R4RIN – MCQs, Mock Tests | Business Studies Business Studies-[Class 12-MCQS ]-Chapter 9 Financial Management

Business finance is needed to

1. Establish a business
2. Run a business
3. Expand a business
4. All of the above

✅ Correct Answer: 4

Which of the following is not a tangible asset?

1. Machinery
2. Trademarks
3. Factories
4. Offices

✅ Correct Answer: 2

Financial Management aims at

1. Reducing the cost of funds procured
2. Keeping the risk under control
3. Achieving effective deployment of such funds
4. All of the above

✅ Correct Answer: 4

Primary aim of financial management is to

1. Maximise shareholder’s wealth
2. Wealth maximisation concept
3. Maximisation of the market value of equity shares
4. All of the above

✅ Correct Answer: 4

This decision relates to how the firm’s funds are invested in different assets;

1. Investment decision
2. Financing decision
3. Dividend decision
4. None of the above

✅ Correct Answer: 1

Purchasing a new machine to replace an existing one is an example of

1. Financing decision
2. Dividend decision
3. Working capital decision
4. Capital budgeting decision

✅ Correct Answer: 4

The size of assets; the profitability and competitiveness are all affected by

1. Working capital decision
2. Capital budgeting decision
3. Financing decision
4. Dividend decision

✅ Correct Answer: 2

These decisions affect the liquidity as well as profitability of a business.

1. Capital budgeting decision
2. Financing decision
3. Working capital decision
4. Dividend decision

✅ Correct Answer: 3

Dev has two projects A and B in hand. The same amount of risk is involved in both the projects. If the rate of return of project A and B is 20% and 15% respectively; then under normal circumstance; which of the two projects is likely to be selected?

1. Project A
2. Project B
3. Both project A and project B
4. None of the above

✅ Correct Answer: 1

This decision is about the quantum of finance to be raised from various long-term sources.

1. Investment decision
2. Financing decision
3. Dividend decision
4. Capital budgeting decision

✅ Correct Answer: 4

The inability of a business to meet its fixed financial obligations; like payment of interest; is known as

1. Business risk
2. Financial risk
3. Long-term risk
4. Market risk

✅ Correct Answer: 2

The overall financial risk depends upon the

1. Proportion of debt in the total capital
2. Proportion of equity in the total capital
3. Both of the above
4. None of the above

✅ Correct Answer: 1

This decision determines the overall cost of capital and the financial risk of the enterprise.

1. Dividend decision
2. Capital budgeting decision
3. Investment decision
4. Financing decision

✅ Correct Answer: 4

Which of the following sources of capital should not be selected by a business if its fixed cost is high?

1. Equity shares
2. Preference shares
3. Debentures
4. All of the above

✅ Correct Answer: 3

When the stock market index is rising; a company may issue in order to meet its financial requirements.

1. Debentures
2. Bonds
3. Equity shares
4. None of the above

✅ Correct Answer: 3

When the stock market is bearish; a company may depend upon in order to raise the required funds.

1. Debentures
2. Equity shares
3. Preference shares
4. All of the above

✅ Correct Answer: 1

Name the financial decision which relates to disposal of profits.

1. Investment decision
2. Financing decision
3. Dividend decision
4. Capital budgeting decision

✅ Correct Answer: 3

Under which of the following circumstances a company is not likely to declare a higher dividend?

1. When the earnings of the company are high
2. When a company has a lucrative forthcoming business opportunity
3. When the cash flow position of the company is strong
4. None of the above

✅ Correct Answer: 2

A company is likely to declare higher dividends if

1. Tax rates are high
2. Tax rates are relatively lower
3. Tax rate has no effect on dividend declaration
4. None of the above

✅ Correct Answer: 2

It is essentially the preparation of a financial blueprint of an organisation’s future operations. Identify the related concept.

1. Financial management
2. Financial planning
3. Capital budgeting decisions
4. Dividend decision

✅ Correct Answer: 2

Name the process that enables the management to foresee the fund requirements; both the quantum as well as the timing.

