MCQs on Introduction to Strategic Financial Management

Question 1.
We may define the term ‘Strategy’ as a blueprint.
(A) Long-range
(B) Short-range
(C) Short and medium-range
(D) Unlimited rage
Answer:
(A) Long-range

Question 2.
Strategic management involves the decision-making and the activities in an organization
which –
(A) Have wider ramifications
(B) Have a long time perspective
(C) Use critical resources towards perceived opportunities or threats in a changing
environment
(D) All of the above
Answer:
(D) All of the above

Question 3.
According to Chandler ‘Strategic Management’ is –
(A) That set of decisions and actions lead to the development of an effective strategy or
strategies to help achieve corporate objec¬tives.
(B) The formulation and implementation of the major goals and initiatives taken by a
company’s top management.
(C) Determination of the basic long-term goals and objectives of an enterprise and

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adoption of course of action and allocation of resources necessary to carry out these
goals.
(D) Developing the company’s vision, environmental scanning, strategy formulation,
implementation and evaluation, and control.
Answer:
(C) Determination of the basic long-term goals and objectives of an enterprise and
adoption of course of action and allocation of resources necessary to carry out these
goals.

Question 4.
According to Glueck ‘Strategic Management’ is a set of decisions and actions which lead
to the development of an effective strategy or strategies to help achieve___
(A) Major objectives
(B) Planning objectives
(C) Corporate objectives
(D) National objectives
Answer:
(C) Corporate objectives

Question 5.
According to Hambrick Strategic Management’ Strategic management are the
formulation and implementation of the taken by a company’s top management on behalf
of owners, based on consideration of resources and an assessment of the internal and
external environments in which the organization competes.
(A) Major goals and initiatives
(B) Major plans and process
(C) Major decisions
(D) Product development

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Answer:
(A) Major goals and initiatives

Question 6.
Strategic management involves developing the –
I. Company’s vision
II. Training of personnel in. Environmental scanning
IV. Strategy formulation
V. New software
VI. Strategy implementation
Select the correct answer from the options given below.
(A) I, III & IV only
(B) IV, III, I & VI
(C) I and IV only
(D) Except V all
Answer:
(B) IV, III, I & VI

Question 7.
Strategic management emphasizes the monitoring and evaluation of external
opportunities and threats in
the light of a company’s and designing strategies for the survival and growth of the
company.
(A) Plans and budget
(B) Asset and liabilities
(C) Strengths and weaknesses
(D) Opportunities and plans
Answer:
(C) Strengths and weaknesses

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Question 8.
According to Chandler ‘Strategic Management’ is the determination of the basic long-
term goals and objectives of an enterprise and the adoption of a course of action and
allocation of___necessary to carry out this goal?.
(A) Sources
(B) Resources
(C) Assets
(D) Expenses
Answer:
(B) Resources

Question 9.
Arrange the process of strategic management in proper sequence –
P. Where we want to be?
Q. How can we ensure arrival?
R. How might we get there?
S. Where are we now?
T. Which way is best?
Select the correct answer from the options given below.
(A) S, P, R, T, Q
(B) S, T, R, P, Q
(C) P, R, S, T, Q
(D) R,S,P,Q,T
Answer:
(A) S, P, R, T, Q

Question 10.
Match the List I with List II with reference to the strategic management process:

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 List I List II

A. Where we want to be? 1. Means

B. Where are we now? 2. Control

C. How can we ensure arrival? 3. Plans

D. How might we get there? 4. Beginning

E. Which way is best? 5. Evaluation

6. Ends

Select the correct answer from the options given below.

Answer:
(C)
Question 11.
Out of all the alternatives generated in the earlier stage, the organization selects the best
suitable alternative. This stage in the strategic management process is called as___
(A) Evaluation
(B) Means
(C) Ends
(D) Beginning
Answer:
(A) Evaluation

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Question 12.
The strategic management process is defined as the process by which the managers are
able to make a choice of a set of strategies for the organization that will enable it to
accomplish –
(A) Targeted marketing plans
(B) Improved performance
(C) Better debt-equity ratio
(D) Government help
Answer:
(B) Improved performance

Question 13.
Strategic management ___
(A) Is not a static
(B) Is a continuous process
(C) Consists of different phases
(D) All of the above
Answer:
(D) All of the above

Question 14.
There are____ indispensable phases of every strategic management process.
(A) Five
(B) Four
(C) Six
(D) Three
Answer:
(B) Four

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Question 15.
Which of the following is the first phase of the strategic management process?
(A) Strategy Formulation
(B) Strategy Evaluation
(C) Strategy Implementation
(D) Environmental Scanning
Answer:
(D) Environmental Scanning

Question 16.
Environment scanning is careful monitoring of an organization’s environment for
detecting early signs of opportunities and threats that may influence its current and future
plans.
(A) Internal
(B) External
(C) Internal and external
(D) Internal or external
Answer:
(C) Internal and external

Question 17.
Which of the following are/are NOT features of the business environment?
(I) Uncertainty
(II) Relativity
(III) Static Nature
Select the correct answer from the options given below
(A) (I) only
(B) (II) only
(C) (III) only

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(D) None of the above
Answer:
(C) (III) only

Question 18.
Which of the following describes the desired future position of the company?
(A) Vision statement
(B) Mission statement
(C) Planning statement
(D) Forecasting statement
Answer:
(A) Vision statement

Question 19.
Which of these basic questions should a vision statement answer?
(A) What is our business?
(B) Who are our competitors?
(C) Where we are to go?
(D) Why do we exist?
Answer:
(C) Where we are to go?

Question 20.
Which of the following is the beginning stage of the strategic management process?
(A) Process of goal setting for the organization after it has finalized its vision and
mission.
(B) The organization selects the best suitable alternative.
(C) Firm finds out its relative market position, corporate image, its strength and
weakness, and also threats and opportunities.

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(D) The organization deals with the various strategic alternatives it has.
Answer:
(C) Firm finds out its relative market position, corporate image, its strength and
weakness, and also threats and opportunities.

Question 21.
A defines the company’s business, its objectives, and its approach to reach those
objectives.
(A) Vision statement
(B) Mission statement
(C) Planning statement
(D) Forecasting statement
Answer:
(B) Mission statement

Question 22.
According to Porter, what is usually the most powerful of the five compet¬itive forces?
(A) Rivalry among existing firms
(B) Potential development of substitute products
(C) Bargaining power of buyers and suppliers
(D) Potential entry of a new competitor
Answer:
(A) Rivalry among existing firms

Question 23.
Mission and Vision Statements are NOT commonly used to:
(A) Guide management’s thinking on strategic issues, especially during times of
significant change
(B) Create wider linkages with customers, suppliers, and alliance partners

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(C) Help establish a framework for ethical behavior
(D) Inspire employees to work more productively by providing focus and common goals
Answer:
(B) Create wider linkages with customers, suppliers, and alliance partners

Question 24.
A business has absolute control in the……….(X), whereas it has no control over
the…………..(Y)
Select the correct answer from the options given below.

Answer:
(C)

Question 25.
What type of organizational structure do most small businesses follow?
(A) Divisional Structure
(B) Functional Structure
(C) Hour Glass Structure
(D) Matrix Structure
Answer:
(D) Matrix Structure

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Question 26.
There are mainly two types of business environment –
(A) Internal and external
(B) Internal and operational
(C) Operational and external
(D) Matrix and diagonal
Answer:
(A) Internal and external

Question 27.
The environment is complex. Which of the following supports this?
(A) Customers are the people who pay money to acquire an organization’s products.
(B) The environment consists of a number of factors, events, conditions, and influences
arising from different sources and it is somewhat easier to understand in parts but
difficult to grasp in totality.
(C) A study of the competitive scenar¬io is essential for the marketer, particularly threats
from com¬petition.
(D) If a supplier provides poor service, this could increase times¬cales or lower product
quality.
Answer:
(B) The environment consists of a number of factors, events, conditions, and influences
arising from different sources and it is somewhat easier to understand in parts but
difficult to grasp in totality.

Question 28.
The operational strategy focuses on issues of
(A) Resources
(B) Processes
(C) People

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(D) All of above
Answer:
(D) All of above

Question 29.
Which of the following is a characteristic of the business environment?
(A) Environment is complex.
(B) Environment is dynamic.
(C) Environment is multi-faceted.
(D) All of the above
Answer:
(D) All of the above

Question 30.
The microenvironment is also known as –
(A) General Environment
(B) Global Environment
(C) Task environment
(D) Matrix environment
Answer:
(C) Task environment

Question 31.
The Porter’s Forces tool is a simple but powerful tool to evaluate the power of business.
(A) Four
(B) Five
(C) Six
(D) Ten

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Answer:
(B) Five

Question 32.
The microenvironment has an influence on the business.
(A) Indirect
(B) Direct
(C) Negative
(D) Minor
Answer:
(B) Direct

Question 33.
According to Michael Porter, the essence of strategy formulation is
(A) Mapping the Five Forces
(B) Developing core competences
(C) Coping with competition
(D) Balancing stakeholder interests
Answer:
(C) Coping with competition

