Q241. The EOQ model assumes that: Answer: d) All of the above
a) The ordering cost per unit is constant
b) The carrying cost per unit is constant
c) There are no stockouts or shortages
d) All of the above
Answer
Q242. The cash planning process involves: Answer: d) All of the above
a) Estimating cash inflows and outflows
b) Determining the optimal cash balance
c) Identifying cash surplus and deficit periods
d) All of the above
Answer
Q243. The optimal cash level determined by the Baumol Model occurs when: Answer: a) The carrying cost of cash is minimized
a) The carrying cost of cash is minimized
b) The ordering cost of cash is minimized
c) The cash conversion cycle is maximized
d) The accounts payable period is minimized
Answer
Q244. The accounts receivable turnover ratio is calculated as: Answer: b) Sales divided by average accounts receivable
a) Average accounts receivable divided by sales
b) Sales divided by average accounts receivable
c) Average accounts receivable divided by cost of goods sold
d) Cost of goods sold divided by average accounts receivable
Answer
Q245. Investing surplus cash refers to: Answer: c) Short-term investments of idle cash
a) Holding excess inventory
b) Increasing accounts payable period
c) Short-term investments of idle cash
d) Increasing the cash conversion cycle
Answer
Q246. The primary goal of managing cash flows is to: Answer: c) Maintain adequate liquidity
a) Minimize accounts payable period
b) Maximize accounts receivable period
c) Maintain adequate liquidity
d) Minimize inventory conversion period
Answer
Q247. The calculation of Maximum Permissible Bank Finance (MPBF) considers factors such as: Answer: d) Sales forecast and operating cycle
a) Inventory turnover ratio and credit period
b) Accounts payable turnover ratio and credit policy
c) Accounts receivable turnover ratio and inventory conversion period
d) Sales forecast and operating cycle
Answer
Q248. Negative working capital can be beneficial for a company because it: Answer: a) Reduces the need for short-term borrowing
a) Reduces the need for short-term borrowing
b) Increases the inventory turnover rate
c) Extends the credit period for customers
d) Decreases the cash conversion cycle
Answer
Q249. Which of the following is NOT a component of the operating cycle? Answer: a) Accounts payable period
a) Accounts payable period
b) Inventory conversion period
c) Cash conversion period
d) Accounts receivable period
Answer
Q250. The EOQ model assumes that inventory is: Answer: d) Consumed at a constant rate
a) Constantly increasing
b) Ordered in large batches
c) Ordered at a fixed cost
d) Consumed at a constant rate
Answer
Q251. The Baumol Model is based on the assumption that: Answer: c) Cash balances are constant over time
a) Cash inflows and outflows are irregular
b) The cash conversion cycle is constant
c) Cash balances are constant over time
d) There are no carrying costs associated with cash
Answer
Q252. Cash budgeting involves: Answer: a) Estimating future cash inflows and outflows
a) Estimating future cash inflows and outflows
b) Determining the optimal cash level
c) Maximizing accounts receivable turnover
d) Managing inventory turnover
Answer
Q253. Negative working capital indicates that: Answer: c) The company is operating at a loss
a) The company has excessive cash reserves
b) The company’s current assets exceed its current liabilities
c) The company is operating at a loss
d) The company has high accounts receivable turnover
Answer
Q254. The cash conversion cycle measures the time it takes for: Answer: b) Converting inventory into cash
a) Converting inventory into accounts receivable
b) Converting inventory into cash
c) Collecting accounts receivable
d) Paying accounts payable
Answer
Q255. The EOQ formula assumes that all of the following are constant EXCEPT: Answer: c) Annual demand
a) Ordering cost per unit
b) Carrying cost per unit
c) Annual demand
d) Stockout cost per unit
Answer
Q256. The objective of receivables management is to: Answer: d) Maximize cash inflows from credit sales
a) Minimize accounts receivable turnover
b) Maximize bad debts
c) Reduce the credit period for customers
d) Maximize cash inflows from credit sales
Answer
Q257. The inventory turnover ratio is calculated as: Answer: a) Cost of goods sold divided by average inventory
a) Cost of goods sold divided by average inventory
b) Average inventory divided by cost of goods sold
c) Sales divided by average inventory
d) Average inventory divided by sales
Answer
Q258. The Baumol Model helps in determining the: Answer: b) Optimal cash balance
a) Optimum accounts payable period
b) Optimal cash balance
c) Optimum credit policy
d) Optimal inventory level
Answer
Q259. The MPBF calculation considers factors such as: Answer: c) Sales forecast and cash conversion cycle
a) Inventory conversion period and credit policy
b) Accounts payable turnover ratio and inventory turnover
c) Sales forecast and cash conversion cycle
d) Cost of goods sold and accounts receivable turnover
Answer
Q260. The cash conversion period is calculated as: Answer: d) Average inventory divided by sales
a) Average accounts receivable divided by sales
b) Average inventory divided by cost of goods sold
c) Cost of goods sold divided by average accounts receivable
d) Average inventory divided by sales
