Financial Management MCQs with Answers

Question-1. The Cheapest source of finance is:.

1. Debenture
2. Equity share capital
3. Preference share
4. Retained earnings

Question-2. A decision to acquire a new and modern plant to upgrade an old one is a

1. Financing decision
2. Working capital decision
3. Investment decision
4. None of the above

Question-3. A fixed asset should be financed through:

1. A Long-term liability
2. A Short-term liability
3. A Medium-term liability
4. A Mix of long- and short-term liabilities

Question-4. Companies with a higher growth potential are likely to

1. Pay lower dividends
2. Pay higher Dividends
3. Dividends are not affected
4. None of the above

Question-5. Current assets are those assets which get converted into cash:

1. Within six months
2. Within one year
3. Between one year and three years
4. Between three and five years.

Question-6. Current assets of a business firm should be financed through:

1. Current liability only
2. Long term liability only
3. Fixed liabilities only
4. Both types (i.e., long- and short-term liabilities)

Question-7. Financial leverage is called favourable if:

1. Return on investment is lower than the cost of debt.
2. ROI is higher than the cost of Debt
3. Debt is easily available.
4. If the degree of existing financial leverage is low.

Question-8. Higher debt equity ratio results in:

1. Lower financial risk
2. Higher degree of operating risk
3. Higher degree of financial risk
4. Higher EPS.

Question-9. Higher Working capital usually results in:

1. Higher current ratio, higher risk and higher profits
2. Lower current ratio, higher risk and profits
3. Higher equity, lower risk and lower profits
4. Lower equity, lower risk and higher profits.

Question-10. Other things remaining the same, an increase in the tax rate on corporate profit will

1. Make the debt relatively cheaper
2. Make the debt relatively the dearer
3. Have no impact on the cost of debt
4. We can’t say

Question-11. ___ capital refers to investment in long-term assets.

1. Fixed
2. Variable
3. Working
4. Both (b) and (c)

Question-12. ___ Gross working capital represents the total investment in assets.

1. Current
2. Fixed
3. Tangible
4. Intangible

Question-13. ___ involves increasing the proportion of debt and preference shares in total capital.

1. Trading on equity
2. Capital Budgeting
3. Financing decision
4. Financial Analysis

Question-14. ___ is concerned with optimum procurement as well as usage of finance.

1. Financial Analysis
2. Financial Planning
3. Financial Management
4. Budgeting

Question-15. ___ is the time span between acquisition of goods and realisation of sale proceeds.

1. Working capital
2. Payback Period
3. Operating Cycle
4. Account Receivables Period

Question-16. ___ represents investment in current assets required for day-to-day operations of the business.

1. Long-term capital
2. Working capital
3. Capital Budgeting
4. Medium-term capital

Question-17. Capital structure shows

1. Debtor-creditor ratio.
2. Fixed assets-current assets ratio.
3. Debt-equity ratio.
4. Interest coverage ratio.

Question-18. Financial procedures are determined by

1. financial planning.
2. financial leverage.
3. financial decisions.
4. capital structure.

Question-19. Fixed capital requirements are determined by

1. nature of business.
2. nature of business environment.
3. nature of Government control.
4. nature of marketing efforts.

Question-20. If dividend portion of total earnings is high, portion of retained earnings will be

1. high.
2. low.
3. moderate.
4. equal.

Question-21. If the rate of return on investment for a company is 16%, a situation of unfavourable financial leverage will be said to arise when the rate of interest payable on debt capital is

1. More than 16 %
2. Less than 16 %
3. Equal to 16%
4. None of the above

Question-22. Investment decision involves

1. investment in fixed assets.
2. investment in current assets.
3. investment in fixed and current assets.
4. investment in Government securities.

Question-23. The working capital requirement of a business is not likely to be high when?

1. The nature of business is trading
2. Scale of operation of business is small
3. It is difficult to procure raw material
4. The rate of inflation is low

Question-24. Under which of the following circumstances the fixed capital requirement of a business is not likely to be high?

1. When the raw material is not easily available
2. Capital intensive techniques of production are used
3. The growth prospects of a company a high
4. When the financial alternatives are easily available

Question-25. Under which of the following situations a company is not likely to issue equity capital?

1. When the debt service coverage ratio is high.
2. When the interest coverage ratio is high.
3. When the cost of debt capital is low.
4. All of the above

Question-26. Wealth maximisation depends on

1. market price per share.
2. market price of finished good.
3. market price of inventory.
4. market price of fixed assets.

Question-27. Which of the following statements is not true with regard to use of fixed capital?

1. It affects the long term growth of the business.
2. Large amount of funds are involved.
3. The business risk involved is low.
4. The investment decisions are irreversible.

Question-28. Which one of the following is related to planning, organising, directing and controlling of financial activities?

1. Financial decision
2. Capital structure
3. Investment decision
4. Financial management

Question-29. Working capital requirements are low when an organisation has

1. high technology.
2. high debtors.
3. high inventory.
4. high creditors.