Financial Management Question Bank

MCQs from CBSE Question Papers

Question:

'Mudro Infratech' got a short-term contract for building two villas within a period of ten months with the expectation to earn a huge amount of profit. The Works Manager accepted this challenge and completed the work within the given time period. The profit of the company went up by 40% due to this temporary order. The Finance Manager was aware that the company would not earn this huge profit in the near future. So, he decided not to increase dividend per share as earnings for the year had gone up, but not the earning potential of the company. He also knew that this increase in earnings was temporary in nature. The factor affecting Dividend Decision being highlighted above is:

Cash flow position
Shareholders' preference
Growth opportunities
*Stability of dividends

Question:

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

Assertion (A): When the allocative function is performed well, scarce resources are allocated to those firms which have the highest productivity for the economy.

Reason (R): Allocative function allocates or directs funds into their most productive investment opportunity.

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

Question:

Statement 1: The objective of financial management is to maximize shareholders' wealth.

Statement II: The shareholders gain if the value of shares in the market increases.

Choose the correct option from the following:

Statement I is true and Statement II is false.
Statement II is true and Statement I is false.
*Both the Statements are true.
Both the Statements are false.

Question: Which of the following statements is correct for ‘short term investment decisions’ ?

They affect the earning capacity of a business in the long run.
These decisions normally involve huge amounts of investment.
*These decisions affect the liquidity as well as profitability of a business.
They are irreversible except at a huge cost.

Question: Statement I: Shareholders' funds involve commitment regarding the payment of returns or the repayment of capital.

Statement II: Debt is considered to be the cheapest of all the sources of funds and tax deductibility of interest makes it still cheaper.

Choose the correct option from the following:

Statement I is true and Statement II is false.
*Statement II is true and Statement I is false.
Both the Statements are true.
Both the Statements are false.

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

Assertion (A): While taking dividend decision, the extent of retained earnings also influences the financing decision of the firm.

Reason (R): The firm does not require funds to the extent of re-invested retained earnings.

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

Question:

Prashant started a grocery retail business. Due to increasing popularity of online shopping, the degree of competition is very high in this business. His requirement of working capital will be high as he would have to hold larger stocks of finished goods to meet urgent orders from customers. The factor affecting the requirement of working capital is: