Financial Management:

Find the correct answers of MCQs

1. The appropriate objective of an enterprise is;

(a)Maximisation of sale (b) Maximisation of owners wealth.

(c)Maximisation of profits. (d) None of these.

2. The job of a finance manager is confined to

(a)Raising funds (b) Management of cash

(c ) Raising of funds and their effective utilization. (d) None of these.

3. Financial decision involve;

(a)Investment ,financing and dividend decision Investment (b) financing and sales
decision (c)Financing , dividend and cash decision (d) None of these.

4. Working Capital Turnover measures the relationship of Working Capital

with: (a)Fixed Assets (b)Sales (c)Purchases (d)Stock.

5. Inventory Turnover measures the relationship of inventory with:

(a)Average Sales (b)Cost of Goods Sold (c)Total Purchases (d) Total Assets

6. Return on Investment may be improved by:

a. Increasing Turnover (b) Reducing Expenses
(c)Increasing Capital Utilization (d)All of the above

7. Suppliers and Creditors of a firm are interested in

a. Profitability Position (b)Liquidity Position
(c)Market Share Position (d) Debt Position

8. Which of the following statements is correct?

a. A Higher Receivable Turnover is not desirable,
b. Interest Coverage Ratio depends upon Tax Rate,
c. Increase in Net Profit Ratio means increase in
Sales,
d. Lower Debt-Equity Ratio means lower Financial Risk

9. In Inventory Turnover calculation, what is taken in the numerator?

(a) Sales (b)Cost of Goods Sold,
(c)Opening Stock (d) Closing Stock.
10. Financial Planning deals with:
a. Preparation of Financial Statements (b)Planning for a Capital Issue
(c) Preparing Budgets (d)All of the above

11. Financial planning starts with the preparation of:

a. Master Budget (b) Cash Budget
(c) Balance Sheet (d)None of the above.

12. Capital Budgeting is a part of:

a. Investment Decision (b) Working Capital Management
(c) Marketing Management (d) Capital Structure

13. Capital Budgeting deals with:

a. Long-term Decisions (b) Short-term Decisions
(c) Both (a) and (b) (d) Neither (a) nor (b)

14. Which of the following is not used in Capital Budgeting?

a. Time Value of Money (b) Sensitivity Analysis
(c) Net Assets Method (d) Cash Flows.

15. Capital Budgeting Decisions are:

a. Reversible (b) Irreversible (c) Unimportant (d)All of the above

16. Which of the following is not incorporated in Capital Budgeting?

a. Tax-Effect (b) Time Value of Money
(c) Required Rate of Return (d) Rate of Cash Discount

17. Which of the following is not a capital budgeting decision?

a. Expansion Programme (b) Merger
(c) Replacement of an Asset (d) Inventory Level

18. Which of the following are a relevant theory of dividend

a. Gorden model (b)M and M theory
(c) Waletrs Model (d) Both (a) and (c) above.

19. Cash Inflows from a project include:

a. Tax Shield of Depreciation (b) After-tax Operating Profits
(c) Raising of Funds (d) Both (a) and (b)
20. Which of the following is not true with reference capital budgeting?
a. Capital budgeting is related to asset replacement decisions,
b. Cost of capital is equal to minimum required return,
c. Existing investment in a project is not treated as sunk cost,
d. Timing of cash flows is relevant.
21. Profitability Index, when applied to Divisible Projects, impliedly assumes that:
a. Project cannot be taken in parts
b. NPV is linearly proportionate to part of the project taken up
c. NPV is additive in nature
d. Both (b) and (c)

22. Risk in Capital budgeting implies that the decision-maker knows of the
cash flows.
a. Variability (b)Probability (c) Certainty (d) None of the above

23. In Certainty-equivalent approach, adjusted cash flows are discounted at:

a. Accounting Rate of Return (b) Internal Rate of Return
(c) Hurdle Rate (d) Risk-free Rate

24. Risk in Capital budgeting is same as:

a. Uncertainty of Cash flows (b) Probability of Cash flows
(c) Certainty of Cash flows (d) Variability of Cash flows

25. Which of the following is a risk factor in capital budgeting?

a. Industry specific risk factors (b) Competition risk factors
(c) Project specific risk factors (d) All of the above

26. In Risk-Adjusted Discount Rate method, the normal rate of discount is:
a. Increased (b) Decreased
(c) Unchanged (d) None of the above

27. Cost of Capital refers to:

a. Flotation Cost (b) Dividend
(c) Required Rate of Return (d) None of the above.

