Table of Contents
MCQ on Fundamentals
Financial Management MCQ – 1
Financial Management MCQ PDF
Here are the Introduction to financial management questions and answers. you can get the Financial Management MCQ for UGC NET Commerce. Also you may download the Financial Management Multiple Choice questions and answers PDF.
Financial Management MCQ
1. Funds are financial resources in the form of:
(a) Corporate capital
(b) Business funds
(c) Cash Equivalents
(d) All of these
Ans- (d) All of these
2. An asset that derives value from a contractual Claim is called as
(a) Fictitious asset
(b) Financial asset
(c)Tangible asset
(d) Real asset
Ans-(b) Financial asset
3. The government finance which includs the principles and practices relating to the Procurement and management of funds for Central Government, and Local bodies is known as:
(a) Public finance
(b) Business Finance
(c)Private Finance
(d)All of these
Ans- (a) Public finance
4. Business finance deals with which of the following?
(a) Utilize funds efficiently
(b) Procuring funds from different sources on fair terms
(c) Both of these
(d) None of these
Ans- (c) Both of these
5. The managerial process which is concerned with the planning and control of financial resources is called as:
(a) Control function
(b) Finance function
(c) Management function
(d) None of these
Ans-(b) Finance function
6. Financial management came into existence as a separate field of study from…?
(a) 19th century
(b) 21st century
(c) 20th century
(d) None of these
Ans-(c) 20th century
7. The financial activities which are performed regularly are known as:
(a) Non-recurring finance functions
(b) Both of these
(c) Recurring finance functions
(d) None of these
Ans-(c) Recurring finance functions
8. The financial activities which are performed only on special events like promotion. Amalgamation and solvency crisis are called as:
(a) Non-recurring finance functions
(b) Recurring finance functions
(c) Both of these
(d)None of these
Ans-(a) Non-recurring finance functions
9. The sum of short term and long term sources of finance is known as:
(a) Capital structure
(b) Both of these
(c) Financial structure
(d) None of these
Ans-(c) Financial structure
10.The sources of finance from which the quantum of required funds can be raised is/are:
(a) Share capital
(b) Trade credit
(c) Debt capital
(d) All of these
Ans-(d) All of these
11. The decisions of investing in long term or fixed assets on the basis of cost-benefit analysis or risk-return analysis are known as:
(a) Working capital decisions
(b) Financial Decisions
(c) Capital budgeting decisions
(d) None of these
Ans-(c) Capital budgeting decisions
12. Short term or current assets Decisions are known as:
(a) Short term investment decisions
(b) Working capital decisions
(c) Both
(d) None
Ans-(c) Both
13. The decisions relating to the use of profits or income of an entity or organization are known
(a) Finance decisions
(b) Dividend decisions
(c) Investment Decision
(d) Any of these
Ans-(b) Dividend decisions
14. The profits or income of an entity or organisation can be used:
(a) To distribute it as dividend to the shareholders
(b) To retain it in business in the form of accumulated profits
(c) Either a or b
(d) None of these
Ans-(c) Either a or b
15. The financial manager selects one or more sources of finance after proper taking into
Consideration of:
(a) Cost of capital
(b) Control
(c) Risk
(d) All of these
Ans-(d) All of these
16. The financial objectives in terms of decision criteria may be:
(a) Welfare maximization
(b) Wealth maximization
(c) Profit maximization
(d) Any of these
Ans-(d) Any of these
17. The profit maximization objective has been criticized on the basis of:
(a) Ignore risk factor
(b) Ignore time value of money
(c) Ambiguity
(d) All of these
Ans-(d) All of these
18. Which is the main motive is to select activities having positive impact on society in:
(a) Profit maximization objective
(b) Welfare maximization objective
(c) Wealth maximization objective
(d) None of these
Ans-(c) Wealth maximization objective
19. The social cost benefits analysis is primarily used to determine the economic benefits of the activities in forms of which of the following:
(a) Market prices
(b) Discounted prices
(c) Shadow prices
(d) Augmented prices
Ans-(c) Shadow prices
20. Treasurer performs the functions of which of the following functions:
(a) Credit management
(b) Cash management
(c) Procurement of essential funds
(d) All of these
Ans-(d) All of these
21. Financial controller is responsible
(a) Cash management
(b) Credit management
(c) Securities management
(d) None of these
Ans-(d) None of these
MCQ on Time Value of Money
Financial Management MCQ – 2
1. The cash flows at different time periods should be made comparable to take sound
Decisions by adjusting which of the following?
