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 .

Take a Test

451.	The persons interested in the analysis of financial statements can be grouped as _________.
A.	Owners or investors
B.	Creditors
C.	Financial executives
D.	All of the above
Answer» D. All of the above

452.	The term “Operating Profit” means profit before __________________.
A.	interest
B.	tax
C.	interest and tax
D.	interest or tax
Answer» C. interest and tax

453.	Debt- equity Ratio is an example of ________________.
A.	Short term solvency Ratio
B.	Long term solvency Ratio
C.	Profitability Ratio
D.	None of the above
Answer» B. Long term solvency Ratio

454.	In Cash Flow Statement, Cash includes________________.
A.	cash on hand
B.	demand deposits with banks
C.	cash on hand and demand deposits with banks
D.	cash on hand or demand deposits with banks
Answer» C. cash on hand and demand deposits with banks

455.	The treatment of interest and dividends received and paid depends upon the nature of the enterprise. For this purpose, the enterprises are classified as ____________.
A.	(i) Financial enterprises, and (ii) Operating enterprises
B.	(i) Financial enterprises, and (ii) Other enterprises
C.	(i) Financial enterprises, and (ii) Non-Financial enterprises
D.	(i) Trading enterprises, and (ii) Non - Trading enterprises
Answer» B. (i) Financial enterprises, and (ii) Other enterprises

456.	Cash Flow Statement is _____________ for Income Statement or Funds Flow Statement.
A.	not a substitute
B.	a substitute
C.	depends on situation
D.	None of the above
Answer» A. not a substitute

457.	Funds Flow Statement reveals the change in _______________ between two Balance Sheet dates.
A.	Working capital
B.	Internal capital
C.	Share capital
D.	Both (A) & (C)
Answer» A. Working capital

458.	A firm following an aggressive working capital strategy would:
A.	Hold substantial amount of fixed assets
B.	Minimize the amount of short term borrowing
C.	Finance fluctuating assets with long term financing
D.	Minimize the amount of fund in very liquid assets
Answer» D. Minimize the amount of fund in very liquid assets

459.	Which of the following would be consistent with a conservative approach to financing working capital?
A.	Financing short-term needs with short-term funds
B.	Financing short-term needs with long-term debt
C.	Financing seasonal needs with short-term funds
D.	Financing some long-term needs with short-term fund
Answer» B. Financing short-term needs with long-term debt

460.	To financial analysts, "net working capital" means the same thing as __________.
A.	total assets
B.	fixed assets
C.	current assets
D.	current assets minus current liabilities
Answer» D. current assets minus current liabilities

461.	Baumol's Model of Cash Management attempts to:
A.	Minimise the holding cost
B.	Minimization of transaction cost
C.	Minimization of total cost
D.	Minimization of cash balance
Answer» C. Minimization of total cost

462.	Which of the following is not considered by Miller-Orr Model?
A.	Variability in cash requirement
B.	Cost of transaction
C.	Holding cost
D.	Total annual requirement of cash
Answer» D. Total annual requirement of cash

463.	A firm is said to be financially unlevered firm if the firm has ……….
A.	only external equity in its capital structure
B.	only owner‘s equity in its capital structure
C.	both external equity and owner‘s equity in its capital structure
D.	only equity share capital in its capital structure
Answer» B. only owner‘s equity in its capital structure

464.	The term optimal capital structure‘ implies that combination of external equity and internal equity at which ………
A.	the overall cost of capital is minimised
B.	the overall cost of capital is maximised
C.	the market value of the firm is minimised
D.	the market value of firm is greater than the overall cost of capital
Answer» A. the overall cost of capital is minimised

465.	Net Income Approach to capital structure decision was proposed by …….
A.	J. E. Walter
B.	M.H. Miller and D.Orr
C.	E. Solomon
D.	D. Durand
Answer» D. D. Durand

466.	There is a reciprocal relationship between ……………….
A.	DOL and DFL
B.	DOL and margin of safety ratio
C.	DFL and margin of safety ratio
D.	DOL and break-even-point
Answer» B. DOL and margin of safety ratio

467.	The genesis of financial risk lies in …………….
A.	capital budgeting decision
B.	capital structure decision
C.	dividend decision
D.	liquidity decision
Answer» B. capital structure decision

468.	Financial break-even point is that level of EBIT at which ………….
A.	EPS > 0
B.	EPS < 0
C.	EPS = 0
D.	EPS > 1
Answer» C. EPS = 0

469.	In mutually exclusive projects, projects which are selected for comparison must have
A.	positive net present value
B.	negative net present value
C.	zero net present value
D.	none of the above
Answer» A. positive net present value

470.	In a single projects situation, results of internal rate of return and net present value lead to
A.	cash flow decision
B.	cost decision
C.	same decisions
D.	different decisions
Answer» C. same decisions

471.	The discount rate which forces net present values to become zero is classified as
A.	positive rate of return
B.	negative rate of return
C.	external rate of return
D.	internal rate of return
Answer» D. internal rate of return

472.	A point where profile of net present value crosses horizontal axis at plotted graph indicates project
A.	costs
B.	cash flows
C.	internal rate of return
D.	external rate of return
Answer» C. internal rate of return

473.	Payback period in which an expected cash flows are discounted with the help of project cost of capital is classified as
A.	discounted payback period
B.	discounted rate of return
C.	discounted cash flows
D.	discounted project cost
Answer» A. discounted payback period

474.	Number of years forecasted to recover an original investment is classified as
A.	payback period
B.	forecasted period
C.	original period
D.	investment period
Answer» A. payback period

475.	In proper capital budgeting analysis, we evaluate incremental
A.	Accounting income
B.	Cash flow
C.	Earnings
D.	Operating profit
Answer» B. Cash flow

740+ Financial Management Solved MCQs

The persons interested in the analysis of financial statements can be grouped as _________.

