CBSE Class 12 Business Studies Financial Management MCQs Set 02

Question: Purchasing a new machine to replace an existing one is an example of
(a) Financing decision
(b) Dividend decision
(c) Working capital decision
(d) Capital budgeting decision

Answer : D

Question: The main objective of financial planning is to ensure that_________
(a) Enough funds are available at the right time
(b) Dividend is paid to shareholders on the right time
(c) Purchase of raw material
(d) Purchase of fixed assets

Answer : A

Question: The inability of a business to meet its fixed financial obligations, like payment of interest, is known as
(a) Business risk
(b) Financial risk
(c) Long-term risk
(d) Market risk

Answer : B

Question: _____ is the decision related to composition of capital structure & also depends upon ability of the business to generate cash.
(a) Market condition
(b) Flexibility
(c) Cash flow ability
(d) Control

Answer : C

Question: When the stock market is bearish, a company may depend upon in order to raise the required funds.
(a) Debentures
(b) Equity shares
(c) Preference shares
(d) All of the options

Answer : A

Question: As the financial leverage of a company increases, it leads to
(a) A decline in the cost of funds but an increase in the financial risk
(b) An increase in the cost of funds but a decline in the financial risk
(c) Both an increase in the cost of funds and financial risk
(d) Both a decline in the cost of funds and financial risk

Answer : A

Question: The size of assets, the profitability and competitiveness are all affected by
(a) Working capital decision
(b) Capital budgeting decision
(c) Financing decision
(d) Dividend decision

Answer : B

Question: Name the financial decision which relates to disposal of profits.
(a) Investment decision
(b) Financing decision
(c) Dividend decision
(d) Capital budgeting decision

Answer : C

Question: The short-term financial plans are known as
(a) Objectives
(b) Budgets
(c) Programs
(d) Policies

Answer : B

Question: Under which of the following situations a company should not issue debt capital?
(a) When the cash flow condition of the company is strong.
(b) When the rate of tax is low.
(c) When the return on investment is high.
(d) When the interest coverage ratio is high.

Answer : B

Question: Which of the following is not a feature of a financial plan?
(a) Simplicity
(b) Cost
(c) Flexibility
(d) Foresight

Answer : B

Question: Financial Management is mainly concerned with ______________.
(a) All aspects of acquiring and utilizing financial resources for firms activities.
(b) Arrangement of funds.
(c) Efficient Management of every business.
(d) Profit maximization

Answer : A

Question: Arrange the following steps involved in the process of financial planning in the correct sequence.
(a) Estimation of expected profit, Preparation of a sales forecast, Preparation of financial statements
(b) Preparation of a sales forecast, Preparation of financial statements, Estimation of expected profit
(c) Preparation of a sales forecast, Estimation of expected profit, Preparation of financial statements
(d) Preparation of financial statements, Estimation of expected profit, Preparation of a sales forecast

Answer : B

Question: This decision is about the quantum of finance to be raised from various long-term sources.
(a) Investment decision
(b) Financing decision
(c) Dividend decision
(d) Capital budgeting decision

Answer : B

Question: Name the decision which affects both the profitability and the financial risk.
(a) Financial planning decision
(b) Capital budgeting decision
(c) Capital structure decision
(d) All of the options

Answer : C

Question: The cheapest source of finance is:
(a) Preference share
(b) Retained earning
(c) Equity share capital
(d) Debenture

Answer : B

Question: The financial plans are drawn by taking into consideration
(a) Growth prospects
(b) Performance of the organisation –
(c) Investments
(d) All of the options

Answer : D

Question: _________ refers to planning regarding financial needs of the enterprise various sources of raising funds and their optimum utilization.
(a) Financial planning
(b) Capital structure
(c) Financial management
(d) All of the options

Answer : A

Question: If in a particular situation, the earnings per share (EPS) falls with the increased use of debt, it indicates that
(a) The rate of return on investment (Rol) is less than the cost of debt.
(b) The rate of return on investment is more than the cost of debt.
(c) The cost of debt is less than the rate of return on investment.
(d) None of the options

Answer : A

Question: Which of the following affects capital budgeting decision?
(a) Investment Criteria and interest rate
(b) Rate of Return
(c) Cash Flow of the Project
(d) All of the options

Answer : D

Question: A higher financial leverage ratio indicates that
(a) The dependency of the firm on the debt is more.
(b) The dependency of the firm on the debt is less.
(c) The proportion of equity in the total capital is high.
(d) None of the options

Answer : A

Question: Higher working capital usually results in:
(a) Higher equity, lower risk and lower profits
(b) Lower current ratio, higher risk and profits
(c) Lower equity, lower risk and higher profits
(d) Higher current ratio, higher risk and higher profits