(a) Timing
(b) Timing & Risk
(c) Risk
(d) None of these
Ans-(b) Timing & Risk
2. The excess of the present value of benefits over the present value of costs of a course of
Action is called as:
(a) Payoff
(b) Benefits
(c) Wealth
(d) All of these
Ans-(c) Wealth
3. The concept that value of a rupee to be received in future is less than the value of a rupee on hand today is named as what
(a) Recovery factor concept
(b) Time value of money
(c) Compounding factor concept
(d) None of these
Ans-(b) Time value of money
5. The process of calculating future value of cash flows is known as
(a) Discounting
(b) Compounding
(c) Both of these
(d) None of these
Ans-(b) Compounding
6. The method that converts the amount of present cash into an amount of cash of equivalent value in future is:
(a) Budgeting
(b) Discounting method
(c) Both
(d) Compounding method
Ans-(d) Compounding method
7. A fixed cash flow in each year for a specified number of years is called as…….
(a) Annuity
(b) Recovery factor
(c) Discounting
(d) Compounding
Ans-(a) Annuity
8. The method of converting the amount of future cash into an amount of cash and cash equivalents value in present is known as:
(a) Compounding
(b) Annuity
(c) Discounting
(d) None of these
Ans-(c) Discounting
9. The reciprocal of the present value of annuity is known as what ?
(a) Compounding factor
(b) Capital recovery factor
(c) Discounted factor
(d) None of these
Ans-(b) Capital recovery factor
10. The total of stream of discounted expected cash benefits from a course of action over period of time is called as:
(a) Capital
(b) Net Present Value
(c) Gross present value
(d) None of these
Ans-(c) Gross present value
12. The difference between present value of cash inflows and present value of cash outflows
is known as:
(a)Gross present value
(b)Capital
(c)Net present value
(d)None of these
Ans-(c)Net present value
MCQ on Risk and Return
Financial Management MCQ – 3
1. The degree correlation between risk and return over a longer period of time is generally …?
(a) Highly negative
(b) Negative
(c) Highly positive
(d) No correlation
Ans-(c) Highly positive
2. The appreciation in the value of security or asset is called as:
(a) Current return
(b) Total return
(c) Capital return
(d) None of these
Ans-(c) Capital return
3. The price of a security at the beginning of year is 100, the price at the end of the year is 125 and dividend paid at the end of the year is Rs.5. The current return of the security is:
(a) 2.5%
(b) 5%
(c) 10%
(d) 15%
Ans-(b) 5%
4. Current return is the ratio of annual income to:
(a) Ending price of security
(b) Beginning price of security
(c) Difference between beginning price and ending price of security
(d) Total of beginning price and ending price of security
Ans-(b) Beginning price of security
5. The price of a security at the beginning of year is 200, the price at the end of the year is 225 and dividend paid at the end of the year is 15. The total rate of return is:
(a)10%
(b) 20%
(c) 25%
(d) 15%
Ans-(b) 20%
6. The application of the probability distribution is the characteristic of possible outcome that must be:
(a) Mutually inclusive
(b) Collective exhausting
(c) Either collective exhausting or mutually inclusive
(d) None of these
Ans-(d) None of these
7. The minimum expected rate of return that is needed to persuade an investor to purchase the security at given risk is which of the following ?
