Financial-Management Solved MCQs

Financial Management MCQs [set-1]
1. All business need to have which fundamental essential element
A. human resources
B. balance sheet
C. labour team
D. stategy
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Answer: D
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2. Which of the following variable is not known in IRR?
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A. discount rate c
B. terminal inflows
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C. life of the project
D. intitial cash flows
Answer: A
3. Acccording to the traditional approach what is the effect of increase in

degree of leverage on the valuation of the firm
A. remains unaffected
B. increase first and then decreases
C. decreases
D. increases
Answer: B
4. The maximum expenses that an equity scheme charge to an investor is

____________
A. 0.025
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B. 0.0225
C. 0.0175
D. 0.02
Answer: A
5. The bonds with shorter maturity will have ______ duration
A. moderate
B. higher
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C. lower
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D. average
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Answer: C
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6. Relaxed or libral credit implies -credit to customers
A. higher
B. both a and b
C. lower
D. neither a nor b
Answer: A
7. Objectives of financial planning are
A. determining capital structure
B. framing loan policies
C. determining cash requirement
D. determining finance ratio
Answer: A
8. PI of project is the ratio of present value of inflows to-

A. total outflows
B. initial cost
C. pv of outflows
D. total cash inflows
Answer: C
9. Bird in hand - argument is given by
A. residuals theory
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B. walter model
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C. mm model
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D. gordon\s model
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Answer: D
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10. When the required rate of return is less than the coupon rate the
premium on the bond-
A. remains same
B. variable
C. declines
D. increases
Answer: C
11. Evaluation of firms credit policy can be done by computing expected

___________ from it
A. net benefit
B. net loss
C. net profit
D. net cost
Answer: A

12. All listed and traded securities are valued at _______
A. book value
B. cost
C. cost+ profit
D. closing market price
Answer: D
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13. Financial manager would not supervise on the following area
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A. cost analyst
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B. working capital advisor
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C. financial accounting and auditing
c
D. cash flow advisor
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Answer: C
14. In case of risky projects the required rate of return would generally be-
A. neutral
B. lower
C. moderate
D. higher
Answer: D
15. Residuals theory argues that dividend is as -
A. passive decision
B. irrelevant decision
C. active decision
D. relevant decision
Answer: A

16. Investors subscriptions are accounted as _____________
A. cash
B. deposits
C. liabilities
D. unit capital
Answer: D
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17. Face value is the value stated on the face of the bond and is known as-
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A. redemption value
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B. per value
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C. intrinsic value
c
D. market value
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Answer: B
18. _________Policy refers to the procedure follow to collect accounts

receivable after the expiry of the credit period
A. risk
B. collection
C. profit
D. manangment
Answer: B
19. Financial mananger would play the role of __________ in area of

finance
A. budget analyst
B. cash analyst
C. cash flow examiners

D. persoanl financial advisors
Answer: A
20. Accountng rate of return is based on _____________
A. life of the project
B. average expected profit
C. average cash profit
D. average past profit

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Answer: B
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21. MM model of dividend irrelevanceauses arbitrage between-
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A. dividend and capital issue
B. dividend and bonus M

C. profit and investment
D. none of the above
Answer: A
22. __________ Can be traded thourgh out the trading day at market prices
A. mmmf
B. debt fund
C. etf
D. equity fund
Answer: C
23. Intrinsic value of a bond is ______________ vlaue of the all future cash
flows
A. past
B. present

C. estimated
D. future
Answer: B
24. ______ Means the basic criteria for the extension of credit to
customers
A. credit standards
B. finnacial position
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C. cash standards
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D. living standards
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Answer: A
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25. The Presence of Taxes inc
capital budgeting analysis will cause
___________ M
A. the arr to remain same
B. the npv to increase
C. the irr to decrease
D. all of the above
Answer: C

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26. _____________ refers to the price at which an asset can be traded in

the market
A. past value
B. face value
C. market value
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D. future value
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Answer: C
a
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27. __________ is a blending of two or more exisiting undertaking into one
undertaking c
A. partnership
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B. joint stock company
C. joint venture
D. amalgamation
Answer: D
28. _____________ Means the action of an organisation or government

selling or liquidating an asset or subsidiary
A. sale out
B. disinvestment
C. lock out
D. wind up
Answer: B

29. _________The lessee and the owner of the equipment are two different
entities
A. direct lease
B. financial lease
C. operating lease
D. net lease
Answer: A
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30. ___________ is the primary institutional source of working capital
finance in India
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A. debtors
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B. loan from friend c
C. bank credit M
D. creditors
Answer: C
31. __________ means reputation of a firm which is in existance for a

number of year in market
A. goodwill
B. bad debts
C. copy rights
D. royalties
Answer: A
32. ___________ involves mergers and acquisition of firm belonging to

differernt countries of the world.
A. credit merger
B. group merger

C. cross bordor merger
D. synergy merger
Answer: C
33. _______________Is a entity formed by two or more companies to

undertake financial activity together.
A. parntership firm
B. acquisition
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C. joint venture
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D. merger
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Answer: C
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34. In a __________ transactionc the goods are let on hire the purchase
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price is to be paid in installment
the goods by paying all the installment
A. hire purchase
B. credit purchase
C. lease purchase
D. installment purchase
Answer: A
35. The arrengement in which entire amount of borrowing is credited to the

current account of the borrower or realised in cash is called as_________
A. letter of credit
B. bank overdraft
C. loan
D. bill discounting
Answer: C

36. Book value ( Net assets )= Total Assets - _______________
A. total liability
B. current asset
C. long term debt
D. current liability
Answer: C
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37. ____________ synergy refers to increase in the value of the firm that
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occurs to the combined firm from financial factors.
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A. group a
B. vertical
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c
C. financial
D. operating
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Answer: C
38. The kind of takeover which is done through negotiations between two
groups is called_________
A. horizontal merger
B. hostile take over
C. friendly take over
D. vertical synergy
Answer: C
39. From the point of view lessee, a lease is a_________
A. financing decision
B. buy or make decision
C. working capital decision

D. investment decision
Answer: A
40. ____________ indirect form of working capital financing and bank

assume only the risk the credit being provided by the supplier himself
A. mortgage loan
B. letter of credit
C. bank overdraft
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D. cash credit
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Answer: B
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41. EVA= ___________ - (Equity capital x % of cost of equity capital
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A. earning after tax
B. net operating profit after tax

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C. npat
D. npbt
Answer: B
42. ___________ is the ratio of the number of shares of the aquiring firm
and the selling firm's share
A. dividennd pay out ratio
B. debt- equity ratio
C. exchange ratio
D. current ratio
Answer: C
43. Which of the follwing is not a usual method of calculation of share

swap ratio?

A. sales turnover
B. economic value added
C. dividend after tax
D. tax benefit
Answer: B
44. Sale and lease back and ____________ are types of finance lease
A. operating lease
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B. finance lease
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C. leverage lease
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D. net lease
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Answer: C
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45. ________ are taken as an additional security for working capital credit
by banks
A. hypothecations
B. pledge
C. mortgage
D. cash credit
Answer: C
46. ___________ value is used when an investor wants true or real value
on basis of analysis of fundamentals without considering the prevailing
price in the market
A. intrinsic
B. social
C. current
D. average
Answer: A

47. EPS = ___________ / Total number of shares
A. profit after tax
B. net profit after interest and tax
C. npbt
D. ebt
Answer: B
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48. _________ classifies merger as vertical and
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A. as14
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B. as20
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C. as 9
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D. as 12 M
Answer: A
49. Treatment of _______ in AS 19 is almost same as required by tax laws

in India
A. operating lease
B. net lease
C. financial lease
D. hire purchase
Answer: A
50. _____________ has suggested three methods of working out of the

maximum amount that unit may expect from the bank (MPBF)
A. tondon committee
B. chore committee
C. walters committee

D. gordon\s committee
Answer: A
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51. The appropriate objective of an enterprise is;
A. Maximisation of sale
B. Maximisation of owners wealth.
C. Maximisation of profits.
D. None of these.
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Answer: B
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52. The job of a finance manager is confined to
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A. Raising funds c
B. Management of cash
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C. Raising of funds and their effective utilization.
D. None of these.
Answer: C
53. Financial decision involve;
A. Investment ,financing and dividend decision
B. Investment ,financing and sales decision
C. Financing , dividend and cash decision
D. None of these.
Answer: A
54. Net Profit Ratio Signifies:
A. Operational Profitability
B. Liquidity Position

C. Solvency
D. Profit
Answer: A
55. Working Capital Turnover measures the relationship of Working

Capital with:
A. Fixed Assets
B. Sales
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C. Purchases
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D. Stock.
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Answer: A
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56. Dividend Payout Ratio is:c
A. PAT Capital
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B. DPS ÷ EPS
C. Pref. Dividend ÷ PAT
D. Pref. Dividend ÷ Equity Dividend
Answer: B
57. Inventory Turnover measures the relationship of inventory with:
A. Average Sales
B. Cost of Goods Sold
C. Total Purchases
D. Total Assets
Answer: B
58. The term 'EVA' is used for:
A. Extra Value Analysis

B. Economic Value Added
C. Expected Value Analysis
D. Engineering Value Analysis
Answer: B
59. Return on Investment may be improved by:
A. Increasing Turnover
B. Reducing Expenses
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C. Increasing Capital Utilization
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D. All of the above
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Answer: D
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60. In Current Ratio, Current Assets are compared with:
A. Current Profit
B. Current Liabilities
C. Fixed Assets
D. Equity Share Capital
Answer: B
61. There is deterioration in the management of working capital of XYZ Ltd.

What does it refer to?
A. That the Capital Employed has reduced,
B. That the Profitability has gone up,
C. That debtors collection period has increased,
D. That Sales has decreased.
Answer: C
62. Debt to Total Assets Ratio can be improved by:

A. Borrowing More
B. Issue of Debentures
C. Issue of Equity Shares
D. Redemption of Debt.
Answer: D
63. Ratio of Net Income to Number of Equity Shares known as:
A. Price Earnings Ratio

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B. Net Profit Ratio,
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C. Earnings per Share
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D. Dividend per Share.
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Answer: C
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64. A Current Ratio of Less than One means:
A. Current Liabilities < Current Assets
B. Fixed Assets > Current Assets
C. Current Assets < Current Liabilities
D. Share Capital > Current Assets
Answer: C
65. A firm has Capital of 10,00,000; Sales of 5,00,000; Gross Profit of .

2,00,000 and Expenses of . 1,00,000. What is the Net Profit Ratio?
A. 20%
B. 50%
C. 10%
D. 40%
Answer: A

66. Suppliers and Creditors of a firm are interested in
A. Profitability Position
B. Liquidity Position
C. Market Share Position
D. Debt Position
Answer: B
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67. Which of the following is a measure of Debt Service capacity of a firm?
.c
A. Current Ratio
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B. Acid Test Ratio
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C. Interest Coverage Ratio
c
D. Debtors Turnover
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Answer: C
68. Gross Profit Ratio for a firm remains same but the Net Profit Ratio is
decreasing. The reason for such behavior could be:
A. Increase in Costs of Goods Sold
B. If Increase in Expense
C. Increase in Dividend
D. Decrease in Sales.
Answer: B
69. Which of the following statements is correct?
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

70. Debt to Total Assets of a firm is .2. The Debt to Equity boo would be:
A. 0.80
B. 0.25
C. 1.00
D. 0.75
Answer: B
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o to equity Shareholders?
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71. Which of the following helps analysing return
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A. Return on Assets
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B. Earnings Per Share
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C. Net Profit Ratio
c
D. Return on Investment.M
Answer: B
72. In Inventory Turnover calculation, what is taken in the numerator?
A. Sales
B. Cost of Goods Sold,
C. Opening Stock
D. Closing Stock.
Answer: B
73. Financial Planning deals with:
A. Preparation of Financial Statements
B. Planning for a Capital Issue
C. Preparing Budgets
D. All of the above
Answer: C

74. Financial planning starts with the preparation of:
A. Master Budget
B. Cash Budget
C. Balance Sheet
D. None of the above.
Answer: D
75. Process of Financial Planning ends with: o

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A. Preparation of Projected Statements
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B. Preparation of Actual Statements
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c
C. Comparison of Actual with Projected
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D. Ordering the employees that projected figures m come true.
Answer: C

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76. Capital Budgeting is a part of:
A. Investment Decision
B. Working Capital Management
C. Marketing Management
D. Capital Structure
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Answer: A
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77. Capital Budgeting deals with:
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A. Long-term Decisions c
B. Short-term Decisions
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C. Both (a) and (b)
D. Neither (a) nor (b)
Answer: A
78. Which of the following is not used in Capital Budgeting?
A. Time Value of Money
B. Sensitivity Analysis
C. Net Assets Method
D. Cash Flows.
Answer: C
79. Capital Budgeting Decisions are:
A. Reversible
B. Irreversible

C. Unimportant
D. All of the above
Answer: B
80. Which of the following is not incorporated in Capital Budgeting?
A. Tax-Effect
B. Time Value of Money
C. Required Rate of Return

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D. Rate of Cash Discount
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Answer: D
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81. Which of the following is not a capital budgeting decision?
c
A. Expansion Programme M
B. Merger
C. Replacement of an Asset
D. Inventory Level
Answer: D
82. A sound Capital Budgeting technique is based on:
A. Cash Flows
B. Accounting Profit
C. Interest Rate on Borrowings
D. Last Dividend Paid
Answer: B
83. Which of the following is not a relevant cost in Capital Budgeting?
A. Sunk Cost

B. Opportunity Cost
C. Allocated Overheads
D. Both (a) and (c) above.
Answer: D
84. Capital Budgeting Decisions are based on:
A. Incremental Profit
B. Incremental Cash Flows

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C. Incremental Assets
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D. Incremental Capital
a
Answer: B
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85. Which of the following does not effect cash flows proposal?
A. Salvage Value
B. Depreciation Amount
C. Tax Rate Change
D. Method of Project Financing
Answer: D
86. Cash Inflows from a project include:
A. Tax Shield of Depreciation
B. After-tax Operating Profits
C. Raising of Funds
D. Both (a) and (b)
Answer: D
87. Which of the following is not true with reference capital budgeting?

