CBSE Class 12 Business Studies Financial Management Worksheet Set G

Question. _____________ 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. Capital Budgeting Decision are important because:
(a) These decisions have bearing on the long-term growth.
(b) These decisions result in a substantial portion of capital funds being blocked in long-term projects.
(c) These decisions once taken, are nit reversible without incurring heavy losses.
(d) All of the above

Answer : D

Question. This decision determines the overall cost of capital and the financial risk of the enterprise.
(a) Investment Decision
(b) Financing Decision
(c) Dividend Decision
(d) All of these

Answer : B

Question. Which of the following is a factor affecting Capital Budgeting Decision?
(a) Cash flows of the project
(b) The rate of return of the project
(c) Amount of investments, interest rate, etc.
(d) All of these

Answer : D

Fill in the blanks :

Question. Large and reputed companies generally tend to pay higher dividends than the smaller companies because ________________.

Answer : they generally have easy access to the capital market and, therefore, may depend less on retained earning to finance their growth.

Question. _______________ involve no commitment regarding the payment of returns or the repayment of capital.

Answer : Shareholder’s funds

Question. The risk of default on payment of interest on borrowed funds and the repayment of debt is known as ______________. 

Answer : Financial risk.

Question. A decision is taken in financial management to put capital of the company in different assets. This decision is called ________.

Answer : Investment decision

Question. _______________ decisions affect the liquidity as well as profitability of a business.

Answer : Working capital.

Question. The most important criterion for evaluation of projects (based on capital budgeting decision) is __________________.

Answer : The rate of return of the project.

Question. Dividend decision involves how much of the profit earned by company ____________ (before paying tax/ after paying tax) is to be distributed.

Answer : after paying tax

Question. _______________ is considered to be the cheapest of all the sources of finance, tax deductibility of interest makes it still cheaper.

Answer : Debt.

Question. Major expenditures such as those on advertising campaign or research and development programme having long-term implications for the firm are examples of _____________

Answer : Capital Budgeting Decisions

Question. Companies afraid of a take over bid would prefer ____________ 

Answer : Debt.

True/False :

Question. The extent of retained earnings also influences the financing decision of the firm. True/False? Give reason.

Answer : True

Question. Dividend division should be taken keeping in view the overall objective of maximising shareholders wealth. True/False?

Answer : True

Question. Higher dividends may be declared if tax rates are relatively higher. True/False? Give reason.

Answer : False

Question. The dividend in growth companies is smaller than that in the non-growth companies. True/False? Give reason.

Answer : True

Question. “Other things remaining the same, a company having stable earnings is in a better position to declare higher dividends.” (True/False)

Answer : True

Important Questions for Ncert Class 12 Business Studies Directing

Question. ‘Monisha Consumer Goods’ is a leading consumer goods chain with a network of 46 stores primarily across Mumbai, Delhi and Pune. It was started by Monisha Gupta in 1987. It has a large market share in Mumbai, Delhi and Pune. Looking for an opportunity to expand, it has decided to open a new branch in Kerala. It has decide on what new resources it will invest in so that it is able to earn the highest possible return for investors. Once the company believes that it will be able to generate higher revenues and profits, it also has to decide on how this project will get funded. The finance manager, Atul was told to have an optimal capital structure by striking a balance between various sources of getting the project funded so as to increase shareholders’ wealth. Atul, after assessing the cash flow position of the company, evaluated the cost of different sources of finance and compared the risk associated with each source as well as the cost of raising funds.
(a) State the two financial decisions discussed in the above situation.
(b) Explain any two factors affecting each of the decisions that still have to be considered by the finance manager. 
Answer : (a) (i) Investment decision/ Capital budgeting decision/ Long term Investment decision
(ii) Financing decision
(b) (explain the meaning and factors of these financial decisions)

Question. Harish is engaged in warehousing business and his warehouses are generally used by the businessmen to store fruits. Identify the working capital requirements of Harish giving reason in support of your answer. 
Answer : Since Harish is providing warehousing service, it does not have to maintain inventory and thus, require less working capital.

Question. Rizul Bhattacharya after leaving his job wanted to start a Private Limited Company with his son. His son was keen that the company may start manufacturing of Mobile-phones with some unique features. Rizul Bhattacharya felt that the mobile-phones are prone to quick obsolescence and a heavy fixed capital investment would be required regularly in this business. Therefore he convinced his son to start a furniture business. Identify the factor affecting fixed capital requirements which made Rizul Bhattacharya to choose furniture business over mobile-phones. 
Answer : Technology upgradation

 Short Answer Questions :

Question. ‘Sarah Ltd.’ is a company manufacturing cotton yarn. It has been consistently earning good profits for many years. This year too, it has been able to generate enough profits. There is availability of enough cash in the company and good prospects for growth in future. It is a well managed organisation and believes in quality, equal employment opportunities and good remuneration practices. It has many shareholders who prefer to receive a regular income from their investments.
It has taken a loan of ` 40 lakhs from IDBI and is bound by certain restrictions on the payment of dividend according to the terms of loan agreement.
The above discussion about the company leads to various factors which decide how much of the profits should be retained and how much has to be distributed by the company.
Quoting the lines from the above discussion identify and explain any four such factors. 
Answer : Factors affecting dividend decision: (Explain any four)
(i) Stability of earnings – ‘It has been consistently earning good profits for many years’.
(ii) Cash Flow position – ‘There is availability of enough cash in the company’.
(iii) Growth Prospects – ‘Good prospects for growth in the future.’
(iv) Shareholders’ preference – ‘It has many shareholders who prefer to receive regular income from their investments.’
(v) Contractual constraints – ‘It has taken a loan of ` 40 Lakhs from IDBI and ... agreement.’

Question. Sudha is an enterprising business woman who has been running a poultry farm for the past ten years. She has saved ` 4,00,000 from her business. She shared with her family her desire to utilise this money to expand her business. Her family members gave her different suggestions like buying new machinery to replace the existing one, acquiring altogether new equipments with latest technology, opening a new branch of the poultry farm in another city and so on. Since these decisions are crucial for her business, involve a huge amount of money and are irreversible except at a huge cost, Sudha wants to analyse all aspects of the decisions, before taking any final decision.
(i) Identify and explain the financial decision to be taken by Sudha.
(ii) Also, explain the briefly the factors that will affect this decision. 
Answer : (i) Investment decision/Capital budgeting decision Investment/Capital budgeting decision involves deciding about how the funds are invested in different assets so that they are able to earn the highest possible return for their investors.
(ii) Factors that affect capital budeting decision are:
(a) Cash flows of the project
(b) Rate of return of the project
(c) Investment criteria (explain)