100 MCQs of Financial Management Chapter with answers

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Most Important Multiple Choice Question of Financial Management Chapter with answers

Following is the lsit

A decision to acquire a new and modern plant to upgrade an old one is a:

a) Financing decision
b) Working capital decision
c) Investment decision
d) Dividend decision

Ans – C)

Higher working capital usually results in:

a) higher current ratio, higher risk, and higher profits
b) Lower current ratio, higher risk, and profits
c) Higher equitably, lower risk, and lower profits
d) Lower equitably, lower risk, and higher profits

Ans – a)

Which decisions are taken by the financial manager?

a) Investment Decisions
b) Purchase Decisions
c) Dividend Decisions
d) All the above

Ans – a), c)

Financial planning arrives at:

a) Minimising external borrowing by resorting to equity issues.
b) Entering that the firm always has significantly more funds than required so that there is no paucity of funds.
c) Ensuring that the firm paces neither a shortage nor a glut of unusable funds
d) Doing only what is possible with the funds that the firm has at its

Ans – c)

PNG Ltd earned a high profit in the current year. However, Rohit, Finance
The manager of the company thinks that it is better to declare a smaller dividend as he is unsure about the earning potential of the company in the coming years, Rohit’s choice of dividend decision is based on which of the factor affect it?

a) Growth Opportunities
b) Stability of Dividend
c) Stability of Earnings
d) Amount of Earnings

Ans – b)

Higher dividends per share is associated with:

a) High earnings, high cash flows, unusual earnings, and high growth opportunities
b) High earnings, high cash flows, stable earnings, and high growth opportunities.
c) high earnings, high cash flows, stable earnings, and lower growth opportunities.
d) High earnings, low cash flows, stable earnings, and lower growth opportunities.

Ans – c)

Financial Management aims at:

a) Ensuring the availability of enough funds
b) Reducing the cost of funds procured
c) Effective deployment of funds
d) All of the above

Ans – d)

In which type of business, more investment in the fixed asset is required?

a) Manufacturing
b) Trading
c) Both a) and b)
d) None of these

Ans – a)

The investment decision is also termed as:

a) Dividend Decision
b) working Capital Decision
c) Capital Budgeting Decision
d) Financing Decision

Ans – c)

Financial leverage is called favorable if:

a) Return on investment is lower than the cost of debt
b) ROI is higher than the cost of debt
c) Debt is nearly available
d) If the degree of existing financial leverage is low

Ans – b)

Borrowing @ 10% and the tax rate @ 30% means the after-tax cost of debt is:

a) 20%
b) 7%
c) 3%
d) 10%

Ans – b)

If the return on investment is more than the cost of debt, then Earnings per share will _ with __ in debt:

a) Rise, Decrease
b), Fall, Increase
c) Rise, Increase
d) Fall, Decrease

Ans – c)

Companies with higher growth potential are likely to:

a) Pay lower dividends
b) Pay higher dividends
c) Dividends are not affected by growth considerations
d) None of the above

Ans – a)

Which of the following statement is not correct?

a) Financial leverage is the proportion of debt in the overall capital
b) Debt is riskier as compared to Equity
c) EPS will rise with an increase in debt only when ROI < Cost of Debt
d) Purchase of Machinery is linked to working capital decision

Ans – c), d)

A company that uses labor-intensive technique need _ fixed capital, while a company using capital-intensive techniques require
fixed capital.

a) No, Less
b) Less, More
c) More, Less
d) No, More

Ans – b)

Return on Investment is computed as:

a) Total Investment/EBIT * 100
b) EBIT/EBT * 100
c) EBIT/Total Investment * 100
d) EBT/Total Investment * 100

Ans – c)

Financial Planning provides a link between _ and _ decisions.

a) Investment, Dividend
b) Financing, Dividend
c) Investement, Financing
d) Investment, Working Capital

Ans – c)

Which decision is concerned about the quantum of finance to be raised
from various long-term sources?

a) Investment Decision
b) Financing Decision
c) Dividend Decision
d) Capital Budgeting Decision