A. Capital budgeting is related to asset replacement decisions,
B. Cost of capital is equal to minimum required return,
C. Existing investment in a project is not treated as sunk cost,
D. Timing of cash flows is relevant.
Answer: C
88. Which of the following is not followed in capital budgeting?
A. Cash flows Principle

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B. Interest Exclusion Principle
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C. Accrual Principle
a
D. Post-tax Principle
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Answer: C
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89. Depreciation is incorporated in cash flows because it:
A. Is unavoidable cost
B. Is a cash flow
C. Reduces Tax liability
D. Involves an outflow
Answer: C
90. Which of the following is not true for capital budgeting?
A. Sunk costs are ignored,
B. Opportunity costs are excluded,
C. Incremental cash flows are considered,
D. Relevant cash flows are considered
Answer: B

91. Which of the following is not applied in capital budgeting?
A. Cash flows be calculated in incremental terms
B. All costs and benefits are measured on cash basis,
C. All accrued costs and revenues be incorporated,
D. All benefits are measured on after-tax basis.
Answer: C
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92. Evaluation of Capital Budgeting Proposals is based on Cash Flows
because: .c
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A. Cash Flows are easy to calculate a
B. Cash Flows are suggested by SEBI
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C. Cash is more important than profit
D. None of the above
Answer: C
93. Which of the following is not included in incremental A flows?
A. Opportunity Costs
B. Sunk Costs
C. Change in Working Capital
D. Inflation effect
Answer: B
94. A proposal is not a Capital Budgeting proposal if it:
A. is related to Fixed Assets
B. brings long-term benefits
C. brings short-term benefits only
D. has very large investment.
Answer: C

95. In Capital Budgeting, Sunk cost is excluded because it is:
A. of small amount
B. not incremental
C. not reversible
D. All of the above
Answer: B
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96. Savings in respect of a cost is treated in capital
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A. An Inflow
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B. An Outflow
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C. Nil
c
D. None of the above. M
Answer: A
97. In capital budgeting, the term Capital Rationing implies:
A. That no retained earnings available
B. That limited funds are available for investment
C. That no external funds can be raised,
D. That no fresh investment is required in current year
Answer: B
98. Feasibility Set Approach to Capital Rationing can be applied in:
A. Accept-Reject Situations
B. Divisible Projects
C. Mutually Exclusive Projects
Answer: A

99. In case of divisible projects, which of the following can be used to
attain maximum NPV?
A. Feasibility Set Approach
B. Internal Rate of Return
C. Profitability Index Approach
D. Any of the above
Answer: C
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100. In case of the indivisible projects, which of the following may not give
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the optimum result?
a
A. Internal Rate of Return
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B. Profitability Index c
C. Feasibility Set Approach
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D. All of the above
Answer: C

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101. Profitability Index, when applied to Divisible Projects, impliedly

assumes that:
A. Project cannot be taken in parts
B. NPV is linearly proportionate to part of the project taken up
C. NPV is additive in nature

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D. Both (b) and (c)
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Answer: D
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102. If there is no inflation during a period, then the Money Cashflow
would be equal to: c
A. Present Value
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B. Real Cash flow
C. Real Cash flow + Present Value
D. Real Cash flow - Present Value
Answer: B
103. The Real Cashflows must be discounted to get the present value at a
rate equal to:
A. Money Discount Rate
B. Inflation Rate
C. Real Discount Rate
D. Risk free rate of interest
Answer: C
104. Real rate of return is equal to:

A. Nominal Rate × Inflation Rate
B. Nominal Rate ÷ Inflation Rate
C. Nominal Rate - Inflation Rate
D. Nominal Rate + Inflation Rate
Answer: B
105. If the Real rate of return is 10% and Inflation s Money Discount Rate
is:
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A. 14.4%
.c
B. 2.5%
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C. 25%
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D. 14%
c
Answer: A
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106. If the Money Discount Rate is 19% and Inflation Rate is 12%, then the
Real Discount Rate is:
A. 7%
B. 5%
C. 5.70%
D. 6.25%
Answer: D
107. Money Discount Rate if equal to:
A. (1 + Inflation Rate) (1 + Real Rate)-1
B. (1 + Inflation Rate) 4- (1 + Real Rate)-1
C. (1 + Real Rate) 4- (1 + Inflation Rate)-1
D. (1 + Real Rate) + (1 + Inflation Rate)-1
Answer: A

108. Real Discount Rate is equal to:
A. (1 + Inf. Rate) (1 + Money D Rate)-1
B. (1 + Money D Rate) + (1 + Inf. Rate)-1
C. (1 + Money D Rate) 4- (1 + Inf. Rate)-1
D. (1 + Money D Rate) - (1 + Inf. Rate)-1
Answer: C
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109. Two mutually exclusive projects with different economic lives can be
compared on the basis of .c
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A. Internal Rate of Return a
B. Profitability Index
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c
C. Net Present Value
D. Equivalent Annuity Value

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Answer: D
110. Risk in Capital budgeting implies that the decision-maker

knows___________of the cash flows.
A. Variability
B. Probability
C. Certainty
Answer: B
111. In Certainty-equivalent approach, adjusted cash flows are discounted

at:
A. Accounting Rate of Return
B. Internal Rate of Return
C. Hurdle Rate

D. Risk-free Rate
Answer: D
112. Risk in Capital budgeting is same as:
A. Uncertainty of Cash flows
B. Probability of Cash flows
C. Certainty of Cash flows
D. Variability of Cash flows

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Answer: D
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a in capital budgeting?
113. Which of the following is a risk factor
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A. Industry specific risk factors
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B. Competition risk factors
C. Project specific risk factors
D. All of the above
Answer: D
114. In Risk-Adjusted Discount Rate method, the normal rate of discount

is:
A. Increased
B. Decreased
C. Unchanged
Answer: A
115. In Risk-Adjusted Discount Rate method, which one is adjusted?
A. Cash flows
B. Life of the proposal

C. Rate of discount
D. Salvage value
Answer: C
116. NPV of a proposal, as calculated by RADR real CE Approach will be:
A. Same
B. Unequal
C. Both (a) and (b)

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D. None of (a) and (b)
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Answer: B
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117. Risk of a Capital budgeting can be incorporated
c
A. Adjusting the Cash flows M
B. Adjusting the Discount Rate
C. Adjusting the life
D. All of the above
Answer: D
118. Which element of the basic NPV equation is adjusted by the RADR?
A. Denominator
B. Numerator
C. Both
D. None
Answer: A
119. Cost of Capital refers to:
A. Flotation Cost

B. Dividend
Answer: B
120. Which of the following sources of funds has an Implicit Cost of

Capital?
A. Equity Share Capital
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B. Preference Share Capital
.c
C. Debentures
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D. Retained earnings
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Answer: D
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121. Which of the following has the highest cost of capital?
A. Equity shares
B. Loans
C. Bonds
D. Preference shares
Answer: A
122. Cost of Capital for Government securities is also known as:
A. Risk-free Rate of Interest
B. Maximum Rate of Return
C. Rate of Interest on Fixed Deposits
Answer: A
123. Cost of Capital for Bonds and Debentures is calculated on:

A. Before Tax basis
B. After Tax basis
C. Risk-free Rate of Interest basis
Answer: B
124. Weighted Average Cost of Capital is generally denoted by:
A. kA
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B. kw
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C. k0
a
D. kc
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Answer: C
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125. Which of the following cost of capital require tax adjustment?
A. Cost of Equity Shares
B. Cost of Preference Shares
C. Cost of Debentures
D. Cost of Retained Earnings.
Answer: C

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126. Which is the most expensive source of funds?
A. New Equity Shares
B. New Preference Shares
C. New Debts
D. Retained Earnings
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Answer: A
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127. Marginal cost of capital is the cost of:
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A. Additional Sales c
B. Additional Funds
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C. Additional Interests
Answer: B
128. In case the firm is all-equity financed, WACC would be equal to
A. Cost of Debt
B. Cost of Equity
C. Neither (a) nor (b)
D. Both (a) and (b)
Answer: B
129. In case of partially debt-financed firm, k0 is less
A. Kd
B. Ke

C. Both (a) and (b)
Answer: B
130. In order to calculate Weighted Average Cost of weights may be based

on:
A. Market Values
B. Target Values
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C. Book Values
.c
D. All of the above
te
a
Answer: D
q M
131. Firm's Cost of Capital is c
the average cost of:
A. All sources
M
B. All borrowings
C. Share capital
D. Share Bonds & Debentures
Answer: A
132. An implicit cost of increasing proportion of debt is:
A. Tax should would not be available on new debt
B. P.E. Ratio would increase
C. Equity shareholders would demand higher return
D. Rate of Return of the company would decrease
Answer: C
133. Cost of Redeemable Preference Share Capital is:
A. Rate of Dividend

B. After Tax Rate of Dividend
C. Discount Rate that equates PV of inflows and out-flows relating to capital
Answer: C
134. Which of the following is true?
A. Retained earnings are cost free
B. External Equity is cheaper than Internal Equity

o m
.
C. Retained Earnings are cheaper than External Equityc
te
a
D. Retained Earnings are costlier than External Equity
Answer: C
q M
c
M
135. Cost of capital may be defined as:
A. Weighted Average cost of all debts
B. Rate of Return expected by Equity Shareholders
C. Average IRR of the Projects of the firm
D. Minimum Rate of Return that the firm should earn
Answer: D
136. Minimum Rate of Return that a firm must earn in order to satisfy its
investors, is also known as:
A. Average Return on Investment
B. Weighted Average Cost of Capital
C. Net Profit Ratio
D. Average Cost of borrowing
Answer: B
137. Cost Capital for Equity Share Capital does not imply that:

A. Market Price is equal to Book Value of share,
B. Shareholders are ready to subscribe to right issue,
C. .Market Price is more than Issue Price,
D. AC of the three above.
Answer: D
138. In order to calculate the proportion of equity financing used by the

company, the following should be used:
o m
A. Authorised Share Capital,
.c
t
B. Equity Share Capital plus Reserves and Surplus,e
a
M
C. Equity Share Capital plus Preference Share Capital,
q
c
D. Equity Share Capital plus Long-term Debt.
Answer: B
M
139. The term capital structure denotes:
A. Total of Liability side of Balance Sheet,
B. Equity Funds, Preference Capital and Long term Debt
C. Total Shareholders Equity,
D. Types of Capital Issued by a Company.
Answer: B
140. Debt Financing is a cheaper source of finance because of:
B. Rate of Interest,
C. Tax-deductibility of Interest
D. Dividends not Payable to lenders.
Answer: C

141. In order to find out cost of equity capital under CAPM, which of the
following is not required:
A. Beta Factor
B. Market Rate of Return,
C. Market Price of Equity Share
D. Risk-free Rate of Interest.
Answer: C
o m
.c
142. Tax-rate is relevant and important for calculation of specific cost of
capital of:
te
a
A. Equity Share Capital
q M
B. Preference Share Capital c
C. Debentures M
D. (a) and (b) above.
Answer: C
143. Advantage of Debt financing is
A. Interest is tax-deductible
B. It reduces WACC
C. Does not dilute owners control
D. All of the above.
Answer: D
144. Cost of issuing new shares to the public is known as:
A. Cost of Equity
B. Cost of Capital
C. Flotation Cost

D. Marginal Cost of Capital.
Answer: C
145. Cost of Equity Share Capital is more than cost of debt because:
A. Face value of debentures is more than face value of shares,
B. Equity shares have higher risk than debt,
C. Equity shares are easily saleable
D. All of the three above.

o m
Answer: B
.c
t e
a accepted approach for
146. Which of the following is not a generally
Calculation of Cost of Equity?
q M
c
A. CAPM
M
B. Dividend Discount Model
C. Rate of Pref. Dividend Plus Risk
D. Price-Earnings Ratio
Answer: C
147. Operating leverage helps in analysis of:
A. Business Risk
B. Financing Risk
C. Production Risk
D. Credit Risk
Answer: A
148. Which of the following is studied with the help of financial leverage?
A. Marketing Risk
B. Interest Rate Risk

C. Foreign Exchange Risk
D. Financing risk
Answer: D
149. Combined Leverage is obtained from OL and FL by their:
A. Addition
B. Subtraction
C. Multiplication
o m
D. Any of these
.c
te
Answer: C
a
q M
150. High degree of financial leverage means:
c
A. High debt proportion M
B. Lower debt proportion
C. Equal debt and equity
D. No debt
Answer: A

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.c
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a
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c
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151. Operating leverage arises because of:
A. Fixed Cost of Production
B. Fixed Interest Cost
C. Variable Cost

o m
.c
Answer: A
te
a
M
152. Financial Leverage arises because of:
q
A. Fixed cost of production c
B. Variable Cost
M
C. Interest Cost
Answer: C
153. Operating Leverage is calculated as:
A. Contribution ÷ EBIT
B. EBIT÷PBT
C. EBIT ÷Interest
D. EBIT ÷Tax
Answer: A
154. Financial Leverage is calculated as:
A. EBIT÷ Contribution
B. EBIT÷ PBT

C. EBIT÷ Sales
D. EBIT ÷ Variable Cost
Answer: B
155. Which combination is generally good for firms
A. High OL, High FL
B. Low OL, Low FL
C. High OL, Low FL

o m
D. None of these
.c
te
Answer: C
a
q M
156. Combined leverage can be used to measure the relationship between:
c
A. EBIT and EPS M
B. PAT and EPS,
C. Sales and EPS,
D. Sales and EBIT
Answer: C
157. FL is zero if:
A. EBIT = Interest
B. EBIT = Zero,
C. EBIT = Fixed Cost,
D. EBIT = Pref. Dividend
Answer: B
158. Business risk can be measured by:
A. Financial leverage

B. Operating leverage
C. Combined leverage
Answer: B
159. Financial Leverage measures relationship between
A. EBIT and PBT
B. EBIT and EPS

o m
C. Sales and PBT
.c
te
D. Sales and EPS
a
Answer: B
q M
c
M
160. Use of Preference Share Capital in Capital structure
A. Increases OL
B. Increases FL
C. Decreases OL
D. Decreases FL
Answer: B
161. Relationship between change in sales and change m is measured by:
A. Financial leverage
B. Combined leverage
C. Operating leverage
Answer: B
162. Operating leverage works when:

A. Sales Increases
B. Sales Decreases
C. Both (a) and (b)
D. None of (a) and (b)
Answer: C
163. Which of the following is correct?
A. CL= OL + FL
o m
B. CL=OL-FL
.c
te
C. OL= OL × FL
a
D. OL=OL÷FL
q M
Answer: C
c
M
164. If the fixed cost of production is zero, which one of the following is
correct?
A. OL is zero
B. FL is zero
C. CL is zero
Answer: D
165. If a firm has no debt, which one is correct?
A. OL is one
B. FL is one
C. OL is zero
D. FL is zero
Answer: B

166. If a company issues new share capital to redeem debentures, then:
A. OL will increase
B. FL will increase
C. OL will decrease
D. FL will decrease
Answer: D
167. If a firm has a DOL of 2.8, it means: o m

.c
te
A. If sales increase by 2.8%, the EBIT will increase by 1%,
a
M
B. If EBIT increase by 2.896, the EPS will increase by 1 %,
q
c
C. If sales rise by 1%, EBIT will rise by 2.8%,

M
Answer: C
168. Higher OL is related to the use of higher:
A. Debt
B. Equity
C. Fixed Cost
D. Variable Cost
Answer: C
169. Higher FL is related the use of:
A. Higher Equity
B. Higher Debt
C. Lower Debt
Answer: B

170. In order to calculate EPS, Profit after Tax and Preference Dividend is
divided by:
A. MP of Equity Shares
B. Number of Equity Shares
C. Face Value of Equity Shares
Answer: B
o m
171. Trading on Equity is .c
te
A. Always beneficial a
B. May be beneficial
q M
c
C. Never beneficial

M
Answer: B
172. Benefit of 'Trading on Equity' is available only if:
A. Rate of Interest < Rate of Return
B. Rate of Interest > Rate of Return
C. Both (a) and (b) (d) None of
D. and (b)
Answer: A
173. Indifference Level of EBIT is one at which:
A. EPS is zero
B. EPS is Minimum
C. EPS is highest
D. None of these
Answer: D

174. Financial Break-even level of EBIT is one at which:
A. EPS is one
B. EPS is zero
C. EPS is Infinite
D. EPS is Negative
Answer: B
m
od Operating Profit is
c
175. Relationship between change in Sales and
.
known as:
e
at
A. Financial Leverage
q M
B. Operating Leverage
c
C. Net Profit Ratio
D. Gross Profit Ratio

M
Answer: B

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.c
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a
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c
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176. If a firm has no Preference share capital, Financial Break even level is
defined as equal to -
A. EBIT
B. Interest liability
C. Equity Dividend
o m
D. Tax Liability
.c
te
Answer: B
a
q M
177. At Indifference level of EBIT, different capital have
c
A. Same EBIT M
B. Same EPS
C. Same PAT
D. Same PBT
Answer: B
178. Which of the following is not a relevant factor m EPS Analysis of

capital structure?
A. Rate of Interest on Debt
B. Tax Rate
C. Amount of Preference Share Capital
D. Dividend paid last year
Answer: D
179. For a constant EBIT, if the debt level is further increased then
A. EPS will always increase

B. EPS may increase
C. EPS will never increase
Answer: B
180. Between two capital plans, if expected EBIT is more than indifference
level of EBIT, then
A. Both plans be rejected
o m
B. Both plans are good
.c
C. One is better than other
te
a
q M
Answer: C
c
M
181. Financial break-even level of EBIT is:
A. Intercept at Y-axis,
B. Intercept at X-axis
C. Slope of EBIT-EPS line
Answer: B
182. In case of Net Income Approach, the Cost of equity is:
A. Constant
B. Increasing
C. Decreasing
Answer: A

183. In case of Net Income Approach, when the debt proportion is
increased, the cost of debt:
A. Increases
B. Decreases
C. Constant
Answer: C
o m
.c
184. Which of the following is true of Net Income Approach?
te
A. VF = VE+VD a
B. VE = VF+VD
q M
c
C. VD = VF+VE
D. VF = VE-VE
M
Answer: A
185. Net Operating Income Approach, which one of the lowing is constant?
A. Cost of Equity
B. Cost of Debt
C. WACC & kd
D. Ke and Kd
Answer: C
186. NOI Approach advocates that the degree of debt financing is:
A. Relevant
B. May be relevant
C. Irrelevant
D. May be irrelevant
Answer: C

