Financial Management MCQ
Multiple Choice
Questions and Answers
This Financial Management MCQ for B.COM/BBA/CA/CS/MBA/CMA and More
Financial Management MCQ also useful for NTA NET EXAM (Commerce 08)
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Financial Management MCQ |
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Table of content |
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A.
Choose the appropriate answer |
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B.
Fill in the blanks |
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C.
True and False |
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All
the Answers of financial management mcq are given |
Definition of Financial
Management
Financial
management refers to the strategic planning, organizing, directing and
controlling of financial undertakings in an organization or an institution. It
also involves applying management principles to an organization's financial
assets, while also playing an important role in financial management.
Given
below are the financial management MCQ question and answer so you can
understand the topic without any difficulty.
A. Choose the appropriate answer from the given alternatives on Financial Management MCQ:
1. Financial decisions
involve with:
a) Investment, financing and dividend decisions
b) Investment, financing and sales decisions
c) Financing, dividend and cash decisions
Ans. Investment, financing and dividend decisions
2. Factoring is a method of raising:
a) Long term finance
b) Medium term finance
c) Short
term finance
Ans. Short term finance
3. Financing leverage =
a) Contribution/Earnings before interest and tax
b) Earnings before interest and tax/Earnings before tax
c)
Earning after interest and tax/Earnings after tax
Ans. Earning after interest and tax/Earnings after tax
4. Debenture securities carry:
a) Voting rights and dividend
b) Interest and voting rights
c) Interest and dividend
d)
Interest only
Ans. Interest only
5. The prime objective of an enterprise is:
a) Maximization of sales
b)
Maximization of owner’s equity
c) Maximization of profit
Ans. Maximization of owner’s equity
6. Non-members can trade in securities at stock exchanges with the
help of
a) Jobbers
b)
Brokers
c) Authorized clerk
Ans. Brokers
7. Financial Leverage is intended to:
a) Increase return on capital employed
b) Increase net equity return
c) Decrease volatility in return
d)
Increase return on capital employed and net equity
Ans. Increase return on capital employed and net equity
8. The extent to which an organization uses fixed cost on its cost
structure is called:
a) Overall leverage
b) Financial
leverage
c) Fixed Leverage
d) Operating leverage
Ans. Financial leverage
9. Use of fixed interest
securities in the capital structure is called:
a) Operating leverage
b) Financial leverage
c) Overall leverage
d) None of the above
Ans. Financial
leverage
10. What are the
considerations in designing capital structure of a corporate?
a) Trading on Equity
b) Cost of capital
c) Profitability
d) All of the above
Ans. All of the above
11. Capital structure designing has nothing to do with:
a) Profitability
b) Solvency
c) Flexibility
d) Transferability
Ans. Transferability
12. Capital structure represents:
a) Ratio
between different forms of capital
b) All liabilities
c) All assets
d) Assets and liabilities
Ans. Ratio between different forms of capital
Given below are the Chapter Wise Financial Management MCQ:-
Leverage Multiple Choice Questions (MCQs)
Working Capital Management MCQ
13. Cost of capital does not mean:
a) Cut off
rate decided by management
b) Rate of interest
c) Expectations of investors for dividend
d) Money paid to SEBI for permission to acquire capital
Ans. cut off rate decided by management
14. Which of the following is not very much relevant in dividend
decision?
a) Availability of disposable profit
b) Investor’s expectations for dividend
c) Capital
market conditions
d) Industry practice
Ans. Capital market conditions
15. M – M Theory in perfect market suggests that dividend payment
–
a) Has a positive impact on the value of firm
b) Has no
impact on the value of a firm
c) Has a negative impact on the value of firm
d) Has negligible impact on the firm
Ans. Has no impact on the value of a firm
16. According to Walter,
firm should pay 100% dividend if –
a) r > k
b) r = k
c) r < k
d) None of these
Ans. r > k
17. The rate of discount
at which NPV of a project becomes zero is also known as
a) Average Rate of
Return
b) Internal Rate of Return
c) Alternative Rate of
Return
d) None of the above
Ans. Internal
Rate of Return
18. The dividend
irrelevance theorem to share valuation was propounded by –
a) James E. Walter
b) Myron Gordon
c) Modigliani and Miller
d) None of the above
Ans. Modigliani
and Miller
19. Approximately, IRR is inverse of:
a) Payback period
b) NPV
c) Adjusted
Accounting Rate of Return
d) None of the above
Ans. Adjusted Accounting Rate of Return
20. If NPV is positive,
the IRR will be:
a) Positive
b) K = K
c) K < R
d) None of these
Ans. K < R
21. Consider the following steps in the process of Capital
Budgeting:
1) Identification of investment proposals.
2) Fixing priorities.
3) Evaluation of various proposals.
4) Selection and preparation of Capital Budgets.
5) Implementation.
6) Performance Review.
Which of the sequence of these steps is correct?
A. 1, 2,
3, 4, 5, 6
B. 2, 1, 3, 4, 5, 6
C. 1, 3, 2, 4, 5, 6
D. 1, 4, 3, 2, 5, 6
Ans. 1, 2, 3, 4, 5, 6
2. Fill in the blanks: MCQ on financial management given below
1. Financial leverage is also known as ‘Trading on Equity’.
2. Payment of dividend involved
legal as well as financial consideration.
