Financial Management

 AURORA’S PG COLLEGE ( MCA) 

Financial Management

Multiple choice questions:

1. A key idea underpinning modern financial management is that the primary objective of a business is ________ maximization (Co1, BT1) ( ) 

a)Sales b)Profit c)Shareholder wealth d)Shareholder 

2) Financial management has been referred to as the economics of ________ and risk (Co1, BT1) ( ) 

a) returns b)business c)money d) none 

3) Profit maximization, as a business objective, fails to take account of _____ (Co1, BT1) ( ) 

a) taxation b)risk c)the short term d) costs 

4) __________ is concerned with financing and investment activities of the business (Co1, BT1) 

a) Control b) Budgeting c) Finance d) none 

5) The appropriate objective of an enterprise is (Co1, BT1) ( ) 

a) Maximization of sales b) Maximization of wealth c) Maximization of profits d) none 

6) Formula for compounded value of sum is (CO1,2, BT3) ( ) 

a)P(1+i)n b) P(1-i)n c) M(1+i)n d) none 

7)The time value of money in hand today is______ than money receivable in future (CO1,2, BT3) ( )

 a) same b) more c) less d) none of the above 

8) For a finance manager which is most important (CO1,2, BT3) ( ) 

a)liquidity b) profitability c) both d) none

9)Profit maximization is made when (CO1,2, BT3) ( ) 

a)marginal revenue is < marginal cost b) marginal revenue is > marginal cost c) marginal revenue is= marginal cost d) none 

10) Financial management is mainly concerned with (CO1,2, BT3) ( ) 

a)efficient management of business b) providing funds c)acquisition and efficient utilization of financial resources d) none 

11) Traditionally, the role of finance manager was restricted to (CO1,2, BT3) ( ) 

a) efficient management of business b) acquisition of funds c) both d) none

12) _________ is the fixed sum received or paid at regular intervals, at the end of each period (CO1,2, BT3) 

a) annuity b) present value c) cash flows d) all of the above ( ) 

13)Finance is the application of a series of economics principle to maximize the ________ . (CO1,2, BT3) 

a)wealth b)shareholders c)profitability d)accountability ( ) 

14)Risk is a chance of _________ loss. (CO1,2, BT3) 

a)human loss b)income loss c)expenditure loss d)financial loss ( ) 

15)The process of determining present value of a future cash flows is called ______ (CO1,2, BT2) a)discounting b)arbitrage c)opportunity costs d)time value ( ) 

16)Financial decisions involves (CO 2, BT3) ( ) 

a) Investment, financing and dividend decisions b) Investment, financing and sales decisions c) Financing, dividend and cash decisions d) All the above 

17) Identify the Time-adjusted methods or discounted methods from the following (CO1,BT2) ( )

 a) NPV method b) IRR method c) ARR method d) a&b 

18) Identify the Traditional or Non-Discounting Methods from the following (CO1,2, BT3) 

a) Pay-back Period method b) IRR method c) ARR d) a & c 

19) A Project Costs Rs. 1,00,000 and yields an annual cash inflows of Rs.20,000 for 8 years. What is the Pay back period. (CO1, BT4) ( ) 

a) 6 years b) 4 years c) 5years d) 5.5 years 

20) From the following method is based on accounting concept of profits. (CO1,2, BT3) ( ) 

a) Pay back period method b) profitability index method c) ARR d) IRR 

21) What is Decisions Rule according to NPV Method? (CO3, BT4) ( ) 

a) If NPV is Positive –Accept a project b) if NPV is Negative –Reject a project c) if NPV is equal to Zero- Reject a project d) a& b 

22) According to IRR (CO3, BT4) ( ) 

a) if IRR > Ko – Accept a project b) if IRR=Ko – Reject a Project c) if Ko> IRR- Reject a Project

 d) a & c 

23) Under ARR , amongst mutually exclusive projects, which project should be selected? (CO1,2, BT3) ( ) 

a) A project with higher ARR b) A project with lower ARR c)both d) none 

24)Which of the following is a method for accounting for risk in capital budgeting? (CO1, BT2) ( ) 

a) decision tree analysis b) sensitivity analysis c) probability technique d) all of the above 

25)The rate of discount at which the PV of Cash inflows is equal to PV of Cash outflows is called (CO1, BT1) 

a)IRR b)discounted rate of return c)trial and error method d) all of the above ( ) 