(a) Risk premium
(b) Risk free rate of return
(c) Required rate of return
(d) Inflation premium
Ans-(c) Required rate of return
8. The risk that arises due to use of debt by the firm causing variability of return for creditors and shareholders is:
(a) Call Risk
(b) Liquidity Risk
(c) Financial Risk
(d) Default Risk
Ans-(c) Financial Risk
9. The variability in return on security due to changes in the level of interest rate in
market is called as:
(a) Call Risk
(b) Interest Risk
(c) Liquidity Risk
(d) Financial Risk
Ans-(b) Interest Risk
10. Cumulative wealth index measures the level of wealth of investor by taking the cumulative effect of:
(a) Dividend
(b) Premium
(c) Total risk
(d) Total return
Ans-(d) Total return
11. Purchasing power of risk hit the investor when there are chances that the:
(a) Real return on a security is less than the nominal return
(b) Real return on a security is equal to the nominal return
(c) Real return on a security is more than the nominal return
(d) None of these
Ans-(a) Real return on a security is less than the nominal return
12. Risk associated with a particular firm’s operating conditions is which of the following risk ?
(a) Interest Risk
(b) Business Risk
(c) Financial Risk
(d) Liquidity Risk
Ans-((b) Business Risk
13. Not measurable time is ?
(a) Uncertainty
(b) Risk
(c) Certainty
(d) All of these
Ans-(a) Uncertainty
14. Which of the following risk is indicated by the beta coefficient in Financial Management?
(a) Diversifiable risk
(b) Adjusted risk
(c) Non diversifiable risk
(d) None of these
Ans-(c) Non diversifiable risk
15. The risk in terms of variability in security’s total return due to some exogenous factors is known as:
(a) Non diversifiable risk
(b) Systematic risk
(c) Unsystematic risk
(d) None of these
Ans-(b) Systematic risk
16. The relationship of required rate of return and risk shows the linearity in the:
(a) Security market line
(b) Asset market line
(c) Capital market line
(d) None of these
Ans-(a) Security market line
MCQ on Equity Valuation
Financial Management MCQ – 4
Financial management questions and answers pdf
1. The shares of well-established, financially strong and big companies having remarkable
Record of dividends and earnings are known as:
(a) Growth shares
(b) Blue chip shares
(c) Income shares
(d) Cyclical shares
Ans- (b) Blue chip shares
2. The shares of the companies having high dividend payout ratios are:
(a) Income shares
(b) Cyclical shares
(c) Growth shares
(d) Defensive shares
Ans-(a) Income shares
3. The smallest unit of capital is known as:
(a) Debenture
(b) Share
(c) Bond
(d) Deposit
Ans-(b) Share
4. The valuation of equity by the discounted cash flow techniques depends on:
(a) Expected dividends
(b) Cash flows
(c) Earnings
(d) All of these
Ans-(d) All of these
5. The Market of initial public offerings where any new share is issued known as:
(a) Secondary market
(b) Money market
(c) Primary market
(d) None of these
Ans- (c) Primary market
6. The techniques used by fundamental analysts to valuate the equity shares is/are:
(a) Asset based techniques
(b) Comparable techniques
(c) Present value techniques
(d)All of these
Ans-(d)All of these
7. The model that assumes the normal rate of growth over an indefinite time horizon is assumed is:
(a) H model of equity valuation
(b) Gordon Model
(c) Free cash flow models
(d) None of these
Ans- (b) Gordon Model
8. Which models generally applied by the fundamental analysts to valuate the equity share are called to be ?
(a) Relative valuation models
(b) Dividend valuation models
(c) Both of these
(d) None of these
Ans- (c) Both of these
9. The balance sheet valuation is a:
(a) Nominal approach
(b) Futuristic approach
(c) Historical approach.