187. 'Judicious use of leverage' is suggested by:
A. Net Income Approach
B. Net Operating Income Approach
C. Traditional Approach
D. All of the above
Answer: C
m
o Approach?
c
188. Which one is true for Net Operating Income
.
e
A. VD = VF - VE
at
B. VE = VF + VD
q M
C. VE = VF - VD
c
D. VD = VF + VE M
Answer: C
189. In the Traditional Approach, which one of the following remains

constant?
A. Cost of Equity
B. Cost of Debt
C. WACC
Answer: D
190. In MM-Model, irrelevance of capital structure is based on:
A. Cost of Debt and Equity
B. Arbitrage Process
C. Decreasing k0
D. All of the above
Answer: B

191. 'That there is no corporate tax' is assumed by:
B. Net Operating Income Approach,
D. All of these
Answer: D
m
o leverage' is assumed
c
192. 'That personal leverage can replace corporate
.
by:
e
at
A. Traditional Approach
q M
B. MM Model
c
C. Net Income Approach
M
D. Net Operating Income Approach.
Answer: B
193. Which of the following argues that the value of levered firm is higher
than that of the unlevered firm?
C. MM Model with taxes
D. Both (a) and (c)
Answer: D
194. In Traditional Approach, which one is correct?
A. ke rises constantly
B. kd decreases constantly
C. k0 decreases constantly

Answer: D
195. Which of the following assumes constant kd and ke?
D. MM Model.
o m
Answer: A
.c
te
196. Which of the following is true? a
q M
c
A. Under Traditional Approach, overall cost of capital remains same,
M
B. Under NI Approach, overall cost of capital remains same,
C. Under NOI Approach, overall cost of capital remains same,
Answer: C
197. The Traditional Approach to Value of the firm m that:
A. There is no optimal capital structure,
B. Value can be increased by judicious use of leverage
C. Cost of Capital and Capital structure are m dent,
D. Risk of the firm is independent of capital structure
Answer: B
198. A firm has EBIT of . 50,000. Market value of debt is . 80,000 and overall
capitalization rate is 20%. Market value of firm under NOI Approach is:
A. 2,50,000
B. 1,70,000

C. 30,000
D. 1,30,000.
Answer: B
199. Which of the following is incorrect for NOI?
A. k0 is constant
B. kd is constant
C. ke is constant
o m
D. kd & k0 are constant
.c
te
Answer: C
a
q M
200. Which of the following is incorrect for value of the firm?
c
M
A. In the initial preposition, MM Model argues that value is independent of the financing mix.
B. Total value of levered and unlevered firms is otherwise arbitrage will take place.
C. Total value incorporates borrowings by firm but excludes personal borrowing.
D. Total value does not change because underlying does not change with financing mix.
Answer: D

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.c
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a
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c
M

201. Which of the following appearing in the balance! generates tax

advantage and hence affects the c, structure decision ?
A. Reserves and Surplus
B. Long-term debt
C. Preference Share Capital

o m
D. Equity Share Capital
.c
te
Answer: B
a
q M
202. In MM Model with taxes, where 'r' is the interest rate, ‘D’ is the total
c
debt and 't' is tax rate, then present valued shields would be:
A. r×D×t
M
B. r×D
C. D×t
D. (D× r)/(l-t).
Answer: C
203. ‘Bird in hand' argument is given by
A. Walker's Model
B. Gordon's Model
C. MM Mode
D. Residuals Theory
Answer: B
204. Residuals Theory argues that dividend is a
A. Relevant Decision

B. Active Decision
C. Passive Decision
D. Irrelevant Decision
Answer: C
205. Dividend irrelevance argument of MM Model is based on:
A. Issue of Debentures
B. Issue of Bonus Share,

o m
C. Arbitrage
.c
te
D. Hedging
a
Answer: C
q M
c
M
206. Which of the following is not true for MM Model?
A. Share price goes up if dividend is paid
B. Share price goes down if dividend is not paid,
C. Market value is unaffected by Dividend policy,
D. All of the above
Answer: C
207. Which of the following stresses on investor's preference reorient

dividend than higher future capital gains ?
A. Walter's Model
B. Residuals Theory
C. Gordon's Model
D. MM Model
Answer: C
208. MM Model of Dividend irrelevance uses arbitrage between

A. Dividend and Bonus
B. Dividend and Capital Issue
C. Profit and Investment
Answer: B
209. If ke = r, then under Walter's Model, which of the following is

irrelevant?
o m
A. Earnings per share
.c
B. Dividend per share
te
a
C. DP Ratio
q M
c
Answer: C
M
210. MM Model argues that dividend is irrelevant as
A. the value of the firm depends upon earning power
B. the investors buy shares for capital gain,
C. dividend is payable after deciding the retained earnings,
D. dividend is a small amount
Answer: A
211. Which of the following represents passive dividend policy ?
A. that dividend is paid as a % of EPS,
B. that dividend is paid as a constant amount,
C. that dividend is paid after retaining profits for reinvestment,
D. all of the above
Answer: C

212. In case of Gordon's Model, the MP for zero payout is zero. It means
that
A. Shares are not traded
B. Shares available free of cost
C. Investors are not ready to offer any price
Answer: C
o m
213. Gordon's Model of dividend relevance is same as .c
te
A. No-growth Model of equity valuation, a
q M
B. Constant growth Model of equity valuation,
c
C. Price-Earning Ratio
D. Inverse of Price Earnings Ratio

M
Answer: B
214. If 'r' = 'ke', than MP by Walter's Model and Gordon's Model for
different payout ratios would be
A. Unequal
B. Zero
C. Equal
D. Negative
Answer: C
215. Dividend declared by a company must be paid in
A. 20 days
B. 30 days
C. 32 days

D. 42 days
Answer: B
216. Dividend Distribution Tax is payable by
A. Shareholders to Government
B. Shareholders to Company,
C. Company to Government,
D. Holding to Subsidiary Company

o m
Answer: C
.c
te
a paid up. The company declares a
217. Shares of face value of 10 are 80%
q M per share is
dividend of 50%. Amount of dividend
c
A. 5
B. 4
M
C. 80
D. 50
Answer: B
218. Which of the following generally not result in increase in total

dividend liability ?
A. Share-split
B. Right Issue
C. Bonus Issue
D. All of the above
Answer: A
219. Dividends are paid out of
A. Accumulated Profits

B. Gross Profit
C. Profit after Tax
D. General Reserve
Answer: C
220. In India, Dividend Distribution tax is paid on
A. Equity Share
B. Preference Share
o m
C. Debenture
.c
te
D. Both (a) and (b)
a
Answer: D
q M
c
221. Every company should follow
M
A. High Dividend Payment
B. Low Dividend Payment
C. Stable Dividend Payment
D. Fixed Dividend Payment
Answer: C
222. 'Constant Dividend Per Share' Policy is considered as:
A. Increasing Dividend Policy
B. Decreasing Dividend Policy
C. Stable Dividend Policy
Answer: C
223. Which of the following is not a type of dividend payment?

A. Bonus Issue
B. Right Issue
C. Share Split
D. Both (b) and (c)
Answer: C
224. If the following is an element of dividend policy?
A. Production capacity,
o m
B. Change in Management,
.c
te
C. Informational content,
a
D. Debt service capacity
q M
Answer: C
c
M
225. Stock split is a form of
A. Dividend Payment,
B. Bonus Issue,
C. Financial restructuring,
D. Dividend in kind
Answer: C

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.c
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a
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c
M

226. In stock dividend:
A. Authorized capital always increases
B. Paid up capital always increases
C. Face value per share decreases
D. Market price for share decreases

o m
.c
Answer: D
te
a
M
227. Which of the following is not considered in Lintner's Model ?
q
A. Dividend payout ratio, c
B. Current EPS,
M
C. Speed of Adjustment,
D. Preceding year EPS
Answer: D
228. Which of the following is not relevant for dividend payment for a year
?
A. Cash flow position
B. Profit position,
C. Paid up capital,
D. Retained Earnings
Answer: D
229. Cash Budget does not include
A. Dividend Payable

B. Postal Expenditure,
C. Issue of Capital,
D. Total Sales Figure.
Answer: D
230. Which of the following is not a motive to hold cash?
A. Transactionary Motive,
B. Pre-scautionary Motive,
o m
C. Captal Investment,
.c
te
a
Answer: C
q M
c
M
231. Cheques deposited in bank may not be available for immediate use
due to
A. Payment Float
B. Recceipt Float
C. Net Float,
D. Playing the Float.
Answer: B
232. Difference between between the bank balance as per Cash Book and
Pass Book may be due to:
A. Overdraft,
B. Float,
C. Factoring,
Answer: B

233. Concentration Banking helps in
A. Reducing Idle Bank Balance
B. Increasing Collection,
C. Increasing Creditors,
D. Reducing Bank Transactions.
Answer: B
o
234. The Transaction Motive for holding cash is for
m
.c
A. Safety Cushion
te
a
B. Daily Operations,
q M
C. Purchase of Assets
c
D. Payment of Dividends.
M
Answer: B
235. Miller-Orr Model deals with
A. Optimum Cash Balance,
B. Optimum Finished goods,
C. Optimum Receivables,
Answer: A
236. Float management is related to
A. Cash Management,
B. Inventory Management,
C. Receivables Management,
D. Raw Materials Management
Answer: A

237. Which of the following is not an objective of cash management ?
A. Maximization of cash balance
B. Minimization of cash balance
C. Optimization of cash balance
D. Zero cash balance.
Answer: C
238. Which of the following is not true of cash budget ? o m

.c
te
A. Cash budget indicates timings of short-term borrowing,
a
B. Cash budget is based on accrual concept
q M
c
C. Cash budget is based on cash flow concept
M
D. Repayment of principal amount of law is shown in cash budget.
Answer: B
239. 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
240. 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.
Answer: D

241. Marketable securities are primarily
A. Equity shares,'
B. Preference shares,
C. Fixed deposits with companies
D. Short-term debt investments.
Answer: D
242. 5Cs of the credit does not include o m

.c
A. Collateral
te
a
B. Character,
q M
C. Conditions,
c
M
Answer: D
243. Which of the following is not an element of credit policy?
A. Credit Terms
B. Collection Policy
C. Cash Discount Terms,
D. Sales Price
Answer: D
244. Ageing schedule incorporates the relationship between
A. Creditors and Days Outstanding
B. Debtors and Days Outstanding
C. Average Age of Directors,
D. Average Age of All Employees.
Answer: B

245. Bad debt cost is not borne by factor in case of
A. Pure Factoring
B. Without Recourse Factoring,
C. With Recourse Factoring
Answer: C
o m
246. Which of the following is not a technique of receivables Management?
.c
A. Funds Flow Analysis
te
a
B. Ageing Schedule,
q M
C. Days sales outstanding
c
D. Collection Matrix.
M
Answer: A
247. Which of the following is not a part of credit policy?
A. Collection Effort
B. Cash Discount,
C. Credit Standard
D. Paying Practices of debtors.
Answer: D
248. Which is not a service of a factor?
A. Administrating Sales Ledger
B. Advancing against Credit Sales,
C. Assuming bad debt losses,
Answer: D

249. Credit Policy of a firm should involve a trade-off between increased
A. Sales and Increased Profit
B. Profit and Increased Costs of Receivables,
C. Sales and Cost of goods sold,
Answer: B
o m
250. Out of the following, what is not true in respect of factoring?
.c
t
A. Continuous Arrangement between Factor and Seller,e
a
B. Sale of Receivables to the factor,
q M
c
C. Factor provides cost free finance to seller

M
Answer: C

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.c
te
a
q M
c
M

251. Payment to creditors is a manifestation of cash held for:
A. Transactionery Motive,
B. Precautionary Motive,
C. Speculative Motive,

o m
.c
Answer: A
te
a
q
for a month then which one is true out of
M
252. If the closing balance of receivables is less than the opening balance
c
A. Collections>Current Purchases, M
B. Collections>Current Sales,
C. Collections<Current Purchases,
D. Collections < Current Sales.
Answer: B
253. If the average balance of debtors has increased, which of the

following might not show a change in general?
A. Total Sales,
B. Average Payables
C. Current Ratio
D. Bad Debt loss
Answer: B
254. Securitization is related to conversion of
A. Receivables,

B. Stock,
C. Investments,
D. Creditors.
Answer: A
255. 80% of sales of 10,00,000 of a firm are on credit. It has a Receivable

Turnover of 8. What is the Average collection period (360 days a year) and
Average Debtors of the firm?
A. 45 days and 1,00,000

o m
.c
B. 360 days and 1,00,000,
te
C. 45 days and 8,00,000 a
D. 360 days and 1,25,000
q M
Answer: A c
M
256. In response to market expectations, the credit pence r j been
increased from 45 days to 60 days. This would result in
A. Decrease in Sales,
B. Decrease in Debtors,
C. Increase in Bad Debts,
D. Increase in Average Collection Period.
Answer: D
257. If a company sells its receivable to another party to raise funds, it is

known as
A. Securitization
B. Factoring,
C. Pledging
Answer: B

258. Cash Discount term 3/15, net 40 means
A. 3% Discount if payment in 15 days, otherwise full payment in 40 days,
B. 15% Discount if payment in 3 days, otherwise full payment 40 days,
C. 3% Interest if payment made in 40 days and 15%,interest thereafter,
Answer: A
o m
259. If the sales of the firm are . 60,00,000 and the average debtors are .
15,00,000 then the receivables turnover is .c
te
A. 4 times a
B. 25%
q M
c
C. 400%
D. 0.25 times
M
Answer: A
260. If cash discount is offered to customers, then which of the following

would increase?
A. Sales
B. Debtors
C. Debt collection period
D. All of the above
Answer: A
261. Receivables Management deals with
A. Receipts of raw materials
B. Debtors collection,
C. Creditors Management

D. Inventory Management
Answer: B
262. Which of the following is related to Receivables Management?
A. Cash Budget
B. Economic Order Quantity,
C. Ageing schedule

o m
Answer: C
.c
te
a
263. EOQ is the quantity that minimizes
q M
A. Total Ordering Cost
c
B. Total Inventory Cost,M
C. Total Interest Cost
D. Safety Stock Level
Answer: A
264. ABC Analysis is used in
A. Inventory Management
B. Receivables Management
C. Accounting Policies,
D. Corporate Governance.
Answer: A
265. If no information is available, the General Rule for valuation of stock

for balance sheet is
A. Replacement Cost
B. Realizable Value,

C. Historical Cost
D. Standard Cost
Answer: C
266. In ABC inventory management system, class A items may require
A. Higher Safety Stock
B. Frequent Deliveries
C. Periodic Inventory system

o m
D. Updating of inventory records.
.c
te
Answer: A
a
267. Inventory holding cost may include q M
c
A. Material Purchase Cost M
B. Penalty charge for default,
C. Interest on loan,
Answer: D
268. Use of safety stock by a firm would
A. Increase Inventory Cost
B. Decrease Inventory Cost,
C. No effect on cost
Answer: A
269. Which of the following is true for a company which uses continuous
review inventory system
A. Order Interval is fixed

B. Order Interval varies,
C. Order Quantity is fixed
D. Both (a) and (c)
Answer: C
270. ABC Analysis is useful for analyzing the inventories:
A. Based on their Quality
B. Based on their Usage and value

o m
C. Based on Physical Volume
.c
te
D. All of the above
a
Answer: B
q M
c
M
271. If A = Annual Requirement, O = Order Cost and C = Carrying Cost per
unit per annum, then EOQ
A. (2AO/C) 2
B. 2AO/C
C. 2A÷OC
D. 2AOC
Answer: B
272. Inventory is generally valued as lower of
A. Market Price and Replacement Cost
B. Cost and Net Realizable Value
C. Cost and Sales Value
D. Sales Value and Profit.
Answer: B
273. Which of the following is not included in cost of inventory?

A. Purchase cost
B. Transport in Cost,
C. Import Duty,
D. Selling Costs.
Answer: D
274. Cost of not carrying sufficient inventory is known as
A. Carrying Cost
o m
B. Holding Cost
.c
te
C. Total Cost
a
D. Stock-out Cost
q M
Answer: D
c
M
275. Which of the following is not a benefit of carrying inventories
A. Reduction in ordering cost,
B. Avoiding lost sales,
C. Reducing carrying cost,
D. Avoiding Production Shortages.
Answer: C

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o m
.c
te
a
q M
c
M

276. Which of the following is not a standard method of inventory

valuation?
A. First in First out
B. Standard Cost
C. Average Pricing
o m
D. Realizable Value
.c
te
Answer: C
a
q M
277. System of procuring goods when required, is known as,
c
M
A. Free on Board (FOB) (b)always Butter Control
B. ,
C. Jest in Time (JIT)
D. Economic Order Quantity.
Answer: C
278. A firm has inventory turnover of 6 and cost of goods sold is 7,50,000.
With better inventory management, the inventory turnover is increased to
10. This would result in:
A. Increase in inventory by 50,000,
B. Decrease in inventory by . 50,000,
C. Decrease in cost of goods sold,
D. Increase in cost of goods sold.
Answer: B
279. What is Economic Order Quantity?

A. Cost of an Order
B. Cost of Stock
C. Reorder level
D. Optimum order size.
Answer: D
280. The type of collateral (security) used for short-term loan is
A. Real estate,
o m
B. Plant & Machinery,
.c
te
C. Stock of good
a
D. Equity share capital
q M
Answer: C
c
M
281. Which of the following is a liability of a bank?
A. Treasury Bills,
B. Commercial papers,
C. Certificate of Deposits,
D. Junk Bonds.
Answer: C
282. Commercial paper is a type of
A. Fixed coupon Bond
B. Unsecured short-term debt
C. Equity share capital,
D. Government Bond
Answer: B
283. Which of the following is not a spontaneous source of short-term

funds ?
A. Trade credit,
B. Accrued expenses,
C. Provision for dividend,
Answer: C
m
284. Concept of Maximum Permissible Bank finance was introduced by
o
A. Kannan Committee
.c
te
B. Chore Committee,
a
C. Nayak Committee,
q M
D. Tandon Committee.
c
Answer: D M
285. In India, Commercial Papers are issued as per the guidelines issued
by
A. Securities and Exchange Board of India,
B. Reserve Bank of India,
C. Forward Market Commission,
Answer: B
286. Commercial paper are generally issued at a pries
A. Equal to face value,
B. More than face value,
C. Less than face value,
D. Equal to redemption value
Answer: C

287. Which of the following is not applicable to commercial paper
A. Face Value
B. Issue Price
C. Coupon Rate
Answer: D
o m
288. The basic objective of Tandon Committee recommendations is that
.c
the dependence of industry on bank should gradually
te
A. Increase, a
B. Remain Stable
q M
c
C. Decrease

M
Answer: C
289. Cash discount terms offered by trade creditors never be accepted

because
A. Benefit in very small
B. Cost is very high
C. No sense to pay earlier
Answer: D
290. In lease system, interest is calculated on
A. Cash down payment
B. Cash price outstanding
C. Hire purchase price

Answer: B
291. A short-term lease which is often cancellable is known as
A. Finance Lease
B. Net Lease,
C. Operating Lease
D. Leverage Lease
o m
Answer: C
.c
t e
a type of lease arrangement?
292. Which of the following is not a usual
q M
A. Sale & leaseback,
c
B. Goods on Approval, M
C. Leverage Lease,
D. Direct Lease
Answer: B
293. Under income-tax provisions, depreciation on lease asset is allowed

to
A. Lessor
B. Lessee
C. Any of the two
D. None of the two
Answer: A
294. Under the provisions of AS-19 'Leases', a leased asset is shown is the
balance sheet of
A. Manufacturer

B. Lessor
C. Lessee
D. Financing bank
Answer: C
295. A lease which is generally not cancellable and covers full economic
life of the asset is known as
A. Sale and leaseback,
o m
B. Operating Lease
.c
C. Finance Lease,
te
a
D. Economic Lease
q M
Answer: C
c
M
296. Lease which includes a third party (a lender) is known as
A. Sale and leaseback
B. Direct Lease,
C. Inverse Lease,
D. Leveraged Lease
Answer: D
297. One difference between Operating and Financial lease is:
A. There is often an option to buy in operating lease
B. There is often a call option in financial lease.
C. An operating lease is generally cancelable by lease
D. A financial lease in generally cancelable by lease.
Answer: C
298. From the point of view of the lessee, a lease is a:

A. Working capital decision,
B. Financing decision,
C. Buy or make decision,
D. Investment decision
Answer: B
299. For a lesser, a lease is a
A. Investment decision,
o m
B. Financing decision,
.c
te
C. Dividend decision
a
q M
Answer: A
c
M
300. Which of the following is not true for a "Lease decision for the
lessee?
A. Helps in project selection
B. Helps in project financing
C. Helps in project location
Answer: B

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.c
te
a
q M
c
M

301. Risk-Return trade off implies
A. Minimization of Risk,
B. Maximization of Risk,
C. Ignorance of Risk
D. Optimization of Risk
o m
.c
Answer: D
te
a
M
302. Basic objective of diversification is
q
A. Increasing Return, c
B. Maximising Return,
M
C. Decreasing Risk,
D. Maximizing Risk.
Answer: C
303. Risk-aversion of an investor can be measured by
A. Market Rate of Return
B. Risk-free Rate of Return,
C. Portfolio Return,
Answer: D
304. If the intrinsic value of a share is less than the market price, which of
the most reasonable?
A. That shares have lesser degree of risk

B. That market is over valuing the shares
C. That the company is high dividend paying,
D. That market is undervaluing the share
Answer: B
305. According to traditional approach, the average cost of capital
A. Remains constant up to a degree of leverage and rises sharply thereafter with every increase in
leverage.
o m
B. Rises constantly with increase in leverage.
.c
te
C. Deceases up to a certain point, remains unchanged for moderate increase in leverage and
rises beyond a certain point.
a
M
D. Decreases at an increasing rate with increase in leverage.
q
Answer: C
c
M
306. Equity shares of phonex Ltd are quoted in the market at Rs17. The
dividend expected a year hence is Rs1.50. The expected rate of dividend
growth is 8%. The cost of equity capital to the company is
A. 11.08%
B. 13.88%
C. 15.46%
D. 16.82%
Answer: D
307. Which of the following is not a feature of an optimal capital structure?
A. Profitability
B. Safety
C. Flexibility
D. Control
Answer: B

308. The cost of debt capital if interest rate is 15% and tax rate is 40% is
A. 6%
B. 8.5%
C. 9%
D. 10.5%
Answer: C
o m
309. Which of the following is not a feature of an optimal capital structure?
.c
te
A. The company should make maximum use of leverage at a minimum cost
a
M
B. The capital structure should be flexible to be able to meet the changing condition
q
c
C. The company should aim at not using excessive debt in its capital structure
M
D. The company should make minimum use of leverage at a minimum cost.
Answer: D
310. Which of the following is not an assumption of Miller and Modigliani

approach?
A. There are no corporate or personal income tax
B. Investors are assumed to be rational and behave accordingly
C. There is no corporate tax though there are personal income tax
D. Capital markets are perfect
Answer: C
311. The bond yield plus risk premium approach is a method of finding out
the cost of
A. Preference capital
B. Equity capital
C. Debenture capital

D. Term loans
Answer: B
312. According to net operating income approach
A. The equity capitalization rate remains constant with any increase or decrease in the degree of
leverage
B. The overall capitalization rate of the firm remains constant
C. The cost of debt remains constant
o m
D. Both b and c
.c
Answer: D
te
a
M
313. While calculating the weighted average cost of capital, market value
q
weights are preferred because
c
M
A. Book value weights are historical in nature
B. It is vary difficult to estimate book value weights at the time of calculating the weighted average
cost
C. This is in conformity with the definition of cost of capital as the investor’s minimum required rate
of return
D. Book value weights fluctuate violently.
Answer: C
314. Which profit is considered for calculating Average Rate of Return?
A. Earnings before interest, depreciation and tax
B. Average profit after tax and depreciation
C. Average profit after depreciation but before tax
D. Average profit after depreciation but before tax
Answer: B

315. A project costs Rs50,000 and will yield annual cash inflows of
Rs20,000 for 5years. Calculate its payback period.
A. 2 years
B. 5 years
C. 2.5 years
D. 3 years
Answer: C
o m
.c
316. Capital structure decisions should always aim at having debt
component in order to
te
a
A. Gain tax savings
q M
B. Gain control over the company c
C. Balance the capital structure M
D. Increase the earnings available for shareholders.
Answer: D
317. ------ refers to a situation where a firm is not in a position to invest in

all profitable projects due to the constraints on availability of funds
A. Capital budgeting
B. Over capitalization
C. Capital expenditure control
D. Capital rationing
Answer: D
318. ------ refers to the minimum return expected by its suppliers
A. Trading on equity
B. Time value of money
C. Cost of capital

D. Capital gearing
Answer: C
319. The ratio which is obtained by dividing the present value of future
cash inflows by the present value of cash out flows is called
A. Net Present Value
B. IRR
C. Profitability Index
o m
D. Average rate of return
.c
Answer: C
te
a
q
320. Capital structure is the proportion ofM
c
M
A. Long term funds and short term funds
B. Debt and equity
C. Current assets and fixed assets
D. Equity and retained earnings
Answer: B
321. A company has earnings before interest and taxes of Rs1,00,000. It

expects a return on investment at a rate of 12.5%. What is the total value of
the firm according to MM Theory?
A. Rs6,00,000
B. Rs7,00,000
C. Rs8,00,000
D. Rs9,00,000
Answer: C
322. Optimum capital structure is obtained when

A. Firm earns maximum profits
B. Firm declares reasonable dividend
C. Market value per equity share is the maximum
D. The debt increases
Answer: C
323. Axis Ltd is issuing 15% debentures ( face value Rs60). The net
amount realized per debenture is Rs54 and they are redeemable at par
m
after 6 years. At a corporate tax rate of 40%, what is the cost of debt?
o
.c
A. 16.54%
te
B. 17.54% a
C. 10%
q M
D. 14.74% c
Answer: C
M
324. Which of the following statement is true according to traditional
approach of capital structure?
A. Cost of capital increases with the use of debt after a certain amount of debt and later falls
B. Cost of equity and debt more or less remains constant with the use of debt up to a certain
amount of debt
C. Cost of declines and cost of debt remains constant with increase in debt.
D. Cost of equity declines and cost of debt increases with increase in debt
Answer: B
325. Which of the following is true regarding the measurement of cash

inflows and out flows of a project?
A. Depreciation amount should be added to PBT
B. Depreciation amount should be added to PAT
C. Depreciation should neither be added nor be subtracted from PAT

D. Both a and b above
Answer: B
o m
.c
te
a
q M
c
M

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.c
te
a
q M
c
M

326. According to rate or return is the ratio of average values of
A. Profit before tax to book value o the investment
B. Profit after tax to salvage value of the investment
C. Profit before tax to present value of the investment
D. Profit after tax to the book value of the investment

o m
.c
Answer: D
te
a
Return criterion q M
327. Which of the following is/ are the drawbacks of Accounting Rate of
c
M
A. It gives equal weightage to near flows and distant flows
B. It is calculated using the accounting income and not cash flows
C. The cut off of ARR is arbitrarily fixed
D. All of the above
Answer: D
328. Which of the following is true about NPV?
A. It considers all the cash flows
B. It gives more weightage to distant flows than to near term flows
C. It considers time value of money
D. Both a and c above
Answer: D
329. In IRR , the cash inflows are assumed to be reinvested in the project
at
A. Internal rate of return

B. Cost of capital
C. Risk free rate
D. Risk adjusted rate
Answer: A
330. For a project, benefit cost ratio is equal to one, then
A. IRR will be greater than one
B. IRR will be greater than discount rate

o m
C. IRR will be less than discount rate
.c
te
D. IRR will be equal to discount rate
a
Answer: D
q M
c
M
331. Which of the following is a non discounting technique for appraising
a project?
A. Net present value
B. Pay back period
C. Internal rate of return
D. Cost benefit ratio
Answer: B
332. If the present value of cash in flows from a project is Rs4.50 crore,
initial outlay is Rs3.75 crore then the net benefit cost ratio is
A. 0.17
B. 0.20
C. 0.75
D. 0.83
Answer: B
333. Which of the following is not considered for cost benefit analysis of

capital decisions
A. Opportunity cost
B. Incremental cost
C. Sunk cost
D. All of these
Answer: C
334. If NPV for a project is negative, then

o m
A. IRR = Cost of capital
.c
te
B. IRR > Cost of capital
a
C. BCR = 1
q M
D. IRR < Cost of capital
c
Answer: D M
335. The net cash flows of the project and their present values are as
follows Year 1 2 3 4 Net cash flow (Rs) 5100 5100 5100 7100 PVIF @12%
0.893 0.797 0.712 0.636 Present Value (Rs) 4554 4065 3631 4516 The initial
investment in the project is Rs12500, What is the NPV of the project?
A. 4066
B. 4166
C. 4266
D. 4566
Answer: C
336. Higher the risk involved in a firm, ------- is the cost of capital
A. High
B. Low
C. Medium

D. None of these
Answer: A
337. The composition of a company’s capitalization is called
A. Capital Structure
B. Financial structure
C. Long term source
D. Short term source

o m
Answer: A
.c
te
a of a balance sheet is called
338. The entire items on the liability side
q M
A. Capital structure
c
B. Financial structure M
C. Long term source
D. Short term source
Answer: B
339. Net operating income approach was suggested by
A. Modigliani and Miller
B. Durand
C. Walter
D. None of these
Answer: B
340. Overall cost of capital, according to ------ approach, decreases up to a

certain point, remains unchanged for moderate increase in debt thereafter,
and increase beyond a certain point
A. Net income

B. Net operating income
C. Traditional
D. MM approach
Answer: C
341. According to MM approach, two identical firms in all respects except

their capital structure can not have different market values or cost of
capital because of-----
A. Leverage
o m
.c
B. Trading on equity
te
C. Arbitrage process a
D. None of these
q M
Answer: C c
M
342. If funds are required for productive purpose ------- finance is suitable
A. Debt
B. Equity
C. Retained earnings
D. None of these
Answer: A
343. If funds are required for unproductive purpose or general

development on permanent basis ------- finance is suitable
A. Debt
B. Equity
C. Bank overdraft
D. None of these
Answer: B

344. According to ------ method it is assumed that each of the future cash
flows is immediately reinvested in another project at a certain rate of
return until the termination of the project
A. NPV
B. IRR
C. Pay back method
D. Terminal value method
Answer: D
o m
.c
t e
345. When the cost of the project differ significantly which method of
capital budgeting is used a
q M
A. NPV
c
B. IRR
M
C. Pay back method
D. Profitability index
Answer: D
346. To judge the comparative risk of projects having same cost and
different NPV which method is used
A. Certainty equivalent method
B. Sensitivity technique
C. Standard deviation method
D. Coefficient of variation method
Answer: D
347. Under ----- method more than one forecast of the future cash inflows
ie. Optimistic, pessimistic and most likely are made

Answer: B
348. ------- is a graphical representation of the relationship between a

present decision and future events, future decisions and their
consequences.

o m
.c
te
C. Standard deviation method a
D. Decision tree analysis
q M
Answer: D c
M
349. The return after the pay off period is not considered in case of
A. Pay back method
B. NPV
C. Present value index
D. IRR
Answer: A
350. The cash inflows on account of operations are presumed to have

been reinvested at the cut off rate in case of
A. Pay back method
B. NPV
C. Accounting rate of return
D. IRR
Answer: B

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o m
.c
te
a
q M
c
M

351. The cost of each component of capital is known as
A. Specific cost
B. Combined cost
C. Average cost
D. Implicit cost
o m
.c
Answer: A
te
a
q M
352. ------ refers to that EBIT level at which EPS remains the same
irrespective of the debt- equity mix.
c
A. Profit point M
B. Cut off point
C. Point of indifference
D. None of these
Answer: C
353. The use of long term fixed interest bearing debt and preference share
capital along with equity shares is called
A. Operating leverage
B. Financial leverage
C. Trading on equity
D. Both b and c
Answer: D
354. Which of the following factors are considered when a capital structure
decision is taken?