26)The concept of cost of capital is useful in (CO1, BT1) ( )

 a) capital budgeting b)capital structure decision c)both d)none 

27)When interest is compounded on half yearly basis, interest works out than the interest calculated on yearly basis is (CO1, BT2) ( )

 a) less b) more c)) same d) none

28)Profitability index is one of the following methods (Co3, BT2) ( ) 

a)traditional methods b) DCF methods c) both d) none 

29) Total assets-current liabilities = ___ (CO2, BT3) ( ) 

(a)capital structure (b)EBIT (c)EPS (d)operating leverage 

30) _________ plays a vital role in evaluation of a project. (CO2, BT1) ( ) 

(a)explanation (b)diversification (c)analysis (d)investment 

31) Retained earnings is _______ finance (CO1,2, BT3) ( ) 

a)internal b) external c) both d) none 

32) The interest paid to the debenture holder are calculated before (CO1,2, BT1,3) ( ) 

a) after taxes b) before taxes c) after pref divided d) none of the above 

33)The process of utilization the retained earnings for development of the company is known as (CO1, BT2,3) 

a)deprecation b)capitalization c)ploughing back of profits d) none ( ) 

34)WACC is also known as (CO1, BT3) ( ) 

a)overall cost of capital b) marginal cost of capital c) average cost of capital d) all of the above 

35) IRR method is also known as _________ . (CO2, BT1,3) ( ) 

(a)NPV (b)PBP (c)ROI (d)trial &error method 

36) Decision tree is a ________ representation. (CO2, BT1,3) ( ) 

(a)innovative (b)administrative (c)probability (d)pictorial 

37) _______ is long term decision. (CO1,2, BT1,3) ( ) 

(a)capital budgeting (b)ARR (c)IRR (d)PBP 

38) EPS stands for ( )

 a)earnings per share (b)equity per share (c)equity per structure (d)earnings per structure 

39) RADR is the _______ rate (CO1,2, BT3) 

(a)discounting (b)arbitrage (c)accounting (d)ROI 

40) The cost of capital comprises of _________ components. (CO3, BT1,3) ( ) 

(a)three (b)two (c)one (d)four 

41) ________ costs are technically referred to as implicit costs. (CO1,2, BT3) ( ) 

(a)opportunity (b)variable (c)fixed (d)none of the above 

42) The additional costs incurred to obtain additional funds? (Co2, BT2) ( ) 

(a)specific costs (b)variable costs (c)fixed costs (d)marginal costs 

43) Existence of _________ market is one of the assumptions of CAPM. (CO1, BT2) ( ) 

(a)perfect capital (b)imperfect capital (c)pure competition (d)monopolistic 

44) The rate at which investors discount the expected dividend over a future period to value stock? (CO1,2, BT3) 

(a)cost of equity (b)cost of capital (c)equity capital (d)preference capita ( ) 

45)Agency costs in an economic concept concerned the cost to a ____________ (CO1,, BT1) 

a)wealth maximization b)annuity c)arthimetic d)principal ( ) 

46)Wealth maximization is also known as _________ maximization. (CO1, BT2) 

a)value b)risk c)return d)time value ( ) 

47)Traditional concept of finance was limited to acquisition of ________ (CO2, BT2) 

a)funds b)wealth c)profit d)all of the above ( ) 

48)________ is primary motivating force for any economic activity. (CO1, BT1) 

(a)profit (b)risk (c)return (d)all of the above 

49)Job of _________ manager is confined for raising and effective utilization of funds. (CO1,BT1) ( )

 a)manager b)production c)human resource d)finance 

50)__________ of a company refers to the combination of all long term capital resources (CO2, 

a)working capital b)share capital c) capital structure d) none  

Fill in the blanks: 

1)_________is one of the most important functions of business management.(financing) (CO1, BT1)

2)Present value is calculated with_____________ formula (A/(1+i)n) (CO1, BT3) 

3)Future value is calculated with ___________ formula (A(1+i)n) (CO1, BT3) 

4)Risk and Return constitutes __________ of the firm(value) (CO1, BT1) 

5)The higher the risk ,_________ will be the return(high) (CO1, BT2) 

6)EBIT means__________ (earnings before interest and tax) (CO1, BT3) 

7)The finance function provides the ________ required by the business (funds) (CO1, BT3) 

8)Profit maximization ignores ____________.(time value of money) (CO1, BT1) 

9)Maximization of _________ is the main goal of financial management.( shareholder wealth) (CO2, BT2) 

10) ________ is a conflict of interest between agent and the owner.(agency conflict) (CO1, BT3)

