MCQ on Financial Management for UGC NET with Answers

MCQ on Financial Management for UGC NET with Answers.

1. ___ system is the most important aspect of a market economy, indicating what goods and services society wants.
a. Price
b. Value
c. Quality
d. Market
Answer: (a)

2. An alternative to ___ is the objective of wealth maximization.
a. Profit minimization
b. Market maximization
c. Quality maximization
d. Profit maximization
Answer: (d)

3. Financial decisions incur a different degree of risk.
a. True
b. False
Answer: (a)

4. A proper balance between return and ___ should be maintained to maximize the market value of a firm’s shares.
a. Value
b. Risk
c. Price
d. Investment
Answer: (b)

5. The rate of the equity dividend is ___ and depends on the dividend policy of a company.
a. Fixed
b. Stable
c. Not fixed
d. High
Answer: (c)

6. The rate of interest on debt is fixed irrespective of the company’s rate of return on assets.
a. True
b. False
Answer: (a)

7. The most commonly used measures of financial leverage are debt ratio, debt-equity ratio and interest coverage
a. True
b. False
Answer: (a)

8. The ___ of the shareholders’ investment can also be measured in many other ways.
a. Value
b. Cost
c. Benefits
d. Profitability
Answer: (d)

9. A contract between a lessor and a lessee is known as a ___.
a. Rent
b. Lease
c. Loan
d. Purchase
Answer: (b)

10. Leasing does not provide 100% financing.
a. True
b. False
Answer: (a)

11. Under the hire purchase system, the ___ takes possession of the goods immediately.
a. Seller
b. Mediator
c. Buyer
d. Lender
Answer: (c)

12. The risk of damage and loss is borne by the seller under the hire purchase system.
a. True
b. False
Answer: (b)

13. What is the traditional form of financing known as?
a. Corporate financing
b. Management financing
c. Individual financing
d. International financing
Answer: (a)

14. The credit policy of the firm affects the ___ by influencing the level of debtors.
a. Cost of production
b. Working capital
c. Quality
d. Manufacturing timeline
Answer: (b)

15. Who may administer the credit policy of a firm?
a. HR manager
b. Admin manager
c. Financial manager
d. Investment manager
Answer: (c)

16. A company cannot obtain equity funds by retaining earnings available for shareholders.
a. True
b. False
Answer: (b)

17. ___ shareholders receive a dividend at a fixed rate.
a. Preference
b. Non-preference
c. Common
d. None of the above
Answer: (a)

18. The exact organisation structure for financial management will be different across firms.
a. True
b. False
Answer: (a)

19. The main function of the ___ is to manage the firm’s funds.
a. Team leader
b. Investment banker
c. Treasurer
d. Quality manager
Answer: (c)

20. The involvement of the financial manager in finance management is not recent.
a. True
b. False
Answer: (b)

21. The ___ of a firm is significantly influenced by the cost consideration.
a. Debt policy
b. Equity policy
c. Financial policy
d. Purchase policy
Answer: (a)

22. The ___ framework can be used to evaluate the financial performance of top management.
a. Management
b. Investment
c. Involvement
d. Cost of capital
Answer: (d)

23. The interest paid on ___ is tax-deductible.
a. Purchases
b. Sales
c. Debts
d. Credits
Answer: (c)

24. The measurement of the cost of preference capital does not pose any conceptual difficulty.
a. True
b. False
Answer: (b)

25. A firm can draw funds from its bank within the maximum credit limit sanctioned.
a. Investors
b. Bank
c. Customers
d. Employees
Answer: (b)

26. ___ is the transfer of a legal or equitable interest in a specific immovable property for the payment of a debt.
a. Loan
b. Purchase
c. Sale
d. Mortgage
Answer: (d)

27. Which of these involves selling ordinary shares to the existing shareholders of a company?
a. Rights issue
b. Sales issue
c. Lending
d. Hire-purchase
Answer: (a)

28. It is necessary to underwrite a public and a rights issue.
a. True
b. False
Answer: (a)

29. Which of these is a long-term fixed-income financial security.
a. Debenture
b. Shares
c. Vehicles
d. None of the above
Answer: (a)

30. There are several modes through which a company can borrow funds for its ___ working capital requirements.
a. Fixed
b. Short-term
c. Long-term
d. None of the above
Answer: (b)

31. The ___ motive relates to the holding of cash for investing in profit-making opportunities as and when they arise.
a. Speculative
b. Precautionary
c. Comprehensive
d. Judiciary
Answer: (a)

32. The precautionary motive is the need to hold cash to meet contingencies in the future.
a. True
b. False
Answer: (a)

33. Ideal cash management systems depend on the organization structure and competition of the firm.
a. True
b. False
Answer: (a)

