Financial Management Online MCQ Set 19

QN01. Dividends are paid out of

1. Accumulated Profits
2. Gross Profit
3. Profit after Tax
4. General Reserve

Answer

(C)Profit after Tax

QN02. If the following is an element of dividend policy?

1. Production capacity
2. Change in Management
3. Informational content
4. Debt service capacity

Answer

(C)Informational content

QN03. In stock dividend:

1. Authorized capital always increases
2. Paid up capital always increases
3. Face value per share decreases
4. Market price for share decreases

Answer

(D)Market price for share decreases

QN04. Cheques deposited in bank may not be available for immediate use due to

1. Payment Float
2. Recceipt Float
3. Net Float
4. Playing the Float

Answer

(B)Recceipt Float

QN05. Float management is related to

1. Cash Management
2. Inventory Management
3. Receivables Management
4. Raw Materials Management

Answer

(A)Cash Management

QN06. 5Cs of the credit does not include

1. Collateral
2. Character
3. Conditions
4. None of the above

Answer

(D)None of the above

QN07. Which of the following is not a part of credit policy?

1. Collection Effort
2. Cash Discount
3. Credit Standard
4. Paying Practices of debtors

Answer

(D)Paying Practices of debtors

QN08. If the closing balance of receivables is less than the opening balance for a month then which one is true out of

1. Collections>Current Purchases
2. Collections>Current Sales
3. Collections<Current Purchases
4. Collections < Current Sales

Answer

(B)Collections>Current Sales

QN09. 80% of sales of 10,00,000 of a firm are on credit. It has a Receivable Turnover of 8. What is the Average collection period (360 days a year) and Average Debtors of the firm?

1. 45 days and 1,00,000
2. 360 days and 1,00,000
3. 45 days and 8,00,000
4. 360 days and 1,25,000

Answer

(A)45 days and 1,00,000

QN10. If cash discount is offered to customers, then which of the following would increase?

1. Sales
2. Debtors
3. Debt collection period
4. All of the above

Answer

(A)Sales

QN11. ABC Analysis is used in

1. Inventory Management
2. Receivables Management
3. Accounting Policies
4. Corporate Governance

Answer

(A)Inventory Management

QN12. Which of the following is true for a company which uses continuous review inventory system

1. Order Interval is fixed
2. Order Interval varies
3. Order Quantity is fixed
4. Both (a) and (c)

Answer

(B)Order Interval varies

QN13. Which of the following is not included in cost of inventory?

1. Purchase cost
2. Transport in Cost
3. Import Duty
4. Selling Costs

Answer

(D)Selling Costs

QN14. What is Economic Order Quantity?

1. Cost of an Order
2. Cost of Stock
3. Reorder level
4. Optimum order size

Answer

(D)Optimum order size

QN15. Concept of Maximum Permissible Bank finance was introduced by

1. Kannan Committee
2. Chore Committee
3. Nayak Committee
4. Tandon Committee

Answer

(D)Tandon Committee

QN16. A short-term lease which is often cancellable is known as

1. Finance Lease
2. Net Lease
3. Operating Lease
4. Leverage Lease

Answer

(C)Operating Lease

QN17. One difference between Operating and Financial lease is:

1. There is often an option to buy in operating lease
2. There is often a call option in financial lease
3. An operating lease is generally cancelable by lease
4. A financial lease in generally cancelable by lease

Answer

(C)An operating lease is generally cancelable by lease

QN18. Basic objective of diversification is

1. Increasing Return
2. Maximising Return
3. Decreasing Risk
4. Maximizing Risk

Answer

(C)Decreasing Risk

QN19. The job of a finance manager is confined to

1. Raising funds
2. Management of cash
3. Raising of funds and their effective utilization
4. None of these

Answer

(C)Raising of funds and their effective utilization

QN20. Inventory Turnover measures the relationship of inventory with:

1. Average Sales
2. Cost of Goods Sold
3. Total Purchases
4. Total Assets

Answer

(B)Cost of Goods Sold

QN21. Debt to Total Assets of a firm is.2. The Debt to Equity boo would be:

1. 0.80
2. 0.25
3. 1.00
4. 0.75

Answer

(B)0.25

QN22. Capital Budgeting is a part of:

