CBSE Class 12 Business Studies Financial Management MCQs Set C

Question: Which of the following is not an objective of financial planning?
(a) Ensuring enough funds are available at the right time
(b) Ensuring excess availability of funds at the right time
(c) Ensuring smooth business operations
(d) All of the options

Answer : B

Question: A company must adhere to the provisions of the Companies Act while taking the dividend decision. Identify the related factor of dividend decision being mentioned in the above line.
(a) Contractual constraints
(b) Legal constraints
(c) Access to capital market
(d) Preferences of shareholders

Answer : B

Question: Which of the following is not an importance of financial planning?
(a) It helps in avoiding business shocks and surprises.
(b) If helps in co-ordinating various business functions.
(c) If helps to reduce waste, duplication of efforts and gaps in planning.
(d) It tries to delink the present with the future.

Answer : D

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

Answer : D

Question: If a company is borrowing funds @ 10% and the tax rate is 30%, the after-tax cost of debt is only
(a) 10%
(b) 3%
(c) 20%
(d) 7%

Answer : D

Question: _____ refers to the structure of total capital funds raised by the company.
(a) Fixed capital
(b) Capital structure
(c) Capital requirements
(d) Under capitalization

Answer : B

Question: Financial Management aims at
(a) Reducing the cost of funds procured
(b) Keeping the risk under control
(c) Achieving effective deployment of such funds
(d) All of the options

Answer : D

Question: Which of the following is not a financial Decision?
(a) Financing Decision
(b) Investment Decision
(c) Staffing Decision
(d) Dividend Decision

Answer : C

Question: In order to raise an additional capital of ?50 lacs, Yudhister Limited has used debt because
(a) Increased use of debt lowers the overall cost of capital
(b) Decrease in use of debt lowers overall cost of capital
(c) Increase in use of debt increases the overall cost of capital
(d) None of the options

Answer : A

Question: Higher debt-equity ratio results in:
(a) Higher degree of financial risk
(b) Higher degree of operating risk
(c) Higher EPS
(d) Lower financial risk

Answer : A

Question: If the rate of return on investment for a company is 16%, a situation of unfavourable financial leverage will be said to arise when the rate of interest payable on debt capital is
(a) More than 16 %
(b) Less than 16 %
(c) Equal to 16%
(d) None of the options

Answer : A

Question: The working capital requirement of a business is not likely to be low when
(a) The scale of the business operation is small
(b) When the growth prospects of the business are high
(c) When the raw material is easily available
(d) When the rate of inflation is low

Answer : B

Question: Long term investment decision is also known as _____________
(a) Capital Budgeting
(b) Working Capital
(c) Dividend Decision
(d) None of the options

Answer : A

Question: Which of the following is not a tangible asset?
(a) Machinery
(b) Trademarks
(c) Factories
(d) Offices

Answer : B

Question: Primary aim of financial management is to
(a) Maximise shareholder’s wealth
(b) Wealth maximisation concept
(c) Maximisation of the market value of equity shares
(d) All of the options

Answer : D

Question: Short-term Investment Decision is also known as ____
(a) Working capital
(b) Dividend Decision
(c) Capital Budgeting
(d) None of the options

Answer : A

Question: The overall financial risk depends upon the
(a) Proportion of debt in the total capital
(b) Proportion of equity in the total capital
(c) Both of the above
(d) None of the options

Answer : A

Question: Under which of the following conditions the fixed capital requirements of a business is not likely to below?
(a) When the raw material is easily available
(b) When the labour intensive production technique is used
(c) When the level of collaboration is low
(d) When the growth prospects of the firm are low

Answer : C

Question: Short term investment decisions affect the ___________
(a) Purchase of fixed assets
(b) Long term profitability
(c) Day to Day working of business
(d) Large amount of funds for future

Answer : C

Question: This decision determines the overall cost of capital and the financial risk of the enterprise,
(a) Dividend decision
(b) Capital budgeting decision
(c) Investment decision
(d) Financing decision

Answer : D

Question: Higher dividend per share is associated with:
(a) High earnings, high cash flows, stable earnings and high growth opportunities
(b) High earnings, high cash flows, stable earnings and lower growth opportunities
(c) High earnings, low cash flows, stable earnings and lower growth opportunities
(d) High earning, high cash flows, unstable earnings and higher growth opportunities

Answer : B

Question: Which of the following sources of capital should not be selected by a business if its fixed cost is high?
(a) Equity shares
(b) Preference shares
(c) Debentures
(d) All of the options

Answer : C

Question: Favourable financial leverage is a situation where _____
(a) ROI is higher than the rate of interest on debt
(b) ROI is Equal to the Rate of interest on debt
(c) ROI is lower than the rate of interest on debt
(d) None of the options

