Q1: Basic objective of financial management is
- A. Maximization of profits
- B. Maximization of shareholders wealth
- C. Ensuring financial discipline in the firm
- D. All of these
Answer
Answer B. Maximization of shareholders wealth
Q2: Financial management is mainly concerned with
- A. Efficient management of every activity of business
- B. Arrangement of funds required to the firm
- C. Obtaining required funds in the appropriate mix and utilizing them efficiently
- D. All of these
Answer
Answer C. Obtaining required funds in the appropriate mix and utilizing them efficiently
Q3: Financial management helps in
- A. Short-term planning of company’s activities
- B. Estimating the total funds requirement and their proper utilization in fixed assets and working capital
- C. Profit planning of the firm
- D. All of these
Answer
Answer B. Estimating the total funds requirement and their proper utilization in fixed assets and working capital
Q4: Which of the following is not a function of finance manager?
- A. Mobilization of funds
- B. Deployment of funds
- C. Control over use of funds
- D. Manipulate share price of the Company
Answer
Answer D. Manipulate share price of the Company
Q5: Financial structure refers to
- A. Short term resources
- B. All the financial resources
- C. Long term resources
- D. All of these
Answer
Answer B. All the financial resources
Q6: This security is known as variable income security
- A. Debentures
- B. Preference shares
- C. Equity shares
- D. None of these
Answer
Answer C. Equity shares
Q7: Real ownership of a company rests with
- A. Board of directors
- B. Equity shareholders
- C. Preference shareholders
- D. All of these
Answer
Answer B. Equity shareholders
Q8: Preference share is a___security compared to equity share
- A. Senior
- B. Junior
- C. Equal
- D. None of these
Answer
Answer A. Senior
Q9: Which of the following features of preference shares are similar to those of equity shares?
- A. Redeemability
- B. No obligation to pay dividend
- C. Voting rights
- D. Charge over assets
Answer
Answer B. No obligation to pay dividend
Q10: Which one of the following is not a source of long-term finance?
- A. Equity capital
- B. Preference capital
- C. Debenture capital
- D. Commercial paper
Answer
Answer D. Commercial paper
Q11: Which of the following, from the firm’s point of view, can be considered as the advantage of using equity capital as a source of long-term funds?
- A. If does not involve any fixed obligation for payment of dividends
- B. Equity dividends are payable from post-tax earnings. They are not tax-deductible expenses
- C. It enhances the creditworthiness of the Company
- D. Both A and C
Answer
Answer D. Both A and C
Q12: Long term finance is required for
- A. Current assets
- B. Fixed assets
- C. Intangible assets
- D. None of these
Answer
Answer B. Fixed assets
Q13: Long term sources of finance are also required for
- A. Permanent part
- B. Temporary part
- C. Both A and B
- D. None of these
Answer
Answer A. Permanent part
Q14: Cost of equity capital is
- A. Lesser than the cost of debt capital
- B. Equal to the last dividend paid to the equity shareholders
- C. Equal to the dividend expectations of equity shareholders for the coming year
- D. None of the above
Answer
Answer D. None of the above
Q15: While calculating Weighted average cost of capital
- A. Retained earnings are excluded
- B. Bank borrowings for working capital are included
- C. Cost of issues are included
- D. Weights are always based on market value or on book value
Answer
Answer D. Weights are always based on market value or on book value
Q16: Treasury notes that provide returns tied to inflation rate are classified as
- A. Clean price bonds
- B. Discount index bonds
- C. Premium index bonds
- D. Inflation index bonds
Answer
Answer D. Inflation index bonds
Q17: Which of the following is not an advantage of using book value weights for computing the cost of capital?
- A. The calculation of the weights is very simple
- B. Book value weights are likely to fluctuate less over a period as these as not affected by the fluctuations in market prices
- C. Book value weights are the only usable basis when market values are not obtainable or reliable
- D. Book value weights are consistent with the concept of cost of capital
Answer
Answer D. Book value weights are consistent with the concept of cost of capital
Q18: Cost of equity capital
- A. Is lesser than the cost of debt capital
- B. Is equal to the dividend rate expectations of equity shareholders for the coming year
- C. Is equal to the discounting factor which equates the market price from the equity issue to the present value of future dividend payments
- D. Is equal to the dividend rate declared on equity shares
Answer
Answer C. Is equal to the discounting factor which equates the market price from the equity issue to the present value of future dividend payments
Q19: The optimum capital structure is obtained when the market value per equity share is at
- A. Maximum
- B. Minimum
- C. Zero
- D. None of these
Answer
Answer A. Maximum
Q20: If the use of borrowing results in the fall of market value of share in the stock exchange, it can be said that the company is___from its optimum capital structure
- A. Moving away
- B. Moving towards
- C. Moving towards or moving away
- D. None of these
Answer
Answer A. Moving away
Q21: Which of the following is not a feature of an optimal capital structure?