1. Investment Decision
2. Working Capital Management
3. Marketing Management
4. Capital Structure

Answer

(A)Investment Decision

QN23. Cash Inflows from a project include:

1. Tax Shield of Depreciation
2. After-tax Operating Profits
3. Raising of Funds
4. Both (a) and (b)

Answer

(D)Both (a) and (b)

QN24. In Capital Budgeting, Sunk cost is excluded because it is:

1. of small amount
2. not incremental
3. not reversible
4. All of the above

Answer

(B)not incremental

QN25. In Certainty-equivalent approach, adjusted cash flows are discounted at:

1. Accounting Rate of Return
2. Internal Rate of Return
3. Hurdle Rate
4. Risk-free Rate

Answer

(D)Risk-free Rate

QN26. Cost of Capital refers to:

1. Flotation Cost
2. Dividend
3. Required Rate of Return
4. None of the above

Answer

(C)Required Rate of Return

QN27. Weighted Average Cost of Capital is generally denoted by:

1. kA
2. kw
3. k0
4. kc

Answer

(C)k0

QN28. An implicit cost of increasing proportion of debt is:

1. Tax should would not be available on new debt
2. P.E. Ratio would increase
3. Equity shareholders would demand higher return
4. Rate of Return of the company would decrease

Answer

(C)Equity shareholders would demand higher return

QN29. Minimum Rate of Return that a firm must earn in order to satisfy its investors, is also known as:

1. Average Return on Investment
2. Weighted Average Cost of Capital
3. Net Profit Ratio
4. Average Cost of borrowing

Answer

(B)Weighted Average Cost of Capital

QN30. Cost of issuing new shares to the public is known as:

1. Cost of Equity
2. Cost of Capital
3. Flotation Cost
4. Marginal Cost of Capital

Answer

(C)Flotation Cost

QN31. High degree of financial leverage means:

1. High debt proportion
2. Lower debt proportion
3. Equal debt and equity
4. No debt

Answer

(A)High debt proportion

QN32. Financial Leverage measures relationship between

1. EBIT and PBT
2. EBIT and EPS
3. Sales and PBT
4. Sales and EPS

Answer

(B)EBIT and EPS

QN33. If a firm has a DOL of 2.8, it means:

1. If sales increase by 2.8%, the EBIT will increase by 1%
2. If EBIT increase by 2.896, the EPS will increase by 1 %
3. If sales rise by 1%, EBIT will rise by 2.8%
4. None of the above

Answer

(C)If sales rise by 1%, EBIT will rise by 2.8%

QN34. Benefit of 'Trading on Equity' is available only if:

1. Rate of Interest < Rate of Return
2. Rate of Interest > Rate of Return
3. Both (a) and (b)
4. None of (d) and (b)

Answer

(A)Rate of Interest < Rate of Return

QN35. Between two capital plans, if expected EBIT is more than indifference level of EBIT, then

1. Both plans be rejected
2. Both plans are good
3. One is better than other
4. None of the above

Answer

(C)One is better than other

QN36. In the Traditional Approach, which one of the following remains constant?

1. Cost of Equity
2. Cost of Debt
3. WACC
4. None of the above

Answer

(D)None of the above

QN37. In Traditional Approach, which one is correct?

1. ke rises constantly
2. kd decreases constantly
3. k0 decreases constantly
4. None of the above

Answer

(D)None of the above

QN38. Which of the following is incorrect for value of the firm?

1. In the initial preposition, MM Model argues that value is independent of the financing mix
2. Total value of levered and unlevered firms is otherwise arbitrage will take place
3. Total value incorporates borrowings by firm but excludes personal borrowing
4. Total value does not change because underlying does not change with financing mix

Answer

(D)Total value does not change because underlying does not change with financing mix

QN39. Walter’s Model suggests that a firm can always increase i.e. of the share by

1. Increasing Dividend
2. Decreasing Dividend
3. Constant Dividend
4. None of the above

Answer

(D)None of the above

QN40. Which of the following stresses on investor's preference reorient dividend than higher future capital gains ?

1. Walter's Model
2. Residuals Theory
3. Gordon's Model
4. MM Model

Answer

(C)Gordon's Model