Financial Management

5 of 8 sets

401. Which of the following is not a part of the money market?

A. Call money market
B. Treasury bill market
C. Commercial paper market
D. Stock market
Answer:D

402. The objective of financial management is to

A. Maximize the revenue
B. Minimize the expenses
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C. Maximize the return on investment
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D. Maximize the wealth of the owners by increasing the value of the firm
Answer:D a
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403. Which of the following is the main objective of financial management?
A. Revenue Maximisation
B. Profit Maximisation
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C. Wealth Maximisation
D. Cost Minimisation
Answer:C

404. Which one of the following activities is outside the purview of financing
decision in financial management?
A. Identification of the source of funds
B. Measurement of the cost of funds
C. Deciding on the time of raising the funds
D. Deciding on the utilization of the funds
Answer:D

405. A firm has a capital of Rs. 10 lakhs, sales of Rs. 5 lakhs, gross profit of Rs. 2
lakhs and expenses of Rs. 1 lakh. The Net Profit Ratio is:
 A. 50%
B. 40%
C. 20%
D. 10%
Answer:C

406. Which of the following forms of equity financing is especially designed for
funding High Risk & High Reward projects?
A. ADR
B. GDR
C. FCCB
D. Venture Capital
Answer:D

407. A process through which loans and other receivables are underwritten and
sold in a form of asset is known as:
A. Factoring
B. Forfeiting
C. Securitisation
D. Bill Discounting
Answer:C

408. In Net Profit Ratio, the denominator is:

A. Credit Sales
B. Net Sales
C. Cost of Sales
D. Cost of Goods Sold
Answer:B

409. Current Assets Rs. 20,00,000; Current Liabilities Rs. 10,00,000 and Stock Rs.
2,00,000, then what is liquid ratio?
A. 2 times
B. 1.8 times
C. 1.4 times
D. None of these
Answer:B

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410. Annual credit sales Rs. 4,00,000; Average collection period 45 days (assume
360 days in a year). What is Average debtors?
A. Rs. 60,000
B. Rs. 74,000
C. Rs. 50,000
D. Rs. 4,00,000
Answer:C

411. Investment in a project is Rs. 200 lakhs and Net Present Value is Rs. 50 lakhs.
Then the amount of inflows is :
A. Rs. 150 lakhs
B. Rs. 200 lakhs
C. Rs. 100 lakhs
D. Rs. 250 lakhs
Answer:D

412. PAT of a company Rs. 100 lakhs and number of equity shares of Rs. 10 each
with a capital of Rs. 50 lakhs, then EPS is:
A. Rs. 2
B. Rs. 1
C. Rs. 10
D. None of these
Answer:D

413. Degree of operating leverage is:

A. EBIT / EBT
B. Contribution / EBT
C. Contribution / EBIT
D. None of these
Answer:C

414. Cost of goods sold is Rs. 8000 and gross margin is Rs. 5000 then revenue will
be
A. Rs. 3,000
B. Rs. 5,000
C. Rs. 8,000

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 D. Rs. 13,000
Answer:D

415. Present value of inflows Rs. 10 lakhs from a project and initial investment is
Rs. 7.5 lakhs. The NPV is:
A. Rs. 17.5 lakhs
B. Rs. 7.5 lakhs
C. Rs. 10 Lakhs
D. Rs. 2.5 lakhs
Answer:D

416. Cash & Bank Rs. 20,000; Debtors Rs. 2,00,000; Stock Rs. 2,80,000 and
Current Liabilities: Creditors Rs. 1,00,000; Bills Payable Rs. 50,000. Then the
working capital is:
A. Rs. 4,00,000
B. Rs. 3,80,000
C. Rs. 3,50,000
D. Rs. 70,000
Answer:C

417. 1,00,000; 10% Debentures of Rs. 100 each of company, the interest payable for
quarter is:
A. Rs. 10,00,000
B. Rs. 2,50,000
C. Rs. 5,00,000
D. None of these
Answer:B

