740+ Financial Management Solved MCQs

These multiple-choice questions (MCQs) are designed to enhance your knowledge and understanding in the following areas: Bachelor of Business Administration (BBA) , Master of Commerce (M.com) , Bachelor of Accounting and Finance (BAF) , Bachelor of Business Administration in Finance (BBA Finance) , Cost Accounting .

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101.	Profitability Index, when applied to Divisible Projects, impliedly assumes that:
A.	Project cannot be taken in parts
B.	NPV is linearly proportionate to part of the project taken up
C.	NPV is additive in nature
D.	Both (b) and (c)
Answer» D. Both (b) and (c)

102.	If there is no inflation during a period, then the Money Cashflow would be equal to:
A.	Present Value
B.	Real Cash flow
C.	Real Cash flow + Present Value
D.	Real Cash flow - Present Value
Answer» B. Real Cash flow

103.	The Real Cashflows must be discounted to get the present value at a rate equal to:
A.	Money Discount Rate
B.	Inflation Rate
C.	Real Discount Rate
D.	Risk free rate of interest
Answer» C. Real Discount Rate

104.	Real rate of return is equal to:
A.	Nominal Rate × Inflation Rate
B.	Nominal Rate ÷ Inflation Rate
C.	Nominal Rate - Inflation Rate
D.	Nominal Rate + Inflation Rate
Answer» B. Nominal Rate ÷ Inflation Rate

105.	If the Real rate of return is 10% and Inflation s Money Discount Rate is:
A.	14.4%
B.	2.5%
C.	25%
D.	14%
Answer» A. 14.4%

106.	If the Money Discount Rate is 19% and Inflation Rate is 12%, then the Real Discount Rate is:
A.	7%
B.	5%
C.	5.70%
D.	6.25%
Answer» D. 6.25%

107.	Money Discount Rate if equal to:
A.	(1 + Inflation Rate) (1 + Real Rate)-1
B.	(1 + Inflation Rate) 4- (1 + Real Rate)-1
C.	(1 + Real Rate) 4- (1 + Inflation Rate)-1
D.	(1 + Real Rate) + (1 + Inflation Rate)-1
Answer» A. (1 + Inflation Rate) (1 + Real Rate)-1

108.	Real Discount Rate is equal to:
A.	(1 + Inf. Rate) (1 + Money D Rate)-1
B.	(1 + Money D Rate) + (1 + Inf. Rate)-1
C.	(1 + Money D Rate) 4- (1 + Inf. Rate)-1
D.	(1 + Money D Rate) - (1 + Inf. Rate)-1
Answer» C. (1 + Money D Rate) 4- (1 + Inf. Rate)-1

109.	Two mutually exclusive projects with different economic lives can be compared on the basis of
A.	Internal Rate of Return
B.	Profitability Index
C.	Net Present Value
D.	Equivalent Annuity Value
Answer» D. Equivalent Annuity Value

110.	Risk in Capital budgeting implies that the decision-maker knows___________of the cash flows.
A.	Variability
B.	Probability
C.	Certainty
D.	None of the above
Answer» B. Probability

111.	In Certainty-equivalent approach, adjusted cash flows are discounted at:
A.	Accounting Rate of Return
B.	Internal Rate of Return
C.	Hurdle Rate
D.	Risk-free Rate
Answer» D. Risk-free Rate

113.	Which of the following is a risk factor in capital budgeting?
A.	Industry specific risk factors
B.	Competition risk factors
C.	Project specific risk factors
D.	All of the above
Answer» D. All of the above

114.	In Risk-Adjusted Discount Rate method, the normal rate of discount is:
A.	Increased
B.	Decreased
C.	Unchanged
D.	None of the above
Answer» A. Increased

115.	In Risk-Adjusted Discount Rate method, which one is adjusted?
A.	Cash flows
B.	Life of the proposal
C.	Rate of discount
D.	Salvage value
Answer» C. Rate of discount

116.	NPV of a proposal, as calculated by RADR real CE Approach will be:
A.	Same
B.	Unequal
C.	Both (a) and (b)
D.	None of (a) and (b)
Answer» B. Unequal

112.	Risk in Capital budgeting is same as:
A.	Uncertainty of Cash flows
B.	Probability of Cash flows
C.	Certainty of Cash flows
D.	Variability of Cash flows
Answer» D. Variability of Cash flows

117.	Risk of a Capital budgeting can be incorporated
A.	Adjusting the Cash flows
B.	Adjusting the Discount Rate
C.	Adjusting the life
D.	All of the above
Answer» D. All of the above

118.	Which element of the basic NPV equation is adjusted by the RADR?
A.	Denominator
B.	Numerator
C.	Both
D.	None
Answer» A. Denominator

119.	Cost of Capital refers to:
A.	Flotation Cost
B.	Dividend
C.	Required Rate of Return
D.	None of the above.
Answer» B. Dividend

120.	Which of the following sources of funds has an Implicit Cost of Capital?
A.	Equity Share Capital
B.	Preference Share Capital
C.	Debentures
D.	Retained earnings
Answer» D. Retained earnings

121.	Which of the following has the highest cost of capital?
A.	Equity shares
B.	Loans
C.	Bonds
D.	Preference shares
Answer» A. Equity shares

122.	Cost of Capital for Government securities is also known as:
A.	Risk-free Rate of Interest
B.	Maximum Rate of Return
C.	Rate of Interest on Fixed Deposits
D.	None of the above
Answer» A. Risk-free Rate of Interest

