Financial Management MCQs

Question. ___________ on capital gain and current income may influence form of capital.
(a) Legal stipulation.
(b) Rate of tax.
(c) Capital market condition.
(d) Cost of floating.

Answer: B

Question. The mix of debt and equity in a firm is referred to as the firm's _______.
(a) Primary capital.
(b) Capital composition.
(c) Cost of capital.
(d) Capital structure.

Answer: C

Question. ________ form of market efficiency states that current security prices fully reflect all information, both public and private.
(a) Weak.
(b) Semi-strong.
(c) Strong.
(d) Flexible.

Answer: C

Question. Financial risk perception is an influencing factor of _____________.
(a) Equity structure.
(b) Preference structure.
(c) Debt structure.
(d) Capital structure.

Answer: D

Question. _____________ is not a diversifiable or specific risk factor.
(a) Company strike.
(b) Bankruptcy of a major supplier.
(c) Death of a key company officer.
(d) Industrial recession.

Answer: D

Question. What method of stock repurchase occurs when the buyer seeks bids within a specified price range and accepts the lowest price that will allow it to acquire the entire block of securities desired?
(a) Dutch-auction.
(b) Fixed-price.
(c) Open-market.
(d) Fair-warning.

Answer: A

Question. The risk free rate of return is 8% the expected rate of return on market portfolio is15% the beta of eco boards equity stock is 1.4.the required rate on eco boards equity
is__________________.
(a) 15.4%.
(b) 16.8%.
(c) 17.2%.
(d) 17.8%.

Answer: D

Question. ________ is concerned with the acquisition, financing, and management of assets with some overall goal in mind.
(a) Financial management.
(b) Profit maximization.
(c) Agency theory.
(d) Social responsibility.

Answer: A

Question. According to the text's authors, ___________ is the most important of the three financial management decisions.
(a) Asset management decision.
(b) Financing decision.
(c) Investment decision.
(d) Accounting decision.

Answer: C

Question. The long-run objective of financial management is to _____________.
(a) Maximize earnings per share.
(b) Maximize the value of the firm's common stock.
(c) Maximize return on investment.
(d) Maximize market share.

Answer: B

Question. Which form of market efficiency states that current security prices fully reflect all information, both public and private?
(a) Weak.
(b) Semi-strong.
(c) Strong.
(d) Highly strong.

Answer: C

Question. __________ is concerned with the acquisition, financing, and management of assets with some overall goal in mind.
(a) Financial management.
(b) Profit maximization.
(c) Agency theory.
(d) Social responsibility.

Answer: A

Question. _____________ is the minimum required rate of earnings or the cut off rate of capital expenditure.
(a) Cost of capital.
(b) Working capital
(c) Equity capital.
(d) None of the options

Answer: A

Question. The main focus of finance for the last 40 years has been _______.
(a) Mergers and acquisitions.
(b) Conglomerate firms.
(c) Inflation.
(d) Risk-return relationships.

Answer: A

Question. __________ is a payment of additional shares to shareholders in lieu of cash.
(a) Stock split.
(b) Stock dividend.
(c) Extra dividend.
(d) Regular dividend.

Answer: B

Question. ____________ bonds are again superior to ordinary bonds in terms of sale ability.
(a) Redeemable.
(b) Irredeemable.
(c) Convertible.
(d) Non-convertible.

Answer: C

Question. The long-run objective of financial management is to ___________.
(a) Maximize earnings per share.
(b) Maximize the value of the firm's common stock.
(c) Maximize return on investment.
(d) Maximize market share.

Answer: A

Question. ___________ varies inversely with profitability.
(a) Liquidity.
(b) Risk.
(c) Accounts.
(d) Trade.

Answer: A

Question. The symptom of large inventory accumulation in anticipation of price rise in future will be indicated by ________.
(a) Asset turnover ratio.
(b) Working Capital turnover ratio.
(c) Inventory turnover ratio.
(d) All of the options

Answer: C

Question. _________________ is a long term planning for financing proposed capital outlay.
(a) Capital Budgeting.
(b) Budgeting.
(c) Cash Budget.
(d) Sales Budget.

Answer: A

Question. Which form of market efficiency states that current prices fully reflect the historical sequence of prices?
(a) Weak.
(b) Semi-strong.
(c) Strong.
(d) Flexible.