418. Gross margin is added to cost of sold goods for calculating

A. revenues
B. selling price
C. unit price
D. bundle price
Answer:A

419. Cash Flow Statement is also known as

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 A. Statement of Changes in Financial Position on Cash basis
B. Statement accounting for variation in cash
C. Both a and b
D. None of the above
Answer:C

420. Degree of financial leverage of business indicates.

A. Total risk
B. Operating risk
C. Financial risk
D. None of these
Answer:C

421. Which of the following is not a characteristic of GDR?

A. Is a negotiable instrument
B. Carry voting rights
C. Freely tradable in International Market
D. Denominated in US Dollars
Answer:B

422. Which of the following is a feature of Factoring?

A. Tool of short term borrowing
B. Purchase of export bill only
C. Used in Export business only
D. Done without recourse to the client
Answer:A

423. Which of the following is a Profitability Ratio?

A. Proprietary Ratio
B. Debt –equity Ratio
C. Price Earnings Ratio
D. Fixed Asset Ratio
Answer:C

424. You're given the gross profit margin, which is 20%, and the gross profit (GP),
which is Rs. 54000. Find the sales amount.

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 A. Rs. 300000
B. Rs. 270000
C. Rs. 280000
D. Rs. 290000
Answer:B

425. EBIT= Rs. 1120000, PBT= Rs. 320000, Fixed Costs= Rs. 700000, Operating
Leverage =
A. 1.625
B. 2.625
C. 6.625
D. 3.625
Answer:A

426. Which of the following is not a Source of Fund?

A. Issue of Capital
B. Issue of Debenture
C. Decrease in working capital
D. Increase in working capital
Answer:D

427. Determinants of credit policy relates to:

A. Credit standards
B. Credit terms
C. Collection Procedures
D. All of the above
Answer:D

428. The following is not a Discounted Cash Flow Technique:

A. NPV
B. PI
C. Accounting of Average rate of return
D. IRR
Answer:C

429. ? (Beta) of a security measures its:

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 A. Diversifiable risk
B. Financial risk
C. Market risk
D. None of above
Answer:C

430. Following method is also known as ‘Benefit Cost Ratio.’

A. NPV
B. IRR
C. ARR
D. PI
Answer:D

431. ROI (Return on Investment) can be decomposed into the following ratios:
A. Overall Turnover Ratio and Current Ratio
B. Net Profit Ratio and Fixed Assets Turnover
C. Working Capital Turnover Ratio and Net Profit Ratio
D. Net Profit Ratio and Overall Turnover Ratio
Answer:D

432. Which one of the following activities is outside the purview of dividend
decision in financial management?
A. Identification of the profit after taxes
B. Measurement of the cost of funds
C. Deciding on the pay-out ratio
D. Considering issue of bonus shares to equity shareholders
Answer:B

433. Which of the following does not help to increase Current Ratio?
A. Issue of Debentures to buy Stock
B. Issue of Debentures to pay Creditors
C. Sale of Investment to pay Creditors
D. Avail Bank Overdraft to buy Machine
Answer:D

434. Which of the following statements is correct?

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 A. A higher Receivable Turnover is not desirable.
B. Interest Coverage Ratio depends upon Tax Rate.
C. Increase in Net Profit Ratio means increase in Sales
D. Lower Debt Equity Ratio means lower Financial Risk
Answer:D

435. “Shareholders Wealth” in a firm is reflected by:

A. the number of people employed in the firm
B. the book value of the firm’s assets less the book value of its liabilities
C. the amount of salary paid to its employees
D. the market price per share of the firm
Answer:D

436. The excess of Current Assets over Current Liabilities is called:

A. Net Current Assets
B. Net Working Capital
C. Working Capital
D. All of the above
Answer:D

437. Profit Maximization is the main objective of business because:

A. Profit acts as a measure of efficiency and
B. It serves as a protection against risk
C. Both
D. none
Answer:C

438. Stock holder’s wealth = ____________

A. No. of shares owned x Current stock price per share
B. No. of shares owned x Current stock price per share
C. No. of shares owned x Current stock price per share
D. none
Answer:A