Question 34.
Which of the following is an element of the microenvironment?
(A) Demographic Environment
(B) Competitors
(C) Socio-cultural factors
(D) Economic terms
Answer:
(B) Competitors

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Question 35.
Porter’s Five Forces tool is a simple but powerful tool to evaluate the power of business.
Which of the following is not one of the five?
(A) Bargaining power of suppliers
(B) Bargaining power of customer
(C) Rivalry among current players
(D) None of the above
Answer:
(D) None of the above

Question 36.
Assertion (A):
Porter’s five forces model considers new entrants as a significant source of competition.
Reason (R):
New capacity and product range that the new entrants bring in throw up new competitive
pressure. Bigger the new entrant, the more severe the competitive effect. New entrants
also place a limit on prices and affect the profitability of existing players.
Select the correct answer from the options given below.
(A) A is false and R is true explaining how A is false
(B) Both A and R are true and R is the correct explanation of A.
(C) A is true and R is false
(D) Both A and R are true
Answer:
(B) Both A and R are true and R is the correct explanation of A.

Question 37.
The business strategy focuses on:
(A) Strategies related to functional areas such as Marketing, Production, and HRM.
(B) Where a firm is going and the scope of its activities.

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(C) How a firm competes within a particular market or industry.
(D) How to allocate resources between different parts of the business
Answer:
(C) How a firm competes within a particular market or industry.

Question 38.
Porter’s notion of a differentiation strategy is best described as one in which firms seek a
competitive advantage:
(A) Through having a lower cost than their competitors.
(B) Through establishing their uniqueness.
(C) Through concentrating on a narrow market segment.
(D) Through achieving a match between their internal and external environments
Answer:
(B) Through establishing their uniqueness.

Question 39.
Which of the following is not an element of Porter’s 5 Forces Model?
(A) The bargaining power of suppliers.
(B) The firm’s existing competition.
(C) The firm’s macro-economic environment.
(D) The potential competition from new entrants.
Answer:
(C) The firm’s macro-economic environment.

Question 40.
Porter’s Value Chain is essentially a tool for:
(A) Identifying the competitive forces within an industry.
(B) Advising firms on how to price their products.
(C) Diagnosing and enhancing sources of competitive advantage within an organization.

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(D) Calculating what a firm is worth.
Answer:
(C) Diagnosing and enhancing sources of competitive advantage within an organization.

Question 41.
In Porter’s five forces model, con¬ditions are more favorable for firms within an industry
if:
(A) Buyer power is high
(B) Supplier power is high
(C) Entry threat is low
(D) Substitute threat is high
Answer:
(C) Entry threat is low

Question 42.
If a firm takes over a competitor then, according to Porter’s 5 forces model:
(A) Buyer power is higher
(B) Supplier power is higher
(C) Substitute threat is higher
(D) Rivalry is lower
Answer:
(D) Rivalry is lower

Question 43.
Which of the following is not a force in the Porter Five Forces model?
(A) Buyers
(B) Suppliers
(C) Complementary products
(D) Industry rivalry

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Answer:
(C) Complementary products

Question 44.
According to Porter, suppliers are more able to exercise bargaining power over buyers
when:
(A) The supply industry is dominated by a few large firms.
(B) The supply industry is populated by a large number of small firms.
(C) When buyers have the ability to take over suppliers.
(D) There are few buyers in the market
Answer:
(A) The supply industry is dominated by a few large firms.

Question 45.
Which core competencies are required for a Company Secretary to become an effective
player of strategic management?
(a) Communication and professional skills, legal skills, management skills, and IT skills.
(b) Updated knowledge of legal envi¬ronment, financial environment & business
environment.
(c) Ability to work and achieve a con¬sensus within multidisciplinary settings.
(d) Remaining calm under pressure and not losing sight of perspective.
Select the correct answer from the
(A) (a) and (b)
(B) (b)and(c)
(C) (a)and(c)
(D) All (a) to (d)
Answer:
(D) All (a) to (d)

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Question 46.
Potential rivals will not find it difficult to enter a market where: 10
(A) Existing firms have long-term contracts with the biggest customers.
(B) Product differentiation is very strong.
(C) Existing firms have the ability to retaliate strongly.
(D) Economies of scale are insignificant
Answer:
(D) Economies of scale are insignificant

Question 47.
According to Porter, which of the following is most important to achieving competitive
advantage?
(A) Serving all customers equally, rather than targeting the most profitable.
(B) Operating at lower cost, commanding a premium price, or both.
(C) Focusing on becoming the most competitive business within the sector/market.
(D) Outsourcing activities that enhance/refine your competitive advantage
Answer:
(B) Operating at lower cost, commanding a premium price, or both.

