Financial Management Multiple Choice Questions and Answers

Financial Management Multiple Choice Questions and Answers pdf for the preparation of MBA, BBA, Mcom, Bcom, Banking & Finance Exams.

Financial Management Multiple Choice Questions and Answers

1. A company can also obtain equity funds by retaining earnings available for shareholders. (True/False)

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: True [/expand]

2. ___ shareholders receive a dividend at a fixed rate.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Preference [/expand]

3. The exact organization structure for financial management will not be different across firms. (True/False)

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: False [/expand]

4. The main function of the ___ is to manage the firm’s funds.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Treasurer [/expand]

5. The involvement of the financial manager in finance management is recent. (True/False)

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: True [/expand]

6. The finance manager in modern enterprises is mainly involved in ___ finance functions.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Managerial [/expand]

7. The finance manager has always been in the dynamic role of decisionmaking. (True/False)

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: False [/expand]

8. Capital markets bring investors and ___ together.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Firms [/expand]

9. Price system is the most important aspect of a market economy indicating what goods and services society wants. (True/False)

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: True [/expand]

10. An alternative to profit maximization is the objective of ___.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Wealth maximization [/expand]

11. A budget must plan for and quantify ___ and ___ related to a specific operation.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Revenues, expenses [/expand]

12. A ___ is the likelihood of events happening, given the past data and expected changes.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Forecast [/expand]

13. The three important components of the master budget are: ___, ___ and ___.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Operating, financial and capital [/expand]

14. Choose the correct option:
A comprehensive budgetary system will generally include:
(a) pro forma statements
(b) bank statements
(c) trial balance
(d) profit and loss accounts

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: (a)[/expand]

15. Budgeting improves the quality of ___.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Communication [/expand]

16. Budgeting is a way of managing the management. (True/False)

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: False [/expand]

17. The central figure in responsibility accounting is ___.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: People [/expand]

18. Responsibility centres for planning and control purposes are classified into ___, ___ and ___ centres.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Cost, profit and investment [/expand]

19. Time preference for money or ___ is an individual’s preference for possession of a given amount of money now, rather than the same amount at some future date.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Time value of money [/expand]

20. ___ and ___ are two ways of accounting for the time value of money.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Compounding, discounting [/expand]

21. The debt policy of a firm is significantly influenced by the cost consideration. (True/False)

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: True [/expand]

22. The cost of the capital framework can be used to evaluate the ___ of top management.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Financial performance [/expand]

23. The before-tax cost of debt is the rate of return not required by lenders. (True/False)

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: False [/expand]

24. The interest paid on debt is ___ deductible.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Tax [/expand]

25. The measurement of the cost of preference capital poses some conceptual difficulty. (True/False)

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: True [/expand]

26. The preference share may be treated as perpetual security if it is ___.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Irredeemable [/expand]

27. External equity will not cost more to the firm than internal equity. (True/False)

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: False [/expand]

28. The required rate of return of shareholders can be determined from the ___ valuation model.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Dividend [/expand]

29. We can distinguish between systematic and unsystematic risk. (True/False)

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: True [/expand]

30. Higher the risk, higher the risk ___ required.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Premium [/expand]

31. In financial decision-making the cost of capital should be calculated on an after-tax basis. (True/False)

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: True [/expand]

32. Market-value weights are theoretically ___ to book-value weights.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Superior [/expand]

33. Financial decisions incur a different degree of ___.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Risk [/expand]

34. A proper balance between return and risk should be maintained to maximize the market value of a firm’s shares. (True/False)

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: True [/expand]

35. The reciprocal of the present value annuity factor is called the ___.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: CRF [/expand]

36. CRF is useful in determining the income to be earned to recover an investment at a given rate of interest. (True/False)

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: True [/expand]

37. A fund created out of fixed payments each year for a specified time is called ___.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Sinking fund [/expand]

38. The phenomenon of compounding interest more than once in a year is called multiperiod compounding. (True/False)

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: True [/expand]

