Financial Management MCQ: Multiple Choice Questions and Answers | Full chapter wise MCQ

 

 Financial Management MCQ 

Multiple Choice Questions and Answers

financial management mcq

 

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)


Financial Management MCQ

Table of content

A. Choose the appropriate answer

B. Fill in the blanks

C. True and False

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)

Capital Budgeting MCQ 

Working Capital Management MCQ 

Capital Structure MCQ 

Cost of Capital 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

 Fill in the blanks

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

 State whether the following statements are true or false

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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