A. Cost of capital
B. Dilution of control
C. Floatation cost
D. All of the above
Answer: D
355. The combination of debt and equity that leads to the maximum value
of the firm is called
o m
A. Financial structure
.c
B. Capital structure
te
a
C. Optimal capital structure
q M
D. None of these
c
Answer: C
M
356. In optimal capital structure the company’s cost of capital will be
A. Minimum
B. Maximum
C. Medium
D. None of these
Answer: A
357. The value of a firm on the basis of net operating income approach can
be determined by dividing the earnings before interest and taxes by
A. Cost of equity
B. Cost of debt
C. Overall cost of capital
Answer: C

358. A company should follow the policy of ----- gear during deflation or
depression period
A. High gear
B. Low gear
C. Medium gear
D. Any of the above
Answer: B
o m
.c
359. Which of the following is not a disadvantage of rate of return method
of capital budgeting?
te
a
A. It ignores the time value of money
q M
c
B. It uses the earnings of a project up to the payback period only
M
C. It does not take into consideration cash flows
D. This method can not be applied to a situation where investment in a project is to be made in
parts.
Answer: B
360. A project having a profitability index of ------ is accepted
A. PI<1
B. PI>1
C. PI=1
D. None of these
Answer: B
361. The type of debt whose rate of interest changes according to the
changes in the rate of interest payable on gilt edged securities or the
prime lending rate of the bank is called
A. Floating rate debt

B. Variable rate debt
C. Fixed rate debt
D. Both a or b
Answer: D
362. .Earnings yield method is applied when the dividend pay out ratio is
A. Zero per cent
B. 100 per cent

o m
C. 50 per cent
.c
te
D. 20 percent
a
Answer: B
q M
c
M
363. ----- is the rate of return that the company must earn on the net funds
raised, in order to satisfy the equity shareholders’ demand for return
A. Cost of retained earnings
B. Cost of external equity
C. Weighted average cost of capital
D. Marginal cost of capital
Answer: B
364. A project requires an investment of Rs500000and has scrape value of

Rs.20000 after five years. It is expected to yield profits after depreciation
and taxes during the five years amounting to Rs.40000,Rs60000,
Rs.50000,Rs70000 and Rs20000.What is the average rate of return on the
investment?
A. 10%
B. 11%
C. 12%
D. 13%
Answer: A

365. Which of the following quantitative aspect of financial planning?
A. Capitalization
C. Organization structure
D. None of these
Answer: A
366. Which of the following qualitative aspecto

m
.c of financial planning?
e
A. Capitalization
at
q M
C. Organization structure
c
D. None of these M
Answer: B
367. Which of the following is/ are the assumptions of net income
approach?
A. The cost of debt is less than the cost of equity
B. There are no taxes
C. The risk perception of investors is not changes by the use of the debt.
D. All of these
Answer: D
368. The overall cost of capital, according to which theory, decreases up

to a certain point, remains more or less unchanged for moderate increase
in debt thereafter and increases a certain point
A. Net income approach
B. Net operating income approach

C. Traditional theory
D. MM approach
Answer: C
369. According to which theory two identical firms in all respect except
their capital structure can not have different market value or cost of capital
because of arbitrage process

o m
.c
C. Traditional theory
te
D. MM approach a
Answer: D
q M
c
M
370. XLtd has taken a term loan of Rs12 lakhs at an interest rate of 15%
p.a. If the tax rate applicable to the company is 40%, the cost of term loan
is
A. 4.8%
B. 6%
C. 7.2%
D. 9%
Answer: D
371. Agency cost arises due to
A. Cost over run in implementing new projects
B. Failure of budget cost
C. Restrictions imposed by the supplier of debt capital
D. Rise in the cost of production
Answer: C

372. What do you mean by NPV?
A. Excess of cash inflows over cash outflows
B. Excess of cash outflows over cash inflows
C. Excess of the present value of cash out flows over the present value of cash inflows
D. Excess of the present value of cash inflows over the present value of cash outflows
Answer: D
373. Under NPV method, cash flows are assured to be reinvested ato m
.c
A. Risk free rate of return
te
a
B. Cost of debt
q M
C. IRR
c
M
D. Discount rate at which NPV is computed
Answer: D
374. The pay back period shows
A. Recovery period of original investment outlay
B. The time value of money
C. The cash inflows
Answer: A
375. Capital rationing is applied in a situation where
A. It is difficult to bring in required amount of capital
B. Financial institutions are doubtful or not sure of the validity of the project
C. A large number of investment proposals compete for limited funds
D. The dividend is converted into capital for completion of a new project
Answer: C

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o m
.c
te
a
q M
c
M

376. If risk free rate of return is 8%, Return on market portfolio is 12%, beta
= 1.5, then the expected rate of return according to CAPM is equal to
A. 10%
B. 14%
C. 18%
o m
D. 24%
.c
te
Answer: B
a
q M
377. Net salvage value of a fixed asset is
c
M
A. Excess of salvage value over book value
B. Excess of book value over salvage value
C. Scrape value
D. Salvage value of fixed assets less any income tax payable on the excess of salvage value over
book value
Answer: D
378. The discount rate which equates the present value of cash inflows
with the present value of cash out flows is called -------
A. Opportunity cost
B. Sunk cost
C. explicit cost
D. Direct cost
Answer: C
379. A company can increase its value and reduce the overall cost of
capital by increasing the proportion of debt in its capital structure

according to ----- approach
C. Traditional approach
D. None of these
Answer: A
380. Net income approach was suggested by

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A. Modigliani and Miller
.c
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B. Durand
a
C. Walter
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D. None of these
c
Answer: B M
381. To judge the comparative risk of projects having same cost and same
NPV which method is used
Answer: C
382. While evaluating capital investment proposals, the time value of

money is considered in case of
A. Pay back method
B. NPV
D. None of these
Answer: B

383. Depreciation is included in cost in case of
A. Pay back method
B. NPV
D. Present value index
Answer: C
m
o of net income
c
384. Which of the following is/ are the assumptions
.
approach?
e
at
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A. The cost of debt is less than the cost of equity
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B. There are no taxes
c
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C. The risk perception of investors is not changed by the use of debt
D. All of the above
Answer: D
385. Capital gearing refers to the relationship between equity capital

and-----
A. Long term debt
B. Short term debt
C. Preference capital
D. None of these
Answer: A
386. A company should follow the policy of ----- gear during inflation or
boom period
A. High gear
B. Low gear

C. Medium gear
D. Any of the above
Answer: A
387. Which of the following factors is/ are considered when a capital
structure decision is taken?
A. Cost of capital
B. Dilution control
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C. Floatation cost
.c
D. All of the above
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Answer: D
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388. Which of the following iscnot a source of long term finance?
A. Equity capital
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B. Preference capital
C. Commercial paper
D. Debenture capital
Answer: C
389. A cumulative preference share is one
A. In which all the unpaid dividends are carried forward and payable.
B. Which can be converted into equity shares
C. Which can be redeemed
D. Which entitle the preference shareholders to participate in surplus profits and assets.
Answer: A
390. Which of the following g is a determinant of working capital of a firm?
A. Depreciation policy

B. Taxes payable by the company
C. Production policy
D. All of the above
Answer: D
391. Under trading means
A. Having low amount of working capital
B. High turnover of working capital

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C. Sales are less compared to assets employed
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D. Assets are less compared to sales generated
a
Answer: C
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392. which of the following was set up based on the recommendations of
Vaghul Committee?
A. National Stock Exchange
B. Stock Holding Corporation of India Ltd
C. Discount and Finance House of India Ltd
D. National Securities Depository Ltd
Answer: C
393. Shelf stock refers to
A. Perishable goods
B. Items that are to be packaged and sold
C. Stocks which is to be stored in the shelf
D. Items that are stored by the firm and sold with little or no modification
Answer: D
394. Which of the following is not an assumption of EOQ model?

A. Cost of carrying is a fixed proportion of the average value of inventory
B. The demand is even throughout the year
C. The usage for one year can be anticipated
D. Cost per order is proportional to the size of the order
Answer: D
395. Which of the following costs is not associated with inventories?
A. Material cost
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B. Ordering cost
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C. Carrying cost
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D. Cost of long term debt locked in inventories
q
Answer: D
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396. When a company liberalizes its cash discount policy
A. It increases the cost of discount
B. It leads to an increase in the average collection period
C. The discount period may be lengthened
D. All of the above
Answer: D
397. Which of the following is not associated with cash management of a

firm?
A. Stretching accounts payable without affecting the credit of the firm
B. Speedy collection of receivables
C. Investing surplus funds in long term securities
D. Maintaining liquidity
Answer: C

398. Which of the following is not a motive for holding cash?
A. Transaction purpose
B. Precaution against unexpected expenses
C. Extending loans to group companies
D. Speculation purpose
Answer: C
399. Cash management does not call for o m

.c
A. Lengthening creditor’s period
te
a
B. Lengthening debtor’s period
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C. Investing surplus funds
c
D. Nullifying idle funds
M
Answer: B
400. Which of the following is not a function of a finance manager?
A. Mobilization of funds
B. Manipulate share price of the company
C. Deployment of funds
D. Control over use of funds
Answer: B

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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
o m
.c
Answer: D
te
a
M
402. The objective of financial management is to
q
A. Maximize the revenue c
B. Minimize the expenses
M
C. Maximize the return on investment
D. Maximize the wealth of the owners by increasing the value of the firm
Answer: D
403. Which of the following is the main objective of financial management?
A. Revenue Maximisation
B. Profit Maximisation
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%
o m
B. 40%
.c
C. 20%
te
a
D. 10%
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Answer: C
c
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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
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409. Current Assets Rs. 20,00,000; Current Liabilities Rs. 10,00,000 and
.c
Stock Rs. 2,00,000, then what is liquid ratio?
te
A. 2 times a
B. 1.8 times
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C. 1.4 times
D. None of these
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Answer: B
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
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D. None of these
.c
Answer: D
te
a
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413. Degree of operating leverage is:
c
A. EBIT / EBT
B. Contribution / EBT
M
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
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:
o m
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A. Rs. 4,00,000
te
B. Rs. 3,80,000 a
C. Rs. 3,50,000
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D. Rs. 70,000 c
Answer: C
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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
A. Statement of Changes in Financial Position on Cash basis
B. Statement accounting for variation in cash
C. Both a and b
Answer: C
420. Degree of financial leverage of business o

m
.c indicates.
e
A. Total risk
at
B. Operating risk
q M
C. Financial risk
c
D. None of these M
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. GP Margin=20%, GP= Rs. 54000, Sales= o

m
.c
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A. Rs. 300000
a
B. Rs. 270000
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C. Rs. 280000
c
D. Rs. 290000 M
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

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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

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.c
Answer: D
te
a
M
427. Determinants of credit policy relates to:
q
A. Credit standards c
B. Credit terms
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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:
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
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D. PI
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Answer: D
a
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431. ROI (Return on Investment) can be decomposed into the following
ratios: c
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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
A. A higher Receivable Turnover is not desirable.

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B. Interest Coverage Ratio depends upon Tax Rate.
.c
te
a
C. Increase in Net Profit Ratio means increase in Sales
M
D. Lower Debt Equity Ratio means lower Financial Risk
q
Answer: D
c
M
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 = ____________ o m

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A. No. of shares owned x Current stock price per share
a
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B. No. of shares owned x Current stock price per share
q
c
C. No. of shares owned x Current stock price per share
D. none
M
Answer: A
439. Working Capital Management refers to a Trade-off between

_____________and Profitability.
A. Liquidity
B. Risk
C. Both 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
Answer: A
o m
.c
442. Which one is the Benefit(s) of Factoring?
te
a
A. Better Cash Flows
q M
B. Better Assets Management
c
M
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
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
o m
.c
C. 1 day to 30 days
te
D. None of the above a
Answer: A
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c
M
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
Answer: A
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449. Ratio analysis is the process of determining and interpreting
numerical relationships based on _______. .c
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A. Financial values a
B. Financial statements
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c
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C. Financial numerical information
D. All of the above
Answer: D
450. Ratio analysis is based on __________ measure.
A. relative
B. absolute
Answer: A

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c
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451. The persons interested in the analysis of financial statements can be

grouped as _________.
A. Owners or investors
B. Creditors
C. Financial executives
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D. All of the above
.c
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Answer: D
a
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452. The term “Operating Profit” means profit before __________________.
c
A. interest M
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
B. Long term solvency Ratio
C. Profitability Ratio
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

o m
.c
e
B. (i) Financial enterprises, and (ii) Other enterprises
t
a
C. (i) Financial enterprises, and (ii) Non-Financial enterprises
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D. (i) Trading enterprises, and (ii) Non - Trading enterprises
Answer: B c
M
456. Cash Flow Statement is _____________ for Income Statement or
Funds Flow Statement.
A. not a substitute
B. a substitute
C. depends on situation
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

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
o m
459. Which of the following would be consistent with a conservative
approach to financing working capital? .c
te
a
A. Financing short-term needs with short-term funds
q M
B. Financing short-term needs with long-term debt
c
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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
.c
t e
a firm if the firm has ……….
463. A firm is said to be financially unlevered
q M
c
A. only external equity in its capital structure
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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

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C. DFL and margin of safety ratio
.c
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D. DOL and break-even-point
a
Answer: B
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c
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467. The genesis of financial risk lies in …………….
A. capital budgeting decision
B. capital structure decision
C. dividend decision
D. liquidity decision
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
o m
A. cash flow decision
.c
B. cost decision
te
a
C. same decisions
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D. different decisions
c
Answer: C
M
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
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
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.c
e
474. Number of years forecasted to recover an original investment is
t
classified as
a
A. payback period
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B. forecasted period c
C. original period
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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

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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

o m
.c
Answer: B
te
a
M
477. Which of the following is a Profitability Ratio?
q
A. Proprietary Ratio c
B. Debt-Equity Ratio
M
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
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B. Difference in Capital and Revenue items
.c
C. Conservation Principle
te
a
D. All of the above
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Answer: D
c
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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
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
D. Rate of Cash Discount
Answer: D
484. Objective of Financial Management is
A. Management of Liquidity
o m
B. Maximization of Profit
.c
te
C. Maximization of Shareholders’ Wealth
a
D. Management of Fixed Assets
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Answer: C
c
M
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
Answer: C

487. Working Capital Management involves financing and management of
A. All Assets
B. All Current Assets
C. Cash and Bank Balance
D. Receivables and Payables
Answer: B
488. All listed companies are required to prepare o m

.c
A. Funds Flow statement
te
a
B. Cash Flow Statement
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C. Statement of Affairs
c
D. All of the above
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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
o m
.c
e
492. Debt Financing is a cheaper source of finance because of
t
a
q M
B. Rate of Interest
c
C. Tax-deductibility of Interest
D. Dividends not Payable to lenders

M
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
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Answer: A
. c
te
496. Profit maximization may lead to a better and efficient utilization of the
q M
recourses only when there is -----------
c
A. Monopoly
B. Oligopoly
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C. Perfect competition
D. None of these
Answer: C
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
o m
C. Before tax cost of debt
.c
te
D. KE
a
Answer: C
q M
c
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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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501. In India ,preference shares must be redeemed within a period
A. 3 year of issue
B. 6 years of issue
C. 10 years of issue
D. 20 years of issue
o m
.c
Answer: C
te
a
percentage of q M
502. Dividend yield method the cost of equality is ascertained as a
c
A. Expected dividend M
B. IRR
C. WACC
D. Expected profits
Answer: A
503. In the case of existing shares cost of equity is computed under

dividend yield method by dividing dividend per share with
A. Face value
B. Market value
C. Net proceeds
D. None of these
Answer: B
504. The weighted average cost of new or additional capital is called
A. Opportunity cost

B. Composite cost
C. Marginal cost
D. Average cost
Answer: C
505. The ratio between debt and equity in the total capitalization is called
A. Capital gearing
B. Capitalization
o m
C. Capital structure
.c
te
D. Financial structure
a
Answer: A
q M
c
M
506. Capital composition of a company including long term, medium term
and short term finances
A. Capital gearing
B. Capitalization
C. Capital structure
D. Financial structure
Answer: D
507. According NO1 theory, increase in EBIT will
A. Increase the value of the firm
B. Decrees the value of firm
C. Not affect value
D. Increase when debt is increased
Answer: A
508. According NO1 theory ,value of firm is

A. Related to its capital structure
B. Not related to its capital structure
C. Related to debt
D. Related to overall cost of capital
Answer: B
509. --------------- theory says that the value of a firm will be different stages
of growth
o m
A. Net income
.c
B. NOI
te
a
C. M M theory
q M
D. Traditional theory
c
Answer: D
M
510. Redundant working capital means
A. Optimum working capital
B. Shortage of working capital
C. Idle working capital
D. None of these
Answer: C
511. Floating capital means
A. Liquid capital
B. Permanent working capital
C. Redundant working capital
D. Gross working capital
Answer: A

512. According to ------------- approach, cash inflow from assets should
match with the cash outflow required to acquire them.
A. Aggressive approach
B. Hedging approach
C. Conservative approach
D. Optimization
Answer: B
o m
513. The appropriate objective of an enterprise is : .c
te
A. Maximization of sales a
B. Maximization of owners wealth
q M
c
C. Maximization of profits
D. None of these
M
Answer: B
514. The job of finance manager is confined to:
A. Raising of funds
B. Management of cash
C. Raising of funds and their effective utilization
Answer: C
515. Financial decision involve
A. Investment, financing and dividend decisions
B. Investment, financing and sales decisions
C. Financing, dividend and cash decisions
Answer: A