39. The rate of the equity dividend is not fixed and depends on the dividend policy of a company. (True/False)

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: True [/expand]

40. The rate of interest on debt is fixed irrespective of the company’s rate of return on ___.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Assets [/expand]

41. The expenditure incurred in acquiring a ___ or brand is also capital investment.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Patent [/expand]

42. The contribution of the board in idea generation is relatively significant. (True/False)

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: False [/expand]

43. A number of investment criteria (or capital budgeting techniques) are in practice. (True/False)

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: True [/expand]

44. The essential property of a sound technique is that it should ___ the shareholder’s wealth.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Maximize [/expand]

45. Capital rationing may arise due to external factors or internal constraints imposed by the management. (True/False)

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: True [/expand]

46. ___ rationing is caused by self-imposed restrictions by the management.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Internal Capital [/expand]

47. Interest coverage ratio measures capital gearing. (True/False)

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: False [/expand]

48. The most commonly used measures of financial leverage are ___, ___ and ___.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Debt ratio, debt-equity ratio and interest coverage [/expand]

49. ROE does not indicate how well the firm has used the resources of owners. (True/False)

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: False [/expand]

50. The profitability of the shareholders’ ___ can also be measured in many other ways.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Investment [/expand]

51. The traditional theory implies that investors value levered firms more than unlevered firm. (True/False)

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: True [/expand]

52. The ___ has emerged as a compromise to the extreme position taken by the NI approach.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Traditional approach [/expand]

53. Financial leverage does not affect a firm’s net operating income, but it does affect ___ return.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Shareholder’s [/expand]

54. The arbitrary process is the behavioural foundation for MM’s hypothesis. (True/False)

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: True [/expand]

55. A firm can draw funds from its bank within the maximum ___ sanctioned.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Credit limit [/expand]

56. There are several modes through which a company can borrow funds for its short-term working capital requirements. (True/False)

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: True [/expand]

57. Debenture holders are creditors of a firm. (True/False)

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: False [/expand]

58. Ordinary shareholders have ___ ownership claim.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Residual [/expand]

59. Operating leverage affects a firm’s ___ ___.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Operating profit [/expand]

60. Operating and financial leverage cause too wide fluctuation in ___.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: EPS [/expand]

61. A contract between a lessor and a lessee is known as a ___.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Lease [/expand]

62. Leasing provides 100 per cent financing. (True/False)

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: False [/expand]

63. Under the hire purchase system, the buyer takes ___ of the goods immediately.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Possession [/expand]

64. The risk of damage and loss is borne by the buyer under the hire purchase system. (True/False)

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: True [/expand]

65. When dividend policy is treated as a financing decision the payment of cash dividends is a passive residual. (True/False)

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: True [/expand]

66. Project financing is most appropriate for those projects which require a large amount of capital expenditure and involve high risk. (True/False)

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: True [/expand]

67. Mortgage is the transfer of a legal or equitable interest in a specific immovable property for the payment of a debt. (True/False)

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: True [/expand]

68. A ___ involves selling ordinary shares to the existing shareholders of a company.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Rights issue [/expand]

69. It is not necessary to underwrite a public and a rights issue. (True/False)

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: False [/expand]

70. A ___ is a long-term fixed-income financial security.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Debenture [/expand]

71. Shareholders’ returns consist of two components: ___ and ___.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Dividends, capital gains [/expand]

72. A firm’s dividend policy has the effect of dividing its net earnings into ___ and ___.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Retained earnings, dividends [/expand]

73. Dividend policy of a firm affects both the ___ financing and the wealth of shareholders.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Long-term[/expand]

74. Capital profits should always be distributed as dividends. (True/False)

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: False [/expand]

75. Firms that expand rapidly because of ample investment yielding high returns than the opportunity cost of capital care are known as ___.

[expand title=”Show Answer” swaptitle=”Hide Answer”]Answer: Growth firms [/expand]

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