28. Which of the following has the highest cost of capital?

a. Equity shares (b) Loans (c) Bonds (d) Preference shares

29. Weighted Average Cost of Capital is generally denoted by:

a. kA (b) kw (c) k0 (d) kc

30. The term capital structure denotes:

a. Total of Liability side of Balance Sheet,
b. Equity Funds, Preference Capital and Long term Debt
c. Total Shareholders Equity,
d. Types of Capital Issued by a Company.

31. Debt Financing is a cheaper source of finance because of:

a. Time Value of Money (b) Rate of Interest,
(c) Tax-deductibility of Interest (d) Dividends not Payable to lenders.
32. In order to find out cost of equity capital under CAPM, which of the following is
not required:
a. Beta Factor (b) Market Rate of Return,
(c) Market Price of Equity Share (d) Risk-free Rate of Interest.

33. Tax-rate is relevant and important for calculation of specific cost of capital of:
a. Equity Share Capital (b) Preference Share Capital
(c) Debentures (d) (a) and (b) above.

34. Discount rate can be calculated by using -

a. Payback period (b) fake Payback period
(c) internal rate of return (d) None of these

35. Bird in hand' argument is given by

a. Walker's Model (b) Gordon's Model
(c)MM Mode (d) Residuals Theory

36. Risk-Return trade off implies

a. Minimization of Risk, (b) Maximization of Risk,
(c)Ignorance of Risk (d) Optimization of Risk

37. Which of the following is not a spontaneous source of short-term funds ?

(a)Trade credit, (b)Accrued expenses,
(c)Provision for dividend, (d)All of the above.

38. The type of collateral (security) used for short-term loan is

a. Real estate, (b)Plant & Machinery,
(c)Stock of good (d)Equity share capital

39. Which of the following is a liability of a bank?

a. Treasury Bills, (b)Commercial papers,
(c)Certificate of Deposits, (d)Junk Bonds.

40. Commercial paper is a type of

a. Fixed coupon Bond (b)Unsecured short-term debt
(c)Equity share capital, (d) Government Bond

41. Which of the following is related to Receivables Management?

a. Cash Budget (b)Economic Order Quantity,
(c)Ageing schedule (d)All of the above.

42. Receivables Management deals with

a. Receipts of raw materials (b)Debtors collection,
(c) Creditors Management (d)Inventory Management

43. If cash discount is offered to customers, then which of the following would
 increase?
(a)Sales (b)Debtors
(c)Debt collection period (d) All of the above

44. Credit Policy of a firm should involve a trade-off between increased

a. Sales and Increased Profit
b. Profit and Increased Costs of Receivables,
c. Sales and Cost of goods
sold,
d. None of the above.

45. Which of the following is not a technique of receivables

Management? (a)Funds Flow Analysis (b)Ageing Schedule,
(c)Days sales outstanding (d)Collection Matrix.

46. Which of the following is not true of cash budget ?

a. Cash budget indicates timings of short-term
borrowing,
b. Cash budget is based on accrual concept
c. Cash budget is based on cash flow concept
d. Repayment of principal amount of law is shown in
cash budget.

47. Cash Budget does not include

a. Dividend Payable (b)Postal Expenditure,
b. (c) Issue of Capital, (d)Total Sales Figure.