Question 48.
Identify which of the following forces does not form part of Porter’s Competitive
Position Analysis?
(A) Buyer power
(B) Risk of losses
(C) Threat of new entry
(D) Supplier power
Answer:
(B) Risk of losses

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Question 49.
What is likely to happen if many new businesses enter a market?
(A) Barriers to entry will rise.
(B) Industry capacity will fall.
(C) Competitive rivalry will intensify.
(D) Industry profits will increase.
Answer:
(C) Competitive rivalry will intensify.

Question 50.
In Porter’s five forces model, what is meant by the term ‘substitute?
(A) A substitute refers to an alternative manufacturing process.
(B) A substitute is an alternative prod¬uct or service that performs the same function for
the consumer.
(C) A substitute is a rival firm offering the same products.
(D) A substitute is something else consumers would rather spend their money on.
Answer:
(B) A substitute is an alternative product or service that performs the same function for
the consumer.

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 MCQs on Financial Modeling
Question 1 of 32
What is a toggle, as used with Excel in a financial model?

(A) It’s a cell that replaces inputs with outputs to test sensitivity.
(B) It’s an easy way to change the entire scenario behind the model.
(c) It’s a formula that produces a yes or no conclusion based on given assumptions.
(D)It’s a quick way to move from different cell values in Excel.
Question 2 of 32
In any financial model, what will always be the fundamental question?
(A) how the existing market trends can be ignored.
(B) how actual values can be placed into a theoretical model.
(C) how to assess the risk of future cash flow projections.
(D)how a particular investment can diversify your portfolio.

Question 3 of 32
You are considering an investment in a start-up company that has a brilliant idea
no one has thought of before. Where will you start?

(A) Decide if the investment will generate enough cash to make it worthwhile.
(B) Look at the sources and uses of cash by the company.
(C) Evaluate the amount of debt involved in making the investment.
(D) Examine the balance sheet and goodwill of the company.

Question 4 of 32
As you begin to create a corporate finance model, what are the most important
components you need to have answers to in order to deal with valuation, risk,
and investments?

(A)The drivers of sales, profitability, and interest rates.

(B)The drivers of sales, costs, and profitability.

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(C)The drivers of cost, rate of return, and future cash flows.
(D)The drivers of sales, available working capital, and cost.

Question 5 of 32
In using a top-down financial model, what assumptions must you make?

(A) What price are customers willing to pay, how will inflation affect sales price, and
what is your company’s required internal rate of return.

(B) What will be the market sales growth every year, how much your share of the
market will grow, and how much your order value will grow.

(C) What percentage of the market can you optimistically capture, how will your
competitors react, and how much of the market will you retain.

(D) What will be the sales market sales growth every year, how much your order value
will grow every year, and what your weighted cost of capital will be.

Question 6 of 32
How can Excel help you address the problem of interest rates significantly
fluctuating over time?

(A) You can import FRED data into Excel.

(B) You can calculate a projected future rate in Excel.
(C) You can use the AVERAGE-IF function in Excel.
(D) You can use the AVERAGE OF function in Excel.

Question 7 of 32
Which federal government database is a good source of free economic data?

(A) FRED

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(B) SAM
(C) BOB
(D) JOHN

Question 8 of 32
What is the objective of stress testing a model?

(A) To compute cash flows at the end of a period.

(B) To determine if a project should be completed.
(C) To forecast future sales for the firm.
(D) To see if the firm in question remains viable under negative economic
circumstances.

Question 9 of 32
Excel identified a circular reference for interest paid on debt on the bottom of the
sheet and also in net income interest. What should you do?

(A) You should rearrange the cells in the circular reference to be in different columns.
(B) You should hide one of the rows that has a cell included in the circular reference.
(C) You should replace the formula in net interest income with an actual value.
(D) You do not want to do anything with circular references because they provide value
to your model.

Question 10 of 32
Which source of data will be most useful for modelling your company’s global
market share?

(A) Federal Reserve

(B) Bureau of Labor Statistics
(C) Internal surveys
(D) US Census Bureau

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Question 11 of 32
Which type of data do most financial models begin with?

(A) Internal
(B) public
(C) purchased
(D) proprietary

Question 12 of 32
What is the purpose of a toggle?

(A) To enable easy changing of assumptions in a model.

(B) To check accuracy of financial models.
(C) To avoid errors in formulas in financial models.
(D) To create rigid fixed assumptions in a model.

Question 13 of 32
What does the term terminal value refer to?

(A) The value of the asset or business in bankruptcy.

(B) The value of the asset or business at the end of the model period.
(C) The value of the asset or business at the start of the modeling period.
(D) The value of the asset or business when it is sold.