Answer : A

Question: Amber Limited has been experiencing a downfall in its popularity, due to growing competition. Also the company doesn’t see any forthcoming viable business expansion opportunities in the near future. So the management of the company has decided to declare high dividends for the current financial year. Identify the factor related to dividend decision being described above.
(a) Cash flow position
(b) Growth opportunities
(c) Stability of earnings
(d) Stability of dividends

Answer : B

Question: Shareholders funds refer to ________________
(a) Share capital
(b) Surpluses and Retained Earnings
(c) Reserves
(d) All of the options

Answer : D

Question: Gamble Limited is a company dealing in healthcare products. The company is earning high profits but is short on cash, so it has decided to declare less dividends in the current financial year. Identify the factor related to dividend decision being described in the above lines.
(a) Preference of shareholders
(b) Earning
(c) Cash flow position
(d) Contractual constraints

Answer : C

Question: Name the process that enables the management to foresee the fund requirements, both the quantum as well as the timing.
(a) Financial management
(b) Capital budgeting decisions
(c) Dividend decision
(d) Financial planning

Answer : D

Question: Financial leverage is called favourable if:
(a) Return on Investment is lower than the cost of debt
(b) If the degree of existing financial leverage is low
(c) Debt is easily available
(d) ROI is higher than the cost of debt

Answer : D

Question: Kapil Limited is a company dealing in ready-to-eat food products. Over the years, the earning potential of the company has gone up and it enjoys a good reputation. The Financial Manager is confident of the fact that not just the earnings of the current year, but of our future years are likely to be high. Identify the related factor of dividend decision being described in the given lines.
(a) Earnings
(b) Stability of earnings
(c) Stability of dividend
(d) Growth prospects

Answer : C

Question: A fixed asset should be financed through:
(a) A long-term liability
(b) A short-term liability
(c) A mix of long and short-term liabilities
(d) None of the options

Answer : A

Question: Which of the following statements is not true?
(a) The cost of debt is higher than cost of equity.
(b) The lender’s risk is lower then equity shareholder’s risk.
(c) The interest paid on debt is treated as a tax deductible expense.
(d) None of the options

Answer : A

Question: Current assets of a business firm should be financed through:
(a) Current liability only
(b) Long-term liability only
(c) Both of the above
(d) None of the options

Answer : C

Question: Lalit, an experienced stock broker advised his client Prabhu to invest in the shares of Blue Angel Limited, as the company has declared high dividends since an increase in dividend is perceived as a good news and stock prices react positively to it. Identify the related factor of dividend decision being described in the above lines.
(a) Tax rate
(b) Growth prospects
(c) Stock market reactions
(d) Access to capital markets

Answer : C

Question: When the stock market index is rising, a company may issue in order to meet its financial requirements.
(a) Debentures
(b) Bonds
(c) Equity shares
(d) None of the options

Answer : C

Question: Other things remaining the same, an increase in the tax rate on corporate profits will:
(a) Make the debt relatively cheaper
(b) Make the debt relatively the dearer
(c) Have no impact on the cost of debt
(d) None of the options

Answer : A

Question: The working capital requirement of a business is not likely to be high when?
(a) The nature of business is trading
(b) Scale of operation of business is small
(c) It is difficult to procure raw material
(d) The rate of inflation is low

Answer : C

Question: Business finance is needed to
(a) Establish a business
(b) Run a business
(c) Expand a business
(d) All of the options

Answer : D

Question: The primary goal of the financial management is ____________.
(a) To maximize the return
(b) To minimize the risk
(c) To maximize the wealth of owners
(d) To maximize profit

Answer : C

Question: When does the earnings per share (EPS) rise with higher debt?
(a) When the rate of return on investment is higher than the rate of interest.
(b) When the rate of return on investment is lower than the rate of interest.
(c) When the rate of interest is more than the rate of return.
(d) None of the options.

Answer : A

Question: The total capital of Uranium Private Limited is ?50 lacs. The amount of debt is ?20 lacs. The company has earned a profit of ^10 lacs during the current financial year. Its return on investment (ROI) for the present year is
(a) 20%
(b) 40%
(c) 10%
(d) 80%

Answer : A

Question: Which of the following statements is not true with regard to use of fixed capital?
(a) It affects the long term growth of the business.
(b) Large amount of funds are involved.
(c) The business risk involved is low.
(d) The investment decisions are irreversible.

Answer : C

Question: Companies with a higher growth pattern are likely to:
(a) Dividends are not affected by growth considerations
(b) Pay higher dividends
(c) Pay lower dividends
(d) None of the options

Answer : C