48. If the following is an element of dividend policy?

a. Production capacity, (b) Change in Management,
b. Informational content, (d) Debt service capacity

49. Dividends are paid out of

a. Accumulated Profits (b)Gross Profit
b. Profit after Tax (d)General Reserve

50. Dividend Distribution Tax is payable

by (a)Shareholders to Government
(b)Shareholders to Company
 (c)Company to
Government, (d)Holding to
Subsidiary Company

51. Dividend declared by a company must be paid in

a. 20 days (b)30 days (c)32 days (d)42 days

52. The two concepts in respect of working capital are

(a) Gross working capital (b) Networking capital
(c) Working capital (d) Both (a) &(b)

53. Stock + Debtors + Receivables + Cash=

(a) Gross working capital (b) Networking capital
(c) Working capital (d) None of the above

54. The difference between current assets and current liabilities of a business concern is
–
(a) Gross working capital (b) Networking capital
(c) Working capital (d) none of the above

55. Net Working Capital = Stock + Debtors + Receivables + Cash – Creditors – Payables
(a) Stock + Debtors + Receivables + Cash – Creditors – Payables
(b) Stock + Debtors + Receivables + Cash + Creditors – Payables
(c) Stock + Debtors + Receivables + Cash – Creditors + Payables

(d) None of the above

56. The trade off which an investor faces between

(a) Risk (b) Return
(c) Risk and return (d) none of the above

57. A common source of short-term finance available to all companies.

(a) Trade credit (b) Bank Loans and
Advances
(c) Finance Companies (d) Bridge Loans

58. Loan is taken for a period of two weeks to three years

(a) Trade credit (b) Bank Loans and
Advances
(c) Finance Companies (d) Bridge Loans
59. Circular path of conversion is called as-
(a) Components Approach (b) Operating Cycle
Approach
(c) Finance approach (d) None of the above

60. Types of Cash management

(a) Receivable cash management (b) payable cash
management (c) Both (a) &(b)
(d) None of the above

61. Investment can be defined

a. Person’s dedication to purchasing a house or flat

b. Use of capital on assets to receive returns
c. Usage of money on a production process of products and services
d. Net additions made to the nation’s capital stocks

62. Cost of capital is a ___ concept in financial management.

(A) central
(B) departmental
(C) dual
(D) none of the above
63. In modern times, cost of capital is widely used as basis of ___ .
(A) investment projects
(B) evaluating the alternative sources of finance
(C) both (A) and (B)
(D) none of the above

64. From Investors’ View Point, cost of capital may define as “the measurement of the
____ made by him in capital formation.”
(A) investment
(B) sacrifice
(C) expenditure
(D) none of the above

65. From Firms Point, cost of capital is the minimum ___ required needed to justify the
use of capital.
(A) investment
(B) amount
(C) rate of return
(D) none of the above
66. Cost of capital is that minimum ___, which a firm must and is expected to earn on its
___ so as to maintain the market value of its shares.
(A) investments, rate of return
(B) rate of return, investments
(C) expenditure, rate of return
(D) rate of return, expenditure

67. Cost of capital is also known as

(A) composite cost of capital
(B) weighted average cost of capital
(C) combined cost of capital
(D) all of the above

68. Cost of capital comprises of the following component(s):

(A) The risk less cost of the particular type of financing
(B) The business risk premium
(C) The financial risk premium
(D) All of the above

69. Cost of capital is expressed in terms of ___

(A) percentage
(B) fraction
(C) whole number
(D) any of the above

70. In the Net Present Value (NPV) method, an investment project is accepted, if the
present value of cash inflows are ___ the present value of cash outflow.
(A) less than
(B) greater than
(C) equal to
(D) any of the above

71. If Internal Rate of Return (IRR) technique for capital budgeting evaluation,
investment should be accepted only when cost of capital is ___ the calculated IRR.
(A) less than
(B) greater than
(C) equal to
(D) any of the above

72. If the actual profitability is ___ the projected cost of capital, then the financial
performance may said to be satisfactory.
(A) more than
(B) less than
 (C) equal to
(D) none of the above

73. A ___ is the additional cost incurred to obtain additional funds required by a firm.
(A) average cost
(B) marginal cost
(C) book cost
(D) future cost

74. ___ is also known as component cost of capital.

