Finance Management MCQ

Question 31 : EOQ is a company’s ________ order quantity that minimizes its total inventory costs.

1. Minimum
2. Maximum
3. Optimal
4. Not optimal

Question 32 : The view that under a perfect market situation , the dividend policy of a firm is irrelevant, as it does not affect the value of the firm, is held by

1. The bird-in-the-hand argument
2. Gordon’s model
3. Miller and Modigliani’s hypothesis
4. Walter’s model

Question 33 : Which of the following would be considered a application of funds?

1. a decrease in accounts receivable
2. a decrease in cash.
3. an increase in account payable
4. an increase in cash

Question 34 : Which of the following is a not money market security

1. National Savings Certificates
2. Treasury bill
3. Certificate of deposit
4. Commercial paper

Question 35 : The capital structure that maximizes the value of a firm also:

1. Minimizes financial distress costs
2. Minimizes the cost of capital
3. Maximizes the present value of the tax shield on debt
4. Maximizes the value of the debt

Question 36 : Which is the following option fall under Intangible Asset?

1. Goodwill
2. Land
3. Machinery
4. Computer

Question 37 : Consider the following data on a proposed investment: Investment required: Rs. 160,000, Annual cash inflows: Rs. 40,000, Life of the investment: 6 years, Salvage value: 0, Discount rate: 10% Based on the above data, what is the payback period of the proposed investment project?

1. 5 years
2. 3 years
3. 4 years
4. 0.25 years

Question 38 : What is meant by Assets?

1. Assets are Firm’s own equity Shares.
2. Assets are resources which are expected to provide a firm with future economic benefit.
3. Assets represent obligations that are expected to mature within year.
4. Assets are the differences between taxable income and accounting profit.

Question 39 : Financial institutions expect that

1. moral hazard will occur, as the least desirable credit risks will be the ones most likely to seek out loans
2. opportunistic behavior will occur, as the least desirable credit risks will be the ones most likely to seek out loans
3. borrowers will commit moral hazard by taking on too much risk, and this is what drives financial institutions to take steps to limit moral hazard
4. Option 1 and 3

Question 40 : Leverage ratio refers to ______________

1. The final result of business operations
2. As activity ratios or asset management raios, measure efficiently the assets are employed by a firm.
3. The ability of a firm to meet its obligations in the short run, usually one year
4. The use of debt finance

Question 41 : Two firms that are virtually identical except for their capital structure are selling in the market at different values. According to Modigliani and Miller (M&M) approach

1. this will not continue because arbitrage will eventually cause the firms to sell at the same value.
2. one will be at greater risk of bankruptcy
3. the firm with greater financial leverage will have the higher value
4. this proves that markets cannot be efficient.

Question 42 : The long-run objective of financial management is to

1. Maximize earnings per share
2. Maximize the value of the firm's common stock
3. Maximize return on investment
4. Maximize market share

Question 43 : To compute the required rate of return for equity in a company using the CAPM, it is necessary to know all of the following EXCEPT:

1. The risk-free rate
2. The beta for the firm
3. The earnings for the next time period
4. The market return expected for the time period

Question 44 : The annual demand for a product is 10,000 units. The cost per item is Rs.20 and inventory carrying cost per unit per annum is 5%. If the cost of order is Rs. 200 per order, determine: Economic Order Quantity (EOQ)

1. 1000
2. 1500
3. 2000
4. 5000

Question 45 : The costs of goods sold is also called _______

1. Cost of sales
2. Cost of goods produced during accounting period.
3. Direct material cost
4. Direct labour cost

Question 46 : Which of the following are long-term financial instruments? \

1. A negotiable certificate of deposit
2. A banker’s acceptance
3. A U.S. Treasury bond
4. A U.S. Treasury bill

Question 47 : What is Gross Profit?

1. Profit before interest and Tax.
2. Difference between Net sales and the cost of goods sold.
3. It represents profit from operations after considering the cost of goods sold and operating expenses.
4. Non operating gains

Question 48 : Which financial statements include the flow of cash during the financial period?

1. Cash flow statements
2. Balance Sheet
3. Income statements
4. Statement of changes in equity

Question 49 : A borrower offers 16 per cent nominal rate of interest with quarterly compounding. What is the effective rate of interest ?

1. 16
2. 17
3. 18
4. 20

Question 50 : Accounts receivable is also known as ______

1. Sundry debtors
2. Sundry creditors
3. Net cash
4. Gross profit

Question 51 : An important financial institution that assists in the initial sale of securities in the primary market is the

1. Investment bank.
2. Co-operative bank
3. IRDA
4. RBI

Question 52 : A sound Capital Budgeting technique is based on:

1. Cash Flows
2. Accounting Profit
3. Interest Rate on Borrowings
4. Last Divide

Question 53 : Which is the popular method of calculation depreciation?

1. Units of Production Depreciation
2. Straight line Depreciation
3. Sum of the Year’s Depreciation
4. Declining balance depreciation

Question 54 : Modigliani and Miller suggest that the value of the firm is not affected by the firm’s dividend policy, due to

1. the relevance of dividends
2. the clientele effect
3. the informational content
4. the optimal capital structure

Question 55 : Working Capital is also known as ___________

1. Cash
2. Current assets
3. Invested Capital
4. Assets

Question 56 : Bonds that are sold in a foreign country and are denominated in that country’s currency are known as

1. foreign bonds
2. Eurobonds
3. Eurocurrencies
4. Eurodollars

Question 57 : Which of the following option is considered as current liabilities?

1. Bills recievables
2. Sundry creditors
3. Advance payments
4. Sundry debtors

Question 58 : Which of the following is not incorporated in Capital Budgeting?

1. Rate of Cash Discount.
2. Required Rate of Return.
3. Time Value of Money.
4. Tax-Effect.

Question 59 : _______________ and _______________ are the two versions of goals of the financial management of the firm.

1. Profit maximisation, Wealth maximization
2. Value maximisation, Wealth maximisation
3. Sales maximisation, Profit maximization
4. Production maximisation, Sales maximisation

Question 60 : What does liquidity refer?

1. The ability of a firm to meet its obligation in one week.
2. The ability of a firm to meet its obligation in one month.
3. The ability of a firm to meet its obligation in one year.
4. The ability of a firm to meet its obligation in ten Years.