The term “Operating Profit” means profit before __________________.

Debt- equity Ratio is an example of ________________.

In Cash Flow Statement, Cash includes________________.

The treatment of interest and dividends received and paid depends upon the nature of the enterprise. For this purpose, the enterprises are classified as ____________.

Cash Flow Statement is _____________ for Income Statement or Funds Flow Statement.

Funds Flow Statement reveals the change in _______________ between two Balance Sheet dates.

A firm following an aggressive working capital strategy would:

Which of the following would be consistent with a conservative approach to financing working capital?

To financial analysts, "net working capital" means the same thing as __________.

Baumol's Model of Cash Management attempts to:

Which of the following is not considered by Miller-Orr Model?

A firm is said to be financially unlevered firm if the firm has ……….

The term optimal capital structure‘ implies that combination of external equity and internal equity at which ………

Net Income Approach to capital structure decision was proposed by …….

There is a reciprocal relationship between ……………….

The genesis of financial risk lies in …………….

Financial break-even point is that level of EBIT at which ………….

In mutually exclusive projects, projects which are selected for comparison must have

In a single projects situation, results of internal rate of return and net present value lead to

The discount rate which forces net present values to become zero is classified as

A point where profile of net present value crosses horizontal axis at plotted graph indicates project

Payback period in which an expected cash flows are discounted with the help of project cost of capital is classified as

Number of years forecasted to recover an original investment is classified as

In proper capital budgeting analysis, we evaluate incremental

The term mutually exclusive investments mean:

Which of the following is a Profitability Ratio?

The 'Dividend-Payout Ratio' is equal to

If EBIT = Rs. 1,00,000, Fixed Assets = Rs. 2,00,000, Sales = Rs. 10,00,000 and Variable Cost = Rs. 7,00,000. Then, the Operating Leverage will be

Which of the following is not considered while preparing cash budget?

At Indifference level of EBIT, different capitals have:

ABC Analysis is used in

Which of the following is not incorporated in Capital Building?

Objective of Financial Management is

Which of the following variables is not known in Internal Rate of Return?

Cost of Capital refers to

Working Capital Management involves financing and management of

All listed companies are required to prepare

Ratio Analysis can be used to study liquidity, turnover, profitability etc., of a firm. What does Debt-Equity Ratio help to study?

A firm determines the shareholders’ wealth by taking

Capital Budgeting techniques which considers the time value of money is based on

Debt Financing is a cheaper source of finance because of

What should be the optimum Dividend payout ratio, when r=12% and Ke=10%?

The term Float is used in

Financial planning is ---------- function of a finance manager

Profit maximization may lead to better and efficient utilization of the recourses only when there is -----------

During inflationary period the risk free interest rate will be …………………………….

Implicit cost also called ………………………….

After tax cost of debt is equal to (1-t)x

Cost of irredeemable preferences share capital is equal to kp=preference dividend divided by

476.	The term mutually exclusive investments mean:
A.	Choose only the best investments
B.	Selection of one investment precludes the selection of an alternative
C.	The elite investment opportunities will get chosen
D.	There are no investment options available
Answer» B. Selection of one investment precludes the selection of an alternative

477.	Which of the following is a Profitability Ratio?
A.	Proprietary Ratio
B.	Debt-Equity Ratio
C.	Price-Earning Ratio
D.	Fixed Asset Ratio
Answer» C. Price-Earning Ratio

478.	The 'Dividend-Payout Ratio' is equal to
A.	The Dividend yield plus the capital gains yield
B.	Dividends per share divided by Earning per Equity Share
C.	Dividends per share divided by par value per share
D.	Dividends per share divided by current price per share
Answer» B. Dividends per share divided by Earning per Equity Share

479.	If EBIT = Rs. 1,00,000, Fixed Assets = Rs. 2,00,000, Sales = Rs. 10,00,000 and Variable Cost = Rs. 7,00,000. Then, the Operating Leverage will be
A.	2
B.	3
C.	6
D.	4
Answer» B. 3

480.	Which of the following is not considered while preparing cash budget?
A.	Accrual Principal
B.	Difference in Capital and Revenue items
C.	Conservation Principle
D.	All of the above
Answer» D. All of the above

481.	At Indifference level of EBIT, different capitals have:
A.	same EBIT
B.	same EPS
C.	same PAT
D.	same PBT
Answer» B. same EPS

482.	ABC Analysis is used in
A.	Inventory Management
B.	Receivables Management
C.	Accounting Policies
D.	Corporate Governance
Answer» A. Inventory Management

483.	Which of the following is not incorporated in Capital Building?
A.	Tax-Effect
B.	Time Value of Money
C.	Required Rate of Return
D.	Rate of Cash Discount
Answer» D. Rate of Cash Discount

484.	Objective of Financial Management is
A.	Management of Liquidity
B.	Maximization of Profit
C.	Maximization of Shareholders’ Wealth
D.	Management of Fixed Assets
Answer» C. Maximization of Shareholders’ Wealth

485.	Which of the following variables is not known in Internal Rate of Return?
A.	Initial Cash Flows
B.	Discount Rate
C.	Terminal Inflows
D.	Life of the Project
Answer» B. Discount Rate