Answer: A

Question. The market value of the firm is the result of__________.
(a) Dividend decisions.
(b) Working capital decisions.
(c) Capital budgeting decisions.
(d) Trade-off between risk and return.

Answer: D

Question. When capital market is booming, firms can take market route to ________.
(a) Raise capital.
(b) Decrease capital.
(c) Stop growing.
(d) Stagnate.

Answer: A

Question. Basic objective of Financial Management is ________________.
(a) Maximization of profit.
(b) Maximization of share holder's wealth
(c) Ensuring Financial discipline in the firm.
(d) All of the options

Answer: B

Question. The __________ decision involves a determination of the total amount of assets needed, the composition of the assets, and whether any assets need to be reduced, eliminated, or replaced.
(a) Asset management.
(b) Financing.
(c) Investment.
(d) Accounting.

Answer: C

Question. All constituencies with a stake in the fortunes of the company are known as __________.
(a) Shareholders.
(b) Stakeholders.
(c) Creditors.
(d) Customers.

Answer: B

Question. Which of the following are not among the daily activities of financial management?
(a) Sale of shares and bonds.
(b) Credit management.
(c) Inventory control.
(d) The receipt and disbursement of funds.

Answer: A

Question. ______________ form of market efficiency states that current prices fully reflect all publicly available information.
(a) Weak.
(b) Semi-strong.
(c) Strong.
(d) Flexible.

Answer: B

Question. Which one of the following is / are the relevance theory?
(a) Gorden.
(b) Walter.
(c) Residual.
(d) Both (a) and (b).

Answer: A

Question. To increase the given present value, the discounted rate should be adjusted
(a) Upward.
(b) Downward.
(c) No change.
(d) Constant.

Answer: B

Question. Cost of the project is 6,00,000 , life of the project is 5 years annual cash flow is 2,00,000 cut off rate is 10% the discounted pay back period is ______________.
(a) 2 yrs.
(b) 2 yrs 6 months.
(c) 3 yrs.
(d) 3 yrs 9 months.

Answer: D

Question. Land at prime locations, modern buildings, machinery in good condition, etc are accepted as __________.
(a) Funds.
(b) Security.
(c) Liquid cash.
(d) Debt.

Answer: B

Question. Financial leverage refers to the rate of change in earnings per share for a given change in earnings ___________________.
(a) Before tax.
(b) Before interest.
(c) Before interest and tax.
(d) After interest and tax.

Answer: C

Question. The allocation of capital is determined by _________.
(a) Expected rates of return.
(b) The Bank of Canada.
(c) The initial sale of securities in the primary market.
(d) The size of the federal debt.

Answer: A

Question. The project can be selected if its profitability index is more than ______.
(a) 1%.
(b) 3%.
(c) 5%.
(d) 10%.

Answer: A

Question. The __________ decision involves determining the appropriate make-up of the right-hand side of the balance sheet.
(a) Asset management.
(b) Financing.
(c) Investment.
(d) Capital budgeting.

Answer: B

Question. Current ratio of a concern is 1, its net working capital will be _________.
(a) Positive.
(b) Neutral.
(c) Negative.
(d) None of the options

Answer: C

Question. Interest paid (earned) on both the original principal borrowed (lent) and previous interest earned is often referred to as __________.
(a) Present value.
(b) Simple interest.
(c) Future value.
(d) Compound interest.

Answer: D

Question. Long term finance is required for ______________.
(a) Current assets.
(b) Fixed assets.
(c) Intangible assets.
(d) None of these.

Answer: B

Question. What is the present value of a Rs.1, 000 ordinary annuity that earns 8% annually for an infinite number of periods?
(a) Rs.80.
(b) Rs.800.
(c) Rs.1, 000.
(d) Rs.12, 500.

Answer: D

Question. _____________ is not normally a responsibility of the controller of the modern corporation.
(a) Budgets and forecasts.
(b) Asset management.
(c) Financial reporting to the IRS.
(d) Cost accounting.

