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Financial Management Question Bank

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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:

  1. Cash flow position
  2. Shareholders' preference
  3. Growth opportunities
  4. *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.

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

  1. Statement I is true and Statement II is false.
  2. Statement II is true and Statement I is false.
  3. *Both the Statements are true.
  4. Both the Statements are false.

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

  1. They affect the earning capacity of a business in the long run.
  2. These decisions normally involve huge amounts of investment.
  3. *These decisions affect the liquidity as well as profitability of a business.
  4. 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:

  1. Statement I is true and Statement II is false.
  2. *Statement II is true and Statement I is false.
  3. Both the Statements are true.
  4. 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.

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

  1. Availability of raw material
  2. Scale of operations
  3. *Level of competition
  4. Inflation

Question:

‘RKTextiles’, a children’s garment manufacturing business, and GT Garments, a home furnishing manufacturing business operate in the same industrial area. Both companies jointly set up a common dyeing and finishing plant. This was because the scale of operations of each of them was not sufficient to make full use of the plant. With both of them jointly using the plant, the requirement of fixed capital for each company will now be:

  1. Higher than earlier
  2. Same as earlier
  3. *Lower than earlier
  4. Nil

Question:

The number of times earnings before interest and taxes of a company cover the interest obligation is referred to as:

  1. Capital structure
  2. Financial leverage
  3. *Interest Coverage Ratio
  4. Debt-Service Coverage Ratio

Question:

Read the following statements carefully:

Statement I: Higher fixed operating costs result in higher business risk.

Statement II: If the firm’s business risk is lower, the firm’s capacity to use debt is higher.

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

  1. Statement I is true and Statement II is false.
  2. Statement I is false and Statement II is true.
  3. *Both Statement I and Statement II are true.
  4. Both Statement I and Statement II are false.

Question:

‘BT Ltd.’ plans to launch a new product line of energy-efficient air purifiers. To ensure a smooth launch of the air purifiers, the company needs to arrange adequate funds. For this, the Finance Manager estimates the fund requirements and specifies the source of funds the company should use. The process followed by the Finance Manager is called:

  1. *Financial planning
  2. Financial leverage
  3. Financial management
  4. Investment decision

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