34. Which of these is a technique to plan and control the use of cash?
a. Investing
b. Cash planning
c. Financial control
d. Cash flow
Answer: (b)

35. Time preference for money or time value of money is an individual’s preference for possession of a given amount of money now, rather than the same amount at some future date.
a. True
b. False
Answer: (a)

36. Which of these refers to a fund created out of fixed payments each year for a specified time?
a. Floating fund
b. Fixed cash
c. Budget
d. Sinking fund
Answer: (d)

37. The phenomenon of compounding interest more than once in a year is called ___.
a. Single compounding
b. Multiperiod compounding
c. Double compounding
d. Many compounding
Answer: (b)

38. The ___ theory implies that investors value levered firms more than unlevered firm.
a. Comprehensive
b. Modern
c. Traditional
d. Superlative
Answer: (c)

39. The traditional approach has emerged as a compromise to the extreme position taken by the NI approach.
a. True
b. False
Answer: (a)

40. Financial leverage affects a firm’s net operating income, as well as the shareholder’s return.
a. True
b. False
Answer: (b)

41. The arbitrary process is the behavioural foundation for ___.
a. MM’s hypothesis
b. NI approach
c. NN’s hypothesis
d. AB approach
Answer: (a)

42. The difference between current assets and current liabilities is known as ___.
a. Gross capital
b. Budget
c. Principal investment
d. Net working capital
Answer: (d)

43. The operating efficiency of a firm relates to the optimum utilization of all its resources at minimum cost.
a. Maximum cost
b. Minimum cost
c. Quality
d. Minimum time
Answer: (b)

44. Which of these is involved in the conversion of sales into cash?
a. Operating cycle
b. Manufacturing cycle
c. Cash flow cycle
d. None of the above
Answer: (a)

45. Which of these is the likelihood of events happening, given the past data and expected changes?
a. Anticipation
b. Budgeting
c. Expectation
d. Forecast
Answer: (d)

46. A comprehensive budgetary system will generally include:
a. Pro forma statements
b. Bank statements
c. Trial balance
d. Profit and loss accounts
Answer: (a)

47. The expenditure incurred in acquiring a patent or brand is also a ___.
a. Capital expenditure
b. Capital investment
c. Sales income
d. Profit
Answer: (b)

48. There are only two investment criteria (or capital budgeting techniques) in practice.
a. True
b. False
Answer: (b)

49. The essential property of a sound technique is that it should maximize the shareholder’s wealth.
a. True
b. False
Answer: (a)

50. Dividend policy of a firm affects both the long-term financing and the wealth of shareholders.
a. True
b. False
Answer: (a)

51. ___ has been criticized since it assumes ___, and in the face of an imperfect market, it cannot be a legitimate objective.
a. Profit maximization, perfect competition
b. Profit minimization, imperfect competition
c. Share balancing, profitability
d. Perfect competition, profit minimization
Answer: (a)

52. Which of these are the measures of financial leverage?
a. Cash planning, cash outflow
b. Debt ratio, debt-equity ratio
c. Profit ratio, debt ratio
d. Cash flow, cash control
Answer: (b)

53. ___ and ___ are two ways of accounting for the time value of money.
a. Active, passive
b. Regular, special
c. Compounding, discounting
d. Direct, indirect
Answer: (c)

54. A budget must plan for and quantify ___ and ___ related to a specific operation.
a. Revenue, expenses
b. Inflow, outflow
c. Risk, return
d. Profit, loss
Answer: (a)

55. The three important components of the master budget are: operating, ___ and ___.
a. Cost of manufacture, cost of sales
b. Financial, capital
c. Expenses, inflow
d. Profit, expenses
Answer: (b)

56. Shareholders’ returns consist of two components: ___ and ___
a. Income, expenses
b. Profits, income
c. Dividends, capital gains
d. Assets, liabilities
Answer: (c)

57. A firm’s dividend policy has the effect of dividing its net earnings into ___ and ___.
a. Retained earnings, dividends
b. Incurred expenses, cash inflows
c. Purchase costs, dividends
d. Income, inflow
Answer: (a)

58. Project financing is most appropriate for those projects which require ___ amount of capital expenditure and involve ___ risk.
a. Small, low
b. Large, high
c. No, low
d. Small, no
Answer: (b)

59. Which of these are the various forms in which inventories exist in a manufacturing company?
a. Raw materials, quality
b. Work-in-process, finished goods
c. Cost of manufacture, labour cost
d. None of the above
Answer: (b)

60. A finance manager is responsible for which of the following?
a. Purchasing raw materials, hiring labour
b. Finance planning, marketing
c. Investment decisions, capital raising
d. Advertising, sales
Answer: (c)

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