(d) None of these
Ans-(c) Historical approach
10. The discounted cash flow is which of the following approach?
(a) Backward approach
(b) Forward approach
(c) Earnings approach
(d) Risk approach
Ans-(b) Forward approach
11. The model that derive the value of stock from the pricing of comparable assets is called
as-
(a) Composite valuation model
(b) Relative valuation model
(c) Growth valuation model
(d) All of these
Ans-(b) Relative valuation model
12. The current dividends are assumed to be equal to future dividends in case of:
(a) Variable growth
(b) Perpetuity
(c) Constant growth
(d) None of these
Ans- (b) Perpetuity
13. The comparison of various facets of the same firm over a period of time is called as
(a) Cross sectional analysis
(b) Technical analysis
(c) Time series analysis
(d) None of these
Ans-(c) Time series analysis
14. The constant divided growth model is propounded by which of the following?
(a) Fama
(b) William Sharpe
(c) Gordon
(d) Miller
Ans-(a) Fama
MCQ on Valuation of Bonds
Financial Management MCQ – 5
Financial Management MCQ PDF
1. Which is the lowest yield actually attained in the market by high grade bonds of a given class and maturity?
(a) Nominal return
(b) Basic yield
(c) Gross yield
(d) Current yield
Ans-(b) Basic yield
2. The instrument having fixed maturity period before winding up is known as:
(a) Registered debentures
(b) Bearer debentures
(c) Perpetual debentures
(d) Redeemable debentures
Ans-(d) Redeemable debentures
3. The debentures that give the investor the right to prematurely sell them to issuer on certain specific terms are called as:
(a) Callable debentures
(b) Zero coupon bonds
(c) Puttables debentures
(d) Commodity linked bonds.
Ans-(c) Puttables debentures
4. What indicates? When both long term rates and short term rates are equal.
(a) Upward slope
(b) Flat
(c) Downward slope
(d) Humped slope
Ans-(b) Flat
5. The bonds that do not carry any regular interest payment rather they are issued at steep discount and are redeemed at the face value on their maturity are:
(a) zero coupon bonds
(b) Straight bonds
(c) convertible debentures
(d) Perpetual debentures
Ans-(a) zero coupon bonds
6. Government securities are the debts issue by:
(a) State government
(b) Quasi government agencies
(c) Central government
(d) Any of these
Ans-(d) Any of these
7. Which rate of discount that makes the present value of all revenues in terms of cash inflows from investment equal to the cash outflows is:
(a) Bond rate
(b) Coupon rate
(c) Yield rate
(d) None of these
Ans-(c) Yield rate
8. Gilt-edged securities are:
(a) Government debentures
(b) Deposits
(c) Shares
(d) None of these
Ans-(a) Government debentures
9. Straight bonds are also known as which of the following ?
(a) Puttables debentures
(b) Plain vanilla bonds
(c) Zero coupon bonds
(d) Commodity linked bonds
Ans-(b) Plain vanilla bonds
10. Which factors mainly affect the required rate of return?
(a) Real growth rate
(b) Future expectations
(c) Inflation rate
(d) All of these
Ans-(d) All of these
11. Yield to maturity is what?
(a) Current yield
(b) Combination of current yield and annual appreciation or depreciation
(c) Annual appreciation or depreciation
(d) None of the above
Ans-(b) Combination of current yield and annual appreciation or depreciation
12. The value of holding period return is always show:
(a) Equal to 0
(b) Less than 0
(c) Greater than 0
(d) Negative
Ans-(c) Greater than 0
13. The yield curve shows the relationship between:
(a) Yield to maturity and terms to maturity
(b) Terms to maturity and price
(c) Yield to maturity and price
(d) None of these
Ans-(a) Yield to maturity and terms to maturity
14. The yield curve representing the structure of interest rates of bonds may follow the?
(a) Downwards
(b) Humped
(c) Upwards
(d) Any pattern
Ans-(d) Any pattern
15. Current yield is equal to What ?
(a) Running yield
(b) Income yield
(c) Market yield
(d) Any of these
Ans-(d) Any of these
16. What indicate the relationship between interest rate and reinvestment rate
(a) Zero
(b) Positive
(c) Negative
(d) Perfectly negative
Ans-(b) Positive
17. The greater long term rates as compared to short term rates is an indicator of which of the following ….
(a) Upward slope
(b) Downward slope
(c) Flat
(d) Humped slope
Ans-(a) Upward slope
MCQ on Capital Budgeting
Financial Management MCQ – 6
1. The investment made in fixed assets is known as:
(a) Revenue expenditure
(b) Rental Expenditure
(c) Capital expenditure
(d) None of these
Ans-(c) Capital expenditure
2. The investment decision analysis encompasses the risk-return analysis of which of the following?
(a) Long term investment proposals
(b) Short term investment proposals
(c) Both of these
(d) None of these
Ans-(c) Both of these
3. The main components of capital budgeting are:
(a) Capital expenditure
(b) Budgeting
(c) Capital expenditure & Budgeting
(d) None of these
Ans-(c) Capital expenditure & Budgeting
4. The investment decisions which are concerned with the allocation of funds of an entity to the long term investment proposals are known as:
(a) Capital investment
(b) Capital budgeting
(c) Both of these
(d) None of these
Ans-(c) Both of these
5. The decisions which are concerned with allocation of funds to the short term investment proposals are known as:
(a) Capital investment
(b) Working capital decisions
(c) Capital budgeting
(d) None of these
Ans-(b) Working capital decisions
6. The art of making plans in quantitative manner to ensure profitability and growth is
known as:
(a) Budgeting
(b) Discounting
(c) Compounding
(d) None of these
Ans-(a) Budgeting
7. Financial managers consider capital budgeting as a very important function of finance due to:
(a) Large Investment
(b) Long term Effect on Profitability
(c) Long Term Commitment of Funds
(d) All of these
Ans-(d) All of these
8. The capital expenditure decisions encompass the decisions relating to:
(a) Independent investment proposals
(b) Mutually exclusive investment proposals
(c) Contingent investment proposals
(d) All of these
Ans-(d) All of these
9. The capital budgeting decision generally involves – investment of funds.
(a) Meager
(b) Huge
(c) Small
(d) No
Ans-(b) Huge
10. The examples of capital expenditure is :
(a) Purchase of fixed assets
(b) Replacement of fixed assets
(c) Alteration to the fixed assets
(d) All of these
Ans-(d) All of these
11. The Nature of capital expenditure decisions may be
(a) Reversible
(b) Routine
(c) Irreversible
(d) None of these
Ans-(c) Irreversible
12. The process of owning and acquiring economic resources to generate income in future
is called as:
(a) Financing decision
(b) Dividend decision
(c) Investment decision
(d) None of these
Ans-(c) Investment decision
13. Which of the following network techniques help in monitoring the implementation of the approved proposals?
(a) Critical Path Method (CPM)
(b) Programme Evaluation Review Technique (PERT)
(c) Both of the above
(d) None of these
Ans-(c) Both of the above
14. The criteria that do not take time value of money into consideration are known as:
(a) Discounted criteria
(b) Either (a) or (b)
(c) Traditional criteria
(d) Neither (a) nor (b)
Ans-(c) Traditional criteria
15. The final approval of investment proposals is based on:
(a) Financial viability
(b) Economic constituents
(c) Profitability
(d) All of these
Ans-(d) All of these
16. The overall objective of capital budgeting is to:
(a) Maximize the shareholders’ wealth
(b) Reduce costs
(c) Increase revenues
(d) None of these
Ans-(a) Maximize the shareholders' wealth
17. The payback period method give much emphasis on:
(a) Profitability
(b) Whole life earnings
(c) Liquidity
(d) Time factor
Ans-(c) Liquidity
18. The traditional criteria encompasses:
(a) Accounting rate of return
(b) Payback period
(c) Both of these
(d) None of these
Ans-(c) Both of these
19. The length of time needed to recover the initial cash outlay of the investment propos
is called as:
(a) Payback period
(b) Return period
(c) Accounting period
(d) None of these
Ans-(a) Payback period
20. The criterion which measures the profitability in terms of relation between income and
investment is known as:
(a) Payback period
(b) time value of money
(c) Accounting rate of return
(d) None of these
Ans-(c) Accounting rate of return
21. A discount rate that equates the present value of inflows to the present value of cash outflows is known as:
(a) Rate of return
(b) Cost of capital
(c) Internal rate of return
(d) None of these
Ans-(c) Internal rate of return
22. The advantages of accounting rate of return criterion are:
(a) Takes whole life earnings
(b) Emphasis on profitability
(c) Easy computation
(d) All of these
Ans-(d) All of these
23. The criterion which compares the present value of cash inflows with the present value of
cash outflows is known as:
(a) Present value criterion
(b) Accounting rate of return criterion
(c) Payback period criterion
(d) None of these
Ans-(a) Present value criterion
24.what is the acceptance rule of payback period ?
(a) Select the investment proposal with highest payback period among all investment proposals
(b) Select the investment proposal with lowest payback period among all investment Proposals
(c) Either (a) or (b)
(d) Neither (a) nor (b)
Ans-(b) Select the investment proposal with lowest payback period among all investment Proposals
25. The merit of present value method is/are:
(a) It takes time factor into consideration
(c) It takes whole life earnings
(b) Both of these
(d) None of these
Ans-(b) Both of these
MCQ on Sources of Financing
Financial Management MCQ – 7
1. In which market the newly issued securities and share are bought or sold during initial public
Offerings(IPO)?