(A) Future cost
(B) Specific cost
(C) Spot cost
(D) Opportunity cost

75. The costs that are prevailing in the market at a certain time.
(A) Future cost
(B) Specific cost
(C) Spot cost
(D) Opportunity cost

76. The ___ is the benefit that the shareholder foregoes by not putting his/her funds
elsewhere because they have been retained by the management.
(A) opportunity cost
(B) Book cost
(C) Composite cost
(D) Future cost

77. Cost of capital can be ___ .

(A) explicit
(B) implicit
(C) either explicit or implicit
(D) none of the above

78. Computation of explicit cost is almost similar to the computation of ___ , with one
difference.
(A) Internal Rate of Return (IRR)
(B) Net Present Value (NPV)
(C) Both (A) and (B)
(D) None of the above

79. Implicit costs may also be viewed as ___ .

(A) future costs
 (B) historic costs
(C) opportunity costs
(D) marginal costs

80. Investors required rate of return(s) is (are) __ .

(A) dividend
(B) earnings per share on equity shareholders
(C) discount on debt
(D) all of the above

81. Firms may obtain equity capital in

(A) issue of additional equity shares to the public
(B) retention of earnings
(C) both (A) and (B)
(D) none of the above

82. Retained earnings is one of the ___ to raise equity finance.

(A) internal sources
(B) external sources
(C) both internal and external sources
(D) none of the above

83. Dividend capitalization approach has following limitation(s).

(A) It does not take into account the capital gains
(B) It ignores the earnings on retained earnings
(C) It does not consider future earnings
(D) All of the above

84. The advocates of this approach establish a relationship between earnings and market
price of the share.
(A) Earnings Capitalization Approach
(B) Dividends Capitalization Approach
(C) Dividend Capitalization plus Growth Rate Approach
(D) All of the above

85. Earnings capitalization approach has the following limitation(s):

(A) Share price also does not remain constant
(B) Earning per share may not be constant
(C) All earnings are not distributed to the equity shareholders as
dividends
(D) All of the above

86. The realized yield approach is based on the following assumption(s):

 (A) There is no opportunity cost to investors
(B) Firms risk does not change over the period
(C) Market price of equity share does not change significantly
(D) All of the above

87. The cost of preference share capital is a function of the ___ expected by the
investors.
(A) dividend
(B) payment
(C) rate of return
(D) none of the above

88. There are different types of preference shares.

(A) redeemable and irredeemable
(B) convertible and non-convertible
(C) cumulative and non-cumulative
(D) all of the above

89. Retention of earnings involves an ___ cost.

(A) opportunity
(B) spot
(C) future
(D) composite

90. Book value weights are based on the values found on the ___ .
(A) balance sheet
(B) account book
(C) both (A) and (B)
(D) none of the above

91. Following is (are) the controllable factors that affect Weighted average cost of capital
(WACC).
(A) Capital Structure Policy
(B) Dividend Policy
(C) Investment Policy
(D) All of the above

92. Following is (are) the uncontrollable factors that affect Weighted average cost of
capital (WACC).
(A) Tax rates
(B) Level of interest rates
(C) Market risk Premium
(D) All of the above

93. Cost of debt is ___ .

 (A) interest rate
(B) tax rate
(C) market risk premium
(D) all of the above

94. Uncontrollable factors are known as

(A) External factors
(B) Internal factors
(C) both (A) and (B)
(D) none of the above

95. Which of the following is not an objective of cash management ?

a)Maximization of cash balance (b)Minimization of cash balance
(c)Optimization of cash balance (d)Zero cash balance.

96. The concept of Financial management is

A) Profit maximization
B) All features of obtaining and using financial resources for company
operations
C) Organization of funds
D) Effective Management of every company

97. What is the primary goal of financial management?

A) To minimise the risk

B) To maximise the owner’s wealth
C) To maximise the return
D) To raise profit

98. GST is a consumption of goods and service tax based on

A) Development
B) Dividend
C) Destiny
D) Duration
E) Destination

99. The finance manager is accountable for

A) Earning capital assets of the company

B) Effective management of a fund
C) Arrangement of financial resources
 D) Proper utilisation of funds

100. The market value of a share is responsible for

A) The investment market

B) The government
C) Shareholders
The respective companies

101. The capital budget is associated with

A) Long terms and short terms assets

B) Fixed assets
C) Long terms assets
D) Short term assets
102. CAPM stands for

A) Capital asset pricing model.

