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Financial Management Question Bank

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Financial Management Question Bank

MCQs from CBSE Sample Papers

Read the following statements: Assertion (A) and Reason (R). Choose the correct alternative from those given below:

Assertion(A): Financial Planning aims at enabling the company to tackle the uncertainty in respect of the availability and timing of the funds.

Reason(R): Capital structure refers to the mix between owners’ and borrowed funds

Alternatives :

  1. Both Assertion (A) is false and Reason (R) are true.
  2. Both Assertion (A) and Reason (R) are false.
  3. *Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of the Assertion.
  4. Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of the Assertion

 

Identify the incorrect statement with respect to ‘Investment decision’:

  1. Net working capital refers to excess of current assets over current liabilities
  2. Current assets are those assets which get converted into cash within one year
  3. Capital budgeting decisions are irreversible.
  4. *Size of the assets, Profitability and competitiveness are not affected by capital budgeting decisions.

 

Identify the decision which is not taken under financial management.

  1. Dividend Decision
  2. Capital Budgeting Decision
  3. *Pricing Decision
  4. Both 2 and 3

 

What are the factors that affect financing decisions?

(a) Cash flow position of the company

(b) Stability of earnings

(c) Degree of financial risk

(d) Contractual constraints

(e) State of capital market

(f) Level of competition

Choose the correct alternative from the following:

  1. (b), (c) and (f)
  2. (d), (e) and (f)
  3. (a), (c) and (d)
  4. *(a), (c) and (e)

 

Read the following statements carefully:

Statement I: Cost of debt is lower than cost of equity for a company.

Statement II: The objective of financial management is to increase shareholder’s wealth.

In the light of given statements, choose the correct alternative from the following:

  1. *Both the statements are true.
  2. Both the statements are false.
  3. Statement I is true, Statement II is false.
  4. Statement II is true, Statement I is false.

 

The Board of directors of Medex Pharma Ltd. decided to issue debentures worth ₹40 lakhs in order to finance a major Research and Development project. This would increase the Debt Equity ratio from 1:1 to 2:1. However, at the same time it would increase the Earnings per share. The reason that will justify the above situation is:

  1. Unfavourable financial leverage, as the financial risk will be higher.
  2. Unfavourable financial leverage, as return on investment is lower than the cost of debt.
  3. Favourable financial leverage as debt is easily available
  4. *Favourable financial leverage, as return on investment is higher than cost of debt

 

‘Game of Clones’, a reputed amusement company has decided to run an advertising campaign for which it is hiring various celebrities. The
campaign involves an expenditure of ₹ 150 Crores. Identify the financial decision involved in the above case.
1. Financing decision
2. Working capital decision                                                                                                                                                                                                              3. *Long term investment decision
4. Dividend decision

 

Water Nivesh Limited has a high fixed operating cost. The Finance Manager informs the Chief Finance Officer that, in case the company
decides to take a loan, for its future financial needs, its fixed financial cost will also increase leading to an overall increase in cost. Identify
the factor affecting choice of capital structure discussed above.
1. Cost of debt                                                                                                                                                                                                                                      2. Control                                                                                                                                                                                                                                            3. Floatation cost
4. *Risk consideration

Companies are required to ensure that the dividend does not violate the terms of loan agreement.’ Identify the relevant factor affecting
dividend decisions being discussed above.
1. Access to capital market
2. Legal constraints
3. Stock market reaction
4. *Contractual constraints

 

Read the following statements carefully:
Statement I- The objective of financial management is to maximize the wealth of directors of the company
Statement II- The financing decision of the company is unaffected by the extent of retained earnings.
In the light of given statements, choose the correct alternative from the following:
1. *Both the statements are false.
2. Both the statements are true.
3. Statement I is true, Statement II is false.
4. Statement II is true; Statement I is false.

 

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