439. Working Capital Management refers to a Trade-off between

_____________and Profitability.

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 A. Liquidity
B. Risk
C. Both of the above
D. None of the above
Answer:C

440. Which one of the following is a medium term source?

A. Public Deposits
B. Lease Financing
C. Euro Debt Issue
D. All of the above
Answer:D

441. The lease period in such a contract is less than the useful life of asset. Here we
are talking about _______.
A. Operating or Service Lease
B. Service Lease
C. Financial Lease
D. None of the above
Answer:A

442. Which one is the Benefit(s) of Factoring?

A. Better Cash Flows
B. Better Assets Management
C. Better Working Capital Management
D. All of the above
Answer:D

443. Find the present value of Rs. 1,000 receivable 6 years hence if the rate of
discount is 10 percent.
A. 564.5
B. 554.5
C. 574.5
D. 600
Answer:A

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444. The term _______means manipulation of accounts in a way so as to conceal
vital facts and present the financial statements in a way to show a better position
than what it actually is.
A. window dressing
B. creative accounting
C. window accounting
D. modified accounting
Answer:A

445. Collateralized borrowing and lending obligation (CBLO) is a discounted

instrument available in electronic book entry for the maturity period ranging from
__________.
A. 1 day to 19 days
B. 1 day to 15 days
C. 1 day to 30 days
D. None of the above
Answer:A

446. IPO refers to ____________; the first time a company comes to public to raise
money.
A. Immediate Public Offer
B. Immediate Public Offering
C. Initial Public Offer
D. Initial Public Offering
Answer:D

447. SPO refers to ________, the second and subsequent time a company raises
money from the public directly.
A. Second Public Offering
B. Subsequent Public Offering
C. Subsequent Public Offer
D. Seasonal Public Offering
Answer:B

448. Liquid Liability = Current Liability – Bank Overdraft – ___________

A. Cash Credit
B. Trade Credit

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 C. Both of the above
D. None of the above
Answer:A

449. Ratio analysis is the process of determining and interpreting numerical

relationships based on _______.
A. Financial values
B. Financial statements
C. Financial numerical information
D. All of the above
Answer:D

450. Ratio analysis is based on __________ measure.

A. relative
B. absolute
C. Both of the above
D. None of the above
Answer:A

451. The persons interested in the analysis of financial statements can be grouped
as _________.
A. Owners or investors
B. Creditors
C. Financial executives
D. All of the above
Answer:D

452. The term “Operating Profit” means profit before __________________.

A. interest
B. tax
C. interest and tax
D. interest or tax
Answer:C

453. Debt- equity Ratio is an example of ________________.

A. Short term solvency Ratio

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 B. Long term solvency Ratio
C. Profitability Ratio
D. None of the above
Answer:B

454. In Cash Flow Statement, Cash includes________________.

A. cash on hand
B. demand deposits with banks
C. cash on hand and demand deposits with banks
D. cash on hand or demand deposits with banks
Answer:C

455. The treatment of interest and dividends received and paid depends upon the
nature of the enterprise. For this purpose, the enterprises are classified as
____________.
A. (i) Financial enterprises, and (ii) Operating enterprises
B. (i) Financial enterprises, and (ii) Other enterprises
C. (i) Financial enterprises, and (ii) Non-Financial enterprises
D. (i) Trading enterprises, and (ii) Non - Trading enterprises
Answer:B

456. Cash Flow Statement is _____________ for Income Statement or Funds Flow
Statement.
A. not a substitute
B. a substitute
C. depends on situation
D. None of the above
Answer:A

457. Funds Flow Statement reveals the change in _______________ between two
Balance Sheet dates.
A. Working capital
B. Internal capital
C. Share capital
D. Both (A) & (C)
Answer:A