1. Financial management
2. Capital budgeting decisions
3. Dividend decision
4. Financial planning

✅ Correct Answer: 4

Kapil Limited is a company dealing in ready-to-eat food products. Over the years; the earning potential of the company has gone up and it enjoys a good reputation. The Financial Manager is confident of the fact that not just the earnings of the current year; but of our future years are likely to be high. Identify the related factor of dividend decision being described in the given lines.

1. Earnings
2. Stability of earnings
3. Stability of dividend
4. Growth prospects

✅ Correct Answer: 3

Amber Limited has been experiencing a downfall in its popularity; due to growing competition. Also the company doesn’t see any forthcoming viable business expansion opportunities in the near future. So the management of the company has decided to declare high dividends for the current financial year. Identify the factor related to dividend decision being described above.

1. Cash flow position
2. Growth opportunities
3. Stability of earnings
4. Stability of dividends

✅ Correct Answer: 2

Gamble Limited is a company dealing in healthcare products. The company is earning high profits but is short on cash; so it has decided to declare less dividends in the current financial year. Identify the factor related to dividend decision being described in the above lines.

1. Preference of shareholders
2. Earning
3. Cash flow position
4. Contractual constraints

✅ Correct Answer: 3

Lalit; an experienced stock broker advised his client Prabhu to invest in the shares of Blue Angel Limited; as the company has declared high dividends since an increase in dividend is perceived as a good news and stock prices react positively to it. Identify the related factor of dividend decision being described in the above lines.

1. Tax rate
2. Growth prospects
3. Stock market reactions
4. Access to capital markets

✅ Correct Answer: 3

A company must adhere to the provisions of the Companies Act while taking the dividend decision. Identify the related factor of dividend decision being mentioned in the above line.

1. Contractual constraints
2. Legal constraints
3. Access to capital market
4. Preferences of shareholders

✅ Correct Answer: 2

While taking a loan from a financial institution; Lokesh Enterprises signed an agreement that they shall not pay dividend to its shareholder more than 15% until the loan is repaid; or dividend shall not be declared if the liquidity ratio is found to be less than 1:1. Identify the factor related to dividend decision being described in the above case.

1. Access to capital market
2. Preferences of shareholders
3. Contractual constraints
4. Legal constraints

✅ Correct Answer: 3

Which of the following is not an objective of financial planning?

1. Ensuring enough funds are available at the right time
2. Ensuring excess availability of funds at the right time
3. Ensuring smooth business operations
4. All of the above

✅ Correct Answer: 2

The financial plans are drawn by taking into consideration

1. Growth prospects
2. Performance of the organisation
3. Investments
4. All of the above

✅ Correct Answer: 4

The short-term financial plans are known as

1. Objectives
2. Budgets
3. Programs
4. Policies

✅ Correct Answer: 2

Arrange the following steps involved in the process of financial planning in the correct sequence.

1. Estimation of expected profit; Preparation of a sales forecast; Preparation of financial statements
2. Preparation of a sales forecast; Preparation of financial statements; Estimation of expected profit
3. Preparation of a sales forecast; Estimation of expected profit; Preparation of financial statements
4. Preparation of financial statements; Estimation of expected profit; Preparation of a sales forecast

✅ Correct Answer: 2

Which of the following is not an importance of financial planning?

1. It helps in avoiding business shocks and surprises.
2. If helps in co-ordinating various business functions.
3. If helps to reduce waste; duplication of efforts and gaps in planning.
4. It tries to delink the present with the future.

✅ Correct Answer: 4

Which of the following is not a part of owners’ funds?

1. Equity shares
2. Reserves and surplus
3. Debentures
4. Preference shares

✅ Correct Answer: 3

Which of the following is not a source of borrowed funds?

1. Loan from financial institutions
2. Debentures
3. Retained earnings
4. Public deposits

✅ Correct Answer: 3

Which of the following statements is not true?

1. The cost of debt is higher than cost of equity.
2. The lender’s risk is lower then equity shareholder’s risk.
3. The interest paid on debt is treated as a tax deductible expense.
4. None of the above

✅ Correct Answer: 1

In order to raise an additional capital of ?50 lacs; Yudhister Limited has used debt because

1. Increased use of debt lowers the overall cost of capital
2. Decrease in use of debt lowers overall cost of capital
3. Increase in use of debt increases the overall cost of capital
4. None of the above

✅ Correct Answer: 1

Which of the following statements is not true?