Answer: B

Question. Which of the following statements is not correct regarding earnings per share (EPS) maximization as the primary goal of the firm?
(a) EPS maximization ignores the firm's risk level.
(b) EPS maximization does not specify the timing or duration of expected EPS.
(c) EPS maximization naturally requires all earnings to be retained.
(d) EPS maximization is concerned with maximizing net income.

Answer: D

Question. X ltd issues rupees 50,000 8% debentures at a discount of 5%. The tax rate is 50% the cost of debt capital is __________.
(a) 4%.
(b) 4.2%.
(c) 4.6%.
(d) 5%.

Answer: B

Question. To financial analysts, "gross working capital" means the same thing as ________.
(a) Fixed assets.
(b) Current assets.
(c) Working capital.
(d) Cost of capital.

Answer: B

Question. The field of finance is closely related to the fields of _________.
(a) Statistics and economics.
(b) Statistics and risk analysis.
(c) Economics and accounting.
(d) Accounting and comparative return analysis.

Answer: C

Question. Cost of capital is __________________.
(a) Lesser than the cost of debt capital.
(b) Equal to the last dividend paid to the equity shareholders.
(c) Equal to the dividend expectations of equity shareholders for the coming year.
(d) None of the options

Answer: D

Question. _____________ is a specific risk factor.
(a) Market risk.
(b) Inflation risk.
(c) Interest rate risk.
(d) Financial risk.

Answer: D

Question. Treasurer should report to _______________.
(a) Chief Financial Officer.
(b) Vice President of Operations.
(c) chief Executive Officer.
(d) Board of Directors.

Answer: A

Question. Mr.Anil purchased 100 stocks of futura informatics ltd, for Rs.21 on March 15, sold for Rs.35 on March 14 next year. In the company paid a dividend of Rs.2.50 per share, them Anils holding period return is______________.
(a) 11.90%.
(b) 45.40%.
(c) 66.70%.
(d) 78.60%.

Answer: D

Question. In 2 years you are to receive Rs.10, 000. If the interest rate were to suddenly decrease, the present value of that future amount to you would __________.
(a) Fall.
(b) Rise.
(c) Remain unchanged.
(d) Cannot be determined.

Answer: B

Question. Which of the following statements is correct regarding profit maximization as the primary goal of the firm?
(a) Profit maximization considers the firm's risk level.
(b) Profit maximization will not lead to increasing short-term profits at the expense of lowering expected future profits.
(c) Profit maximization does consider the impact on individual shareholder's EPS.
(d) Profit maximization is concerned more with maximizing net income than the stock price.

Answer: D

Question. Which form of market efficiency states that current prices fully reflect the historical sequence of prices?
(a) Weak.
(b) Semi-strong.
(c) Strong.
(d) Highly strong.

Answer: A

Question. The term _________________ refers to the period in which the project will generate the necessary cash flow to recoup the initial investment.
(a) Internal return.
(b) Payback period.
(c) Discounting return.
(d) Accounting return.

Answer: B

Question. ___________________ refers to make-up of a firm's capitalization.
(a) Capital structure.
(b) Capital budgeting.
(c) Equity shares.
(d) Dividend policy.

Answer: A

Question. ______________ such as restriction on business expansion, on raising additional capital, on declaration of dividend, nominee directors on the board, convertibility clause, etc.
(a) Trading on equity.
(b) Security of assets.
(c) Restrictive covenants.
(d) Debt capacity of a business.

Answer: C

Question. Security of assets is determining factor for using ________.
(a) Debt capital.
(b) Equity capital.
(c) Preference capital.
(d) Cost of capital.

Answer: A

Question. Earlier a debt equity norm of _______ was generally insisted on by the controller of capital issues.
(a) 1:1.
(b) 1:2.
(c) 2:1.
(d) 2:2.

Answer: C

Question. Which of the following is the first step in capital budgeting process?
(a) Final approval.
(b) Screening the proposal.
(c) Implementing proposal .
(d) Identification of investment proposal.

Answer: D

Question. ____________ refers the period between commencement of project construction and first commercial operation of the project.
(a) Maturity period.
(b) Initial period.
(c) Gestation period.
(d) Growth period.

Answer: C

Question. The 182-day annualized T bills rate is 9%p.a., the return on market is 15% p.a., and the beta of stock B is1.5 the required rate of return from investment in stock B is___________.
(a) 17% p.a.
(b) 18% p.a.
(c) 19% p.a.
(d) 20% p.a.