123.	Cost of Capital for Bonds and Debentures is calculated on:
A.	Before Tax basis
B.	After Tax basis
C.	Risk-free Rate of Interest basis
D.	None of the above.
Answer» B. After Tax basis

124.	Weighted Average Cost of Capital is generally denoted by:
A.	kA
B.	kw
C.	k0
D.	kc
Answer» C. k0

125.	Which of the following cost of capital require tax adjustment?
A.	Cost of Equity Shares
B.	Cost of Preference Shares
C.	Cost of Debentures
D.	Cost of Retained Earnings.
Answer» C. Cost of Debentures

740+ Financial Management Solved MCQs

Profitability Index, when applied to Divisible Projects, impliedly assumes that:

If there is no inflation during a period, then the Money Cashflow would be equal to:

The Real Cashflows must be discounted to get the present value at a rate equal to:

Real rate of return is equal to:

If the Real rate of return is 10% and Inflation s Money Discount Rate is:

If the Money Discount Rate is 19% and Inflation Rate is 12%, then the Real Discount Rate is:

Money Discount Rate if equal to:

Real Discount Rate is equal to:

Two mutually exclusive projects with different economic lives can be compared on the basis of

Risk in Capital budgeting implies that the decision-maker knows___________of the cash flows.

In Certainty-equivalent approach, adjusted cash flows are discounted at:

Risk in Capital budgeting is same as:

Which of the following is a risk factor in capital budgeting?

In Risk-Adjusted Discount Rate method, the normal rate of discount is:

In Risk-Adjusted Discount Rate method, which one is adjusted?

NPV of a proposal, as calculated by RADR real CE Approach will be:

Risk of a Capital budgeting can be incorporated

Which element of the basic NPV equation is adjusted by the RADR?

Cost of Capital refers to:

Which of the following sources of funds has an Implicit Cost of Capital?

Which of the following has the highest cost of capital?

Cost of Capital for Government securities is also known as:

Cost of Capital for Bonds and Debentures is calculated on:

Weighted Average Cost of Capital is generally denoted by:

Which of the following cost of capital require tax adjustment?

Which is the most expensive source of funds?

Marginal cost of capital is the cost of:

In case the firm is all-equity financed, WACC would be equal to

In case of partially debt-financed firm, k0 is less

In order to calculate Weighted Average Cost of weights may be based on:

Firm's Cost of Capital is the average cost of:

An implicit cost of increasing proportion of debt is:

Cost of Redeemable Preference Share Capital is:

Which of the following is true?

Cost of capital may be defined as:

Minimum Rate of Return that a firm must earn in order to satisfy its investors, is also known as:

Cost Capital for Equity Share Capital does not imply that:

In order to calculate the proportion of equity financing used by the company, the following should be used:

The term capital structure denotes:

Debt Financing is a cheaper source of finance because of:

In order to find out cost of equity capital under CAPM, which of the following is not required:

Tax-rate is relevant and important for calculation of specific cost of capital of:

Advantage of Debt financing is

Cost of issuing new shares to the public is known as:

Cost of Equity Share Capital is more than cost of debt because:

Which of the following is not a generally accepted approach for Calculation of Cost of Equity?

Operating leverage helps in analysis of:

Which of the following is studied with the help of financial leverage?

Combined Leverage is obtained from OL and FL by their:

High degree of financial leverage means:

126.	Which is the most expensive source of funds?
A.	New Equity Shares
B.	New Preference Shares
C.	New Debts
D.	Retained Earnings
Answer» A. New Equity Shares

127.	Marginal cost of capital is the cost of:
A.	Additional Sales
B.	Additional Funds
C.	Additional Interests
D.	None of the above.
Answer» B. Additional Funds

128.	In case the firm is all-equity financed, WACC would be equal to
A.	Cost of Debt
B.	Cost of Equity
C.	Neither (a) nor (b)
D.	Both (a) and (b)
Answer» B. Cost of Equity

129.	In case of partially debt-financed firm, k0 is less
A.	Kd
B.	Ke
C.	Both (a) and (b)
D.	None of the above
Answer» B. Ke

130.	In order to calculate Weighted Average Cost of weights may be based on:
A.	Market Values
B.	Target Values
C.	Book Values
D.	All of the above
Answer» D. All of the above

131.	Firm's Cost of Capital is the average cost of:
A.	All sources
B.	All borrowings
C.	Share capital
D.	Share Bonds & Debentures
Answer» A. All sources

132.	An implicit cost of increasing proportion of debt is:
A.	Tax should would not be available on new debt
B.	P.E. Ratio would increase
C.	Equity shareholders would demand higher return
D.	Rate of Return of the company would decrease
Answer» C. Equity shareholders would demand higher return

133.	Cost of Redeemable Preference Share Capital is:
A.	Rate of Dividend
B.	After Tax Rate of Dividend
C.	Discount Rate that equates PV of inflows and out-flows relating to capital
D.	None of the above
Answer» C. Discount Rate that equates PV of inflows and out-flows relating to capital

134.	Which of the following is true?
A.	Retained earnings are cost free
B.	External Equity is cheaper than Internal Equity
C.	Retained Earnings are cheaper than External Equity
D.	Retained Earnings are costlier than External Equity
Answer» C. Retained Earnings are cheaper than External Equity

135.	Cost of capital may be defined as:
A.	Weighted Average cost of all debts
B.	Rate of Return expected by Equity Shareholders
C.	Average IRR of the Projects of the firm
D.	Minimum Rate of Return that the firm should earn
Answer» D. Minimum Rate of Return that the firm should earn