1. Increased use of debt increases the financial risk of a business.
2. Increased use of debt decreases the financial risk of a business.
3. Decrease in use of debt increases the financial risk of a business.
4. None of the above

✅ Correct Answer: 2

Name the decision which affects both the profitability and the financial risk.

1. Financial planning decision
2. Capital budgeting decision
3. Capital structure decision
4. All of the above

✅ Correct Answer: 3

A higher financial leverage ratio indicates that

1. The dependency of the firm on the debt is more.
2. The dependency of the firm on the debt is less.
3. The proportion of equity in the total capital is high.
4. None of the above

✅ Correct Answer: 1

As the financial leverage of a company increases; it leads to

1. A decline in the cost of funds but an increase in the financial risk
2. An increase in the cost of funds but a decline in the financial risk
3. Both an increase in the cost of funds and financial risk
4. Both a decline in the cost of funds and financial risk

✅ Correct Answer: 1

When does the earnings per share (EPS) rise with higher debt?

1. When the rate of return on investment is higher than the rate of interest.
2. When the rate of return on investment is lower than the rate of interest.
3. When the rate of interest is more than the rate of return.
4. None of the above.

✅ Correct Answer: 1

The total capital of Uranium Private Limited is ?50 lacs. The amount of debt is ?20 lacs. The company has earned a profit of ^10 lacs during the current financial year. Its return on investment (ROI) for the present year is

1. 20%
2. 40%
3. 10%
4. 80%

✅ Correct Answer: 1

If in a particular situation; the earnings per share (EPS) falls with the increased use of debt; it indicates that

1. The rate of return on investment (Rol) is less than the cost of debt.
2. The rate of return on investment is more than the cost of debt.
3. The cost of debt is less than the rate of return on investment.
4. None of the above

✅ Correct Answer: 1

If the rate of return on investment for a company is 16%; a situation of unfavourable financial leverage will be said to arise when the rate of interest payable on debt capital is

1. More than 16 %
2. Less than 16 %
3. Equal to 16%
4. None of the above

✅ Correct Answer: 1

Under which of the following situations a company should not issue debt capital?

1. When the cash flow condition of the company is strong.
2. When the rate of tax is low.
3. When the return on investment is high.
4. When the interest coverage ratio is high.

✅ Correct Answer: 2

Under which of the following situations a company is not likely to issue equity capital?

1. When the debt service coverage ratio is high.
2. When the interest coverage ratio is high.
3. When the cost of debt capital is low.
4. All of the above

✅ Correct Answer: 4

If a company is borrowing funds @ 10% and the tax rate is 30%; the after-tax cost of debt is only

1. 10%
2. 3%
3. 20%
4. 7%

✅ Correct Answer: 4

Which of the following statements is not true with regard to use of fixed capital?

1. It affects the long term growth of the business.
2. Large amount of funds are involved.
3. The business risk involved is low.
4. The investment decisions are irreversible.

✅ Correct Answer: 3

Under which of the following conditions the fixed capital requirements of a business is not likely to below?

1. When the raw material is easily available
2. When the labour intensive production technique is used
3. When the level of collaboration is low
4. When the growth prospects of the firm are low

✅ Correct Answer: 3

Under which of the following circumstances the fixed capital requirement of a business is not likely to be high?

1. When the raw material is not easily available
2. Capital intensive techniques of production are used
3. The growth prospects of a company a high
4. When the financial alternatives are easily available

✅ Correct Answer: 4

The working capital requirement of a business is not likely to be low when

1. The scale of the business operation is small
2. When the growth prospects of the business are high
3. When the raw material is easily available
4. When the rate of inflation is low

✅ Correct Answer: 2

The working capital requirement of a business is not likely to be high when?

1. The nature of business is trading
2. Scale of operation of business is small
3. It is difficult to procure raw material
4. The rate of inflation is low

✅ Correct Answer: 3