1.
Objective of Financial Management is :
(a) Management of Liquidity,
(b) Maximization of Profit,
(c) Maximization of Shareholders’ Wealth,
(d) Management of Fixed Assets.
2. In Financial Management, cash flow is same thing as :
(a) Cash Profit,
(b) Profit before Tax,
(c) Operating Profit,
(d) None of the above.
3. What is ignored in Principle of Profit Maximization ?
(a) Time Value of Money,
(b) Risk,
(c) Wealth Creation,
(d) All of the above.
4. Which of the following are two basic concepts of financial
management ?
(a) Costs and Expenses,
(b) Risk and Return,
(c) Debit and Credit,
(d) Receipts and Payment.
5. In Financial Management, the term risk refers to :
(a) Chances of Incurring Losses,
(b) Variability of Future Outcome,
(c) Chances of no Return,
(d) None of the above.
6. Financial Management refers to :
(a) Management of Current Assets,
(b) Management of All Assets,
(c) Financial Decision-making,
(d) Management of Liabilities.
7. Which of the following is included in financial decision making ?
(a) Investment Decision,
(b) Financing Decision,
(c) Dividend Decision,
(d) All of the above.
8. Which of the following is considered as complementary to Financial Management ?
(a) Cost Accounting,
(b) Management Accounting,
(c) Financial Accounting,
(d) Corporate Accounting.
9. Maximization of Wealth of Shareholders is reflected in :
(a) Sales Maximization,
(b) No. of Shareholders,
(c) Market Price of Equity Shares,
(d) SENSEX.
10. Which is not a part of Investment Decision in Financial Management ?
(a) Dividend Payout Decision,
(b) Capital Budgeting Decision,
(c) Working Capital Management,
(d) Credit Policy towards Customers.
11. Focal Point in Financial Management is :
(a) Increasing Sales of the firm,
(b) Creating Shareholders’ Value,
(c) Increasing Profit,
(d) Increasing Market Share.
12. Which of the following variables defines and explains the concepts of finance ?
(a) Inflation,
(b) Capital Structure,
(c) Risk-free Rate of interest,
(d) Risk and Return.
13. In a Public Sector Company, the financial goal of the firm is to :
(a) Maximize the Market Price of Equity,
(b) Maximize the Dividends to Govt.,
(c) Maximize the PV of Equity Returns,
(d) None of the above.
14. Maximizing the wealth of the shareholders is reflected in :
(a) Maximizing MP of Equity Shares,
(b) Maximizing Cash Balance,
(c) Maximizing Retained Earnings,
(d) Maximizing Issued Capital.
15. Which of the following is not a function of a finance manager ?
(a) Procurement of Fund,
(b) Allocation of Fund,
(c) Maintaining balance between Risk and Return,
(d) Manoeuvring the Share Price.
16. Market value of the firm is a result of :
(a) Investment Decision,
(b) Financing Decision,
(c) Working Capital Management,
(d) Risk-Return Trade off.
17. Which of the following represents the financing decision ?
(a) Designing Optimal Capital Structure,
(b) Declaring Dividend,
(c) Paying Interest on Loans,
(d) None of the above.
18. Dividend decision is related to :
(a) Right Issue of share,
(b) Reinvestment Requirement,
(c) Cash Flow Statement,
(d) None of the above.
[Answers : 1(c); 2(d); 3(d); 4(b); 5(b); 6(c); 7(d); 8(c); 9(c); 10(a); 11(b); 12(d); 13(c); 14(a); 15(d);
16(d); 17(a); 18(b)]
State whether each of the following statements is True (T) or False (F).
(i) In the traditional approach, the scope of financial management was restricted to procurement of
funds.
(ii) In financial management, the objective of financial manager is profit maximization.
(iii) Financial management refers to financial decision making.
(iv) Over last few decades, the scope of financial management has broadened.
(v) Financial management and financial accounting are essentially same.
(vi) The basic objective of financial manager is the maximization of wealth of shareholders.
(vii) Risk and return are two basic dimensions of any financial decision.
(viii) Financial management interacts with other departments of the firm and determines the future
growth of the firm.
(ix) Profit maximization and wealth maximization are essentially the same thing.
(x) Investment, financing and dividend decisions works collectively to determine the growth of the firm.
[Answers : (i) T, (ii) F, (iii) T, (iv) T, (v) F, (vi) T, (vii) T, (viii) T, (ix) F, (x) T.]
MCQ:
In the following multiple choice questions select the correct answers.
(i) The only viable goal of financial management is
(a) profit maximization (b) wealth maximization
(c) sales maximization (d) assets maximization.
(ii) The basic objective of financial management is
(a) maximisation of profits
(b) maximisation of shareholder’s wealth
(c) ensuring financial discipline in the organization
(d) none of the above.
(iii) Finance function involves
(a) procurement of finance only
(b) expenditure of funds only
(c) safe custody of funds only
(d) procurement and effective utilization of funds.
(iv) The goal of wealth maximization takes into consideration
(a) risk related to uncertainty of returns (b) timing of expected returns
(c) amount of returns expected (d) all the above.
(v) Financial management is mainly concerned with
(a) arrangement of funds
(b) all aspects of acquiring and utilizing means of financial resources for firm’s activities
(c) efficient management of every business
(d) none of the above.
[Answers: (i) b (ii) b (iii) d (iv) d (v) b]
State whether the following statements are TRUE or FALSE.
1. Finance function is limited to supply of funds to the requirements of the organisation.
2. Finance function involves procurement of funds, at economic cost, and their effective utilisation
in business.
3. Financial Management involves receipt and disbursement of cash.
4. Finance function is concerned with all aspects of business operations, where money is involved.
5. The financial management decisions can be classified into four basic kinds¾ Investment Decisions,
Financing Decisions, Liquidity Decisions and Dividend Decisions.
6. Investment decision is concerned with allocating limited resources among the competing
investment alternatives.
7. Cash flows, at different times, carry different values.
8. The finance manager is required to look into the financial implications of every decision in the
firm.
9. It is not the function of finance manager to look to the optimal mix of debt and equity to finance
the investment needs.
10. It is not the job of finance manager to get involved with the change in distribution channel
decision.
11. Finance manager creates problems in decision-making process where money is involved.
12. Market prices of shares in the stock market fall when expectations of shareholders in respect of
dividend declaration are not fulfilled.
13. Board of Directors is the owners of Joint Stock Company.
14. Dividend can be declared by the company in the form of cash or bonus shares.
15. Board of Directors is the final authority to decide the quantum of dividend.
16. Dividend can be declared from the current as well as cumulative profits of an organisation.
17. It is not wise to borrow when interest rate is lower than the return on capital employed.
18. Bonus shares are issued by the company, capitalising profits.
19. Working Capital Management is concerned with management of fixed assets.
Answers
1. False 2. True 3. False 4. True 5. True
6. True 7. True 8. True 9. False
10. False (decision involves financial implication)
11. False 12. True 13. False 14. True 15. False
16. True 17. False 18. True 19. False
Ref: Rustagi,R.P, Fundamentals of Financial Management
Ram Gopal,C, Financial Management
Khan,M.Y, Jain ,P.K, Financial Management
