1. INTERNAL EXAM OF FYBAF (SEM I) FINANCIAL MANAGEMENT
MULTIPLE CHOICE QUESTION SAMPLE BANK
1. Management of all matters related to an organisation's finances is called
(a) Cash inflows and outflows
(b) Allocation of resources (c) Financial management
(d) Finance
Answer c
2. Which of the following is not an element of financial management?
(a) Allocation of resources
(b) Financial Planning
(c) Financial Decision-making
(d) Corporate Social Responsibility
Answer D
3. The most important goal of financial management is
(a) Corporate Social Responsibility
(b) Matching income and expenditure
(c) Using business assets effectively
(d) Wealth maximisation
Answer D
4. To achieve wealth maximization, the finance manager has to take careful decision in respect
of
(a) Investment
(b) Financing
(c) Dividend
(d) All the above
Answer D
2. 5. Which of the following is considered as the principal financial objective of the firm ?
(a) Shareholder wealth maximisation
(b) General welfare of the employees
(c) Welfare of the society
(d) Welfare of management
(e) Leadership in research and development
Answer A
6. The objective of financial management is to
(a) Maximise the revenues
(b) Minimise the expenses
(c) Maximise the return on investment (d) Minimise the risk
(e) Maximise the wealth of the owners by increasing the value of the firm
Answer E
7. Which of the following is a function of the finance manager?
(a) Mobilizing funds
(b) Deployment of funds
(c) Control over the uses of funds
(d) All of the above
Answer D
8. Which of the following is related to the control function of the financial manager?
(a) Interaction with the bankers for arranging a short-term loan
(b) Comparing the costs and benefits of different sources of finance
(c) Analysis and reporting of variance between the targeted costs and actual costs incurred
(d) Assessing the costs and benefits of a project under consideration
Answer C
9. The objective of financial management is to increase the wealth of the shareholders means
to
3. (a) Increase the physical assets owned by the firm
(b) Increase the market value of the shares of the firm
(c) Increase the current assets of the firm
(d) Increase the cash balance of the company
Answer A
10. The only feasible purpose of financial management is
a) Wealth Maximization
b) Sales Maximization
c) Profit Maximization
d) Asset’s maximization
Answer A
11. The job of a finance manager is confined to
(a) Raising funds
(1) Management of cash
(c) Raising of funds and their effective utilization
(d) None of these
Answer C
12. Financial decision involve
(a) Investment, Financing and dividend decision
(b) Investment financing and sales decision
(e) Financing, dividend and cash decision
(d) None of these
Answer A
13. Which of the following statements represents the financing decision of a company?
(a) Procuring new machineries for the R & D activities
(b) Recruiting new employees in order to increase the productivity of the company
(c) Adopting state of the art technology to reduce the cost of production
(d) Designing an optimal capital structure by using suitable financial instruments
4. Answer D
14.Financial management process deals with
a) Investments
b) Financing decisions
c) Both a and b
d) None of the above
Answer B
15. Finance Function comprises
a) Safe custody of funds only
b) Expenditure of funds only
c) Procurement of finance only
d) Procurement & effective use of funds
Answer D
16. The objective of wealth maximization takes into account
a) Amount of returns expected
b) Timing of anticipated returns
c) Risk associated with uncertainty of returns
d) All of the above
Answer D
17. Financial management mainly focuses on
a) Efficient management of every business
b) Brand dimension
c) Arrangement of funds
d) All elements of acquiring and using means of financial resources for financial activities
Answer D
18. In the traditional role of the financial manager is responsible for
a) Proper Utilisation of funds
b) Arrangement of Financial resources.
c) Acquiring capital assets for organisation.
d)Efficient management of the capital
Answer B
19. The appropriate objective of an enterprise is
a) Maximisation of sales
(b) Maximisation of owners wealth
5. c) Maximisation of own share capital
(d) None of those
Answer B
20. Wealth maximization as the goal of the firm implios enhancing the wealth of
(a) the Board of Directors
(b) the firm's employees
(c) the federal government
(d) the firm's stockholders
Answer D
21. The goal of profit maximization would result in priority for
(a) cash flows available to stockholders
(b) risk of the investment
(c) earnings per share
(d) timing of the returns
Answer C
22. Profit maximization does NOT take into consideration
(a) risk and cash flow
(b) cash flow and stock price
(c) risk and EPS
(d) EPS and stock price
Answer A
23. Profit maximization as the goal of the firm is NOT ideal because
(a) profits are only accounting measures
(b) cash flows are more representative of financial strength
(c) profit maximization does not consider risk
(d) profits today are less desirable than profits earned in future years
Answer C
6. 24. Profit maximization fails because it ignores all EXCEPT
(a) the timing of returns
(b) earnings per share
(c) cash flows available to stockholders (d) risk
Answer B
25. The only viable goal of financial management is
(a) Profit maximisation
(b) Wealth maximisation
(c) Sales maximisation
(d) Assets maximisation
Answer B
26 The basic objective of financial management is
(a) maximisation of profits
(b) maximisation of shareholder's wealth
(c) ensuring financial discipline in the organisation
(d) none of the above
Answer B
27. Finance function involves
(a) procurement of finance only
(c) safe custody of funds only
(b) expenditure of funds only
(d) procurement and effective utilisation of funds
Answer D
28 The goal of wealth maximisation takes into consideration
a) risk related to uncertainty of retums (b) timing of expected returns
(c) amount of retums expected (d) all the above
7. Answer D
29 _______connotes management of money' i.e. earning, spending, saving and investing
money
a) Finance (b)Assets
(c) profit (d) share capital
Answer A
30. _____is the study of the problems involved in the use and acquisition of funds.
