MCQ on Financial Management | Financial Accounting MCQs with Answers PDF
1. Which of the following is not an element of fiaa management
(a) Allocation of resources
(b) Fancial decision maing
(c) Financial planning
(d) Financal control
Ans. a
2. The most important goal of financial management in
(a) prott maimisation
(b) matching ncome and expnditure
(c) using business asseta effertively
(d) wealth maxmisaton
Ans. d
3. Concepts of present value and future value are
(a) directly related to each other
(b) not related to each other
(c) proportionately related to each other
(d) inversely related lo eacth other
Ans. d
4. An armuity is
(a) more than one payment
(b) a series of unequal but consecutive payrments
(c) a series of equal and consecutive payments
(d) exactly one payment
Ans. c
5. Which of the following statements is not true?
(a) Financing decision is one of tho most important firiance decisions
(b) Firancial management is useful only for big enterprises
(c) Efficient managernent of every business is closely linked with officient management of its finances
(d) None of the above
Ans. b
6. What is ignored in profit maximisation?
(a) Wealth
(b) Net value
(c) Time value of money
(d) None of the above
Ans. c
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7. Raising more capital than required denotes situation of
(a) overraising
(c) overliquidity
(b) excess of capital
(d) tangible
Ans. b
8. Which of the following are microeconomic variables that help us to define and explain the discipline of finances?
(a) Risk and return
(c) Capital structure
(b) Inflation
(d) All of these
Ans. a
9. Long-term finance is required for the purchases of ……. assets.
(a) fixed
(b) tangible
(c) intangible
(d) variable
Ans. a
10. Financial management is least concerned with
(a) financial forecasting
(b) allocation of funds
(c) establishing standards for asset management
(d) gross protit ratio
Ans. d
12. Under rigid dividend policy, the rate of dividend is
(a) 0
(c) 1
(b) -1
(d) 2
Ans. a
13. Under rigid dividend policy, the rate of dividend is
(a) not
(c) compulsorily
(b) sometimes
(d) consistently
Ans. a
14. Which of the following statements is/are incorrect?
(a) Capital budgeting is not the technique of capital structure analysis
(b) The term ‘capital structure also includes the financial structure
(c) Both ‘a’ and ‘b”
(d) None of the above
Ans. b
15. The policy concerning the quantum of profits to be distributed as dividend is called
(a) dividend policy
(b) distribution policy
(c) share policy
(d) sale policy
Ans. a
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16. Where book value per share < real value per share, the corporation is said to be
(a) undercapitalised
(b) overcapitalised
(c) optimum capitalised
(d) standard capitalised
Ans. a
17. The rate of dividend of preference shares is decided at the time of
(a) issue
(b) dissolution of company
(c) payment
(d) None of these
Ans. a
18. For calculating the cost of preference share capital, the dividend of preference share is divided by and multiplied by 100.
(a) net income
(c) net sales
(b) net proceeds
(d) net expenditure
Ans. b
19. Investment decision includes
(a) expansion of existing business
(b) expansion of new business
(c) replacement of obsolete assets
(d) All of the above
Ans. d
20. Dividend is the profit of the company divided amongst its
(a) shareholders
(b) brokers
(d) None of these
(c) debentureholders
Ans. a
21. Transaction costs include
(a) brokerage
(c) printing
(b) commission
(d) All of these
Ans. a
22. Stock dividend…. the number of equity shares.
(a) increases
(b) decreases
(c) neutralises
(d) Both ‘a’ and b’
Ans. a
23. Maximum bonus ratio is
(a) 1:1
(c) 3:2
(b) 2:3
(d) 3:4
Ans. a
24. The concept of cost of capital can also be explained in terms of ……. Cost.
a) opportunity
(c) fixed
(b) variable
(d) capital
Ans. a
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25. Which of the following statements is/are incorrect?
(a) Cost of capital means the rate of interest at which the capital has been collected
(b) Payback is one of the methods of evaluating investment proposals
(c) Both ‘a’ and ‘b’
(d) None of the above
Ans. a
26. Which is not the technique of capital structure analysis?
(a) Trading on equity
(b) Capital gearing
(d) Cost of capital
(c) Capital budgeting
Ans. c
27. The overall capitalisation rate and the cost of debt remain constant for all degrees of financial leverage is advocated by
(a) traditional approach
(b) net income approach
(c) net operating income approach
(d) MM approach
Ans. c
29. Which of the following statements is/are incorrect?
(a) According to MM theory, the value of a firm is affected by the debt-equity mix
(b) According to MM theory, the total value of the firm is static
(c) Both ‘a’ and b
(d) None of the above
Ans. a
30. After tax, cost of debt capital is calculated by
(a) (1- Tax rate) x CB (Before tax)
(b) Ca (Before tax) (1- Tax rate)
(c) (1- Tax rate) x Ca (Before tax)
(d) None of the above
Ans. c
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31. Which of the following is not a fundamental assumption made by Modigliani and Miller?
