Financial Management MCQs with Answers

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

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

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

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

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

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

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

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

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

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

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

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

Question-7. Financial leverage is called favourable if:

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

Question-8. Higher debt equity ratio results in:

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

Question-9. Higher Working capital usually results in:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Question-17. Capital structure shows

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

Question-18. Financial procedures are determined by

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

Question-19. Fixed capital requirements are determined by

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

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

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

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

Question-22. Investment decision involves

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

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

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

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

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

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

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

Question-26. Wealth maximisation depends on

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

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

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

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

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

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

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