(a) Primary market
(b) Secondary market
(c) Insurance markets
(d) Investment Market
Ans-(a) Primary market
2. The equity shares are classified as blue chip shares, growth shares, income shares, cyclical shares, defensive shares and speculative shares by the stock market on the basis of their
(a) Risk exposure
(c) Return potential
(b) Both of these
(d) None of these
Ans-(b) Both of these
3. Which market provides instruments for managing the financial risk?
(a) Money market
(b) Bond market
(c) Derivatives market
(d) Commodity market
Ans-(c) Derivatives market
4. Which market provide finance for long term purpose ?
(a) Money market
(b) Capital market
(c) Both of these
(d) None of these
Ans-(b) Capital market
5. Equity shares are known as:
(a) Debt securities
(b) Ownership securities
(c) Both
(d) None of the above
Ans-(b) Ownership securities
6. Which market provide finance for short term purpose ?
(a) Money market
(c) Capital market
(b) Both of these
(d) None of these
Ans-(a) Money market
7. In which market the existing securities are brought and sold ?
(a) Donation markets
(b) Primary market
(c) Secondary market
(d) Insurance Market
Ans-(c) Secondary market
8. A lease agreement which gives only a limited right to the lessee to use the asset is called
(a) Operating lease
(b) Financial lease
(c) Leveraged leasing
(d) Sale and lease back
Ans-(a) Operating lease
9. The bonds which are issued with a call premium is also known as:
(a) Forward
(b) Callable
(c) Swap
(d) Future
Ans-(b) Callable
10. Arrear Dividend is paid to the Preference share otherwise known as
(a) Participate Preference share
(b) Cumulative preference shares
(c) Noncumulative preference shares
(d) None of these
Ans-(b) Cumulative preference shares
11. The creditorship security with specified period, fixed rate of return, low capital uncertainty with perfect income certainty is known as:
(a) Debentures/Bonds
(b) Preference shares
(c) Ordinary/Equity Shares
(d) All of these
Ans-(a) Debentures/Bonds
12. Preference shares are hybrid instruments containing the features of:
(a) Debentures
(c) Equity Shares
(b) Debentures & Equity Shares
(d) None of these
Ans-(b) Debentures & Equity Shares
13. A transaction where goods are delivered to the purchaser immediately and purchase price is to be made as installment wise.
(a) Leasing
(b) Causing
(c) Hire purchase
(d) Tire Purchase
Ans-(c) Hire purchase
14. The responsibility of use and maintenance of the asset in operating lease lies with the
(a) Lessor
(b) Lessee
(c) Messi
(d) Desi
Ans-(a) Lessor
15. The long term and non-cancellable lease where the ownership may be transfer to lessee is
(a) Operating lease
(b) Sale and lease back
(c) Leveraged leasing
(d) Financial lease
Ans-(d) Financial lease
16. In which of following lease agreement owner of an asset sells the asset to a party (the buyer), who in turn leases back the same asset to the owner in consideration of some lease rentals?
