of the following best describes the primary goal of
financial management?
A. Maximizing sales
B. Minimizing costs
C. Maximizing shareholder wealth
D. Increasing market share
Rationale: The main objective of financial management is to
maximize the value of the firm to its shareholders through long-
term profitability and value creation.
2. The balance sheet equation is:
A. Assets + Liabilities = Equity
B. Assets = Liabilities + Equity
C. Assets = Liabilities − Equity
D. Assets − Liabilities = Equity
Rationale: The balance sheet reflects a firm’s financial position
where assets are funded by liabilities and equity.
,3. Which of the following is considered a current asset?
A. Buildings
B. Accounts receivable
C. Bonds payable
D. Patents
Rationale: Accounts receivable are short-term assets expected
to be converted to cash within a year.
4. Which financial statement shows a company’s profitability
over a period?
A. Balance sheet
B. Income statement
C. Cash flow statement
D. Statement of retained earnings
Rationale: The income statement summarizes revenues and
expenses to show net income over a specific period.
5. Depreciation is classified as what type of expense?
A. Cash expense
B. Non-cash expense
C. Operating cash outflow
D. Financing expense
,Rationale: Depreciation reduces taxable income but doesn’t
involve actual cash flow.
6. Which financial ratio measures a firm's liquidity?
A. Debt-to-equity ratio
B. Current ratio
C. Return on equity
D. Profit margin
Rationale: The current ratio compares current assets to current
liabilities to assess liquidity.
7. The cost of capital represents:
A. The price of issuing equity
B. The return investors require for providing funds
C. The accounting cost of operations
D. The book value of liabilities
Rationale: Cost of capital is the return required by investors for
investing in a business.
8. Which of the following would decrease a company's
working capital?
, A. Selling stock
B. Paying off short-term debt
C. Purchasing inventory on credit
D. Collecting receivables
Rationale: Purchasing inventory increases current assets but
also increases liabilities, which can reduce net working capital.
9. Which principle states that a dollar today is worth more
than a dollar tomorrow?
A. Compounding principle
B. Time value of money
C. Liquidity principle
D. Risk-return tradeoff
Rationale: Time value of money recognizes that money now has
more earning potential than in the future.
10. The discount rate used in present value calculations
represents:
A. The inflation rate
B. The required rate of return
C. The growth rate
D. The depreciation rate
