Question 1.
Which one of the following is related to planning, organising, directing and controlling of financial activities?
(a) Financial decision
(b) Capital structure
(c) Investment decision
(d) Financial management

Answer

Answer: (d) Financial management

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Question 2.
Wealth maximisation depends on
(a) market price per share.
(b) market price of finished good.
(c) market price of inventory.
(d) market price of fixed assets.

Answer

Answer: (a) market price per share.

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Question 3.
Investment decision involves
(a) investment in fixed assets.
(b) investment in current assets.
(c) investment in fixed and current assets.
(d) investment in Government securities.

Answer

Answer: (c) investment in fixed and current assets.

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Question 4.
If dividend portion of total earnings is high, portion of retained earnings will be
(a) high.
(b) low.
(c) moderate.
(d) equal.

Answer

Answer: (b) low.

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Question 5.
Financial procedures are determined by
(a) financial planning.
(b) financial leverage.
(c) financial decisions.
(d) capital structure.

Answer

Answer: (a) financial planning.

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Question 6.
Capital structure shows
(a) Debtor-creditor ratio.
(b) Fixed assets-current assets ratio.
(c) Debt-equity ratio.
(d) Interest coverage ratio.

Answer

Answer: (c) Debt-equity ratio.

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Question 7.
Fixed capital requirements are determined by
(a) nature of business.
(b) nature of business environment.
(c) nature of Government control.
(d) nature of marketing efforts.

Answer

Answer: (a) nature of business.

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Question 8.
Working capital requirements are low when an organisation has
(a) high technology.
(b) high debtors.
(c) high inventory.
(d) high creditors.

Answer

Answer: (d) high creditors.

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Question 9.
___ is concerned with optimum procurement as well as usage of finance.
(a) Financial Analysis
(b) Financial Planning
(c) Financial Management
(d) Budgeting

Answer

Answer: (c) Financial Management

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Question 10.
___ represents investment in current assets required for day-to-day operations of the business.
(a) Long-term capital
(b) Working capital
(c) Capital Budgeting
(d) Medium-term capital

Answer

Answer: (b) Working capital

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Question 11.
___ involves increasing the proportion of debt and preference shares in total capital.
(a) Trading on equity
(b) Capital Budgeting
(c) Financing decision
(d) Financial Analysis

Answer

Answer: (a) Trading on equity

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Question 12.
___ is the time span between acquisition of goods and realisation of sale proceeds.
(a) Working capital
(b) Payback Period
(c) Operating Cycle
(d) Account Receivables Period

Answer

Answer: (c) Operating Cycle

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Question 13.
___ Gross working capital represents the total investment in assets.
(a) Current
(b) Fixed
(c) Tangible
(d) Intangible

Answer

Answer: (a) Current

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Question 14.
___ capital refers to investment in long-term assets.
(a) Fixed
(b) Variable
(c) Working
(d) Both (b) and (c)

Answer

Answer: (c) Working

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Question 15.
The working capital requirement of a business is not likely to be high when?
(a) The nature of business is trading
(b) Scale of operation of business is small
(c) It is difficult to procure raw material
(d) The rate of inflation is low

Answer

Answer: (c) It is difficult to procure raw material

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Question 16.
Under which of the following circumstances the fixed capital requirement of a business is not likely to be high?
(a) When the raw material is not easily available
(b) Capital intensive techniques of production are used
(c) The growth prospects of a company a high
(d) When the financial alternatives are easily available

Answer

Answer: (d) When the financial alternatives are easily available

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Question 17.
Which of the following statements is not true with regard to use of fixed capital?
(a) It affects the long term growth of the business.
(b) Large amount of funds are involved.
(c) The business risk involved is low.
(d) The investment decisions are irreversible.

Answer

Answer: (c) The business risk involved is low.

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Question 18.
Under which of the following situations a company is not likely to issue equity capital?
(a) When the debt service coverage ratio is high.
(b) When the interest coverage ratio is high.
(c) When the cost of debt capital is low.
(d) All of the above

Answer

Answer: (d) All of the above

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Question 19.
If the rate of return on investment for a company is 16%, a situation of unfavourable financial leverage will be said to arise when the rate of interest payable on debt capital is
(a) More than 16 %
(b) Less than 16 %
(c) Equal to 16%
(d) None of the above

Answer

Answer: (a) More than 16 %

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Question 20.
The total capital of Uranium Private Limited is ?50 lacs. The amount of debt is ?20 lacs. The company has earned a profit of ^10 lacs during the current financial year. Its return on investment (ROI) for the present year is
(a) 20%
(b) 40%
(c) 10%
(d) 80%

Answer

Answer: (a) 20%

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True or False

State with reasons whether the following statements are True or False.

1. The primary objective of financial management is to arrange wealth for shareholders.

Answer

Answer: False; the primary objective of financial management is to maximise shareholders’ wealth.

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2. Financing decision is the decision about dividend payment and retained earnings.

Answer

Answer: False; dividend decison is such a decision.

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3. Investment decision is the decision about investment, financing and dividend.

Answer

Answer: False; financial decision is the decision about investment, financing and dividend.

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4. Return on investment shows analysis of an investment.

Answer

Answer: False; return on investment shows profitability of an investment.

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