Financial Management MCQs 35

11. The long-run objective of financial management is to:

0 a) maximize earnings per share.
1 b) maximize the value of the firm's common stock.
2 c) maximize return on investment.
3 d) maximize market share.
4
12. The market price of a share of common stock is determined by:

1a) the board of directors of the firm.

2b) the stock exchange on which the stock is listed.
3c) the president of the company.
4d) individuals buying and selling the stock.

13. ___________________ of a firm refers to the composition of its long-term funds and its capital
structure.

1a) Capitalisation
2b) Over-capitalisation
3c) Under-capitalisation
4d) Market capitalization

14. In the _______________, the future value of all cash inflow at the end of time horizon at a particular
rate of interest is calculated.

1a) Risk-free rate

2b) Compounding technique
3c) Discounting technique
4d) Risk Premium

5. ______________ is the price at which the bond is traded in the stock exchange. a) Redemption value
b) Face value c) Market value d) Maturity value

16. In _______________ approach, the capital structure decision is relevant to the valuation of the firm.
2a) Net income
3b) Net operating income
4c) Traditional
5d) Miller and Modigliani

17. _______________ refers to the amount invested in various components of current assets.

1a) Temporary working capital

2b) Net working capital
3c) Gross working capital
4d) Permanent working capital

18. ____________ is the length of time between the firm’s actual cash expenditure and its own cash
receipt.
2a) Net operating cycle
3b) Cash conversion cycle
4c) Working capital cycle
5d) Gross operating cycle

19. _______________ refers to a firm holding some cash to meet its routine expenses that are incurred
in the ordinary course of business.
2a) Speculative motive
3b) Transaction motive
4c) Precautionary motive
5d) Compensating motive

110. _______________ refers to the length of time allowed by a firm for its customers to make payment
for their purchases.
2a) Holding period
3b) Pay-back period
4c) Average collection period
5d) Credit period

11. ____________________ and __________________________ are the two versions of goals of the
financial management of the firm.

1a) Profit maximisation, Wealth maximization

2b) Production maximisation, Sales maximisation
3c) Sales maximisation, Profit maximization
4d) Value maximisation, Wealth maximisation

112. Which of the following would NOT improve the current ratio?
2a) Borrow short term to finance additional fixed assets.
3b) Issue long-term debt to buy inventory.
4c) Sell common stock to reduce current liabilities.
5d) Sell fixed assets to reduce accounts payable.

13. The gross profit margin is unchanged, but the net profit margin declined over the same period. This
could have happened if

1a) cost of goods sold increased relative to sales.

2b) sales increased relative to expenses.
3c) Govt. increased the tax rate.
4d) dividends were decreased.
114. A company can improve (lower) its debt-to-total assets ratio by doing which of the following?
2a) Borrow more.
3b) Shift short-term to long-term debt.
4c) Shift long-term to short-term debt.
5d) Sell common stock.

15. Which of the following would be included in a cash estimation/ budget?

a) depreciation charges.
b) dividends.
c) goodwill.
d) patent amortization.

16. Which of the following is NOT a cash outflow for the firm?
a) depreciation.
b) dividends.
c) interest payments.
d) taxes.

117. A capital investment is one that

2a) has the prospect of long-term benefits.
3b) has the prospect of short-term benefits.
4c) is only undertaken by large corporations.
5d) applies only to investment in fixed assets.

118. To increase a given present value, the discount rate should be adjusted
2a) upward.
3b) downward.
4c) No change.
5d) constant

119. In deciding the appropriate level of current assets for the firm, management is confronted with
2a) a trade-off between profitability and risk.
3b) a trade-off between liquidity and marketability.
4c) a trade-off between equity and debt.
5d) a trade-off between short-term versus long-term borrowing.

120. varies inversely with profitability.

2a) Liquidity.
3b) Risk.
4c) Financing.
5d) Liabilities.

21. Spontaneous financing includes

a) accounts receivable.
b) accounts payable.
c) short-term loans.
d) a line of credit.

122. Marketable securities are primarily

2a) short-term debt instruments.
3b) short-term equity securities.
4c) long-term debt instruments.
5d) long-term equity securities.

123. An increase in the firm's receivable turnover ratio means that:

1a) it is collecting credit sales more quickly than before.

2b) cash sales have decreased.
3c) it has initiated more liberal credit terms.
4d) inventories have increased.

124. The term "capital structure" refers to:

2a) long-term debt, preferred stock, and common stock equity.
3b) current assets and current liabilities.
4c) total assets minus liabilities.
5d) shareholders' equity.

125. Reserves & Surplus are which form of financing?

2a) Security Financing
3b) Internal Financing
4c) Loans Financing
5d) International Financing

126. What are the different options other than cash used for distributing profits to shareholders?
a) Bonus shares
b) Stock split
c) Stock purchase
d) All of these

127. In MM model MM stands for...

a. M.Khan and Modigiliani
b. Miller and M.Khan
c. Modigiliani and M.Khan
d. Miller and Modigliani

28. When total current assets exceeds total current liabilities it refers to.
a. Gross Working Capital
b. Temporary Working Capital
c. Both a and b
d. Net Working Capital
129. What is the difference between the current ratio and the quick ratio?
2a) The current ratio includes inventories and the quick ratio does not.
3b) The current ratio does not include inventories and the quick ratio does.
4c) The current ratio includes physical capital and the quick ratio does not.
5d) The current ratio does not include physical capital and the quick ratio does.

130. Which of the following is not the responsibility of financial management?

2a) allocation of funds to current and capital assets
3b) obtaining the best mix of financing alternatives
4c) preparation of the firm's accounting statements
5d) development of an appropriate dividend policy

131. Which of the following are not among the daily activities of financial management?
2a) sale of shares and bonds
3b) credit management
4c) inventory control
5d) the receipt and disbursement of funds

132. An asset is a-
a. Source of fund
b. Use of fund
c. Inflow of funds
d. none of the above.

133. If a company issues bonus shares the debt equity ratio will
a) Remain unaffected
b) Will be affected
c) Will improve
d) none of the above.

134. Quick assets do not include

a) Govt.bond
b) Book debts
c) Advance for supply of raw materials
d) Inventories.

135. The ideal quick ratio is

a) 2:1
b) 1:1
c) 5:1
d) None of the above
Answer Keys

1 b
2 d
3 a
4 c
5 c
6 a
7 c
8 a
9 b
10 d
11 a
12 a
13 c
14 d
15 b
16 a
17 a
18 b
19 a
20 a
21 b
22 a
23 a
24 a
25 b
26 d
27 d
28 d
29 a
30 c
31 a
32 b
33 c
34 d
35 b