FM MCQ Paper I 2

FINANCIAL MANAGEMENT
2017-18
FINANCIAL
management
( MULTIPLE CHOICE QUESTIONS )
BY: PREM
[Junior Research fellow]
Banaras Hindu University
Mob No- 7007450216
Email -prembhu06@gmail.com
Prem F.M.
MUTIPLE CHOICE QUESTIONS
1. Market values are often used in computing the weighted average cost of capital because
a) this is the simplest way to do the calculation.

b) this is consistent with the goal of maximizing shareholder value.
c) this is required in the U.S. by the Securities and Exchange Commission.
d) this is a very common mistake.
2. Rank in ascending order (i.e., 1 = lowest, while 3 = highest) the likely after-tax
component costs of a Company's long-term financing.
a) 1 = bonds; 2 = common stock; 3 = preferred stock.

b) 1 = bonds; 2 = preferred stock; 3 = common stock.
c) 1 = common stock; 2 = preferred stock; 3 = bonds.
d) 1 = preferred stock; 2 = common stock; 3 = bonds.
3. The term "capital structure" refers to:

a) long-term debt, preferred stock, and common stock equity.
b) current assets and current liabilities.
c) total assets minus liabilities.
d) shareholders' equity.
4. A critical assumption of the net operating income (NOI) approach to valuation is:
a) that debt and equity levels remain unchanged.
b) that dividends increase at a constant rate.
c) that ko remains constant regardless of changes in leverage.
d) that interest expense and taxes are included in the calculation.
Prem F.M.
5. The traditional approach towards the valuation of a company assumes:

a) that the overall capitalization rate holds constant with changes in financial leverage.
b) that there is an optimum capital structure.
c) that total risk is not altered by changes in the capital structure.
d) that markets are perfect.
6. Two firms that are virtually identical except for their capital structure are selling in
the market at different values. According to M&M
a) one will be at greater risk of bankruptcy.

b) the firm with greater financial leverage will have the higher value.
c) this proves that markets cannot be efficient.
d) this will not continue because arbitrage will eventually cause the firms to sell at
the same value.
7. What is the value of the tax shield if the value of the firm is $5 million, its value if
unlevered would be $4.78 million, and the present value of bankruptcy and agency costs
is $360,000?
a) $140,000
b) $220,000
c) $360,000
d) $580,000
8. Reserves & Surplus are which form of financing?

a) Security Financing
b) Internal Financing
c) Loans Financing
d) International Financing
Prem F.M.
9. What are the different options other than cash used for distributing
profits to shareholders?
a) Bonus shares
b) Stock split
c) Stock purchase
d) All of these
10. In Walter model formula D stands for

a. Dividend per share
b. Direct Dividend
c. Dividend Earning
d. None of these
11. In MM model MM stands for...

a. M.Khan and Modigiliani
b. Miller and M.Khan
c. Modigiliani and M.Khan
d. Miller and Modigliani
12. The addition of all current assets investment is known as...

a. Net Working Capital
b. Gross Working capital
c. Temporary Working Capital
d. All of these
13. When total current assets exceeds total current liabilities it refers to.
a. Gross Working Capital
Prem F.M.
b. Temporary Working Capital
c. Both a and b
d. Net Working Capital
14. Which of the following would not be financed from working capital?
a) Cash float.
b) Accounts receivable.
c) Credit sales.
d) A new personal computer for the office.
15. What is the difference between the current ratio and the quick ratio?
a) The current ratio includes inventories and the quick ratio does not.
b) The current ratio does not include inventories and the quick ratio does.
c) The current ratio includes physical capital and the quick ratio does not.
d) The current ratio does not include physical capital and the quick ratio does.
16. Which of the following working capital strategies is the most aggressive?
a) Making greater use of short term finance and maximizing net short term asset.
b) Making greater use of long term finance and minimizing net short term asset.
c) Making greater use of short term finance and minimizing net short term asset.
d) Making greater use of long term finance and maximizing net short term asset.
17. Which of the following is not a metric to use for measuring the length of the cash
cycle?
a) Acid test days.
b) Accounts receivable days.
c) Accounts payable days.
d) Inventory days.
Prem F.M.
18. Which of the following is not the responsibility of financial management?

a) allocation of funds to current and capital assets
b) obtaining the best mix of financing alternatives
c) preparation of the firm's accounting statements
d) development of an appropriate dividend policy
19. Which of the following are not among the daily activities of financial management?
a) sale of shares and bonds
b) credit management
c) inventory control
d) the receipt and disbursement of funds
20. Debt Equity Ratio is 3:1,the amount of total assets Rs.20 lac, current ratio is 1.5:1
and owned funds Rs.3 lac. What is the amount of current asset?
a. Rs.5 lac
b. Rs.3 lac
c. Rs.12 lac
d. d) none of the above.
21. Banks generally prefer Debt Equity Ratio at :
a) 1:1
b) 1:3
c) 2:1
d) 3:1
22. An asset is a-
Prem F.M.
a. Source of fund
b. Use of fund
c. Inflow of funds
d. none of the above.
23. If a company issues bonus shares the debt equity ratio will
a. Remain unaffected
b. Will be affected
c. Will improve
d. none of the above.
24. In the balance sheet amount of total assets is Rs.10 lac, current liabilities Rs.5 lac
& capital & reserves are Rs.2 lac .What is the debt equity ratio?
a) a)1;1
b) 1.5:1
c) c)2:1
d) none of the above.
25. In last year the current ratio was 3:1 and quick ratio was 2:1.Presently current
ratio is 3:1 but quick ratio is 1:1.This indicates comparably
a. high liquidity
b. higher stock
c. lower stock
d. low liquidity
26. Current ratio of a concern is 1, its net working capital will be

a) Positive
Prem F.M.
b) Negative
c) Nil
d) None of the above
27. Current ratio is 4:1.Net Working Capital is Rs.30,000.Find the amount of current
Assets.
a) Rs.10,000
b)Rs.40,000
c)Rs.24,000
d) Rs.6,000
28. Current ratio is 2:5.Current liability is Rs.30000.The Net working capital is a) Rs.18,000
b) Rs.45,000
c) Rs.(-) 45,000
d) Rs.(-)18000
29. Quick assets do not include

a. Govt.bond
b. Book debts
c. Advance for supply of raw materials
d. Inventories.
30. The ideal quick ratio is
a) 2:1
b) 1:1
c) 5:1
d) 4:2
Prem F.M.

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FINANCIAL MANAGEMENT

Mob No- 7007450216

MUTIPLE CHOICE QUESTIONS

a) this is the simplest way to do the calculation.

component costs of a Company's long-term financing.

a) 1 = bonds; 2 = common stock; 3 = preferred stock.

3. The term "capital structure" refers to:

5. The traditional approach towards the valuation of a company assumes:

the market at different values. According to M&M

a) one will be at greater risk of bankruptcy.

the same value.

8. Reserves & Surplus are which form of financing?

10. In Walter model formula D stands for

11. In MM model MM stands for...

12. The addition of all current assets investment is known as...

18. Which of the following is not the responsibility of financial management?

21. Banks generally prefer Debt Equity Ratio at :

d. none of the above.

ratio is 3:1 but quick ratio is 1:1.This indicates comparably

26. Current ratio of a concern is 1, its net working capital will be

d) None of the above

29. Quick assets do not include

30. The ideal quick ratio is

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