- A. Profitability
- B. Safety
- C. Flexibility
- D. Control
Answer
Answer B. Safety
Q22: According to the net operating income approach
- A. The equity capitalization rate remains constant with any increase or decrease in the degree of leverage
- B. The overall capitalisation rate of the firm decreases as the degree of leverage increases
- C. The market is assumed to capitalise the firm at a discount rate that is independent of the firm’s degree of leverage
- D. The cost of debt increases with increase in the degree of leverage
Answer
Answer C. The market is assumed to capitalise the firm at a discount rate that is independent of the firm’s degree of leverage
Q23: Which of the following methods does a firm resort to avoid dividend payments?
- A. Share splitting
- B. Declaring bonus shares
- C. Rights issues
- D. All of the above
Answer
Answer B. Declaring bonus shares
Q24: Dividend is a part of
- A. Divisible profit
- B. Retained earnings
- C. None of the above
- D. All of these
Answer
Answer A. Divisible profit
Q25: Dividend is distributed to the
- A. Debenture holders of a company
- B. Bankers of a company
- C. Shareholders of a company
- D. All of the above
Answer
Answer C. Shareholders of a company
Q26: Dividend policy of a company to a large extent affects the
- A. Financial structure
- B. Corporate liquidity
- C. Growth of the company
- D. All of the above
Answer
Answer D. All of the above
Q27: The most important and common form of dividend is
- A. Stock dividend
- B. Cash dividend
- C. Bond dividend
- D. Scrips dividend
Answer
Answer B. Cash dividend
Q28: The dividend which is paid without preparing final accounts of the company is called
- A. Interim dividend
- B. Bond dividend
- C. Scrips dividend
- D. None of the above
Answer
Answer A. Interim dividend
Q29: Which one of the following are the relevance theory?
- A. Gorden
- B. Walter
- C. Residual
- D. Both A and B
Answer
Answer D. Both A and B
Q30: For a project, benefit cost ratio is equal to one, then the
- A. IRR will be greater than one
- B. IRR will be greater than discount rate
- C. IRR will be lesser than discount rate
- D. IRR will be equal to discount rate
Answer
Answer D. IRR will be equal to discount rate
Q31: If the life span of two project is different, the appraisal method useful for evaluating the projects is
- A. Annual capital charge
- B. Accounting rate of return
- C. Net present value
- D. Pay-back period
Answer
Answer A. Annual capital charge
Q32: The return after the pay-off period is not considered in case of
- A. Present value index method
- B. Internal rate of return method
- C. Payback method
- D. All of the above
Answer
Answer C. Payback method
Q33: Depreciation is included in costs in case of
- A. Present value index method
- B. Accounting rate of return method
- C. Payback method
- D. All of the above
Answer
Answer B. Accounting rate of return method
Q34: The cash inflows on account of operations are presumed to have been reinvested at the cut off rate in case of
- A. Discounted cash flow method
- B. Accounting rate of return
- C. Payback method
- D. All of that above
Answer
Answer A. Discounted cash flow method
Q35: Which of the following projects does not involve a capital budgeting decision?
- A. A proposal to purchase a computer system
- B. A proposal for a 5-year research and development programme by a car manufacturer to develop an engine that would get 100 miles per litre
- C. A proposal to replace a 2 -year-old company car with a new car
- D. A proposal by a retail food store to increase the number of cans of a particular tomato paste held in inventory
Answer
Answer D. A proposal by a retail food store to increase the number of cans of a particular tomato paste held in inventory
Q36: If net present value for a project is negative, then
- A. IRR less than cost of capital
- B. IRR greater than cost of capital
- C. IRR equals to cost of capital
- D. BCR greater than one
Answer
Answer A. IRR less than cost of capital
Q37: New capital budgeting decisions are evaluated using the existing cost of capital of the firm because
- A. The firm does not pay taxes
- B. The firm is assumed to be financed by all equity
- C. Cost of debt is always less than cost of equity
- D. New assets are assumed to have the same risk as existing assets
Answer
Answer D. New assets are assumed to have the same risk as existing assets
Q38: In a capital budgeting decision incremental cash flows means
- A. cash flows which are increasing
- B. cash flows occurring over a period of time
- C. cash flows directly related to the project
- D. difference between cash inflows and cash outflows for each and every expenditure
Answer
Answer D. difference between cash inflows and cash outflows for each and every expenditure
Q39: Which of the following statements regarding IRR are true?
- A. A project can have only one IRR
- B. If IRR is less than the firms cost of capital, the project should be rejected
- C. A project can have multiple IRRs depending on the cash flow streams
- D. Both B and C
Answer
Answer C. A project can have multiple IRRs depending on the cash flow streams
Q40: Which of the following is not a drawback of the accounting rate of return criteria?
- A. It gives equal weightage to near flows and distant flows
- B. It is calculated using the accounting income and net cash flows
- C. The cut off ARR is arbitrarily fixed
- D. None of the above
Answer
Answer D. None of the above
