Q81. What type of finance involves the purchase of goods or services with the agreement to pay for them at a later date? Answer: c) Trade Credit
a) Accruals
b) Leasing
c) Trade Credit
d) Public Deposits
Answer
Q82. Which source of short-term finance involves borrowing funds from other corporations? Answer: b) Inter-corporate Deposits
a) Factoring
b) Inter-corporate Deposits
c) Leverage Buyouts
d) Commercial Paper
Answer
Q83. Securitization involves the process of converting which of the following into tradable securities? Answer: d) Financial assets
a) Trade Credit
b) Accruals
c) Public Deposits
d) Financial assets
Answer
Q84. Which of the following represents a source of finance commonly used for working capital requirements? Answer: d) Commercial Paper
a) ADRs
b) Ordinary Shares
c) Hybrid Securities
d) Commercial Paper
Answer
Q85. What is the term used for the process of selling trade receivables to a third party at a discount? Answer: a) Factoring
a) Factoring
b) Leasing
c) Accruals
d) Hire purchase
Answer
Q86. Which of the following represents an institutional source of funds? Answer: d) Banks
a) Hire purchase
b) Inter-corporate Deposits
c) Leverage Buyouts
d) Banks
Answer
Q87. What is the term used for the process of raising capital by issuing shares to private investors? Answer: c) Venture Capital Financing (VCF)
a) Inter-corporate Deposits
b) Leverage Buyouts
c) Venture Capital Financing (VCF)
d) ADRs
Answer
Q88. Which of the following is a form of short-term financing provided by commercial banks? Answer: d) Working capital advance
a) FII’s (Foreign Institutional Investors)
b) Term Loans
c) Public Deposits
d) Working capital advance
Answer
Q89. Leverage Buyouts involve the use of debt financing to acquire a company primarily for the purpose of: Answer: d) Asset restructuring
a) Short-term investments
b) Long-term financing
c) Operating expenses
d) Asset restructuring
Answer
Q90. What is the primary function of securitization in finance? Answer: c) Converting assets into tradable securities
a) Financing long-term projects
b) Acquiring fixed assets
c) Converting assets into tradable securities
d) Raising capital through equity shares
Answer
Q91. Which of the following is not a factor influencing working capital requirement? Answer: d) Fixed assets
a) Seasonal variations in sales
b) Credit policy
c) Economic conditions
d) Fixed assets
Answer
Q92. The estimation of working capital requirement involves: Answer: d) Forecasting cash inflows and outflows
a) Determining optimal cash level
b) Analyzing negative working capital
c) Assessing long-term financing options
d) Forecasting cash inflows and outflows
Answer
Q93. The operating cycle analysis helps in understanding: Answer: c) The time it takes to convert inventory and receivables into cash
a) The length of a company’s fiscal year
b) The process of converting raw materials into finished goods
c) The time it takes to convert inventory and receivables into cash
d) The impact of inflation on working capital
Answer
Q94. Negative working capital refers to a situation where: Answer: b) The current ratio is below 1
a) A company’s liabilities exceed its assets
b) The current ratio is below 1
c) The operating cycle is longer than usual
d) The cash flow is negative
Answer
Q95. The primary objective of inventory management is to: Answer: a) Minimize stockouts and overstocking
a) Minimize stockouts and overstocking
b) Maximize the value of inventory
c) Reduce the lead time for ordering inventory
d) Eliminate all carrying costs associated with inventory
Answer
Q96. The EOQ model is used to determine: Answer: a) The economic order quantity of inventory
a) The economic order quantity of inventory
b) The total cost of ordering inventory
c) The reorder point for inventory
d) The lead time for inventory replenishment
Answer
Q97. Receivables management refers to the: Answer: d) Effective management of a company’s accounts receivable
a) Process of selling accounts receivable to a third party
b) Assessment of customer creditworthiness
c) Calculation of the average collection period
d) Effective management of a company’s accounts receivable
Answer
Q98. Cash planning involves: Answer: d) Forecasting the company’s future cash inflows and outflows
a) Investing surplus cash in long-term assets
b) Analyzing the company’s cash flows
c) Determining the optimal cash level
d) Forecasting the company’s future cash inflows and outflows
Answer
Q99. The Baumol Model is used to determine the: Answer: a) Optimal cash level for a company
a) Optimal cash level for a company
b) Economic order quantity for inventory
c) Average collection period for receivables
d) Maximum permissible bank finance
Answer
Q100. Investing surplus cash involves: Answer: c) Investing cash in short-term securities
a) Holding cash in a safe deposit box
b) Lending cash to customers
c) Investing cash in short-term securities
d) Using cash to pay off long-term debt
Answer
Q101. The Maximum Permissible Bank Finance (MPBF) is calculated based on: Answer: d) The company’s working capital gap
a) The company’s credit policy
b) The company’s fixed assets
c) The company’s inventory turnover ratio
d) The company’s working capital gap
Answer
Q102. Which of the following is not a factor of influencing working capital? Answer: c) Cost of goods sold
a) Level of competition in the industry
b) Length of the production cycle
c) Cost of goods sold
d) Payment terms offered to customers
Answer
Q103. The EOQ model helps in determining the: Answer: b) Optimal order quantity of inventory
a) Optimal level of accounts receivable
b) Optimal order quantity of inventory
c) Optimal cash balance
d) Optimal level of fixed assets
Answer
Q104. Receivables management involves: Answer: b) Calculating the average collection period
a) Determining the optimal level of cash reserves
b) Calculating the average collection period
c) Analyzing the company’s inventory turnover ratio
d) Evaluating the company’s credit policy
Answer
Q105. What is the significance of cost of capital? Answer: c. It helps in evaluating investment opportunities.
