MCQs on Financial Management with Answers pdf

Multiple choice questions of Subject Business Studies Class 12th MCQ Questions with Answers | MCQs on Financial Management with Answers pdf ( MCQs on Financial Management with Answers pdf) for Entrances (Entrance Exam) Conducted by different Central and State Universities are given below.

Financial Management is Mainly Concerned with | MCQs on Financial Management with Answers pdf

1. Financial management helps in ………

(a) reducing the cost of funds

(b) keeping the risks under control

(c) achieving effective deployment of funds

(d) All of the above

Ans. d

2. REI Agro Food Ltd. is a famous multinational company. Mr. SK Nagi is its finance manager. He is making efforts to increase the market value of capital invested by the equity shareholders. He already knew it could be possible only when price of the shares increases and price of shares increase only if financing, investment and dividend decisions are taken optimally. He did the same and achieved success. Which objective of financial management has been referred here?

(a) Maximising the wealth of equity shareholders.

(b) Effective utilisation of funds

(c) Ensures safety of funds

(d) Avoiding idle finance

Ans. a

3. Decisions related to investment in fixed assets are popularly known as ..

(a) Business finance decisions

(b) Financial management

(c) Capital budgeting decisions

(d) None of the above

Ans. c

4. Bharti Ltd. is a leading mobile company. It is planning to acquire Queen Ltd. (its close competitor) business worth ?1.000 crore. Which financial decision is involved in it?

(a) Investment

(c) Dividend

(b) Financing

(d) None of these

Ans. a

5. Avik is the finance manager of Mars Ltd. in the current vear, the company earned high profit. However. Avik thinks that it is better to declare smaller dividend as he is unsure about the earning potential of the company in the coming years. Avik’s choice of dividend decision is based on which of the factor that affect it?

(a) Amount of earriings

(b) Stability in carnings

(c) Stability of dividends

(d) Growth opportunities

Ans. d

6. Financial decisions impact which of the following items of profit and loss account?

(b) Profit

(a) Interest

(c) Tax

(d) All of these

Ans. d

7. Dividend is that portion of profit, which is distributed to the shareholders and undistributed profit is that portion which remains in the business is known as

(a) Earning

(b) Equity

(c) Retained earnings

(d) Interest

Ans. c

8. During AGM of Prakash Ltd. CEO, Mr. Rajnesh put the expansion plan for the coming year before shareholders and asked for suitable source of finance to finance manager. Finance manager, Mr. Kant proposed issue of debentures than equity with a plan that they can be paid back whenever requirement of funds is over. In this case, which component is affecting financing decision?

(b) Flexibility

(d) Risk

(a) Flotation cost

(c) Return of investment

Ans. b

9. The fund raising exercise also costs something This cost is called

(a) Fixed cost

(c) Bearing cost

(b) Flotation cost

(d) Variable cost

Ans. b

10. Short-term plans are also known as… and are made for a period of ……

(a) capital budgeting programmes, two years

(b) capital budgeting programmes, one year or less

(c) budgets, two years

(d) budgets, ane year or less

Ans. (d)

Financial Management Multiple Choice Questions and Answers doc | the concept of financial management is mcq

11. Though the dividends are free of tax in the hands of shareholders, which tax is levied on the companies for the dividend?

(a) Dividend payout tax

(c) Dividend distribution tax

(d) None of these

(b) Dividend allocation tax

Ans. (c)

12. Which of the following statements is not true?

(a) Maintaining adequate liquidity is a secondary objective of financial planning

(b) Stock market reaction is an important factor while making dividend decisions

(c) Companies with lower ICR can borrow more funds

(d) None of the above

Ans. (c)

13. Debt is considered to be cheeper than equity because for borrowers, interest on debentures is a while dividend on equity is not. …….. .

(b) deductible expenditure

(a) exempt from tax

(c) non-deductible expenditure

(d) None of the above

Ans. (b)

14. During negative leverage effect, firm prefers

(a) debenture

(c) preference share

(b) equity

(d) borrowed funds  

Ans. (b) 

15. Which of the following statements is not correct?

(a) Debit is considered as cheaper to equity.

(b) Interest on debt is deductible for tax purpose

(c) Issue of more equity may dilute shareholder’s control over the business.

(d) If Rol is more than the cost of debt, the company should prefer equity to debt.

Ans. (d) 

16. ABC Ltd. has debt to equity ratio of 3: 1, whereas XYZ Ltd. has debt to equity ratio of 1: 1. Name the advantage, ABC Ltd. will have over XYZ Ltd ., when the rate of interest is lower than the rate of return on investment of the company.

(a) Trading on equity

(c) Low cost ofequity

(b) Low risk

(d) Greater flexibility

Ans. (a)

17. A textile company is diversifying and starting a steel manufacturing plant. State the effect of diversification on the fixed capital requirement of the company.

(a) Will increase with diversification of business activity

(b) Will decrease with diversification of business activity

(c) No effect on fixed capital

(d) None of the above

Ans. (a)

18. Rizul Bhattacharya, after leaving his job, wanted to start a Private Ltd. Company with his son. His son was keen that the company may start manufacturing of mobile phones with some unique features. Rizul felt that the mobile phones are prone to quick obsolescence and a heavy fixed capital investment would be required regularly in this business. Therefore, he convinced his son to start a furniture business. Identify the factor affecting fixed capital requirements which made Rizul to choose furniture business over mobile phones.

(a) Choice of techniques

(b) Technology upgradation

(c) Collaboration

(d) Growth prospects and diversification

Ans. (b)

19. In the paint industry, various raw materials are mixed in different proportions with petroleum for inufacturing ditlerent kind of paints. One specific w material is not readily available to the manufacturing company. Ronter paints company is also facing this problem und because of this there is a time lag between placing the order and the actual receipt of the material. But once it receives the raw material, it takes less time in converting it into finished goods. identify the factor affecting working capital requirements of this industry.

(a) Nature of business

(b) Seasonal factors

(c) Operating efficiency

(d) Availability of raw material

Ans. d

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

(b) Capital structure

(d) Financial management

(a) Financial decision

(c) Investment decision

Ans. d

21. Temptations’ is a food joint in Imperial Mall in Bengaluru. It is becoming popular among students and working people due to healthy, on-the-go dishes on its menu like ‘Tancer Wrap, ‘Chickpeas Salad, “Grilled Sandwiches’, etc. It has now decided to open two new branches in other parts of Bengaluru. Which financial decision has been discussed in the above case?

(a) Long-term investment decision

(b) Short-term investment decision

(c) Dividend decision

(d) Financing decision

Ans. a

22. Higher working capital usually results in

(a) higher current ratio, higher risk and higher profits

(b) lower current ratio, higher risk and profits

(c) higher equity, lower risk and lower profits

(d) lower equity, lower risk and higher profits


23. Tata International Ltd, earned a net profit of? 50 crores, Ankit the finance manager of Tata International Ltd. wants to decide how to appropriate these profits. Which financial decision is to be taken the in above case?

(a) Investment decision

(c) Financing decision

(b) Dividend decision

(d) None of the above

Ans. b

24. The process of estimating the financial requirements of an organ isation specifying the sources of funds and ensuring that enough funds are available at the right time is called 

(a) Financial management

(c) Financial decision

(b) Financial planning

(d) Business finance

Ans. b

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