3. Finance is the life blood and nerve centre of a
business concern.
4. Financial decisions involved investment,
financing and dividend decisions.
5. It is better for a
company to remain in low gear during the period of depression.
6. According to M&M approach, the total value
of a firm is absolutely
unaffected by capital structure.
7. Corporation finance
deals with the company form
of organization.
8. The rate of return on
investments does
not related with the shortage of working capital.
9. Capital budgeting is the process of making
investment decisions in capital expenditure
10. Fixed cost bearing
securities should be mixed with equity when the rate of earnings is more than
the rate of interest of the company.
11. Working capital is also
known as net
working capital.
12. It is the duty of a
finance manager to arrange, manage and estimate funds.
13. Cost of capital is
not a
perfect rate as such.
14. Scrip Dividend promises to pay the shareholders
at a future date.
15. Current Assets – Current
Liabilities = Working
Capital
16. Financial function is
the most important of all management functions.
17. Adequate working capital helps in maintaining
solvency of the business by providing uninterrupted flow of production.
18. Cost of capital is
the minimum rate
of return expected by its investors.
19. The value of the firm
can be maximized, if the shareholders’ wealth is maximised.
20. It is better for a
company to remain in low gear during the period of depression.
21. The rate of return on investments also falls with
the shortage of working capital.
22. Capital investment
decisions are generally of non-recurring nature.
23. A firm will have favourable leverage if
its operating
profits/EBIT are more than the debt cost.
24. Finance is the life blood and nerve centre of a
business concern.
25. Capital budgeting means planning for Long term or permanent assets.
26. The redundant working capital gives rise
to Speculative transactions.
27. Dividends paid in the ordinary course of
business are known as regular dividends.
28. Financial decisions
involve investment, financing and dividend decisions.
29. Combined Leverage =
Operating Leverage x financial Leverage.
30. The value of the firm
can be maximized, if the shareholders’ wealth is maximized.
31. Adequacy of working capital is
a must for maintaining solvency and continuing production.
32. The time required to process and execute an
order is called Fixed time.
33. ‘Ploughing back of
profit’ is also known as retained earnings.
34. Leasing benefits both
the lessee as well as the lessor.
35. Corporation finance is a wider term than business Finance.
36. Degree of financial
leverage = Percentage
Change in EPS/Percentage change in EBIT.
37. The volume of sales is
influenced by fund policy
of a firm.
C. True and False: MCQ on financial management given below
1. Retained earnings do not involve any
cost. False
2. The main aim of
financial function is to maximize
profit. False
3. Gross working capital refers to the capital
invested in the total assets of an
enterprise. False, CA
4. Payment of dividend at
the usual rate is termed as regular dividend. True
5. Debentures do not carry any voting
right. True
6. The value of the firm
can be maximized, if the shareholders’ wealth is maximized. True
7. According
to Walter’s model, the dividend decision is
irrelevant. False, MM Approach
8. Corporation finance is a
wider term than business
finance. False, Similar
9. Increased use of debt
increases the financial risk of equity share holders. True
10. Corporation finance is a
part of public
finance. False
11. Composite cost refers to
the cost of equity and preference share
capital. False
12. The fixed proportion of working capital should
be generally financed from the fixed capital sources. False, Borrowed
13. Finance manager has to
estimate, procure and utilize financial
resources. True
14. Capital budgeting and capital rationing mean the
same
thing. False
15. Ownership securities are
represented by
debentures. False, Creditorship Securities
16. Cash dividend is a usual
method of paying
dividend. True
17. ‘Finance’ has been
rightly termed as universal lubricant which keeps the enterprise
dynamic. True
18. Working capital is also
known as revolving or circulating
capital. True
19. Operating Leverage x
Composite Leverage = Financial
Leverage. False
20. Corporation finance is a wider term than
business
finance. False
21. Net working capital is the excess of current
liabilities over current
assets. False
22. Dividend policy of a firm affects both the
long-term financing and shareholders’
wealth. True
23. Equity shareholders have
a residual claim on the assets of the
company. True
24. Cash management is an
important task of the finance
manager. True
25. Every business concern should have excessive
working
capital. False, optimum w.c.
26. The cost of capital is
the maximum rate of return expected by its investors. False
27. Dividend is the reward of the shareholders for
investment made by them in the shares of the company. True
28. The main aim of finance
function is to maximize the
profits. False
29. Capital budgeting is the
process of making investment decisions in capital
expenditures. True
30. Ownership securities are
represented by
debentures. False, Shares
31. New issue market
represents the primary
market. True
32. The cost of capital is minimum rate of return
expected by its
investors. True
33. Financial leverage is
also known as composite
leverage. False
34. Leasing
benefits both the lessee as well as the
lessor. True
35. Wealth maximization is a
socialistic
approach. True
36. Cash management is an important task of finance
manager. True
37. Capital
expenditure involves non-flexible short term commitment of
funds. False
38. Financial leverage is
also known as trading on
Equity. True
39. Financial
decision includes financial planning and capital structure
decisions. False
40. Profit maximization is a
capitalistic
approach. True
41. Debentures do not carry any voting right. True
42. A firm should always keep a large balance of
cash so as to meet the
contingencies True
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