516. The possibility that a company will have lower than anticipated profits
is called ---------------------
A. Financial risk
B. Operational risk
C. Business risk
D. Technological risk
Answer: C
o m
.c
e
517. -------------------- refers to the risk associated with the capital structure
t
composition
a
A. Financial risk
q M
B. Operational risk c
C. Business risk
M
D. Technological risk
Answer: A
518. When contribution is dividend with EBIT we get
B. Financial leverage.
C. P/V ratio
D. EPS
Answer: A
519. According to ------------------ the degree of leverage is irrelevant in

determining the value of a firm
A. MM theory
B. Walter’s model

C. Baumol’s model
D. None of these
Answer: A
520. --------------- leverage is obtained from the equation EBIT/EBT
B. Financial leverage
C. Combined leverage
o m
D. None of these
.c
te
Answer: B
a
q M
521. Buying a security from low priced market and selling at high priced
market is called -------------c
A. Speculation
M
B. Arbitrage
C. Gangbling
D. Investment
Answer: B
522. The traditional approach of capital structure was propounded by

-------------------
A. David Durand
B. Solomon Ezra
C. Modigilani-Mille
D. None of these
Answer: B
523. Net operating income(NOI) approach was propounded by ------------

A. Solomon Ezra
B. David Durand
C. Modigilani-Miller
D. None of these
Answer: C
524. According to NOI theory, the value of the firm depends on -----------
A. Financial risk
o m
B. Operational risk
.c
te
C. Technological risk
a
D. Business risk
q M
Answer: C
c
M
525. --------------- theory is applicable only when the dividend pay out ratio is
100%
A. MM theory
B. NOI theory
C. Net income approach
D. None of these
Answer: A

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o m
.c
te
a
q M
c
M

526. Which is the limitation of traditional approach of financial

management
A. Ignores allocation of resources
B. One sided approach
C. More emphasis on long term problems

o m
D. All of these
.c
te
Answer: D
a
q M
527. The finance function is/are ----------------------
c
M
A. Determination of financial requirement of the firm
B. Obtaining necessary finance from the appropriate sources at minimum possible cost
C. The allocation of finance in different assets
D. All of these
Answer: D
528. Financial management is a part of ---------------------
A. Financial accounting
B. Business management
C. Accounting
D. Tax law
Answer: B
529. The financial management is responsible for the
A. Controlling of the Organization

B. Organizing trading programs
C. Recording the transaction
D. Finance function of the firm
Answer: D
530. Financial management includes -------------------
A. Measurement of performance
B. Finance function
o m
C. Financial resources
.c
te
D. All of these
a
Answer: A
q M
c
M
531. Profit maximization includes ---------------------
A. It is indicator of economic efficiency
B. Source of incentive
C. Maximization of social benefit
D. Measurement of success of business decisions
Answer: D
532. Function of finance officers includes -----------------------
A. Continuous credit
B. Co-ordination in fund
C. Preparation of cost account
D. Adequate liquidity
Answer: D
533. The term value implies the ------------

A. Task of estimating the worth of an asset
B. Task of estimating the worth of a security
C. Task of estimating the value of a business
D. All of these
Answer: D
534. Which is a type of value
A. Book value
o m
B. Retailer or wholesaler value
.c
te
C. Plant value
a
D. Domestic value
q M
Answer: A
c
M
535. Which is the approach of valuation
A. Asset based approach to valuation
B. Earnings based approach to valuation
C. Market value based approach to valuation
D. All f these
Answer: A
536. Total assets – Total external liabilities equal to ---------------------
A. Net asset
B. Net liabilities
C. Net cost
D. Net depreciation
Answer: A
537. The arrangement of working capital and current assets can be done

only by -------------------
A. Short term sources
B. Long term sources
C. Cost of capital
D. Financial plan
Answer: D
538. Which is the source of short term

o m
A. Trade credit
.c
te
B. Short term bank finance
a
C. Public deposits
q M
D. All of these
c
Answer: D M
539. Which is the type of trade credit
A. Open account
B. Bills of exchange
C. Promissory note
D. All of these
Answer: D
540. Which is the form of credit
A. Overdraft
B. Cash credit
C. Discounting of trade bills
D. Loans and advances
Answer: A

541. Which is the characteristics of share capital
A. Getting permanent capital
B. Payment of dividend is not compulsory
C. No mortgage of property
D. Limited liability
Answer: A
o m
542. The ownership capital of Joint Stock Companies is dividend in its
-------------- .c
te
A. Equity shares a
B. Debentures
q M
c
C. Bonds
M
D. Debentures and preference shares
Answer: D
543. The payment of dividend is not compulsory on ------------------
A. Equity share capital and preference share capital
B. Bonds
C. Debentures
D. Share capital
Answer: D
544. The capital raised through equity share is ---------- for the company
A. Floating capital
B. Variable capital
C. Temporary capital
D. Permanent or fixed capital
Answer: D

545. The control and management of the company is in the hands of ----
A. Debenture holders
B. Bondholders
C. Equity shareholders
D. Employees
Answer: C
o m
c
546. Who have the last right on the company assets
.
e
A. Bondholders
at
B. Equity shareholders
q M
C. Debenture holders
c
M
D. Preference shareholders
Answer: B
547. The equity shareholders are owners of ---------------------
A. Residual income of the company
B. Cost of asset
C. Limited liability
D. Cost of capital
Answer: A
548. Which is the advantage of the share capital
A. Permanent capital by sharing risk
B. No fixed burden of dividend by all of these
C. All of these
D. None of these
Answer: D

549. When the expansion of business and income is there, then the market
value increases which result in ------------------
A. Capital gain by capital loss
B. Capital expense
C. Reserves
D. None of these
Answer: A
o m
.c
e
550. If the company announces dividend then it is necessary to pay if
t
a
A. Within a certain time
q M
B. Within five years
c
C. Within six years
D. Within seven years

M
Answer: A

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o m
.c
te
a
q M
c
M

551. Which ratio explains that how much portion of earning is distributed
in the form of dividend
A. Dividend per Share Ratio
B. Pay Out Ratio
C. Earning yield Ratio

o m
D. Equity Capital Ratio
.c
te
Answer: B
a
q M
552. Preference shares are those shares whose holders have -------------
c
A. Certain common rights M
B. Certain preferential Rights
C. Return on capital ownership on shares
D. Return on capital
Answer: B
553. When preference shareholders have a right to convert their

preference shares in to equity shares after a pre-decided dare such shares
are called -------- shares.
A. Participating
B. Convertible
C. Redeemable
D. Irredeemable
Answer: A
554. Which is the element of cumulative convertible preference shares?

A. The rate of dividend will be 10%
B. The rate of dividend is 20%
C. No risk
D. No return
Answer: A
555. ----------- have veto power to protect their preferential rights
A. Preference shareholder
o m
B. Debenture holders
.c
te
C. Common preference share
a
D. Right shares
q M
Answer: C
c
M
556. The company can reduce its capital by -------------
A. Convertible share
B. Payment of loan
C. Redemption of redeemable preference shares
D. Payment of interest
Answer: A
557. Which is the type of dividend?
A. Cash dividend
B. Interest
C. Profit cum reserve
D. Flexible capital
Answer: A
558. The dividend on equity shares is only paid when dividend on ----------

has already been paid
A. Equity shares
B. Preference shares
C. Bond
D. Debenture
Answer: B
m
559. Which shares are not redeemed during lifetime of the company?
o
A. Equity shares
.c
te
B. Preference shares
a
C. Redeemable pre-shares
q M
D. All of these
c
Answer: A M
560. “ A debenture is a document which either creates a debt or
acknowledge it” . who said?
A. Justice Chitty
B. Tophan’s Company law
C. J. Betty
D. Hoston D
Answer: A
561. Which is the current liability?
A. Bills payable
B. Bank overdraft
C. Creditors and proposed dividend
D. All of these
Answer: D

562. Reserve is an ---------------
A. Additional part of profit
B. Additional loss
C. Liability
D. Cost
Answer: A
o m
563. If there is over capitalization in the company, the redemption of
debenture can lead to--------------- .c
te
A. Cost of capital a
B. Balanced capital structure
q M
c
C. Equity
D. Dividend
M
Answer: B
564. The interest on debenture may be ---------------
A. Fixed liability
B. Flexible liability
C. More cost
D. Less cost
Answer: A
565. The issue of debenture is done only by the --------------
A. New company
B. New firm
C. New partnership
D. Established and reputed companies
Answer: D

566. The debentures are used only by those companies whose ------------
A. Goodwill is more
B. Goodwill is less
C. Worth is less
D. All of these
Answer: A
m
oof ----------------
c
567. The debentures are issued on the security
.
e
A. Fixed assets
at
B. Fixed capital
q M
C. Current Assets
c
D. Current liabilities M
Answer: A
568. Every debenture holders is a ----------------
A. Owner of the company
B. Creditor of the company
C. Supplier of the company
D. Customer of the company
Answer: B
569. A company should arrange the capital structure in such a way that
there is maximum flexibility in the capital and cost of capital is
A. Maximum
B. Minimum
C. Expensive
D. All of the above
Answer: B

570. Term loans are those loans which are payable after one or more
______________
A. years
B. Time
C. Costly
D. All of these
Answer: A
o m
.c
571. The redemption means
te
a
A. The payment of amount
q M
B. The depreciation of the amount
c
C. The allocation of cost
D. All of these
M
Answer: A
572. Refunding means
A. Issue of new debenture
B. Issue of capital
C. Disposable cost
D. Issue new debentures in place of old debentures
Answer: D
573. Conversion means
A. Debentures are converted in to equity shares
B. Registration of cost
C. Accounting the transaction
D. Debenture holders are allotted equity shares
Answer: D

574. Stock is --------------------
A. Current asset
B. Fixed asset
C. Fixed capital
D. All of these
Answer: A
o m
575. Earnings means -----------------------
.c
te
A. Profit
a
B. Loss
q M
C. Capital
c
D. Reserve M
Answer: A

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.c
te
a
q M
c
M

576. Face value per debenture less issue expenses equal to ---------------
A. Net proceeds per debentures
B. Cost of capital
C. Loss
D. Profit
o m
.c
Answer: A
te
a
M
577. Capital budgeting means ----------------------------
q
A. Planning for capital asset c
B. Planning for sales
M
C. Planning for cash
D. Planning for profit
Answer: A
578. Capital budgeting is the process of making investment decisions in

the ----------
A. Sales
B. Sales planning
C. Cash
D. Capital expenditure
Answer: D
579. Capital budgeting is --------------
A. Actually the process of making investment decision in capital expenditure

B. A cost
C. A sales
D. A profit
Answer: A
580. Capital budgeting is known as -----------------
A. Cost of sales
B. Capital expenditure
o m
C. Cost of product
.c
te
D. Profit
a
Answer: B
q M
c
M
581. Capital budgeting is ------------------------
A. Related to long time
B. Related to short time
C. A profit
D. A sales
Answer: A
582. Capital budgeting actually the process of making investment

decisions in -----------
A. Production process and style
B. Sales planning
C. Fixed asset
D. Current asset
Answer: C
583. Capital budgeting is also known as --------------------

A. Investment decision making
B. Capital expenditure decisions
C. Planning capital expenditure
D. All of these
Answer: D
584. “Capital budgeting is long term planning for making and financing
proposed capital outlays”. Who said?
o m
A. Charles T. Horngreen
.c
B. Philippatos
te
a
C. J Betty
q M
D. Lynch
c
Answer: A
M
585. Capital budgeting investment decision involves -----------------------
A. Long term function
B. Long term asset
C. Capital expenditure
D. All of these
Answer: A
586. Which is the element of capital budgeting decision
A. Long term effect
B. Long term investment
C. Capital expenditure
D. Large investment
Answer: D

587. Capital budgeting process involves --------------------
A. Final approval
B. Performance review
C. Establishing priorities
D. All of these
Answer: D
o
588. Which is the step of capital budgeting process?
m
.c
A. Project generation
te
a
B. Project evaluation
q M
C. Project selection
c
D. Project execution
M
Answer: D
589. Which is the traditional method of capital budgeting
A. Payback period
B. Pay out method
C. Accounting method
D. All of these
Answer: D
590. Which is the time adjusting method of capital budgeting
A. NPV method
B. IRR method
C. Profitability Index Method
D. All of these
Answer: D

591. If the annual cash inflows are constant, the payback period can be
computed by dividing cash outlay by ----------------
A. Annual cash inflow
B. Profit
C. Expenses
D. Annual sales flows
Answer: D
o m
.c
592. If a project requires Rs.20,000 as initial investment and it will generate
te
an annual inflow of Rs.2,000 for the 20 years, the pay back period will be
------------------ a
q M
A. 10 years
c
B. 20 years
M
C. 9 years
D. 2 years
Answer: A
593. Projects which yields the highest earnings are ------------------
A. Selected
B. Rejected
C. Budgeted
D. All of these
Answer: A
594. The present value of total cash inflows should be compared with
present value of ----------------------
A. Cash inflows
B. Cash outflows

C. Investment
D. Income
Answer: B
595. The proposal is accepted if the profitability index is more than -----
A. One by zero
B. Three
C. Five
o m
D. Ten
.c
te
Answer: A
a
q M
596. The proposal is rejected in case the profitability index is ------------
c
A. Less than one M
B. Less than zero
C. Less than two
D. Less than five
Answer: A
597. The present value of all inflows are cumulated in -------------------
A. Order of sales by order of cash
B. Order of time
C. Order of investment
D. All of these
Answer: C
598. The performance report supplement with date on non-financial

performance measures includes ------------------
A. Market performance measures

B. Quality measures
C. Delivery measures
D. All of these
Answer: D
599. The investment of long term funds is made after a careful assessment
of the various projects through -------------------
A. Cost of capital
o m
B. Fund flow
.c
C. Capital budgeting by sales
te
a
D. Marketing planning
q M
Answer: C
c
M
600. Which is the objective of a firm’s finance management?
A. The maximization of firm’s profit
B. The maximization of firm’s value
C. The maximization of firm’s wealth
D. All of these
Answer: D

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.c
te
a
q M
c
M

601. Book building --------------------
A. Is a plant
B. Is a profit cum expenses
C. Is a process used for marketing a public offer of equity shares of a company
D. Is a cost
o m
.c
Answer: C
te
a
called -------------- q M
602. When an option is allowed to be exercised only on maturity date is
c
A. Indian option M
B. European option
C. American option
D. Option
Answer: B
603. Commercial paper effective from ---------------------
A. 1-1-1980
B. 1-1-1990
C. 1-1-1975
D. 1-1-1995
Answer: B
604. In India commercial paper is regulated by -------------------
A. RBI

B. SEBI
C. SBI
D. Indian companies act 1956
Answer: A
605. The interest rate on commercial paper is determined by -------------
A. RBI
B. SEBI and Market Force

o m
C. SBI
.c
te
D. Market Force
a
Answer: D
q M
c
M
606. Factoring is a ----------------
A. Cost of sales
B. Production plan
C. Financial planning
D. New financial service
Answer: D
607. Factoring involves ----------------
A. Provision of specialized services relating to credit investigation
B. Sales ledger management
C. Purchase and collection of debts
D. All of these
Answer: D

608. Which of the following recognizes risk in capital budgeting analysisby
adjusting estimated cash flows and employs risk free rate to discountthe
adjusted cash flows?
A. Pay back period
B. Certainty equivalent approach
C. Cash
D. Inventory
Answer: B
o m
.c
tecash flows to zero
609. ------------- rate at which discounts the
a
M
A. Payback period by economic order quantity
q
B. Internal rate of return c
C. Cash flow M
D. None of these
Answer: C
610. The net present value is expressed in financial value, where as

internal rate of return(IRR) is expressed in ---------------
A. Hundred by percentage terms
B. One thousand
C. All of these
D. None of these
Answer: B
611. Return on assets is a ratio which measures ----------------
A. Cost of capital
B. Cost of production
C. Profitability