B) Capital amount printing model.
C) Capital amount pricing model.
D) Capital asset printing model
103. What does financial leverage measure?

A) No change with EBIT and EPS

B) The sensibility of EBIT with % change with respect to output
C) The sensibility of EPS with % change in the EBIT level
% variation in the level of production
104. From the below-mentioned items which are financial assets?

A) Machines
B) Bonds
C) Stocks
D) B and C
105. Which report gives a review on the profitability of a business

A) Statement of changes in equity

B) Cash flow statement
C) Balance sheet
D) Income statement
106. When assets are subtracted from liabilities it will be equal to

A) Capital
 B) Net income
C) Working capital
D) Goodwill

107. Goodwill is categorised under which assets?

A) Intangible
B) Current
C) Long term
D) Fixed
108. Which of the following options is not recorded in the Balance sheet?

A) Cash
B) Rent expenses
C) Building
D) Goodwill
109. Current assets are also known as

A) Cash
B) Assets
C) Invested capital
D) Working capital

110. The main operation expenses of a business are termed as

A) Operating expenses
B) Non-administration expense
C) Selling expenses
D) Administration expense

111. Cash receipt received from the sales fixed assets are registered under the head of

A) Other activities
B) Investing activities
C) Financing activities
D) Operating activities
112. A current asset that can be transferred into cash within three months is known as

A) Cash equivalent
B) Intangible asset
C) Operating asset
D) Cash asset
113. A method used in a comparative analysis of financial statement is

A) Returning analysis
B) Common size analysis
C) Preference analysis
D) Graphical analysis
114. Which statement shows the flow of cash and cash equivalents during the
financial period?

A) Statement of changes in equity

B) Cash flow statement
C) Balance sheet
D) Income statement

115. Statement of cash flows includes

A) Financing Activities
B) Operating Activities
C) Investing Activities
D) All of the Above
116. In cash flows, when a company invests in fixed assets and short-term financial
investments results in

A) Increased Equity
B) Increased Liabilities
C) Decreased Cash
D) Increased Cash
117. A company that issues stocks and bonds to raise funds results in

A) Decrease in Cash
B) Increase in Cash
C) Increase in Equity
D) Increase in Liabilities
118. The purchase value of assets over its serviceable life is categorised as

A) Appreciated Liabilities
B) Appreciated Assets
C) Depreciation
D) Appreciation

119. The basic financial statements include

A) Statement of Cash Flows

 B) Statement of Retained Earnings
C) Balance Sheet and Income Statement
D) All of the Above
120. The statement of cash flow clarifies cash flows according to

A) Operating and Non-operating Flows

B) Inflow and Outflow
C) Investing and Non-operating Flows
D) Operating, Investing, and Financing Activities
121. Cash flow example from a financing activity is

A) Payment of Dividends
B) Receipt of Dividend on Investment
C) Cash Received from Customers
D) Purchase of Fixed Asset
122. Cash flow example from an investing activity is

A) Issue of Debenture
B) Repayment of Long-term Loan
C) Purchase of Raw Materials for Cash
Sale of Investment by Non-Financial Enterprise

123. Cash flow example from an operating activity is

A) Purchase of Own Debenture

B) Sale of Fixed Assets
C) Interest Paid on Term-deposits by a Bank
D) Issue of Equity Share Capital
124. Which item comes under financial activities in cash flow?