Answer
Q261. The main goal of managing cash flows is to: Answer: c) Maintain adequate liquidity
a) Minimize accounts receivable period
b) Maximize accounts payable period
c) Maintain adequate liquidity
d) Minimize inventory conversion period
Answer
Q262. Investing surplus cash typically involves: Answer: c) Investing in short-term instruments
a) Increasing the credit period for customers
b) Increasing inventory levels
c) Investing in short-term instruments
d) Decreasing the cash conversion cycle
Answer
Q263. The accounts payable period measures the: Answer: b) Average time taken to pay accounts payable
a) Average time taken to collect accounts receivable
b) Average time taken to pay accounts payable
c) Time taken to convert inventory into cash
d) Time taken to convert accounts receivable into cash
Answer
Q264. The EOQ model helps in optimizing: Answer: b) Inventory turnover
a) Accounts receivable turnover
b) Inventory turnover
c) Accounts payable turnover
d) Cash conversion cycle
Answer
Q265. Negative working capital can indicate: Answer: a) The need for short-term borrowing
a) The need for short-term borrowing
b) A low cash conversion cycle
c) Efficient management of working capital
d) High levels of liquidity
Answer
Q266. What is the concept of cost of capital? Answer: a) The cost incurred in acquiring capital
a) The cost incurred in acquiring capital
b) The return expected by shareholders
c) The cost of borrowing money
d) The cost of equity financing
Answer
Q267. Which of the following is an assumption made when calculating the cost of capital? Answer: c) Taxes are ignored
a) The market value of equity is used
b) Debt financing has no cost
c) Taxes are ignored
d) Floatation costs are excluded
Answer
Q268. Floatation costs refer to: Answer: a) The cost of issuing new shares
a) The cost of issuing new shares
b) The cost of borrowing from financial institutions
c) The cost of paying dividends to shareholders
d) The cost of purchasing fixed assets
Answer
Q269. The weighted average cost of capital (WACC) is calculated as the: Answer: c) Weighted sum of all costs of capital
a) Average cost of all sources of capital
b) Weighted sum of cost of equity and cost of debt
c) Weighted sum of all costs of capital
d) Average cost of equity and debt
Answer
Q270. When calculating the WACC, book value weights are based on: Answer: c) The book value of equity and debt
a) The historical cost of assets
b) The market value of assets
c) The book value of equity and debt
d) The market value of equity and debt
Answer
Q271. EBIT-EPS analysis helps in understanding: Answer: b) The relationship between earnings before interest and taxes and earnings per share
a) The company’s sales growth rate
b) The relationship between earnings before interest and taxes and earnings per share
c) The company’s cost structure
d) The company’s market share
Answer
Q272. Operating leverage measures the: Answer: a) Sensitivity of operating income to changes in sales
a) Sensitivity of operating income to changes in sales
b) Use of fixed costs in the company’s operations
c) Ability of the company to generate profits
d) Level of financial risk in the company
Answer
Q273. Financial leverage refers to the use of: Answer: a) Debt financing to increase returns to shareholders
a) Debt financing to increase returns to shareholders
b) Equity financing to reduce financial risk
c) Operating costs to maximize profitability
d) Fixed costs to amplify earnings per share
Answer
Q274. Which factor can affect the cost of capital? Answer: c) The level of competition in the industry
a) The company’s dividend policy
b) The company’s stock price
c) The level of competition in the industry
d) The company’s marketing strategy
Answer
Q275. The cost of debt is usually lower than the cost of equity because: Answer: b) Debt is tax-deductible for the company
a) Debt is less risky for investors
b) Debt is tax-deductible for the company
c) Equity investors require higher returns
d) Debt has lower floatation costs
Answer
Q276. The cost of equity is influenced by: Answer: c) The company’s beta coefficient
a) The company’s debt level
b) The company’s interest expense
c) The company’s beta coefficient
d) The company’s depreciation expense
Answer
Q277. Reserve and surplus is a source of capital that represents: Answer: a) Retained earnings of the company
a) Retained earnings of the company
b) Debt financing obtained from financial institutions
c) Equity financing from existing shareholders
d) Dividends paid to preference shareholders
Answer
Q278. Preference shares have a fixed dividend rate and: Answer: d) Guaranteed return of capital
a) Voting rights in the company
b) Convertible to common shares
c) No maturity date
d) Guaranteed return of capital
Answer
Q279. Market value weights are based on: Answer: c) The market value of equity and debt
a) The historical cost of assets
b) The book value of equity and debt
c) The market value of equity and debt
d) The face value of preference shares
Answer
Q280. The break-even point occurs when: Answer: a) Total revenue is equal to total cost
a) Total revenue is equal to total cost
b) Total revenue exceeds total cost
c) Total revenue is less than total cost
d) Total revenue is greater than fixed costs
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