D. Cost of sales
Answer: C
612. Return on equity measures the profitability of ------------------- invested

in the firm
A. Capital
B. Equity funds
C. Book debt
o m
D. Debentures and book dept
.c
Answer: B
te
a
q M
613. Which ratio reveals how profitability of the owner’s funds have been
utilized by the firm? c
A. Return on equity
M
B. Current ratio
C. Fixed asset ratio
D. Debt equity ratio
Answer: A
614. Capital employed is ----------
A. Assets + cash
B. Shareholders funds + Long funds
C. Cash + bank
D. Bank
Answer: B
615. Financial leverage is ----------------
A. EBIT/100* sales

B. EBIT/EBT
C. Sales/fixed asset
D. Profit/sales*capital
Answer: B
616. Shareholder value analysis is an approach to Financial Management

Development in ------------------
A. 1970
o m
B. 1980
.c
C. 1990
te
a
D. 1996
q M
Answer: B
c
M
617. The term financial engineering is used to ----------------
A. Cost of production
B. Risk management
C. Capital
D. Sales planning
Answer: B
618. The packing order theory is based on -----------
A. Stable dividend policy
B. A performance for internal
C. All of these
D. None of these
Answer: D
619. SGR is stands for --------------

A. Sustainable Growth rate
B. Sales Growth rate
C. Sales Goodwill rate
D. Super Goodwill ratio
Answer: A
620. A company may raise funds by issue of shares or -------------
A. By borrowings
o m
B. By sales of goods
.c
te
C. By sale of assets
a
D. By sale of services
q M
Answer: A
c
M
621. Borrowings carry -----------
A. Fixed rate of interest
B. A flexible rate of interest
C. A fixed dividend
D. A flexible dividend
Answer: A
622. Which helps in deciding whether funds should be raised by internal

equity or by borrowings>
A. Capital structure
B. Loan
C. Cash
D. Trading on equity
Answer: D

623. Which are the determinants of capital structure?
A. Requirement of investors
B. Control
C. Tax
D. Govt. policy
Answer: D
624. Which is the instrument of finance o m

.c
A. Zero coupon bonds
te
a
B. Debt securitization
q M
C. Credit card
c
D. All of these
M
Answer: D
625. Which is the part of restrictive covenants
A. Asset related covenants
B. Liability related covenants
C. Cash flow related covenants
D. All of these
Answer: D

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.c
te
a
q M
c
M

626. LIBOR is a term of -------------
A. Capital market
B. Accounting
C. Common market
D. International Financial Market

o m
.c
Answer: D
te
a
627. Foreign bonds are -------------------
q M
A. Domestic currency bonds c
B. Foreign currency bonds
M
C. Product loan
D. Currency
Answer: B
628. Foreign bonds, are foreign currency bonds and sold at the country of
that currency and are subject to the restrictions as placed by that country
on the -------------------
A. Foreigner’s fund
B. Domestic holder’s fund
C. Firm’s fund
D. All of these
Answer: A
629. Euro bond is a ------------
A. Debt instrument

B. Foreign currency bond
C. Paper
D. Bill
Answer: A
630. Eurobonds are debt instruments denominated in a currency issued

-----
A. Outside the country
o m
B. In the country
.c
C. In the firm
te
a
D. Outside the firm
q M
Answer: A
c
M
631. Bills discounting is a -----------------------
A. Product of company
B. Accounting paper
C. Short term source of finance
D. Capital
Answer: C
632. The cost of capital is the rate of return of a company must earn on
investment to maintain ----------------
A. The value of the company
B. The value of the product
C. Price
D. Product quality
Answer: A

633. The cost of capital is --------------
A. The maximum rate of return
B. The minimum rate of return
C. A profit
D. A product
Answer: B
o m
634. The debt capital can be raised from issue of -----
.c
A. Bonds
te
a
B. Equity share capital
q M
C. Right share
c
D. Preference share capital
M
Answer: A
635. The cost of debt capital is the ratio of interest payable on ---------
A. Debenture
B. Equity share capital
C. Preference share capital
D. Retained earning
Answer: A
636. Dividends are the ---------- of a company distributed amongst members

in proportion to their shares
A. Divisible profits
B. Indivisible profits
C. Reserves
D. Assets with cash and bank
Answer: A

637. A sound dividend policy contains the ------------- features
A. Stability
B. Distribution of dividend in cash
C. Gradually rising dividend ratio
D. All of these
Answer: D
m
o liability or as an item of
c
638. This item can be treated as an item of current
.
appropriation
e
at
A. Dividend
q M
B. Debentures
c
C. Reserve
D. Debtors
M
Answer: A
639. "Shareholder wealth" in a firm is represented 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's common stock.
Answer: D
640. The long-run objective of financial management is to:
A. maximize earnings per share.
B. maximize the value of the firm's common stock.
C. maximize return on investment.
D. maximize market share.
Answer: B

641. What are the earnings per share (EPS) for a company that earned Rs.
100,000 last year in after-tax profits, has 200,000 common shares
outstanding and Rs. 1.2 million in retained earning at the year end?
A. Rs. 100,000
B. Rs. 6.00
C. Rs. 0.50
D. Rs. 6.50
Answer: C
o m
.c
te while a(n) would be an
a
642. A(n) would be an example of a principal,
example of an agent.
q M
A. shareholder; manager
c
B. manager; owner M
C. accountant; bondholder
D. shareholder; bondholder
Answer: A
643. The market price of a share of common stock is determined by:
A. the board of directors of the firm.
B. the stock exchange on which the stock is listed.
C. the president of the company.
D. individuals buying and selling the stock.
Answer: D
644. The focal point of financial management in a firm is:
A. the number and types of products or services provided by the firm.
B. the minimization of the amount of taxes paid by the firm.

C. the creation of value for shareholders.
D. the dollars profits earned by the firm.
Answer: C
645. ___________________ of a firm refers to the composition of its long-

term funds and its capital structure.
A. Capitalisation
B. Over-capitalisation
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C. Under-capitalisation
.c
D. Market capitalization
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a
Answer: A
q M
646. In the _______________,c the future value of all cash inflow at the end
M rate of interest is calculated.
of time horizon at a particular
A. Risk-free rate
B. Compounding technique
C. Discounting technique
D. Risk Premium
Answer: C
647. ______________ 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
Answer: C
648. _____________ enhance the market value of shares and therefore

equity capital is not free of cost.
A. Face value
B. Dividends
C. Redemption value
D. Book value
Answer: B
relevant to the valuation of the firm. o m

649. In _______________ approach, the capital structure decision is
.c
A. Net income
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B. Net operating income a
C. Traditional q M
c
D. Miller and Modigliani
Answer: A
M
650. When __________ is greater than zero the project should be accepted.
A. Internal rate of return
B. Profitability index
C. Net present value
D. Modified internal rate of return
Answer: C

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.c
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a
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c
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651. ____________ is defined as the length of time required to recover the

initial cash out-lay.
A. Payback-period
B. Inventory conversion period
C. Discounted payback-period
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D. Budget period
.c
te
Answer: A
a
q M
652. _______________ refers to the amount invested in various
components of current assets. c
A. Temporary working capital
M
B. Net working capital
C. Gross working capital
D. Permanent working capital
Answer: C
653. ____________ is the length of time between the firm’s actual cash
expenditure and its own cash receipt.
A. Net operating cycle
B. Cash conversion cycle
C. Working capital cycle
D. Gross operating cycle
Answer: A

654. _______________ refers to a firm holding some cash to meet its
routine expenses that are incurred in the ordinary course of business.
A. Speculative motive
B. Transaction motive
C. Precautionary motive
D. Compensating motive
Answer: B
o m
.c
655. _______________ refers to the length of time allowed by a firm for its
customers to make payment for their purchases.
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a
A. Holding period
q M
B. Pay-back period c
C. Average collection period M
D. Credit period
Answer: D
656. Amounts due from customers when goods are sold on credit are
called _____________.
A. Trade balance
B. Trade debits
C. Trade discount
D. Trade off
Answer: B
657. ____________________ and __________________________ are the

two versions of goals of the financial management of the firm.
A. Profit maximisation, Wealth maximization
B. Production maximisation, Sales maximisation

C. Sales maximisation, Profit maximization
D. Value maximisation, Wealth maximisation
Answer: A
658. Consider the below mentioned statements: 1. A company is

considered to be overcapitalised when its actual capitalisation is lower
than the proper capitalisation as warranted by the earning capacity 2. Both
over-capitalisation and under-capitalisation are detrimental to the interests
of the society. State True or False:
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A. 1-True, 2-True
.c
B. 1-False, 2-True
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a
C. 1-False, 2-False
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D. 1-True, 2-False
c
Answer: B
M
659. Consider the below mentioned statements: 1. The dividends are not
cumulative for equity shareholders, that is, they cannot be accumulated
and distributed in the later years. 2. Dividends are taxable. State True or
False:
A. 1-True, 2-True
B. 1-False, 2-True
C. 1-False, 2-False
D. 1-True, 2-False
Answer: D
660. ____________ and____________ carry a fixed rate of interest and are

to be paid off irrespective of the firm’s revenues.
A. Debentures, Dividends
B. Debentures, Bonds
C. Dividends, Bonds

D. Dividends, Treasury notes
Answer: B
661. Consider the below mentioned statements: 1. A debt-equity ratio of

2:1 indicates that for every 1 unit of equity, the company can raise 2 units
of debt. 2. The cost of floating a debt is greater than the cost of floating an
equity issue. State True or False:
A. 1-True, 2-True
B. 1-False, 2-True
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C. 1-False, 2-False
.c
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D. 1-True, 2-False
a
Answer: D
q M
c
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662. Credit policy of every company is largely influenced by
_____________ and _____________.
A. Liquidity, accountability
B. Liquidity, profitability
C. Liability, profitability
D. Liability, liquidity
Answer: B
663. XYZ is an oil based business company, which does not have
adequate working capital. It fails to meet its current obligation, which
leads to bankruptcy. Identify the type of decision involved to prevent risk
of bankruptcy.
A. Investment decision
B. Dividend decision
C. Liquidity decision
D. Finance decision
Answer: C

664. The rate of interest offered by the fixed deposit scheme of a bank for
365 days and above is 12%. What will be the status of Rs. 20000, after two
years if it is invested at this point of time?
A. Rs. 28032
B. Rs. 24048
C. Rs. 22056
D. Rs. 25088
Answer: D
o m
.c
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665. How are earnings per share calculated?
a
q M
A. Use the income statement to determine earnings after taxes (net income) and divide by the
previous period's earnings after taxes. Then subtract 1 from the previously calculated value.
c
M
B. Use the income statement to determine earnings after taxes (net income) and divide by the
number of common shares outstanding.
C. Use the income statement to determine earnings after taxes (net income) and divide by the
number of common and preferred shares outstanding.
D. Use the income statement to determine earnings after taxes (net income) and divide by the
forecasted period's earnings after taxes. Then subtract 1 from the previously calculated value
Answer: B
666. Which of the following would NOT improve the current ratio?
A. Borrow short term to finance additional fixed assets.
B. Issue long-term debt to buy inventory.
C. Sell common stock to reduce current liabilities.
D. Sell fixed assets to reduce accounts payable.
Answer: A
667. The gross profit margin is unchanged, but the net profit margin
declined over the same period. This could have happened if

A. cost of goods sold increased relative to sales.
B. sales increased relative to expenses.
C. Govt. increased the tax rate.
D. dividends were decreased.
Answer: C
668. Palo Alto Industries has a debt-to-equity ratio of 1.6 compared with
the industry average of 1.4. This means that the company
o m
A. will not experience any difficulty with its creditors.
.c
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B. has less liquidity than other firms in the industry.
a
M
C. will be viewed as having high creditworthiness.
q
c
D. has greater than average financial risk when compared to other firms in its industry.
Answer: D
M
669. Kanji Company had sales last year of Rs. 265 million, including cash
sales of Rs. 25 million. If its average collection period was 36 days, its
ending accounts receivable balance is closest to . (Assume a 365-day
year.)
A. Rs. 26.1 million
B. Rs. 23.7 million
C. Rs. 7.4 million
D. Rs. 18.7 million
Answer: B
670. A company can improve (lower) its debt-to-total assets ratio by doing
which of the following?
A. Borrow more.
B. Shift short-term to long-term debt.
C. Shift long-term to short-term debt.

D. Sell common stock.
Answer: D
671. Which of the following statements (in general) is correct?
A. A low receivables turnover is desirable.
B. The lower the total debt-to-equity ratio, the lower the financial risk for a firm.
C. An increase in net profit margin with no change in sales or assets means a poor ROI.
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D. The higher the tax rate for a firm, the lower the interest coverage ratio.
Answer: B
.c
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672. Debt-to-total assets (D/TA) ratio a
is .4. What is its debt-to-equity (D/E)
ratio?
q M
c
A. .2
B. .6
M
C. .667
D. .333
Answer: C
673. A firm's operating cycle is equal to its inventory turnover in days (ITD)
A. plus its receivable turnover in days (RTD).
B. minus its RTD.
C. plus its RTD minus its payable turnover in days (P
D. .
Answer: A
674. If the following are balance sheet changes:

Rs. 5,005 decrease in accounts receivable
Rs. 7,000 decrease in cash
Rs. 12,012 decrease in notes payable

Rs. 10,001 increase in accounts payable
a "use" of funds would be the:
A. Rs. 7,000 decrease in cash.
B. Rs. 5,005 decrease in accounts receivable.
C. Rs. 10,001 increase in accounts payable.
D. Rs. 12,012 decrease in notes payable.
Answer: D
675. Uses of funds include a (an): o m

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A. decrease in cash.
te
B. increase in any liability. a
C. increase in fixed assets. q M
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D. tax refund.
Answer: C
M

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676. Which of the following would be included in a cash estimation/

budget?
A. depreciation charges.
B. dividends.
C. goodwill.
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D. patent amortization.
.c
te
Answer: B
a
q M
677. Which of the following is NOT a cash outflow for the firm?
c
A. depreciation. M
B. dividends.
C. interest payments.
D. taxes.
Answer: A
678. Which of the following would be considered a application of funds?
A. a decrease in accounts receivable.
B. a decrease in cash.
C. an increase in account payable.
D. an increase in cash.
Answer: D
679. All of the following influence capital budgeting cash flows EXCEPT:
A. accelerated depreciation.

B. salvage value.
C. tax rate changes.
D. method of project financing used.
Answer: D
680. The estimated benefits from a project are expressed as cash flows
instead of income flows because:
A. it is simpler to calculate cash flows than income flows.
o m
c
B. it is cash, not accounting income, that is central to the firm's capital budgeting decision.
.
C. this is required by the Internal Revenue Service.
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a
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D. this is required by the Securities and Exchange Commission.
q
Answer: B
c
M
681. A capital investment is one that
A. has the prospect of long-term benefits.
B. has the prospect of short-term benefits.
C. is only undertaken by large corporations.
D. applies only to investment in fixed assets.
Answer: A
682. A profitability index of .85 for a project means that:
A. the present value of benefits is 85% greater than the project's costs.
B. the project's NPV is greater than zero.
C. the project returns 85 cents in present value for each current dollar invest
Answer: C
A. If the NPV of a project is greater than 0, its PI will equal 0.

B. If the IRR of a project is 0%, its NPV, using a discount rate, k, greater than 0, will be 0.
C. If the PI of a project is less than 1, its NPV should be less than 0.
D. If the IRR of a project is greater than the discount rate, k, its PI will be less than 1 and its NPV
will be greater than 0.
Answer: C
684. A project's profitability index is equal to the ratio of the of a project's

future cash flows to the project's .
A. present value; initial cash outlay

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B. net present value; initial cash outlay
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C. present value; depreciable basis
a
D. net present value; depreciable basis
q M
Answer: A c
M
685. The discount rate at which two projects have identical is referred to
as Fisher's rate of intersection.
A. present values
B. net present values
C. IRRs
D. profitability indexes
Answer: B
686. Two mutually exclusive investment proposals have "scale

differences" (i.e., the cost of the projects differ). Ranking these projects on
the basis of IRR, NPV, and PI methods give contradictory results.
A. will never
B. will always
C. may
D. will generally
Answer: C

687. Preferred shareholders' claims on assets and income of a firm come
those of creditors those of common shareholders.
A. before; and also before
B. after; but before
C. after; and also after
D. equal to; and equal to
Answer: B
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688. You are considering two mutually exclusive investment proposals,
t
a
project A and project B. B's expected value of net present value is $1,000
less than that for A and A has less dispersion. On the basis of risk and
return, you would say that
q M
c
M
A. Project A dominates project B.
B. Project B dominates project A.
C. Project A is more risky and should offer greater expected value.
D. Each project is high on one variable, so the two are basically equal.
Answer: A
689. To increase a given present value, the discount rate should be

adjusted
A. upward.
B. downward.
C. No change.
D. constant
Answer: B
690. In finance, "working capital" means the same thing as
A. total assets.