Answer: B

Question. _______________ is the most appropriate goal of the firm.
(a) Shareholder wealth maximization.
(b) Profit maximization.
(c) Stakeholder maximization.
(d) EPS maximization

Answer: A

Question. If a company issues bonus shares the debt equity ratio ________________.
(a) Remain unaffected.
(b) Will be affected.
(c) Will improve.
(d) None of the options

Answer: C

Question. The most important and common form of dividend is ________________.
(a) Stock dividend.
(b) Cash dividend.
(c) Bond dividend.
(d) Scrip’s dividend.

Answer: A

Question. Initial outlay 50,000, life of the asset 5 yrs, estimated annual cash flow 12,500, IRR = ____________.
(a) 5%
(b) 6%
(c) 8%
(d) 10%

Answer: C

Question. In finance, "working capital" means the same thing as __________.
(a) Total assets.
(b) Fixed assets.
(c) Current assets.
(d) Current assets minus current liabilities.

Answer: C

Question. A method of budgeting that estimates todays value of money to be received in the future; It is discounted due to the uncertainty of its true value in the future and for the cost of the capital is______________.
(a) Cash inflow.
(b) Cash outflow.
(c) Discounted cash flow.
(d) Payback period

Answer: C

Question. A mutually exclusive project can be selected as per payback period when it is _________.
(a) Less.
(b) More.
(c) More than 5 years.
(d) None of the options

Answer: A

Question. ___________ security is known as variable income security.
(a) Debentures.
(b) Preference shares.
(c) Equity shares.
(d) None of the options

Answer: C

Question. Financial structure refers to ________________.
(a) Short-term resources.
(b) All the financial resources.
(c) Long-term resources.
(d) All of the options

Answer: B

Question. Corporate governance success includes three key groups. _____________ represents these three groups.
(a) Suppliers, managers, and customers.
(b) Board of directors, executive officers, and common shareholders.
(c) Suppliers, employees, and customers.
(d) Common shareholders, managers, and employees.

Answer: B

Question. Net working capital refers to ___________.
(a) total assets minus fixed assets.
(b) current assets minus current liabilities.
(c) current assets minus inventories.
(d) current assets.

Answer: B

Question. ________________ is one that maximizes value of business, minimizes overall cost of capital, that is flexible, simple and futuristic, that ensures adequate control on affairs of business by the owners and so on.
(a) Minimal capital structure.
(b) Moderate capital structure.
(c) Optimal capital structure.
(d) Deficit capital structure.

Answer: C

Question. An example of fixed asset is________.
(a) Live stock.
(b) Value stock.
(c) Income stock.
(d) All of the options

Answer: A

Question. Capital is allocated by financial markets by _______________.
(a) A lottery system between investment dealers.
(b) Pricing securities based on their risk and expected future cash flows
(c) By pricing risky securities higher than low-risk securities.
(d) By a government risk-rating system based on AAA for low risk and CCC for high risk.

Answer: B

Question. Risk-return trade off implies_____________.
(a) Increasing the portfolio of the firm through increased production.
(b) Not taking any loans which increases the risk.
(c) Not granting credit to risky customers.
(d) Taking decision in such a way which optimizes the balance between risk and return.

Answer: D

Question. Financial leverage can be measured in ___________________.
(a) Stock term.
(b) Flow term.
(c) Both (a) and (b).
(d) None of the options

Answer: C

Question. The major benefit of diversification is to____________.
(a) Increase the expected return.
(b) Increase the size of the investment portfolio.
(c) Reduce brokerage commissions.
(d) Reduce the expected risk.

Answer: D

Question. __________ is concerned with the maximization of a firm's stock price.
(a) Shareholder wealth maximization.
(b) Profit maximization.
(c) Stakeholder welfare maximization.
(d) EPS maximization.

Answer: A

Question. The __________ decision involves efficiently managing the assets on the balance sheet on a day-to-day basis, especially current assets.
(a) Asset management.
(b) Financing.
(c) Investment.
(d) Accounting.

Answer: A

Question. _____________ of different sources of capital influences capital structure.
(a) Restrictive covenants.
(b) Tax advantage.
(c) Cost of capital.
(d) Trading on equity.