(a) No taxes
(b) There is imperfect information
(c) Firms can be classified into distinct risk classes
(d) None of the above
Ans. b
33. Which of the following may be defined as relative change in profit due to a change in sale?
(a) Leverage
(b) BEP
(c) PN
(d) None of the above
Ans. a
34. Which is not included under type of leverage?
(a) Administrative leverage
(b) Financial leverage
(c) Operating leverage
(d) None of the above
Ans. a
35. A ……. degree of leverage implies that a large change in profit occurs due to a relatively small change in sales.
(a) medium
(d) None of these unipeu
(b)high
(c) low
Ans. b
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36. Capital budgeting is also known as
(a) investment decision-making
(b) capital expenditure decisions
(c) planning capital expenditure
(d) All of the above
Ans. d
37. Which of the following statements is/are incorrect?
(a) Capital budgeting is the process of making investment decisions in the capital expenditure
(b) Capital budgeting is the process of making investment decisions in fixed assets
(c) Both ‘a’ and b’
(d) None of the above
Ans. c
38. Capital expenditure is one which is intended to benefit periods.
(a) future
(c) current
(b) past
(d) None of these
Ans. a
39. The amount of current assets required to meet a firm’s long-term minimum need is referred to as …. working capital.
(b) net
(d) gross
(c) temporary
(a) permanent
Ans. a
40. The financial analyst says, ‘working capital’ means same
(a) current assets – current liabilities
(b) fixed assets
(c) total assets
(d) current assets
Ans. a
41. Which of the following should not be financed from working capital?
(a) Cash float
(b) A new personal computer for the office.
(c) Credit sales
(d) Accounts receivables
Ans. b
42. The . is the percentage change in earnings per share that results from a percentage change in operating income.
(a) degree of financial leverage
(b) degree of operating leverage
(C) degree of composite leverage
(d) None of the above
Ans. a
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43. Which of the following statement is correct?
(a) Payback period provides approximation of the rate of
(b) Where revenues are unequal, discounted cash flow method is used wnje
(c) Accounting rate of return method establishes ratio of average annual profits to total outlay
(d) None of the above
Ans. c
44. …..is long-term planning for making and financing proposed capital outlays.
(a) Capital budgeting
(b) Working capital management
(c) Planning for capital
(d) None of the above
Ans. a
45. It is risky to have both operating leverage and leverage at a high level.
(a) financial
(c) financial and combined
(d) None of these
(b) combined
Ans. a
46. Contribution divided by operating profit is the formula of
(a) financial leverage
(c) operating leverage
(b) combined leverage
(d) None of these
Ans. c
47. Which is not the long-term source of working capital?
(a) Retained earnings
(b) Long-term debts
(d) Provision for taxation
(c) issue of shares
Ans. d
48. Which of the following statements is/are incorrect?
(a) Retained earnings as a source of financing is most useful for a new company
(b) The terms permanent working capital” and core current assets’ have synonymous meanings
(c) Both ‘a’ and ‘b’
(d) None of the above
Ans. a
50. Which of the following pairs is/are not correctly matched?
(a) It is associated with the employment of fixed cost assets-Operating leverage
(b) It results from the use of fixed cost sources of funds-Financial leverage
(c) It is the tendency of the residual net income to vary disproportionately with operating profit-Combined leverage
(d) All of the above
Ans. c
51. Total of all current assets is called
(a) gross working capital
(b) net working capital
(c) fixed working capital
(d) None of the above
Ans. a
52. Operating cycle can be shortened by increasing
(a) manufacturing time
(b) duration of credit available
(c) stock held in stores shares
(d) credit period to the customers
Ans. b
53. A firm’s cost of capital is the
(a) overall cost of financing the firm
(b) cost of bonds
(c) cost of issuing stock
(d) None of the above
Ans. a
54. The cost debt financing is generally preferred or common equity financing.
(a) less than
(b) equal to ……… the cost
(c) more than
(d) None of the above
Ans. a
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55. The cost of issuing new stock is called
(a) the cost of equity
(b) marginal cost of capital
(c) floatation cost
(d) None of the above
Ans. c
56. ….. method is also known as time adjusted rate of return method.
(a) Account rate of return
(b) Net present value
(c) Internal rate of return
(d) None of the above
Ans. c
57. Which of the following statements is/are incorrect?
(a) Sometimes IRR fails to indicate correct choice between mutually exclusive projects
(b) Payback period is widely used since it is a measure of profitability
(c) Both ‘a’ and ‘b’
(d) None of the above
Ans. b
58. If interest expenses for a firm rise, firm has taken on more
(a) operating leverage
(b) financial leverage
(d) None of these
(c) fixed assets
Ans. b
59. The … is the percentage change in operating income that results from a percentage change in sales.
(a) break-even point
(b) degree of financial leverage
(c) degree of operating leverage
(d) None of the above
Ans. c
60. Which one of the following formulae is used for calculating average rate of return?
(a) Average income + Average investment
(b) Average investment + Average income
(c) Income + Capital employed
(d) None of the above
Ans. a
