Business Studies MCQ Quiz Hub

1. Business finance is needed to
Establish a business
Run a business
Expand a business
All of the above

2. Which of the following is not a tangible asset?
Machinery
Trademarks
Factories
Offices

3. Financial Management aims at
Reducing the cost of funds procured
Keeping the risk under control
Achieving effective deployment of such funds
All of the above

4. Primary aim of financial management is to
Maximise shareholder’s wealth
Wealth maximisation concept
Maximisation of the market value of equity shares
All of the above

5. This decision relates to how the firm’s funds are invested in different assets;
Investment decision
Financing decision
Dividend decision
None of the above

6. Purchasing a new machine to replace an existing one is an example of
Financing decision
Dividend decision
Working capital decision
Capital budgeting decision

7. The size of assets; the profitability and competitiveness are all affected by
Working capital decision
Capital budgeting decision
Financing decision
Dividend decision

8. These decisions affect the liquidity as well as profitability of a business.
Capital budgeting decision
Financing decision
Working capital decision
Dividend decision

9. 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?
Project A
Project B
Both project A and project B
None of the above

10. This decision is about the quantum of finance to be raised from various long-term sources.
Investment decision
Financing decision
Dividend decision
Capital budgeting decision

11. The inability of a business to meet its fixed financial obligations; like payment of interest; is known as
Business risk
Financial risk
Long-term risk
Market risk

12. The overall financial risk depends upon the
Proportion of debt in the total capital
Proportion of equity in the total capital
Both of the above
None of the above

13. This decision determines the overall cost of capital and the financial risk of the enterprise.
Dividend decision
Capital budgeting decision
Investment decision
Financing decision

14. Which of the following sources of capital should not be selected by a business if its fixed cost is high?
Equity shares
Preference shares
Debentures
 All of the above

15. When the stock market index is rising; a company may issue in order to meet its financial requirements.
Debentures
Bonds
Equity shares
None of the above

16. When the stock market is bearish; a company may depend upon in order to raise the required funds.
Debentures
Equity shares
Preference shares
All of the above

17. Name the financial decision which relates to disposal of profits.
Investment decision
Financing decision
Dividend decision
Capital budgeting decision

18. Under which of the following circumstances a company is not likely to declare a higher dividend?
When the earnings of the company are high
When a company has a lucrative forthcoming business opportunity
When the cash flow position of the company is strong
None of the above

19. A company is likely to declare higher dividends if
Tax rates are high
Tax rates are relatively lower
Tax rate has no effect on dividend declaration
 None of the above

20. It is essentially the preparation of a financial blueprint of an organisation’s future operations. Identify the related concept.
Financial management
Financial planning
Capital budgeting decisions
Dividend decision

21. Name the process that enables the management to foresee the fund requirements; both the quantum as well as the timing.
Financial management
Capital budgeting decisions
Dividend decision
Financial planning

22. 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.
Earnings
Stability of earnings
Stability of dividend
Growth prospects

23. 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.
Cash flow position
Growth opportunities
Stability of earnings
Stability of dividends

24. 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.
Preference of shareholders
Earning
 Cash flow position
Contractual constraints

25. 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.
Tax rate
Growth prospects
Stock market reactions
Access to capital markets

26. 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.
Contractual constraints
Legal constraints
Access to capital market
Preferences of shareholders

27. 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.
Access to capital market
Preferences of shareholders
Contractual constraints
Legal constraints

28. Which of the following is not an objective of financial planning?
Ensuring enough funds are available at the right time
Ensuring excess availability of funds at the right time
Ensuring smooth business operations
All of the above

29. The financial plans are drawn by taking into consideration
Growth prospects
Performance of the organisation
Investments
All of the above

30. The short-term financial plans are known as
Objectives
Budgets
Programs
Policies

31. Arrange the following steps involved in the process of financial planning in the correct sequence.
Estimation of expected profit; Preparation of a sales forecast; Preparation of financial statements
Preparation of a sales forecast; Preparation of financial statements; Estimation of expected profit
Preparation of a sales forecast; Estimation of expected profit; Preparation of financial statements
Preparation of financial statements; Estimation of expected profit; Preparation of a sales forecast

32. Which of the following is not an importance of financial planning?
 It helps in avoiding business shocks and surprises.
 If helps in co-ordinating various business functions.
If helps to reduce waste; duplication of efforts and gaps in planning.
It tries to delink the present with the future.