Answer: C

Question. __________ is the expected cash dividend that is normally paid to shareholders.
(a) Stock split.
(b) Stock dividend.
(c) Extra dividend.
(d) Regular dividend.

Answer: C

Question. In Walter model formula D stands for _________________.
(a) Dividend per share.
(b) Direct dividend.
(c) Direct earnings.
(d) None of the options

Answer: A

Question. The risk averse prefers debt instruments, while the risk seekers go for ________.
(a) Equity investments.
(b) Preference investments.
(c) Debt investments.
(d) None of the options

Answer: A

Question. The par value of the stocks and bonds outstanding is termed as ___________________.
(a) Capitalization.
(b) Multiplication.
(c) Outstanding income.
(d) Earnings before interest and taxes.

Answer: A

Question. The weighted average of possible returns, with the weights being the probabilities of occurrence is referred to as __________.
(a) A probability distribution.
(b) The expected return.
(c) The standard deviation.
(d) Coefficient of variation.

Answer: B

Question. A project costs Rs, 1,00,000 annual cash flow of Rs. 20,000 for 8 years. Its payback period is ______________.
(a) 1 year.
(b) 2 years.
(c) 3 years.
(d) 5 years.

Answer: D

Question. __________, roll over, swap early retirement and the like need to be adopted when needed.
(a) Periodic servicing.
(b) Involvement.
(c) Responsibility.
(d) Investment.

Answer: A

Question. Permanent working capital ___________.
(a) Varies with seasonal needs.
(b) Includes fixed assets.
(c) Is the amount of current assets required to meet a firm's long-term minimum needs.
(d) Includes accounts payable.

Answer: C

Question. The __________ is the proportion of earnings that are paid to common shareholders in the form of a cash dividend.
(a) Retention rate.
(b) 1 plus the retention rate.
(c) Growth rate.
(d) Dividend pay-out ratio.

Answer: A

Question. The ultimate measure of performance is _____________.
(a) Amount of the firm's earnings.
(b) The how the earnings are valued by the investor.
(c) The firm's profit margin.
(d) Return on the firm's total assets.

Answer: B

Question. ___________ of debt capital is a factor in favor of using more debt capital.
(a) Tax advantage.
(b) Debt equity norms.
(c) Leverage effect.
(d) Security of assets.

Answer: A

Question. Rate of tax on capital gain and current income may influence form of _________.
(a) Equity.
(b) Preference.
(c) Debt.
(d) Capital.

Answer: D

Question. Which of the following is not normally a responsibility of the treasurer of the modern corporation but rather the controller?
(a) Budgets and forecasts.
(b) Asset management.
(c) Investment management.
(d) Financial management.

Answer: A

Question. __________ is the employment of an asset is sources of fund for which the firm has to pay a fixed cost or fixed return.
(a) Financial management.
(b) Profit maximization.
(c) Asset management.
(d) Leverage.

Answer: D

Question. Debt capacity of a business needs _____________.
(a) Restriction.
(b) Consideration.
(c) Leverage.
(d) Security.

Answer: B

Question. __________ is concerned with the maximization of a firm's earnings after taxes
(a) Shareholder wealth maximization.
(b) Profit maximization.
(c) Stakeholder maximization.
(d) EPS maximization.

Answer: B

Question. A set of possible values that a random variable can assume and their associated probabilities of occurrence are referred to as __________.
(a) Probability distribution.
(b) The expected return.
(c) The standard deviation.
(d) Coefficient of variation.

Answer: A

Question. A main benefit to the corporate form of organization is __________.
(a) Double taxation of corporate income.
(b) Simplicity of decision making and low organizational complexity.
(c) Limited liability for the corporate shareholders.
(d) A major management role exists for the firm's owners.

Answer: C

Question. Quick asset does not include ____________.
(a) Government bonds.
(b) Book debts.
(c) Advance for supply of raw materials.
(d) Inventories.

Answer: D

Question. In deciding the appropriate level of current assets for the firm, management is confronted with _____________.
(a) A trade-off between profitability and risk.
(b) A trade-off between liquidity and marketability.
(c) A trade-off between equity and debt.
(d) Trade-off between current assets and profitability.

Answer: A