Financial Management MCQ with Answers

Table of Contents

Ezoicreport this ad

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 with Answers
Financial Management MCQ with Answers

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?

Answer :

What is objective of financial management MCQ?

Answer :

Share on:

Jai Hind... Namaskar !!! Apka Pyaar aur Respect, Tavi to hai Mr. Perfect... Lecturer / Writer/ Blogger / Dancer.  Rapper / Fitness Lover / Actor. Founder of Income TaxPe, No Bekari, Shayari me KahaniMCQ Questions, Car Insurance Ok Social Worker Co-founder of Kartabya Foundation(An animal, Social and Natural Welfare Organization.) and Founder of Mission Green Balangir (Natural Welfare Organization).

Leave a Comment