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458. A firm following an aggressive working capital strategy would:
A. Hold substantial amount of fixed assets
B. Minimize the amount of short term borrowing
C. Finance fluctuating assets with long term financing
D. Minimize the amount of fund in very liquid assets
Answer:D

459. Which of the following would be consistent with a conservative approach to

financing working capital?
A. Financing short-term needs with short-term funds
B. Financing short-term needs with long-term debt
C. Financing seasonal needs with short-term funds
D. Financing some long-term needs with short-term fund
Answer:B

460. To financial analysts, "net working capital" means the same thing as
__________.
A. total assets
B. fixed assets
C. current assets
D. current assets minus current liabilities
Answer:D

461. Baumol's Model of Cash Management attempts to:

A. Minimise the holding cost
B. Minimization of transaction cost
C. Minimization of total cost
D. Minimization of cash balance
Answer:C

462. Which of the following is not considered by Miller-Orr Model?

A. Variability in cash requirement
B. Cost of transaction
C. Holding cost
D. Total annual requirement of cash

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Answer:D

463. A firm is said to be financially unlevered firm if the firm has ……….
A. only external equity in its capital structure
B. only owner‘s equity in its capital structure
C. both external equity and owner‘s equity in its capital structure
D. only equity share capital in its capital structure
Answer:B

464. The term optimal capital structure‘ implies that combination of external
equity and internal equity at which ………
A. the overall cost of capital is minimised
B. the overall cost of capital is maximised
C. the market value of the firm is minimised
D. the market value of firm is greater than the overall cost of capital
Answer:A

465. Net Income Approach to capital structure decision was proposed by …….
A. J. E. Walter
B. M.H. Miller and D.Orr
C. E. Solomon
D. D. Durand
Answer:D

466. There is a reciprocal relationship between ……………….

A. DOL and DFL
B. DOL and margin of safety ratio
C. DFL and margin of safety ratio
D. DOL and break-even-point
Answer:B

467. The genesis of financial risk lies in …………….

A. capital budgeting decision
B. capital structure decision
C. dividend decision
D. liquidity decision

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Answer:B

468. Financial break-even point is that level of EBIT at which ………….

A. EPS > 0
B. EPS < 0
C. EPS = 0
D. EPS > 1
Answer:C

469. In mutually exclusive projects, projects which are selected for comparison
must have
A. positive net present value
B. negative net present value
C. zero net present value
D. none of the above
Answer:A

470. In a single projects situation, results of internal rate of return and net present
value lead to
A. cash flow decision
B. cost decision
C. same decisions
D. different decisions
Answer:C

471. The discount rate which forces net present values to become zero is classified
as
A. positive rate of return
B. negative rate of return
C. external rate of return
D. internal rate of return
Answer:D

472. A point where profile of net present value crosses horizontal axis at plotted
graph indicates project
A. costs

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 B. cash flows
C. internal rate of return
D. external rate of return
Answer:C

473. Payback period in which an expected cash flows are discounted with the help
of project cost of capital is classified as
A. discounted payback period
B. discounted rate of return
C. discounted cash flows
D. discounted project cost
Answer:A

474. Number of years forecasted to recover an original investment is classified as

A. payback period
B. forecasted period
C. original period
D. investment period
Answer:A

475. In proper capital budgeting analysis, we evaluate incremental

A. Accounting income
B. Cash flow
C. Earnings
D. Operating profit
Answer:B

476. The term mutually exclusive investments mean:

A. Choose only the best investments
B. Selection of one investment precludes the selection of an alternative
C. The elite investment opportunities will get chosen
D. There are no investment options available
Answer:B

477. Which of the following is a Profitability Ratio?

A. Proprietary Ratio

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 B. Debt-Equity Ratio
C. Price-Earning Ratio
D. Fixed Asset Ratio
Answer:C

478. The 'Dividend-Payout Ratio' is equal to

A. The Dividend yield plus the capital gains yield
B. Dividends per share divided by Earning per Equity Share
C. Dividends per share divided by par value per share
D. Dividends per share divided by current price per share
Answer:B