a) Financial Management (b)Business maximisation (c) Hotel Management (d)Share Capital
Answer A
31. There are two objectives of financial management : (i) maximization and (1)
Maximisation.
a) Profit, wealth (b)Loss, profit (c)None of above (d)Share and debentures
Answer A
32. Time value of money explains that
(a) a unit of money received today is worth more than a unit received in future
b) a unit of money received today is worth less than a unit received in future
(c) a unit of money received today and at some other time in future is equal
(d) none of them
Answer A
34. calculate accumulated simple interest you has deposited Rs. 1,00,000 in a saving bank a/c
at 6% and wish to keep same for a period of 5 years.
a)30,000 (b)20,000 (c)50,000 (d)10,000
Answer A
35. calculate Future value if annual saving is Rs 1000, simple interest- 5% , time period of 8
years.
a)1400 (b)1550 (c)5000 (d)1500
8. Answer A
36. Time value of money facilitates comparison of cash flows occuring at different time periods
by
(a) compounding all cash flows to a common point of time
(b) discounting all cash flows to a common point of time
(c) using either (a) and (b)
d) Non of above
Answer C
37. Assume that you purchase a 6-year, 8 percent savings certificate for 1,000. If interest is
compounded annually, what will be the value of the certificate when it matures?
a) 630.17
(b) 1.469.33
c) 1677.10
(d) 1,586.90
Answer D
38. A friend promises to pay you 600 for two years from now if you loan him 500 today. What
annual interest rate is your friend offering?
(a) 7.5%
(b) 8.5%
(c) 9.5%
(d) 10.5%
Answer c
40.Operating leverage helps in analysis of
(a) Business Risk
(b) Financing Risk
(c) Production Risk
(d) Credit Risk
Answer A
41. Which of the following is studied with the help of financial leverage?
(a) Marketing Risk
9. (b) Interest Rate Risk
(c) Foreign Exchange Risk
(d) Financing risk
Answer D
42. combined Leverage is obtained from OL and FL by their
(a)Addition
(b) Subtraction
(c) Multiplication
(d) Any of these
Answer C
43. High degree of financial leverage means
(a) High debt proportion
(b) Lower debt proportion
c) Equal debt and equity
d) No debt
Answer A
44. Operating Leverage arises because of
a) Fixed Cost of production b) fixed interest cost c) variable cost d) none of the above
Answer A
45 financial Leverage arises because of
a) Fixed Cost of production b) fixed interest cost c) variable cost d) none of the above
Answer C
46.Operating Leverage is calculated as
a) Contribution / EBIT
b) EBIT /PBT
(c) EBIT / Interest
d) EBIT / Tax
Answer A
10. 47. Financial Leverage is calculated as
a) EBIT/ Contribution
b) EBIT/PBT
(c) EBIT / sales
d) EBIT/ variable cost
Answer B
48. combined leverage can be used to measure the relationship between
(a) EBIT and EPS
(b) PAT and EPS
(c) Sales and EPS
(d) Sales and EBIT
Answer C
49. FL is zero if
(a) EBIT = Interest
(b) EBIT = Zero
(c) EBIT = Fixed Cost
(d) EBIT = Pref. Dividend
Answer B
50. Business risk can be measured by
(a) Financial leverage
(b) Operating leverage
(c) Combined leverage
(d) None of the above
Answer B
51. Financial Leverage measures relationship between
11. (a) EBIT and PBT
(b) EBIT and EPS
(c) Sales and PBT
(d) Sales and EPS
Answer B
52. Use of Preference Share Capital in Capital structure
(a) Increases OL
(b) Increases FL
(c) Decreases OL
(d) Decreases FL
Answer B
53. Relationship between change in sales and change in EPS is measured by
(a) Financial leverage
(b) Combined leverage
(c) Operating leverage
(d) None of the above
Answer B
54. Operating leverage works when
(a) Sales Increases
(b) Sales Decreases
(c) Both (a) and (b)
(d) None of (a) and (b)
Answer c
55. If the fixed cost of production is zero, which one of the following is correct?
(b) FL is zero
(a) OL is zero
12. (d) None of the above
(c) CL is zero
Answer d
56. If a firm has no debt, which one is correct?
(a) OL is one
(c) OL is zero
(b) FL is one
(d) FL ls zero
Answer B
57.if a company issues new share capital to redeem debentures, then
(a) OL will increase
(b) FL will increase
(c) OL will decrease
(d) FL will decrease
Answer d
58. Higher OL is related to the use of higher
a) Debt b) equity c) fixed cost d) variable cost
Answer c
59. Higher FL is related the use of
a) Higher equity b) Higher Debt c) Lower debt d) none of the above
Answer B
60. Contribution-
a) sales- variable cost b) sales + variable cost c) sales x variable cost d) sales/variable cost
Answer A