a. It determines the firm’s profitability.
b. It indicates the company’s market share.
c. It helps in evaluating investment opportunities.
d. It measures the company’s liquidity.
Answer
Q106. Which of the following is not an assumption of cost of capital analysis? Answer: d. Efficient market hypothesis.
a. Perfect capital markets.
b. Constant tax rates.
c. Constant dividend policy.
d. Efficient market hypothesis.
Answer
Q107. Floatation cost refers to: Answer: a. The cost of issuing new securities.
a. The cost of issuing new securities.
b. The cost of holding cash reserves.
c. The cost of debt repayment.
d. The cost of inventory management.
Answer
Q108. Which of the following sources of capital has the highest floatation cost? Answer: a. Equity shares.
a. Equity shares.
b. Debt.
c. Reserve & Surplus.
d. Preference shares.
Answer
Q109. The computation of cost of capital for equity involves adjusting for: Answer: a. Floatation cost.
a. Floatation cost.
b. Interest expense.
c. Dividend payments.
d. Depreciation expense.
Answer
Q110. Weighted Average Cost of Capital (WACC) is calculated using: Answer: c. Both book value and market value weights.
a. Book value weights only.
b. Market value weights only.
c. Both book value and market value weights.
d. Equal weights for all sources of capital.
Answer
Q111. EBIT-EPS analysis is used to determine: Answer: b. The company’s earnings per share.
a. The company’s tax liabilities.
b. The company’s earnings per share.
c. The company’s dividend payout ratio.
d. The company’s cost of capital.
Answer
Q112. Operating leverage refers to the: Answer: b. Proportion of fixed costs in a company’s cost structure.
a. Use of debt to finance a company’s operations.
b. Proportion of fixed costs in a company’s cost structure.
c. Use of equity financing for expansion projects.
d. Degree of uncertainty in a company’s sales revenue.
Answer
Q113. Financial leverage measures the impact of: Answer: c. Changes in the company’s capital structure on its returns.
a. Changes in sales volume on a company’s earnings.
b. Changes in interest rates on a company’s profitability.
c. Changes in the company’s capital structure on its returns.
d. Changes in the company’s tax rate on its net income.
Answer
Q114. Combined leverage is a combination of: Answer: a. Operating leverage and financial leverage.
a. Operating leverage and financial leverage.
b. Financial leverage and market leverage.
c. Market leverage and operating leverage.
d. Operating leverage and liquidity leverage.
Answer
Q115. The cost of debt is typically lower than the cost of equity because debt: Answer: d. Has priority in claim over company assets.
a. Requires periodic interest payments.
b. Involves more risk for the company.
c. Provides voting rights to the shareholders.
d. Has priority in claim over company assets.
Answer
Q116. The cost of equity is influenced by: Answer: c. The company’s dividend payout ratio.
a. The company’s debt-to-equity ratio.
b. The company’s capital budgeting decisions.
c. The company’s dividend payout ratio.
d. The company’s inventory turnover ratio.
Answer
Q117. Which type of leverage increases the potential returns for shareholders? Answer: b. Financial leverage.
a. Operating leverage.
b. Financial leverage.
c. Combined leverage.
d. None of the above.
Answer
Q118. Which component is not included in the calculation of weighted average cost of capital (WACC)? Answer: c. Cost of retained earnings.
a. Cost of equity.
b. Cost of debt.
c. Cost of retained earnings.
d. Cost of preference shares.
Answer
Q119. Leverage can magnify: Answer: a. Both profits and losses.
a. Both profits and losses.
b. Profits only.
c. Losses only.
d. None of the above.
Answer
Q120. The break-even point is the level of sales where: Answer: a. Total costs equal total revenue.
a. Total costs equal total revenue.
b. Total costs exceed total revenue.
c. Total costs are lower than total revenue.
d. None of the above.
Answer
Study other MCQ Set of Fundamentals of Financial Management
- Fundamentals of Financial Management mcq practice set 1
- Fundamentals of Financial Management mcq practice set 2
- Fundamentals of Financial Management mcq practice set 3
- Fundamentals of Financial Management mcq practice set 4
- Fundamentals of Financial Management mcq practice set 5
- Fundamentals of Financial Management mcq practice set 6
- Fundamentals of Financial Management mcq practice set 7
- Fundamentals of Financial Management mcq practice set 8