A) Redemption of Preference Share

B) Issue of Preference Share
C) Interest Paid
D) All the above

125. The only feasible purpose of financial management is

a) Wealth Maximization
b) Sales Maximization
c) Profit Maximization
d) Assets maximization
126. Financial management process deals with

a) Investments
b) Financing decisions
c) Both a and b
d) None of the above

127. The only feasible purpose of financial management is

a) Wealth Maximization
b) Sales Maximization
c) Profit Maximization
d) Assets maximization

128. Financial management process deals with

a) Investments
b) Financing decisions
c) Both a and b
d) None of the above

129. Agency cost consists of

a) Binding
b) Monitoring
c) Opportunity and structure cost
d) All of the above

130. Finance Function comprises

a) Safe custody of funds only

b) Expenditure of funds only
c) Procurement of finance only
d) Procurement & effective use of funds

131. The objective of wealth maximization takes into account

a) Amount of returns expected

b) Timing of anticipated returns
c) Risk associated with uncertainty of returns
d) All of the above

132. Financial management mainly focuses on

a) Efficient management of every business

b) Brand dimension
c) Arrangement of funds
d) All elements of acquiring and using means of financial resources for
financial activities

133. Which statement is prepared in the process of funds flow analysis?

a) Schedule of changes in working capital

b) Funds Flow Statement
c) Both a and b
d) None of the above

134. Funds Flow Statement is prepared on the basis of data of P&L statement
and two consecutive balance sheets.

a) True
b) False
c) Value delivery
d) None of the above

135. Which of the following rules stands true while preparation of Schedule
of changes in working capital?
a) An increase in current assets increases working capital.
b) An increase in current assets decreases working capital.
c) An increase in current liabilities decreases working capital.
d) An increase in current liabilities increases working capital

136. If reserve for bad and doubtful debts is mentioned in the question of Funds
Flow Statement Preparation, it can be shown as

a) In the schedule by deducting from total debtors under current assets

b) In the schedule separately under the heading of capital liabilities
c) Both a & b
d) None of the above

137. If reserve for bad and doubtful debts is mentioned in the question of Funds Flow
Statement Preparation, it can be shown as
 a) In the schedule by deducting from total debtors under current assets
b) In the schedule separately under the heading of capital liabilities
c) Both a & b
d) None of the above

138. Funds Flow Statement is also known as

a) Statement of Funds Flow

b) Statement of Sources and Application of Funds
c) Statement of Sources and Uses of Funds
d) All of the above
139. Which of the following are sources of funds?

A) Issue of bonus shares

B) Issue of shares against the purchase of fixed assets
C) Conversion of debentures into shares
D) Conversion of loans into shares
a) A and C
b) A and D
c) A, B, C and D
d) None of the above
140. The term ‘Financial Statement’ covers

a) Profit & Loss Statement

b) Balance sheet and Profit & Loss Statement appropriation account
c) Profit & Loss Statement and Balance sheet
d) All of above are false

141. The form of balance sheet is

a) Vertical
b) Horizontal
c) Horizontal and vertical
d) Horizontal or vertical
142. P&L statement is also known as

a) Statement of operations
b) Statement of income
c) Statement of earnings
 d) All of the above

143. Which of the following is true about financial statements?

A) Financial statement gives a summary of accounts.

B) Financial statements can be stated as recorded facts.
a) Only A
b) Only B
c) Both A and B
d) None of the above
144. Which of the following statements are true?

A) Financial statements are only interim report.

B) Financial statements are also known as annual records.
C) Financial statements are historic.
a) Both A and B
b) Both A and C
c) Both B and C
d) A, B, C

145. NPV will be zero when:

a) a. Cash flows are not sufficient to repay capital invested
b) b. Cash flows are more than the capital invested
c) c. Cash flows are sufficient to repay capital invested
146. Net Present Value is a technique of:
d) a. Capital budgeting
e) b. Revenue recognition
f) c. Prudence concept
g) d. none of the above

147. The discount rate to discount cash flows is a measure of:

a. Interest rate
b. Inflation rate
c. Opportunity cost of capital
d. None of the above

148. You will undertake a project, if its NPV is:

a. Zero
b. Positive
c. Negative
 d. none of the above

149. The most reliable method for evaluating capital budgets is:
a. IRR
b. NPV
c. ARR
d. none of the above

150. Present Value of future cash flows depends upon:

a. Length of the project
b. Interest rate
c. Profit level
d. None of the above.