B. fixed assets.
C. current assets.
D. current assets minus current liabilities.
Answer: C
691. Which of the following would be consistent with a more aggressive

approach to financing working capital?
A. Financing short-term needs with short-term funds.
o m
c
B. Financing permanent inventory buildup with long-term debt.
.
C. Financing seasonal needs with short-term funds.
te
a
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D. Financing some long-term needs with short-term funds.
q
Answer: D
c
M
692. Which asset-liability combination would most likely result in the firm's
having the greatest risk of technical insolvency?
A. Increasing current assets while lowering current liabilities.
B. Increasing current assets while incurring more current liabilities.
C. Reducing current assets, increasing current liabilities, and reducing long-term debt.
D. Replacing short-term debt with equity.
Answer: C
693. Which of the following illustrates the use of a hedging (or matching)
approach to financing?
A. Short-term assets financed with long-term liabilities.
B. Permanent working capital financed with long-term liabilities.
C. Short-term assets financed with equity.
D. All assets financed with 50 percent equity, 50 percent long-term debt mixture.
Answer: B

694. In deciding the appropriate level of current assets for the firm,
management is confronted with
A. a trade-off between profitability and risk.
B. a trade-off between liquidity and marketability.
C. a trade-off between equity and debt.
D. a trade-off between short-term versus long-term borrowing.
Answer: A
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695. varies inversely with profitability. .c
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A. Liquidity. a
B. Risk.
q M
c
C. Financing.
D. Liabilities.
M
Answer: A
696. Spontaneous financing includes
A. accounts receivable.
B. accounts payable.
C. short-term loans.
D. a line of credit.
Answer: B
697. Permanent working capital
A. varies with seasonal needs.
B. includes fixed assets.
C. is the amount of current assets required to meet a firm's long-term minimum needs.
D. includes accounts payable
Answer: C

698. Financing a long-lived asset with short-term financing would be
A. an example of "moderate risk -- moderate (potential) profitability" asset financing.
B. an example of "low risk -- low (potential) profitability" asset financing.
C. an example of "high risk -- high (potential) profitability" asset financing.
D. an example of the "hedging approach" to financing.
Answer: C
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699. Net working capital refers to
.c
te
A. total assets minus fixed assets.
a
M
B. current assets minus current liabilities.
q
C. current assets minus inventories.
c
D. current assets. M
Answer: B
700. Marketable securities are primarily
A. short-term debt instruments.
B. short-term equity securities.
C. long-term debt instruments.
D. long-term equity securities.
Answer: A

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a
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c
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701. Which would be an appropriate investment for temporarily idle

corporate cash that will be used to pay quarterly dividends three months
from now?
A. A long-term AAA-rated corporate bond with a current annual yield of 9.4 percent.
m
B. A 30-year Treasury bond with a current annual yield of 8.7 percent.
o
c
C. Ninety-day commercial paper with a current annual yield of 6.2 percent.
.
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D. Common stock that has been appreciating in price 8 percent annually, on average, and paying
a
a quarterly dividend that is the equivalent of a 5 percent annual yield.
Answer: C
q M
c
M
702. Which of the following marketable securities is the obligation of a
commercial bank?
A. Commercial paper
B. Negotiable certificate of deposit
C. Repurchase agreement
D. T-bills
Answer: B
703. The basic requirement for a firm's marketable securities.
A. Safety
B. Yield
C. Marketability
Answer: D
704. Ninety-percent of X company's total sales of $600,000 is on credit. If

its year-end receivables turnover is 5, the average collection period (based
on a 365-day year) and the year-end receivables are, respectively:
A. 365 days and $108,000.
B. 73 days and $120,000.
C. 73 days and $108,000.
D. 81 days and $108,000.
Answer: C
705. Costs of not carrying enough inventory include: o m

.c
A. lost sales.
te
B. customer disappointment. a
C. possible worker layoffs. q M
c
D. all of these.
Answer: D
M
706. Which of the following relationships hold true for safety stock?
A. the greater the risk of running out of stock, the smaller the safety of stock.
B. the larger the opportunity cost of the funds invested in inventory, the larger the safety stock.
C. the greater the uncertainty associated with forecasted demand, the smaller the safety stock.
D. the higher the profit margin per unit, the higher the safety stock necessary.
Answer: D
707. Increasing the credit period from 30 to 60 days, in response to a

similar action taken by all of our competitors, would likely result in:
A. an increase in the average collection period.
B. a decrease in bad debt losses.
C. an increase in sales.
D. higher profits.
Answer: A

708. The credit policy of Spurling Products is "1.5/10, net 35." At present
30% of the customers take the discount, 62% pay within the net period,
and the rest pay within 45 days of invoice. What would receivables be if all
customers took the cash discount?
A. Lower than the present level.
B. No change from the present level.
C. Higher than the present level.
D. Unable to determine without more information.

o m
Answer: A
.c
t e
a turnover ratio means that:
709. An increase in the firm's receivable
q M
c
A. it is collecting credit sales more quickly than before.
M
B. cash sales have decreased.
C. it has initiated more liberal credit terms.
D. inventories have increased.
Answer: A
710. A single, overall cost of capital is often used to evaluate projects

because:
A. it avoids the problem of computing the required rate of return for each investment proposal.
B. it is the only way to measure a firm's required return.
C. it acknowledges that most new investment projects have about the same degree of risk.
D. it acknowledges that most new investment projects offer about the same expected return.
Answer: A
711. The cost of equity capital is all of the following EXCEPT:
A. the minimum rate that a firm should earn on the equity-financed part of an investment.

B. a return on the equity-financed portion of an investment that, at worst, leaves the market priceof
the stock unchanged.
C. by far the most difficult component cost to estimate.
D. generally lower than the before-tax cost of debt.
Answer: D
712. In calculating the proportional amount of equity financing employed

by a firm, we should use:
o m
A. the common stock equity account on the firm's balance sheet.
.c
e
B. the sum of common stock and preferred stock on the balance sheet.
t
C. the book value of the firm.
a
q M
D. the current market price per share of common stock times the number of shares outstanding.
Answer: D c
M
713. In calculating the costs of the individual components of a firm's
financing, the corporate tax rate is important to which of the following
component cost formulas?
A. common stock.
B. debt.
C. preferred stock.
D. none of the above.
Answer: B
714. The common stock of a company must provide a higher expected

return than the debt of the same company because
A. there is less demand for stock than for bonds.
B. there is greater demand for stock than for bonds.
C. there is more systematic risk involved for the common stock.
D. there is a market premium required for bonds.
Answer: C

715. A quick approximation of the typical firm's cost of equity may be
calculated by
A. adding a 5 percent risk premium to the firm's before-tax cost of debt.
B. adding a 5 percent risk premium to the firm's after-tax cost of debt.
C. subtracting a 5 percent risk discount from the firm's before-tax cost of debt.
D. subtracting a 5 percent risk discount from the firm's after-tax cost of debt.
Answer: A
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.c
e
716. Market values are often used in computing the weighted average cost
t
of capital because
a
q M
A. this is the simplest way to do the calculation.
c
B. this is consistent with the goal of maximizing shareholder value.
M
C. this is required in the U.S. by the Securities and Exchange Commission.
D. this is a very common mistake.
Answer: B
717. Rank in ascending order (i.e., 1 = lowest, while 3 = highest) the likely
after-tax component costs of a Company's long-term financing.
A. 1 = bonds; 2 = common stock; 3 = preferred stock.
B. 1 = bonds; 2 = preferred stock; 3 = common stock.
C. 1 = common stock; 2 = preferred stock; 3 = bonds.
D. 1 = preferred stock; 2 = common stock; 3 = bonds.
Answer: B
718. Lei-Feng, Inc.'s $100 par value preferred stock just paid its $10 per
share annual dividend. The preferred stock has a current market price of
$96 a share. The firm's marginal tax rate (combined federal and state) is 40
percent, and the firm plans to maintain its current capital structure
relationship into the future. The component cost of preferred stock to Lei-

Feng, Inc. would be closest to .
A. 6 percent
B. 6.25 percent
C. 10 percent
D. 10.4 percent
Answer: D
719. The term "capital structure" refers to:

o m
.c
A. long-term debt, preferred stock, and common stock equity.
te
B. current assets and current liabilities.
a
C. total assets minus liabilities.
q M
D. shareholders' equity.
c
Answer: A M
720. A critical assumption of the net operating income (NOI) approach to
valuation is:
A. that debt and equity levels remain unchanged.
B. that dividends increase at a constant rate.
C. that ko remains constant regardless of changes in leverage.
D. that interest expense and taxes are included in the calculation.
Answer: C
721. The traditional approach towards the valuation of a company

assumes:
A. that the overall capitalization rate holds constant with changes in financial leverage.
B. that there is an optimum capital structure.
C. that total risk is not altered by changes in the capital structure.
D. that markets are perfect.
Answer: B

722. Two firms that are virtually identical except for their capital structure
are selling in the market at different values. According to M&M
A. one will be at greater risk of bankruptcy.
B. the firm with greater financial leverage will have the higher value.
C. this proves that markets cannot be efficient.
D. this will not continue because arbitrage will eventually cause the firms to sell at the same value.
Answer: D
o m
.c
e
723. What is the value of the tax shield if the value of the firm is $5 million,
t
a
its value if unlevered would be $4.78 million, and the present value of
bankruptcy and agency costs is $360,000?
q M
A. $140,000
c
B. $220,000 M
C. $360,000
D. $580,000
Answer: D
724. Reserves & Surplus are which form of financing?
A. Security Financing
B. Internal Financing
C. Loans Financing
D. International Financing
Answer: B
725. 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
Answer: D
o m
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a
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c
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c
M

726. In Walter model formula D stands for
A. Dividend per share
B. Direct Dividend
C. Dividend Earning
D. None of these
o m
.c
Answer: A
te
a
727. In MM model MM stands for...
q M
A. M.Khan and Modigiliani c
B. Miller and M.Khan
M
C. Modigiliani and M.Khan
D. Miller and Modigliani
Answer: D
728. The addition of all current assets investment is known as...
A. Net Working Capital
B. Gross Working capital
C. Temporary Working Capital
D. All of these
Answer: B
729. 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
Answer: D
730. If the weighting of equity in total capital is 1/3, that of debt is 2/3, the
return on equity is 15% that of debt is 10% and the corporate tax rate is
32%, what is the Weighted Average Cost of Capital (WACC)?
A. 10.533%
B. 7.533%
o m
.c
C. 9.533%
te
D. 11.350% a
Answer: C
q M
c
M
731. Which of the following would not be financed from working capital?
A. Cash float.
B. Accounts receivable.
C. Credit sales.
D. A new personal computer for the office.
Answer: D
732. What is the difference between the current ratio and the quick ratio?
A. The current ratio includes inventories and the quick ratio does not.
B. The current ratio does not include inventories and the quick ratio does.
C. The current ratio includes physical capital and the quick ratio does not.
D. The current ratio does not include physical capital and the quick ratio does.
Answer: A

733. Which of the following working capital strategies is the most
aggressive?
A. Making greater use of short term finance and maximizing net short term asset.
B. Making greater use of long term finance and minimizing net short term asset.
C. Making greater use of short term finance and minimizing net short term asset.
D. Making greater use of long term finance and maximizing net short term asset.
Answer: C
o m
.c
734. Which of the following is not a metric to use for measuring the length
of the cash cycle?
te
a
A. Acid test days.
q M
B. Accounts receivable days. c
C. Accounts payable days. M
D. Inventory days.
Answer: A
735. Which of the following is not the responsibility of financial

management?
A. allocation of funds to current and capital assets
B. obtaining the best mix of financing alternatives
C. preparation of the firm's accounting statements
D. development of an appropriate dividend policy
Answer: C
736. Which of the following are not among the daily activities of financial
management?
A. sale of shares and bonds
B. credit management

C. inventory control
D. the receipt and disbursement of funds
Answer: A
737. Debt Equity Ratio is 3:1,the amount of total assets Rs.20 lac,current
ratio is 1.5:1 and owned funds Rs.3 lac.What is the amount of current
asset?
A. Rs.5 lac
B. Rs.3 lac
o m
.c
C. Rs.12 lac
te
D. d) none of the above. a
Answer: C
q M
c
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738. Banks generally prefer Debt Equity Ratio at :
A. 1:1
B. 1:3
C. 2:1
D. 3:1
Answer: C
739. An asset is a
A. Source of fund
B. Use of fund
C. Inflow of funds
Answer: B
740. If a company issues bonus shares the debt equity ratio will

A. Remain unaffected
B. Will be affected
C. Will improve
Answer: C
741. In the balance sheet amount of total assets is Rs.10 lac, current
liabilities Rs.5 lac & capital & reserves are Rs.2 lac .What is the debt equity
ratio?
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A. a)1;1
te
B. 1.5:1 a
C. c)2:1
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D. none of the above. c
Answer: D
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742. In last year the current ratio was 3:1 and quick ratio was 2:1.Presently
current ratio is 3:1 but quick ratio is 1:1.This indicates comparably
A. high liquidity
B. higher stock
C. lower stock
D. low liquidity
Answer: B
743. Authorised capital of a company is Rs.5 lac, 40% of it is paid up. Loss
incurred during the year is Rs.50,000. Accumulated loss carried from last
year is Rs.2 lac. The company has a Tangible Net Worth of
A. Nil
B. Rs.2.50 lac
C. (-)Rs.50,000

D. Rs.1 lac.
Answer: C
744. Proprietary ratio is calculated by
A. Total assets/Total outside liability
B. Total outside liability/Total tangible assets
C. Fixed assets/Long term source of fund
D. Proprietors’’ Funds/Total
o m
Answer: D
.c
te
anet working capital will be
745. Current ratio of a concern is 1,its
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A. Positive
c
B. Negative M
C. Nil
Answer: C
746. Current ratio is 4:1.Net Working Capital is Rs.30,000.Find the amount

of current Assets.
A. Rs.10,000
B. Rs.40,000
C. Rs.24,000
D. Rs.6,000
Answer: B
747. Current ratio is 2:5.Current liability is Rs.30000.The Net working

capital is
A. Rs.18,000

B. Rs.45,000
C. Rs.(-) 45,000
D. Rs.(-)18000
Answer: D
748. Quick assets do not include
A. Govt.bond
B. Book debts
o m
C. Advance for supply of raw materials
.c
te
D. Inventories.
a
Answer: D
q M
c
749. The ideal quick ratio is
M
A. 2:1
B. 1:1
C. 5:1
Answer: B

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Financial-Management Solved MCQs

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Financial Management MCQs [set-1]

1. All business need to have which fundamental essential element

D. intitial cash flows

3. Acccording to the traditional approach what is the effect of increase in

B. increase first and then decreases

4. The maximum expenses that an equity scheme charge to an investor is

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5. The bonds with shorter maturity will have ______ duration

7. Objectives of financial planning are

A. determining capital structure

B. framing loan policies

C. determining cash requirement

D. determining finance ratio

8. PI of project is the ratio of present value of inflows to-

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D. total cash inflows

9. Bird in hand - argument is given by

11. Evaluation of firms credit policy can be done by computing expected

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D. closing market price

15. Residuals theory argues that dividend is as -

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18. _________Policy refers to the procedure follow to collect accounts

19. Financial mananger would play the role of __________ in area of

C. cash flow examiners

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20. Accountng rate of return is based on _____________

A. life of the project

B. average expected profit

C. average cash profit

D. average past profit

B. dividend and bonus M

D. none of the above

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B. the npv to increase

C. the irr to decrease

D. all of the above

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McqMate is also available on

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26. _____________ refers to the price at which an asset can be traded in

28. _____________ Means the action of an organisation or government

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31. __________ means reputation of a firm which is in existance for a

32. ___________ involves mergers and acquisition of firm belonging to

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33. _______________Is a entity formed by two or more companies to

35. The arrengement in which entire amount of borrowing is credited to the

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C. long term debt

B. hostile take over

C. friendly take over

39. From the point of view lessee, a lease is a_________

B. buy or make decision

C. working capital decision

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40. ____________ indirect form of working capital financing and bank

B. net operating profit after tax

A. dividennd pay out ratio

B. debt- equity ratio

43. Which of the follwing is not a usual method of calculation of share

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B. economic value added