Ans – b)

If a company acquires assets on a lease, then it requires:

a) Less Fixed Capital
b) More Fixed Capital
c) No Fixed Capital
d) No Working Capital

Ans – a)

Harsh is engaged in Transport Business and transports fruits and vegetables to different states. His business requires:

a) More Working Capital
b) Less Working Capital
c) No Working Capital
d) More Fixed Capital

Ans – b)

Capital structure refers to the proportion of and __ used for financing business.

a) Assets, Liabilities
b) Current Assets, Current Liabilities
c) Fixed Capital Working Capital
d) Debt, Equity

Ans – d)

Financial decision-making is concerned with making a following decisions:

a) Financing Decision
b) Investment Decision
c) Dividend Decision
d) All of these

Ans – d)

Mercury Ltd. took a loan from Mystique Finance Co. Mystique has imposed
certain restrictions on Mercury Ltd. on payment of dividends in the future. Which factor affecting dividend decision is being highlighted in the given case?

a) Growth Opportunities
b) Legal Constraints
c) Contractual Constraints
d) Stock Market reaction

Ans – c)

Financial Planning aims:

a) To ensure the availability of funds whenever required
b) To ensure that unnecessary finance is not raised
c) Both a) and b)
d) None of these

Ans – c)

A situation of favourable financial leverage arises when

a) Return on Investment = Cost of Debt
b) Return on Investment > Cost of Debt
c) Return on Investment < Cost of Debt
d) None of these

Ans – b)

Capital budgeting decisions are very crucial because:

a) They affect the earning capacity of the firm over the long run
b) These decisions are irreversible except at a huge cost
c) These decisions normally involve huge outflow of funds
d) All of these

Ans – d)

The time gap between placing an order and the actual receipt of material by the firm is termed as:

a) Operating Cycle
b) lead time
c) Production Cycle
d) None of these

Ans – b)

Net Working Capital will be __ if current assets are ₹ 5,00,000 and current liabilities are ₹ 1,00,000.

a) ₹ 6,00,000
b) ₹ 5
c) ₹ 4,00,000
d) None of these

Ans – c)

A decision to acquire a new and modern plant to upgrade an old one is known as _ a decision.

a) Financing Decision
b) Working Capital Decision
c) Investment Decision
d) Dividend Decision

Ans – c)

ABC Ltd has Debt Equity ratio of 3:1, whereas XYZ Ltd. has Debt Equity
The ratio of 1:1. Name the advantage ABC Ltd will have over XYZ Ltd. when the rate of interest is lower than the rate of return on investment of the Company.

a) Trading on Equity
b) Low Risk
c) Low Cost of Equity
d) Greater Flexibility

Ans – a)

Vikrant joins his father’s business of Organic masala, near Kotgarh in Himachal after completing his MBA, In order to capture a major share of the market, he decided to sell the product in small attractive packages by using the latest packaging technology. His father suggested that they hire financial consultants to estimate the number of funds that would be required for the purpose and the timings when it would be required. The concept being discussed by Vikrant’s father, links which financial decision with the investment decision?

a) Dividend Decision
b) Financial Planning
c) Capital Structure Decision
d) Financing Decision

Ans – d)

‘Temptations’ is a food joint in Imperial Mall in Bengaluru. it is becoming popular among students and working people due to health, on-the-go dishes on its menu like ‘Paneer Wrap’, ‘Chickpeas Salad’, ‘Grilled Sandwiches’, etc. It has now decided to open two new branches in other parts of Bengaluru. Which financial decision has been discussed in the above case?

a) Long-term investment Decision
b) Short term Investement Decision
c) Dividend Decision
d) Financing Decision

Ans – a)

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Anurag Pathak
Anurag Pathak

Anurag Pathak is an academic teacher. He has been teaching Accountancy and Economics for CBSE students for the last 18 years. In his guidance, thousands of students have secured good marks in their board exams and legacy is still going on. You can subscribe his youtube channel and can download the Android & ios app for free lectures.

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