Financial Management MCQs [Multiple Choice Questions and Answers]

Financial Management MCQs [Multiple Choice Questions and Answers]
Dibrugarh University 2012 to 2023

State whether each of the following statements is True or False:

1. ‘Finance’ has been rightly termed as universal lubricant which keeps the enterprise dynamic.      

Ans: [True]

2. Working capital is also known as revolving or circulating capital.                            

Ans: [True]

3. Operating Leverage x Composite Leverage = Financial Leverage.                           

Ans: [False]

4. Payment of dividend at the usual rate is termed as regular dividend.                   

Ans: [True]

5. Cash management is an important task of finance manager.                                   

Ans: [True]

6. Capital expenditure involves non-flexible short term commitment of funds.    

Ans: [False]

7. Financial leverage is also known as Trading on Equity.                

Ans: [True]

8. Net working capital is the excess of current liabilities over current assets.                         

Ans: [False]

9. Dividend policy of a firm affects both the long-term financing and shareholders’ wealth. 

Ans: [True]

10. Equity shareholders have a residual claim on the assets of the company.                        

Ans: [True]

11. Corporation finance is a wider term than business finance.

Ans: [False]

12. Corporation finance deals with the company form of organization.

Ans: [True]

13. In the present days, corporation finance is also referred to as business finance and financial management.

Ans: [True]

14. Corporation finance is a part of public finance.

Ans: [False]

15. Corporation finance emerged as a distinct field to study in the beginning of eighteenth century.

Ans: [False]

16. The principles of corporation finance can be applied to every type of organization.

Ans: [True]

17. Financial decision includes financial planning and capital structure decisions.

Ans: [True]

18. Profit maximization is a capitalistic approach.             

Ans: [True]

19. Wealth maximization is a socialistic approach.            

Ans: [True]

20. Debentures do not carry any voting right.                     

Ans: [True]

21. A firm should always keep a large balance of cash so as to meet the contingencies.   

Ans: [True]

22. Traditional approach confines finance function only to raising of funds.

Ans: [True]

23. The main aim of finance function is to maximize the profits.

Ans: [False]

24. Finance function is one of the most important functions of business management.

Ans: [True]

25. Cash management is an important task of the finance manager.

Ans: [True]

26. Investment decisions are outside the purview of financial decisions.

Ans: [False]

27. Every business concern should have excessive working capital.

Ans: [False, optimum working capital]

28. The cost of capital is the maximum rate of return expected by its investors.                  

Ans: [False]

29. The cost of capital is minimum rate of return expected by its investors.

Ans: [True]

30. Dividend is the reward of the shareholders for investment made by them in the shares of the company.

Ans: [True]

31. Capital budgeting is the process of making investment decisions in capital expenditures.  

Ans: [True]

32. Ownership securities are represented by debentures.                             

Ans: [False, Shares]

33. New issue market represents the primary market.                    

Ans: [True]

34. Stock exchange represents the secondary market.                                    

Ans: [True]                         

35. Financial leverage is also known as composite leverage.                         

Ans: [False]        

36. Leasing benefits both the lessee as well as the lessor.              

Ans: True

37. Retained earnings do not involve any cost.   

Ans: False

38. The main aim of financial function is to maximize profit.         

Ans: False

39. Gross working capital refers to the capital invested in the total assets of an enterprise. 

Ans: False, CA

40. Payment of dividend at the usual rate is termed as regular dividend.                

Ans: True

41. According to Walter’s model, the dividend decision is irrelevant.         False, MM

2. Fill in the blanks:

1. Financial function is the most important of all management functions.

2. Adequate working capital helps in maintaining solvency of the business by providing uninterrupted flow of production.

3. Cost of capital is the minimum rate of return expected by its investors.

4. The value of the firm can be maximized, if the shareholders’ wealth is maximised.

5. It is better for a company to remain in low gear during the period of depression.

6. The rate of return on investments also falls with the shortage of working capital.

7. Capital investment decisions are generally of non-recurring nature.

8. A firm will have favourable leverage if their operating profits/EBIT is more than the debt cost.

9. Finance is the life blood and nerve centre of a business concern.

10. Capital budgeting means planning for long-term or permanent  assets.

11. The redundant working capital gives rise to speculative transactions.

12. Dividends paid in the ordinary course of business are known as profits dividends.

13. Financial decisions involve investment, financing and dividend decisions.

14.Combined Leverage = Operating Leverage x Financial Leverage.

15. The value of the firm can be maximized, if the shareholders ‘wealth is maximized.

16. Adequacy of working capital is a must for maintaining solvency and continuing production.

17. The volume of sales is influenced by fund policy of a firm.

18. Degree of Financial Leverage = Percentage Change in EPS/Percentage change in EBIT

19. Operating Leverage = Contribution x Operating Profit

20. The time required to process and execute an order is called fixed time.

21. Payment of dividend involves legal as well as financial considerations.

22. ‘Ploughing back of profit’ is also known as retained earnings.

23. Leasing benefits both the lessee as well as the lessor.

24. It is better for a company to remain in high gear during the period of depression.

25. According to M&M approach, the total value of a firm is absolutely unaffected by capital structure.

26. Corporation finance deals with the company form of organization.

27. The rate of return on investments does not related with the shortage of working capital.

3. Choose the appropriate answer from the given alternatives:      

(i) The prime objective of an enterprise is

a) maximization of sales

b) maximization of owner’s equity

c) maximization of profit

Ans: b) maximization of owner’s equity

(ii) Non-members can trade in securities at stock exchanges with the help of

a) jobbers

b) brokers

c) authorized clerk

Ans: b) brokers

(iii) Financial decisions involve with

a) Investment, financing and dividend decisions

b) Investment, financing and sales decisions

c) Financing, dividend and cash decisions

Ans: a) Investment, financing and dividend decisions

(iv) Factoring is a method of raising

a) Long term finance

b) Medium term finance

c) Short term finance

Ans: c) Short term finance

(v) Debenture securities carry

a) Voting rights and dividend

b) Interest and voting rights

c) Interest and dividend

d) Interest only

Ans: d) Interest only

(vi)The job of a finance manager is confined to:

a) Raising of funds.

b) Management of cash.

c) Raising of funds and their effective utilization.

Ans: c) Raising of funds and their effective utilization.