CBSE Class 12 Business Studies Financial Management MCQs Set 01

Question:  The Cheapest source of finance is:.

a. Debenture

b. Equity share capital

c. Preference share

d. Retained earnings

Answer: D

Question: A decision to acquire a new and modern plant to upgrade an old one is a

a. Financing decision

b. Working capital decision

c. Investment decision

d. None of the above

Answer: C

Question: Other things remaining the same, an increase in the tax rate on corporate profit will

a. Make the debt relatively cheaper

b. Make the debt relatively the dearer

c. Have no impact on the cost of debt

d. We can’t say

Answer: A

Question: Companies with a higher growth potential are likely to

a. Pay lower dividends

b. Pay higher Dividends

c. Dividends are not affected

d. None of the above

Answer: A

Question: Financial leverage is called favourable if:

a. Return on investment is lower than the cost of debt.

b. ROI is higher than the cost of Debt

c. Debt is easily available.

d. If the degree of existing financial leverage is low.

Answer: B

Question: Higher debt – equity ratio results in:

a. Lower financial risk

b. Higher degree of operating risk

c. Higher degree of financial risk

d. Higher EPS.

Answer: C

Question: Higher Working capital usually results in:

a. Higher current ratio, higher risk and higher profits

b. Lower current ratio, higher risk and profits

c. Higher equity, lower risk and lower profits

d. Lower equity, lower risk and higher profits.

Answer: A

Question: Current assets are those assets which get converted into cash:

a. Within six months

b. Within one year

c. Between one year and three years

d. Between three and five years.

Answer: B

Question: A fixed asset should be financed through:

a. A Long-term liability

b. A Short-term liability

c. A Medium-term liability

d. A Mix of long- and short-term liabilities

Answer: A

Question: Current assets of a business firm should be financed through:

a. Current liability only

b. Long term liability only

c. Fixed liabilities only

d. Both types (i.e., long- and short-term liabilities)

Answer: A