(a) Insurance Lease
(b) Sale and lease back
(c) Operating lease
(d) Financial lease
Ans-(b) Sale and lease back
17.The smallest unit of the capital is known as:
(a) Share
(b) Unit
(c) Account
(d) Bond
Ans-(a) Share
18. New issued share are related to
(a) Primary market
(b) Secondary market
(c) Daily market
(d) Fish market
Ans-(a) Primary market
19. Stock market is a
(a) Money Market
(b) Capital Market
(c) Insurance Market
(d) Donation Market
Ans-(b) Capital Market
20. Full Form of UTI
(a) Unique Tattoo of India
(b) Unique Table in India
(c) Unit Trust of India
(d) Unit Technique in Insurance
Ans- (c) Unit Trust of India
MCQ on Capital Structure
Financial Management MCQ – 8
1. According to Modigliani-Miller approach of relevance, the value of the entity increases
with debt because of:
(a) Stability
(b) High earnings
(c) Low risk
(d) Tax deductibility of interest charges
Ans-(d) Tax deductibility of interest charges
2. The permanent financing of an entity represented primarily by long-term finance is known as:
(a) Capital structure
(b) Working capital
(c) Financial structure
(d) Watered capital
Ans-(a) Capital structure
3. The process of determining funds that an entity needs to run its business is called
(a) Capitalization
(b) Quantitative analysis
(c) Financing
(d) Utilisation
Ans-(a) Capitalization
4. The wealth in the form of money which is invested in a business to generate income is
known as:
(a) Capital
(b) Insurance
(c) Value
(d) Donation
Ans-(a) Capital
5. The process of buying a security or asset in one market at lower price and selling the
same in another market at a higher price is known as:
(a) Bargaining
(b) Insider trading
(c) Arbitrage
(d) None of these
Ans-(c) Arbitrage
6. The composition of long term sources of finance making the capitalization is known as
(a) Financial structure
(b) Market Structure
(c) Capital structure
(d) None of these
Ans-(c) Capital structure
7. The amount of capital that is not represented by the same value of assets of an entity at the time of its promotion is its:
(a) Promotion capital
(b) Fixed capital
(c) Working capital
(d) Watered capital
Ans-(d) Watered capital
8. The main factors which affect the capital structure decision of an entity are:
(a) Financial Leverage
(b) Cost of Capital
(c) Nature of Assets
(d) All of these
Ans-(d) All of these
9. The total of short term and long term sources of finance of an entity is its:
(a) Capital structure
(b) Financial structure
(c) Money Structure
(d) Short term structure
Ans-(b) Financial structure
10. The money invested in long term economic resources or assets is known
(a) Working capital
(b) Share Capital
(c) Fixed capital
(d) Debenture Capital
Ans-(c) Fixed capital
11. Modigliani-Miller defined the value of levered entity as:
(a) V₁ = Vu + PVINTS
(c) V = Vu + INTS
(b) V=Vu-PVINTS
(d) None of these
Ans-(a) V₁ = Vu + PVINTS
12. What is the preference of an entity having short period of operation for reduce
its cost of capital?
(a) Derivatives to debt
(b) Equity to debt
(c) Debt to equity
(d) None of these
Ans-(c) Debt to equity
13. Management, which is experienced and very enterprising, does not hesitate to use more
(a) Debt
(b) Earnings
(c) Equity
(d) None of these
Ans-(a) Debt
14. According of MM approach with corporate taxes, the value of levered entity is –
than the value of unlevered entity.
(a) Lower
(b) Slightly lower
(c) Higher
(d) Normal
Ans-(c) Higher
15. ‘Net Income Approach’ is Introduced by
(a) Modigliani
(b) David Durand
(c) Miller
(d) Sachin Tendulkar
Ans-(b) David Durand
16. The costs are associated with the negative effect of the threat of bankruptcy on sales and
normal operations of business are known as:
(a) Direct Bankruptcy Costs
(b) Solvency costs
(c) Indirect Bankruptcy Costs
(d) None of these
Ans-(c) Indirect Bankruptcy Costs
17. What is the preference of an entity having long period of operation its cost of capital?
(a) Equity to debt
(b) Derivatives to debt
(c) Debt to equity
(d) None of these
Ans-(a) Equity to debt
18. Which of the following equation indicating the impact of bankruptcy
(a) V₁ = Vu + Vd + BC
(b) V₁ = Vu + Vd – BC
(c) V₁ = Vu – BC
(d) None of these
Ans-(b) V₁ = Vu + Vd - BC
19. The traditional approach of capital structure contains the features of:
(a) Net Operating Income Approach
(b) Net Income Approach
(c) Both of these
(d) None of these
Ans-(c) Both of these
20. ‘Net Operating Income Approach’ of capital structure introduced by whom?
