CUET Business Studies MCQs Unit IX Business Finance

Question:  The Cheapest source of finance is:.

a. Debenture

b. Equity share capital

c. Preference share

d. Retained earnings

Answer: D

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: 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: 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: 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 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

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: 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: 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: 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: Primary and Secondary Markets

a. Compete with each other

b. Complement each other

c. Function independently

d. Control each other

Answer: B

Question: Treasury Bills are basically

a. An instrument to borrow short term funds

b. An instrument to borrow long term funds

c. An instrument of capital market

d. None of the above.

Answer: A

Question: Which of the following is the method of collecting capital?

a. Public offer

b. Offer for sale

c. Private Placement

d. All of the above

Answer: C

Question: Total number of stock exchanges in India are

a. 25

b. 21

c. 22

d. 23

Answer: A

Question: Educating the investor is the ____________ function of SEBI.

a. Protective

b. Regulatory

c. Both the a and b

d. Developmental.

Answer: A

Question:  Which of the following takes advantage of the internal trading?

a. All shareholders

b. All Debenture holders

c. People having secret information of the company

d. All the employees

Answer: C

Question: The settlement cycle in NSE is

a. T+5

b. T+3

c. T+2

d. T+1

Answer: C

Question: Certain instruments of money market is short self-liquidating & used to finance credit sales name the instruments:

a. Call Money

b. Certificate of Deposit

c. Commercial Bill

d. Treasury Bill

Answer: C

Question: National Stock Exchange in India was recognized as stock exchange in the year.

a. 1992

b. 1993

c. 1994

d. 1995

Answer: B

Question: Which of the following falls in the category of Zero Coupon Bond?

a. Treasury Bill

b. Commercial Paper

c. Certificate of Deposit

d. Commercial Bill

Answer: A

Question: The cheapest source of finance is
a. debenture
b. equity share capital
c. preference share
d. retained earnings

Answer: D

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: Current assets are those assets which get converted into cash
a. within six months
b. within one year
c. between one and three years
d. between three and five years

Answer: B

Question: Current assets of a business firm should be financed through
a. current liability only
b. long-term liability only
c. both types (i.e. long and short-term liabilities)
d. None of the above

Answer: C

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

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. we can’t say

Answer: A

Question: The risk of default on payment of borrowed funds is known as
a. operating risk
b. financial risk
c. business risk
d. None of these

Answer: B

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 above

Answer: A

Question: Financial management helps in
a. reducing the cost of funds
b. keeping the risks under control
c. achieving effective deployment of funds
d. All of the above

Answer: D

Question: Financial planning helps in
a. running the business smoothly by forecasting
b. avoiding business shocks and surprises
c. coordinating various business functions
d. All of the above

Answer: D

Question: In financial management, the procurement of funds is done for
a. long-term needs only
b. short-term needs only
c. Both a. and b.
d. maximising risks

Answer: C

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: Dividend is that portion of profit, which is distributed to the shareholders and undistributed profit which remains in the business is known as
a. earning
b. equity
c. retained earnings
d. interest

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: To maximise the wealth of owners (i.e. shareholders) means
a. to minimise the risk of the shareholders
b. to maximise the shares of shareholders
c. to maximise the current price of equity shares of the company
d. to minimise the tax in the hands of shareholders

Answer: C

Question: Financial planning arrives at
a. minimising the external borrowing by resorting to equity issues
b. entering that the firm always have significantly more fund than required so that there is no paucity of funds
c. ensuring that the firm faces neither a shortage nor a glut of unusable funds
d. doing only what is possible with the funds that the firms has at its disposal

Answer: C

Question: In which case, a company should go to opt for equity rather than debt?
a. If the stock market is rising
b. If the firm has higher operating cost
c. If cash flow position is stronger
d. Both a. and b.