33. Which of the following is not a part of owners’ funds?
Equity shares
Reserves and surplus
Debentures
Preference shares

34. Which of the following is not a source of borrowed funds?
Loan from financial institutions
Debentures
Retained earnings
Public deposits

35. Which of the following statements is not true?
The cost of debt is higher than cost of equity.
The lender’s risk is lower then equity shareholder’s risk.
The interest paid on debt is treated as a tax deductible expense.
None of the above

36. In order to raise an additional capital of ?50 lacs; Yudhister Limited has used debt because
Increased use of debt lowers the overall cost of capital
Decrease in use of debt lowers overall cost of capital
Increase in use of debt increases the overall cost of capital
None of the above

37. Which of the following statements is not true?
Increased use of debt increases the financial risk of a business.
Increased use of debt decreases the financial risk of a business.
Decrease in use of debt increases the financial risk of a business.
 None of the above

38. Name the decision which affects both the profitability and the financial risk.
 Financial planning decision
Capital budgeting decision
Capital structure decision
All of the above

39. A higher financial leverage ratio indicates that
 The dependency of the firm on the debt is more.
The dependency of the firm on the debt is less.
The proportion of equity in the total capital is high.
None of the above

40. As the financial leverage of a company increases; it leads to
A decline in the cost of funds but an increase in the financial risk
An increase in the cost of funds but a decline in the financial risk
Both an increase in the cost of funds and financial risk
Both a decline in the cost of funds and financial risk

41. When does the earnings per share (EPS) rise with higher debt?
When the rate of return on investment is higher than the rate of interest.
When the rate of return on investment is lower than the rate of interest.
When the rate of interest is more than the rate of return.
None of the above.

42.  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
 20%
40%
10%
80%

43. If in a particular situation; the earnings per share (EPS) falls with the increased use of debt; it indicates that
The rate of return on investment (Rol) is less than the cost of debt.
The rate of return on investment is more than the cost of debt.
The cost of debt is less than the rate of return on investment.
None of the above

44. 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
More than 16 %
Less than 16 %
Equal to 16%
None of the above

45.  Under which of the following situations a company should not issue debt capital?
When the cash flow condition of the company is strong.
When the rate of tax is low.
When the return on investment is high.
When the interest coverage ratio is high.

46. Under which of the following situations a company is not likely to issue equity capital?
When the debt service coverage ratio is high.
When the interest coverage ratio is high.
When the cost of debt capital is low.
All of the above

47. If a company is borrowing funds @ 10% and the tax rate is 30%; the after-tax cost of debt is only
10%
3%
20%
7%

48. Which of the following statements is not true with regard to use of fixed capital?
It affects the long term growth of the business.
Large amount of funds are involved.
 The business risk involved is low.
The investment decisions are irreversible.

49. Under which of the following conditions the fixed capital requirements of a business is not likely to below?
When the raw material is easily available
When the labour intensive production technique is used
When the level of collaboration is low
When the growth prospects of the firm are low

50. Under which of the following circumstances the fixed capital requirement of a business is not likely to be high?
 When the raw material is not easily available
Capital intensive techniques of production are used
The growth prospects of a company a high
When the financial alternatives are easily available

51. The working capital requirement of a business is not likely to be low when
 The scale of the business operation is small
 When the growth prospects of the business are high
When the raw material is easily available
When the rate of inflation is low

52.  The working capital requirement of a business is not likely to be high when?
The nature of business is trading
Scale of operation of business is small
It is difficult to procure raw material
The rate of inflation is low