479. If EBIT = Rs. 1,00,000, Fixed Assets = Rs. 2,00,000, Sales = Rs. 10,00,000 and
Variable Cost = Rs. 7,00,000. Then, the Operating Leverage will be
A. 2
B. 3
C. 6
D. 4
Answer:B

480. Which of the following is not considered while preparing cash budget?
A. Accrual Principal
B. Difference in Capital and Revenue items
C. Conservation Principle
D. All of the above
Answer:D

481. At Indifference level of EBIT, different capitals have:

A. same EBIT
B. same EPS
C. same PAT
D. same PBT
Answer:B

482. ABC Analysis is used in

A. Inventory Management

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 B. Receivables Management
C. Accounting Policies
D. Corporate Governance
Answer:A

483. Which of the following is not incorporated in Capital Building?

A. Tax-Effect
B. Time Value of Money
C. Required Rate of Return
D. Rate of Cash Discount
Answer:D

484. Objective of Financial Management is

A. Management of Liquidity
B. Maximization of Profit
C. Maximization of Shareholders’ Wealth
D. Management of Fixed Assets
Answer:C

485. Which of the following variables is not known in Internal Rate of Return?
A. Initial Cash Flows
B. Discount Rate
C. Terminal Inflows
D. Life of the Project
Answer:B

486. Cost of Capital refers to

A. Floatation Cost
B. Dividend
C. Required Rate of Return
D. None of the above
Answer:C

487. Working Capital Management involves financing and management of

A. All Assets

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 B. All Current Assets
C. Cash and Bank Balance
D. Receivables and Payables
Answer:B

488. All listed companies are required to prepare

A. Funds Flow statement
B. Cash Flow Statement
C. Statement of Affairs
D. All of the above
Answer:B

489. Ratio Analysis can be used to study liquidity, turnover, profitability etc., of a
firm. What does Debt-Equity Ratio help to study?
A. Solvency
B. Liquidity
C. Profitability
D. Turnover
Answer:A

490. A firm determines the shareholders’ wealth by taking

A. the number of people employed in the firm
B. the book value of the firm’s assets less the book value of its liabilities
C. the amount of salary paid to its employees
D. the market price per share of the firm
Answer:B

491. Capital Budgeting techniques which considers the time value of money is
based on
A. Cash Flows of the organization
B. Accounting Profit of the organization
C. Interest Rate on Borrowings
D. Last Dividend Paid
Answer:A

492. Debt Financing is a cheaper source of finance because of

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 A. Time Value of Money
B. Rate of Interest
C. Tax-deductibility of Interest
D. Dividends not Payable to lenders
Answer:C

493. What should be the optimum Dividend payout ratio, when r=12% and
Ke=10%?
A. Zero
B. 50%
C. 12%
D. 100%
Answer:A

494. The term Float is used in

A. Receivable Management
B. Cash Management
C. Marketable Management
D. Inventory Management
Answer:B

495. Financial planning is ---------- function of a finance manager

A. Executive
B. Incidental
C. Auxiliary
D. None of these
Answer:A

496. Profit maximization may lead to better and efficient utilization of the
recourses only when there is -----------
A. Monopoly
B. Oligopoly
C. Perfect competition
D. None of these
Answer:C

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497. During inflationary period the risk free interest rate will be
…………………………….
A. Lower
B. Does not change
C. Higher
D. Cannot say
Answer:C

498. Implicit cost also called ………………………….

A. Marginal cost
B. Composite cost
C. Opportunity cost
D. Average cost
Answer:C

499. After tax cost of debt is equal to (1-t)x

A. Ko
B. WACC
C. Before tax cost of debt
D. KE
Answer:C

500. Cost of irredeemable preferences share capital is equal to kp=preference

dividend divided by
A. Total liabilities
B. Face value Preference issue
C. Total capital
D. Net proceeds
Answer:D

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