Answer: D

Question: The objective of financial planning is
a. to ensure timely availability of funds
b. to avoid idle funds
c. Both a. and b.
d. to maximise financial costs

Answer: C

Question: Short-term plans are also known as ………… and are made for a period of…………. .
a. capital budgeting programs, two years
b. capital budgeting programs, one year or less
c. budgets, two years
d. budgets, one year or less

Answer: D

Question: Debt is considered to be cheaper than equity because for borrowers, interest on debentures is a .............. while dividend on equity is not.
a. exempt from tax
b. deductible expenditure
c. non-deductible expenditure
d. None of the above

Answer: B

Question: Which component of capital structure determines the overall financial risk in an organisation?
a. Equity
b. Debt
c. Finance
d. None of these

Answer: B

Question: Choose the correct option regarding the arrangement of current assets in order of liquidity from highest to lowest.
a. Marketable securities, cash, debtors, bills receivables
b. Prepaid expenses, cash, marketable securities, bills receivables
c. Bills receivables, cash, marketable securities, debtors
d. Cash, marketable securities, bills receivables, debtors

Answer: D

Question: The impact of financial leverage on the profitability of a business can be seen through which analysis?
a. EBT-EPS
b. EAT-EPS
c. EBIT-EPS
d. EBIT-EBT

Answer: C

Question: A finance manager identifies different available sources and compares then in terms of costs and associated risks for the optimal procurement of funds. Identify the concept highlighted here.
a. Financial management
b. Financial decisions
c. Financial planning
d. All of the above

Answer: A

Question: The process of estimating the financial requirements of an organisation specifying the sources of funds and ensuring that enough funds are available at the right time is called
a. financial management
b. financial planning
c. financial decision
d. business finance

Answer: B

Question: Which of the following statement is incorrect?
a. Current assets are usually more liquid than fixed assets
b. Current assets contribute less to the profits than fixed assets
c. B/R, debtors, stock, etc are fixed assets
d. Fixed assets are financed through long-term liabilities

Answer: C

Question: Company ‘A’ has profit after tax, Rs 1,50,000 and its number of equity shares is 10,000. Company ‘B’ has profit after tax, Rs 1,20,000 and its number of shares is 12,000. Which company has better EPS and how much?
a. Company ‘A’, Rs 10
b. Company ‘A’, Rs 15
c. Company ‘B’, Rs 10
d. Company ‘B’, Rs 12
Hint Earning Per share (EPS) = Profit after Tax/Number of Equity Shares
EPS of Company ‘A’ = 1,50,000/10,000 = Rs 15
EPS of Company ‘B’ = 1,20,000/12,000 = Rs 10

Answer: B

Question: Long-term financial planning is done for
a. zero to one year
b. more than one year
c. ten to twenty years
d. twenty to thirty years

Answer: B

Question: Calculate the net working capital from the following information
Sundry Debtors = Rs 30,000, Cash = Rs 25,000,
Prepaid expenses = Rs 5,000.
Sundry Creditors = Rs 17,000, Outstanding
expenses = Rs 3,000, Bills Payable = Rs 8,000.
a. Rs 32,000
b. Rs 30,000
c. Rs 88,000
d. Rs 60,000
Hint NetWorking Capital = Current Assets – Current Liabilities

Answer: A

Question: Use of debt alongwith equity increases EPS, this concept is also known as
a. trading of debt
b. trading on equity
c. trading EPS
d. None of these

Answer: B

Question: Which of these is a factor affecting capital structure decision?
a. Risk consideration
b. Flexibility
c. Stock market condition
d. All of the above

Answer: D

Question: Which concept helps to increase the return on equity shares with a change in the capital structure of a company?
a. Trading on equity
b. Debt financing
c. Equity financing
d. Capital structure

Answer: A

Question: Seeta is a manufacturer who deals in stainless steel. Ram is also a manufacturer, dealing in bakery products. Based on length of operating cycle
a. Seeta would require more working capital
b. Ram would require more working capital
c. Both would require equal working capital
d. None of the above

Answer: A