Question 14 of 32
You are an investor looking at a number of companies regarding their risk. In
which model will you create a set of hypothetical outcomes that include the
possible range of outcomes?

(A) the DCF Model analysis

(B) the Buyout Model analysis

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(C) the Three-Statement Models analysis
(D) the Monte Carlo analysis

Question 15 of 32
Which of the following is a technical error that occurs in a financial model when
data point A is based on datapoint B based on datapoint C which is based on
datapoint A?

(A) Loop Reasoning

(B) Circular Reference
(C) Circular Reasoning
(D) Loop Reference

Question 16 of 32
Ignoring risk, which component will lead to the highest IRR?

(A) a higher level of debt

(B) the exit-stock multiple
(C) the level of cash flows
(D) upfront payments

Question 17 of 32
What type of model technique enables a user to test assumptions to see how they
impact outcomes?

(A) Waterfall Analysis

(B) Corkscrew Analysis
(C) Sensitivity Analysis
(D) Top-Down analysis

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Question 18 of 32
What is this course about?

(A) financial theory

(B) economic modelling
(C) financial modelling
(D) economic theory

Question 19 of 32
What does the corkscrew relationship mean?

(A) Debt at the end of one period is expected to be greater than the debt at the start of
the next year.
(B) Takeaways from a buyout model do not depend on information in the DCF model or
in the three-statement model.
(C) Cash flows pay for operations, then senior debt service, then debt service reserves,
then return to the equity investors.
(D) The value of a variable at the end of one year is related to the value in the next
year.

Question 20 of 32
Which of the following is NOT an advanced modelling technique?

(A) Zippers
(B) Waterfalls
(C) Corkscrews
(D) Toggles

Question 21 of 32
To calculate a terminal value, you multiply the previous year’s free cash flow by
one plus the, then divide by the discount rate minus the _.

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(A) return on assets; growth rate
(B) growth rate; growth rate
(C) discount rate; growth rate
(D) growth rate; market share growth

Question 22 of 32
Which business area would be unlikely to use financial modelling?

(A) Equity Research

(B) Human Resources
(C) FP&A
(D) Commercial Banking

Question 23 of 32
It is time to update a model that only ran through 2019. Which steps will you take
to update the fair value of your company’s stock?

(A) Use a reasonable growth rate, then adjust the inputs in the model that rely on
stock value with the most recent information.

(B) Use a reasonable growth rate, then adjust the inputs in the model that rely on stock
value by the ending year in your previous model.
(C) Use a reasonable growth rate, then adjust the inputs in the model that rely on stock
value by the growth rate you used.
(D) Use a reasonable growth rate, then adjust the inputs in the model that rely on stock
value by the average in your previous model.

Question 24 of 32
Which component in the financial valuation model is usually the most
challenging?

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(A) determining the terminal value
(B) computing the valuation on an asset
(C) calculating future cash flows
(D) determining the discount rate

Question 25 of 32
Which of the following is an approach used by the financial model to
value Bitcoin?

(A) The Miner’s Cost Approach

(B) The Miner’s Survey Approach
(C) The User’s Survey Approach
(D) The Miner’s Revenue Approach

Question 26 of 32
Why would you perform sensitivity analysis?

(A) to use consistent averages when projecting future values for all model rows
(B) to evaluate the impact of the change in a single value on the entire model
(C) to evaluate the viability of extending your forecast even further into the future
(D) to recheck the model when all projections are converted to worst-case-scenario
values

Question 27 of 32
Which is the last step in building a financial model?

(A) computation
(B) change

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(C) valuation
(D) development

Question 28 of 32
What key criterion drives projections of sales in a three-statement model?

(A) Expense CAGR

(B) Expense ETF
(C) Sales CAGR
(D) Sales ETF

Question 29 of 32
How would you calculate the changes in working capital on the statement of cash
flows from data in the income statement?

(A) Find the difference between the current assets and the total cash from operations.
(B) Find the change in the difference between current assets and current
liabilities.
(C) Find the sum of the current assets and the current liabilities.
(D) Find the sum of the accumulated depreciation and the change in inventory.

Question 30 of 32
What do you subtract interest expense from to get net income before taxes?

(A) operating income

(B) operating expenses
(c) total operating expenses
(D) total revenue

Question 31 of 32
What type of financial model enables a user to forecast future financials based on

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a firm’s income statement, balance sheet, and cash flow statement?

(A) Waterfall Model

(B) Three-statement model
(C) Buyout model
(D) Corkscrew model

Question 32 of 32
Which schedule provides financial data on depreciation?

(A) capital assets

(B) equity capital
(C) net income
(D) working capital balance

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