 11)Ignoring time value of money is one of the limitations of _____ maximization of objective.(profit) (CO1, BT1) 

12)Scope of business finance is wider than the scope of ___________ finance.(corporate) (CO1, BT3)

 13) _______ finance deals the company form of organization.(corporate) (CO1, BT3) 

14)profit and _______ maximization are the goals of financial management.(wealth) 

15)Equity shareholders expected return is equal to risk free rate plus ____________ .(risk premium) (CO1, BT2) 

16)_____________ is the formula used for PBP method for uneven cashflows. (cash outlay /annual cash inflow) (CO1,2, BT2) 

17)Capital Budgeting is also known as ___________________ and _____________ (investment decision process, capital expenditure decisions) (CO1, BT3) 

18)The simplest capital budgeting technique is _________________________(NPV) (CO2, BT1)

 19)_________ Method take into account the earnings over the entire life of the project.(ARR) (CO2, BT3) 

20)__________Method takes into consideration the time value of money.(Discounted cashflow) (CO1, BT1,3) 

21)CAPM__________________(capital asset pricing model) (CO1, BT3) 

22)Cost of capital is also called_______________________.(min rate of return) (CO3, BT3)

 23)__________ is the minimum rate of return expected by its investors.(cost of capital) (CO3, BT3)

 24)______________is a combination of capital budgeting decision and working capital decision (Investment Decision) (CO1,3, BT2) 

25)Discounting technique is also known as________________ (compounding technique) (CO1, BT2)

 26)RADR stands for _________(risk adjusted discount rate) (CO2, BT1) 

27)Joint probability is also known as ____________(conditional) (CO2, BT3) 

28)_____________ refers to a situation where due to the shortage of capital, choice of projects is made on the basis of NPV(capital rationing) (CO1,2, BT3) 

29)__________ is the formula used for IRR (IRR= r- PVo−PVlr / PVlr−PV hr * Δ r ) (CO1, BT5)

 30)_____________is the formula used for ARR. ( average income after taxes/average investment*100) (CO1, BT2) 

31)Social responsibility means taking decisions beyond the ______ activity.(economic) (CO1, BT3)

 32)CF stands for _____________________ .(cash flows) (CO1, BT2) 

33) Aim of ________ is concerned with acquisitions , financing and management of assets with some over all goal in mind.(Financial Management) (CO1, BT1) 

34)The acceptance of one project will exclude the acceptance of the other projects and such projects are known as____________(mutually exclusive projects) (CO2, BT2) 

35)Capital budgeting is necessary for______________ situations (expansion, replacement, diversification and R&D) (CO2, BT2) 

36) Profitability index technique is also known as ___________ .(benefit cost ratio) (CO2, BT3) 

37) Modern technique are also called as ___________ (discounted cash flow techniques) (CO1, BT2)

 38) Investment decisions, financing decision , dividend decision are the functions of ______ (Finance) (CO1, BT1) 

39) The risk and return determines_____of the firm (Value) (CO1, Bt2) 

40) ___________ shares can be redeemed during the life time of the company(redeemable Preference shares) (CO2,3, BT3) 

41)______________ is a document issued by a company as an evidence of debt due from the company with or without a charge on the assets(debenture) (CO2, BT2) 

42)_________accounts are spontaneous source of financing, since they are self generating eg:wages (accrual or outstanding) (CO2, BT2) 

43)A combination of debt & equity that leads to maximum value of the firm is known as ____________ (optimum capital structure) (CO1, BT2) 

44)If the firm raises capital through debt and equity ,it is the ________ firm (levered firm) (CO1, BT3) 

45)Cost of capital is the _________ required rate of return expected by investors.(minimum) (CO1, BT2) 

45)Cost of capital is the measurement sacrifice made by ______ in order to capital formulation.(investor) (CO1, BT2) 

46)According to __________ cost of capital is the minimum required rate of earnings or the cut off rate of capital expenditure.(Solomon Ezra) (CO2, BT2) 

47)An average of the cost of each source of funds employed by the firm for capital formation is called as __________________ .(overall cost of capital) (CO1, BT2) 

48)Cost of capital is not useful in capital budgeting if a firm is depended on ________ methods.(traditional) (CO1, BT2) 

49) ___________ is the additional cost incurred to obtain additional funds required by a firm.

(marginal costs) (CO1, BT1) 

50)_____________ is the costs associated with particular component at capital structure.(specific costs) (CO1, BT2)