(a) Modigliani
(b) Miller
(c) David Durand
(d) Ricky Ponting
Ans-(c) David Durand
21. The monitoring and restrictive covenants cost is called as ?
(a) Solvency Cost
(b) Bankruptcy Cost
(c) Monitoring Cost
(d) Agency Costs
Ans-(d) Agency Costs
22. The problems arising due to conflict of interest among equity shareholders, shareholders, debentures holders and management is:
(a) Bankruptcy Problems
(b) Public Problems
(c) Agency problems
(d) Share holder problems
Ans-(c) Agency problems
23. The entities issuing excessive debts have high probability of financial distress which …….their value.
(a) Normal
(b) Does not change
(c) Increases
(d) Reduces
Ans-(d) Reduces
MCQ on Leverage
Financial Management MCQ – 9
1. The costs independent of production, sales or earnings are known as
(a) Variable costs
(b) Total costs
(c) Fixed costs
(d) Marginal costs
Answer (c) Fixed costs
2. Through leverage analysis the financial manager measure the relationship between
(a) Cost and earning
(b) Sales revenue and earning
(c) Costs and sales revenue
(d) Costs sales, revenue and earning
Answer (d) Costs sales, revenue and earning
3. The relationship between the operating income and earnings per share is known as
(a) Financial leverage
(b) Operating leverage
(c) Composite leverage
(d) Working capital leverage
Answer (a) Financial leverage
4. Rent of building, salary of manager, lease payment, depreciation and property taxes are example of
(a) Both of the above
(b) Variable operating costs
(c) Fixed operating costs
(d) None of the above
Answer (c) Fixed operating costs
5. The percentage change in the net operating income resulting from a percentage change in the sales in known as
(a) Degree of combined leverage
(b) Degree of financial leverage
(c) Degree of working leverage
(d) Degree of operating leverage
Answer (d) Degree of operating leverage
6. The ability of an entity to use fixed financial charges to magnify the effects of changes in operating income on the earning per share in known as
(a) Composite leverage
(b) Operating leverage
(c) Financial leverage
(d) Working capital leverage
Answer (c) Financial leverage
7. The percentage change in taxable profit as a result of percentage change in operating profit is known as
(a) Degree of financial leverage
(b) Degree of operating leverage
(c) Degree of working leverage
(d) Degree of combined leverage
Answer (a) Degree of financial leverage
8. The level of earnings before interest and taxes at which earning per share is zero is
(a) Financial break-even point
(b) Indifferent point
(c) Both of the above
(d) None of the above
Answer (a) Financial break-even point
9. Which leverage measures the relationship between the sales, revenue and the taxable income?
(a) Financial leverage
(b) Composite leverage
(c) Operating leverage
(d) Working capital leverage
Answer (b) Composite leverage
10. Which leverage measure the sensitivity of return on investment of change in the level of current assets?
(a) Operating leverage
(b) Composite leverage
(c) Financial leverage
(d) Working capital leverage
Answer (d) Working capital leverage
11. The cost dependent on the level of production, sales or earnings are known as
(a) Variable costs
(b) Total costs
(c) Fixed costs
(d) Marginal costs
Answer (a) Variable costs
12. The relationship between the sales, revenue and operating income is known as
(a) Financial leverage
(b) Composite leverage
(c) Working capital leverage
(d) Operating leverage
Answer (d) Operating leverage
13. The study of the relation between the sales revenue and earning per share with the help of
(a) Financial leverage
(b) Working capital leverage
(c) Composite leverage
(d) Operating leverage
Answer (c) Composite leverage
14. Raw material costs, wages, electricity and other utilities are example of
(a) Variable operating costs
(b) Fixed costs
(c) Total costs
(d) Marginal costs
Answer (a) Variable operating costs
15. Which leverage can be determined with the help of break-even analysis?
(a) Financial leverage
(b) Composite leverage
(c) Working capital leverage
(d) Operating leverage
Answer (d) Operating leverage
16. When an entity earn more on the assets purchased with the fixed cost funds than the fixed costs of their use is known as
(a) Favorable financial leverage
(b) Positive financial leverage
(c) Both of the above
(d) None of the above
Answer (c) Both of the above
17. Trading on equity is possible only when the entity uses
(a) Financial leverage
(b) Composite leverage
(c) Working capital leverage
(d) Operating leverage
Answer (a) Financial leverage
18. The point as which different sets of debt equity ratio gives the same earning per share is known as
(a) Financial breakeven point
(b) Indifferent point
(c) Both of the above
(d) None of the above
Answer (b) Indifferent point
FAQ (Frequently Asked Questions)
What is financial management MCQ?
What is objective of financial management MCQ?
Answer :