Answer : D

Question: Under which of the following circumstances the fixed capital requirement of a business is not likely to be high?
(a) When the raw material is not easily available
(b) Capital intensive techniques of production are used
(c) The growth prospects of a company a high
(d) When the financial alternatives are easily available

Answer : D

Question: Which of the following affects the Dividend Decision of a company?
(a) Earnings
(b) Cash Flow Position
(c) Taxation Policy
(d) All of the options

Answer : D

Question: This decision relates to how the firm’s funds are invested in different assets,
(a) Investment decision
(b) Financing decision
(c) Dividend decision
(d) None of the options

Answer : A

Question: Which of the following factors affect financial decision?
(a) Cost
(b) Risk
(c) Cash flow position
(d) All of the options

Answer : D

Question: Dev has two projects A and B in hand. The same amount of risk is involved in both the projects. If the rate of return of project A and B is 20% and 15% respectively, then under normal circumstance, which of the two projects is likely to be selected?
(a) Project A
(b) Project B
(c) Both project A and project B
(d) None of the options

Answer : A

Question: Under which of the following situations a company is not likely to issue equity capital?
(a) When the debt service coverage ratio is high.
(b) When the interest coverage ratio is high.
(c) When the cost of debt capital is low.
(d) All of the options

Answer : D

Question: A decision to acquire a new and modern plant to upgrade an old one is a:
(a) Investment decision
(b) Working capital decision
(c) Financing Decision
(d) None of the options

Answer : A

Question: Which of the following is not a source of borrowed funds?
(a) Loan from financial institutions
(b) Debentures
(c) Retained earnings
(d) Public deposits

Answer : C

Question: Which of the following is not concerned with the Long term investment decision
(a) Management of fixed capital
(b) Inventory management
(c) Research and Development Programme
(d) Opening a new branch

Answer : B

Question: Rate of return on capital is exceptionally high in
(a) Under – capitalization
(b) Over – capitalization
(c) Working capital
(d) Fixed capital

Answer : A

Question: Which of the following is not a part of owners’ funds?
(a) Equity shares
(b) Reserves and surplus
(c) Debentures
(d) Preference shares

Answer : C

Question: Financial management is concerned with managerial activities relating to
(a) Planning
(b) Procurement and administration of funds
(c) Optimum utilization of funds
(d) All of the options

Answer : D

Question: Cost of advertising and printing prospectus is called__________
(a) Floatation cost
(b) Debt cost
(c) Equity cost
(d) Dividend cost

Answer : A

Question: Which of the following statements is not true?
(a) Increased use of debt increases the financial risk of a business.
(b) Increased use of debt decreases the financial risk of a business.
(c) Decrease in use of debt increases the financial risk of a business.
(d) None of the options

Answer : B

Question: It is essentially the preparation of a financial blueprint of an organisation’s future operations. Identify the related concept.
(a) Financial management
(b) Financial planning
(c) Capital budgeting decisions
(d) Dividend decision

Answer : B

Question: Financial planning arrives at:
(a) Doing only what is possible with the funds that the firms has at its disposal
(b) Entering that the firm always have significantly more funds than required so that there is no paucity of funds
(c) Minimising the external borrowing by resorting to equity issues
(d) Ensuring that the firm faces neither a shortage nor a glut of unusable funds

Answer : D

Question: Under which of the following circumstances a company is not likely to declare a higher dividend?
(a) When the earnings of the company are high
(b) When a company has a lucrative forthcoming business opportunity
(c) When the cash flow position of the company is strong
(d) None of the options

Answer : B

Question: While taking a loan from a financial institution, Lokesh Enterprises signed an agreement that they shall not pay dividend to its shareholder more than 15% until the loan is repaid, or dividend shall not be declared if the liquidity ratio is found to be less than 1:1. Identify the factor related to dividend decision being described in the above case.
(a) Access to capital market
(b) Preferences of shareholders
(c) Contractual constraints
(d) Legal constraints

Answer : C

Question: Which of the factors affect dividend decisions?
(a) Preference of shareholders
(b) Earning
(c) Stability of dividend
(d) All of the options

Answer : D

Question: These decisions affect the liquidity as well as profitability of a business.
(a) Capital budgeting decision
(b) Financing decision
(c) Working capital decision
(d) Dividend decision

Answer : C

Question: A company is likely to declare higher dividends if
(a) Tax rates are high
(b) Tax rates are relatively lower
(c) Tax rate has no effect on dividend declaration
(d) None of the options

Answer : B