MCQs- Chapter – Financial Management

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CBSE Class 12 Business Studies Multiple Choice Questions and their answers. Plan for good marks and study here. This page shows 25 questions and their answers for chapter Financial Management.

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Q1: What do you mean by business finance.

Ans: Money required to carry out business activities is called business finance.

Q2: Which concept is concerned with optimal procurement as well as usage of finance?

• Capital structure (c) Working capital management
• Fixed capital management (d) Financial management

Ans: (d) Financial Management

Q3: __________________ reflect a firm’s financial health.

Fill in the above blank with suitable measure of financial position of a business.

Ans: Financial statements i.e. Balance Sheet and Profit and loss Account.

Q4: If a business plans to invest a sum of Rs. 50 crores in fixed assets, it would raise the size of fixed assets block by this amount. Identify the concept of Financial management highlighted in the above case.

• Capital budgeting decision (c) Long term financing
• Working capital decision (d) Capital structure

Ans: (a) Capital budgeting decision

Q5: A business ‘s policy regarding credit and inventory management affect the amount of debtors and inventory which in turn affect the total current assets as well as their composition.

Identify the concept of Financial management highlighted in the above case.

• Capital budgeting decision (c) Short term financing
• Working capital decision (d) Capital structure

Ans: (b) Working capital decision.

Q6: The financial manager has to make a choice between liquidity and profitability while taking decision regarding proportion of long term and short term funds. Which of the following assumption is correct in regards of above statement.

• Long term liabilities cost more than current liabilities
• Long term liabilities increases profitability
• Short term liabilities cost less than long term liabilities
• Short term liabilities increase liquidity

Ans: (c) Short term liabilities cost less than long term liabilities

Q7: Which concept of financial management affects the Size of assets, profitability and competitiveness of business.

• Capital budgeting decision (c) Long term financing
• Working capital decision (d) Capital structure

Ans: (a) Capital budgeting decision.

Q8: Which concept of financial management affects the liquidity as well as profitability of a busine

• Capital budgeting decision (c) Long term financing
• Working capital decision (d) Capital structure

Ans: (b) Working capital decision

Q9: Write down any two of the essential ingredients of sound working capital management ?

Ans: Efficient cash mangemnent , inventory management and receivable management.(any two).

Q10: The cost of raising the finance from the market is known as:

• Interest (c) Retained earning
• Dividend (d) floatation cost

Ans: (d) Floatation cost

Q11: Which of the following statement is correct in regards to state of capital market:

• Bear capital market may make issue of equity share easy
• Bull capital market may make issue of equity share difficult
• Bear capital market may make issue of equity share difficult
• Both (a) and (b)

Ans: (c) Bear capital market may make issue of equity share difficult.

Q12: If a business has easy reach for capital market then it will prefer to take following step in respect to dividend decision.

• More current income reinvestment
• Less dividend
• Less current income reinvestment
• Both (a) and (b)

Ans: © less current income reinvestment

Q13: ____________ is the prepration of a financial blueprint of an organisation’s future operations.

Fill in the blank with suitable option.

• Capital budgeting decision (c) Long term financing
• Financial planning                (d) Capital structure

Ans: (b) Financial Planning

Q14: The objective of financial planning is:

• Maximising shareholder’s wealth
• Availablity of funds when required
• Firm does not raise resources unnecessarily
• Both (a) and (b)

Ans: (d) Both (a) and (b)

Q15: Which of the following type of plan is an example of financial planning.

• Policy (c) Budget
• Rule (d) Procedure

Ans: (c) Budget

Q16: What is financial risk?

Ans: The chance that a firm would fail to meet its payment obligations is known as financial risk.

Q17: How is Interest coverage ration ( ICR) calculated in regards to Capital Structure?

• ICR= EBIT/INTEREST (d) ICR= EBIT/INTERESTX100
• ICR=INTEREST/EBIT
• ICR=INTEREST/EBITX100

Ans: (a) ICR=EBIT/INTERST

Q18:Which of the following is not the factor affecting capital structure?

• Control (c) Stability of dividends
• Floatation cost (d) Tax Rate

Ans: © Stability of dividends

Q19: Expenditure on advertising campaign or research and development programme are the examples of the financial management decision . Identify the decision.

• Investment Decision (c) Dividend Decision
• Financing Deciosion (d) None of the above

Ans: (a) Investment decision.

Q20:Which of the following highlights the importance of  capital budgeting decision.

• Long term growth (c) Irreversible decisions
• Large amount of funds (d) all of the above

Ans: (d) all of the above.

Q21: Arrange the following current assets in order of their liquidity.

(i)Raw material  (ii) Debtors (iii) Cash at bank   (iv) Marketable securities

• (i) (ii) (iii) (iv)
• (iv) (iii) (Ii) (i)
• (iii) (iv) (ii) (i)
• (ii) (iv) (iii) (i)

Ans: © (iii) (iv) (ii) (i).

Q22: The part of current assets which is financed through long term sources of finance is known as:

• Current liability
• Net Working Capital
• Excess of current liability over current asssets
• None of the above

Ans: (b) Net Working Capital.

Q23: Which of the following is not the factor affecting Working capital decision?

• Nature of business (c) Inflation
• Scale of Operations (d) Financing alternative

Ans: (d) Financing alternative.

Q24: : Which of the following is  the factor affecting Fixed capital decision?

• Nature of business (c) Inflation
• Scale of Operations (d) Financing alternative

Ans: (d) Financing Alternative.

Q25:  Trading on Equity is advisable if:

• Return on investment is more than cost of debt
• Cost of debt is more than return on equity

(c) If depression phase of business is going on

(d)higher degree of financial risk

Ans: (a) Return on investment is more than cost of debt.