18 Ubm 306 Financial Management Multiple Choice Questions. Unit-I

18 UBM 306 FINANCIAL MANAGEMENT
Multiple Choice Questions.

UNIT-I
1.Basic objective of Financial Management is ________________.
A.Maximization of profit.
B.Maximization of share holder's wealth
C.Ensuring Financial discipline in the firm.
D.All of these.
ANSWER: B
2.Financial structure refers to ________________.
A.Short-term resources.
B.All the financial resources.
C.Long-term resources.
D.All of these.
ANSWER: B
3.The market value of the firm is the result of__________.
A. Dividend decisions.
B. Working capital decisions.
C. Capital budgeting decisions.
D. Trade-off between risk and return.
ANSWER: D
4.Cost of capital is __________________.
A.Lesser than the cost of debt capital.
B.Equal to the last dividend paid to the equity shareholders.
C.Equal to the dividend expectations of equity shareholders for the coming year.
D.None of the above.
ANSWER: D
5.In Walter model formula D stands for _________________.
A. Dividend per share.
B.Direct dividend.
C. Direct earnings.
D. None of these.
ANSWER: A
6.___________ security is known as variable income security.
A.Debentures.
B.Preference shares.
C.Equity shares.
D.None of these.
ANSWER: C
7.Quick asset does not include ____________.
A. Government bonds.
B. Book debts.
C. Advance for supply of raw materials.
D .Inventories.
ANSWER: D
8.Long term finance is required for ______________.
A.Current assets.
B.Fixed assets.
C.Intangible assets.
DNone of these.
ANSWER: B
9.Financial leverage can be measured in ___________________.
A.Stock term.
B.Flow term.
C.Both (a) and (b).
D.None of these.
ANSWER: C
10.Current ratio of a concern is 1, its net working capital will be _________.
A. Positive.
B. Neutral.
C. Negative.
D. None of the above.
ANSWER: C
11.Risk-return trade off implies_____________.
A. Increasing the portfolio of the firm through increased production.
B. Not taking any loans which increases the risk.
C. Not granting credit to risky customers.
D. Taking decision in such a way which optimizes the balance between risk and
return.
ANSWER: D
12._____________ is a specific risk factor.
A.Market risk.
B.Inflation risk.
C.Interest rate risk.
D.Financial risk.
ANSWER: D
13._____________ is not a diversifiable or specific risk factor.
A.Company strike.
B.Bankruptcy of a major supplier.
C.Death of a key company officer.
D.Industrial recession.
ANSWER: D
14.Mr.Anil purchased 100 stocks of futura informatics ltd, for Rs.21 on March 15, sold for
Rs.35 on March 14 next year. In the company paid a dividend of Rs.2.50 per share,
themAnils holding period return is______________.
A.11.90%.
B.45.40%.
C.66.70%.
D.78.60%.
ANSWER: D
15.The 182-day annualized T bills rate is 9%p.a., the return on market is 15% p.a., and the
beta of stock B is1.5 the required rate of return from investment in stock B is___________.
A.17% p.a.
B.18% p.a.
C.19% p.a.
D.20% p.a.
ANSWER: B
16.The major benefit of diversification is to____________.
A. Increase the expected return.
B. Increase the size of the investment portfolio.
C. Reduce brokerage commissions.
D. Reduce the expected risk.
ANSWER: D
17.The risk free rate of return is 8% the expected rate of return on market portfolio is15% the
beta of eco boards equity stock is 1.4.the required rate on eco boards equity
is__________________.
A.15.4%.
B.16.8%.
C.17.2%.
D.17.8%.
ANSWER: D
18.________ is concerned with the acquisition, financing, and management of assets with
some overall goal in mind.
A.Financial management.
B.Profit maximization.
C.Agency theory.
D.Social responsibility.
ANSWER: A
19.__________ is concerned with the maximization of a firm's earnings after taxes
A.Shareholder wealth maximization.
C.Stakeholder maximization.
D.EPS maximization.
ANSWER: B
20._______________ is the most appropriate goal of the firm.
C.Stakeholder maximization.
D.EPS maximization
ANSWER: A
UNIT-II
21.Which of the following statements is correct regarding profit maximization as the primary
goal of the firm?
A.Profit maximization considers the firm's risk level.
B.Profit maximization will not lead to increasing short-term profits at the expense of
lowering expected future profits.
C.Profit maximization does consider the impact on individual shareholder's EPS.
D.Profit maximization is concerned more with maximizing net income than the stock
price.
ANSWER: D
22.If a company issues bonus shares the debt equity ratio ________________.
A. Remain unaffected.
B. Will be affected.
C. Will improve.
D .None of the above.
ANSWER: C
23.Which of the following is not normally a responsibility of the treasurer of the modern
corporation but rather the controller?
A.Budgets and forecasts.
B.Asset management.
C.Investment management.
D.Financial management.
ANSWER: A
24.The __________ decision involves determining the appropriate make-up of the right-hand
side of the balance sheet.
A. Asset management.
B. Financing.
C. Investment.
D. Capital budgeting.
ANSWER: B
25.Treasurer should report to _______________.
A. Chief Financial Officer.
B. Vice President of Operations.
C.chief Executive Officer.
D Board of Directors.
ANSWER: A
26.The __________ decision involves a determination of the total amount of assets needed,
the composition of the assets, and whether any assets need to be reduced, eliminated, or
replaced.
A .Asset management.
B. Financing.
C. Investment.
D. Accounting.
ANSWER: C
27.The par value of the stocks and bonds outstanding is termed as ___________________.
A.Capitalization.
B.Multiplication.
C.Outstanding income.
D.Earnings before interest and taxes.
S
28.According to the text's authors, ___________ is the most important of the three financial
management decisions.
A.Asset management decision.
B.Financing decision.
C.Investment decision.
D.Accounting decision.
ANSWER: C
29.The __________ decision involves efficiently managing the assets on the balance sheet on
a day-to-day basis, especially current assets.
A.Asset management.
B.Financing.
C.Investment.
D.Accounting.
ANSWER: A
30._____________ is not normally a responsibility of the controller of the modern
corporation.
A.Budgets and forecasts.
B.Asset management.
C.Financial reporting to the IRS.
D.Cost accounting.
ANSWER: B
31.All constituencies with a stake in the fortunes of the company are known as __________.
A. Shareholders.
B. Stakeholders.
C .Creditors.
D. Customers.
ANSWER: B
32.Which of the following statements is not correct regarding earnings per share (EPS)
maximization as the primary goal of the firm?
A.EPS maximization ignores the firm's risk level.
B.EPS maximization does not specify the timing or duration of expected EPS.
C.EPS maximization naturally requires all earnings to be retained.
D.EPS maximization is concerned with maximizing net income.
ANSWER: D
33.__________ is concerned with the maximization of a firm's stock price.
C.Stakeholder welfare maximization.
D.EPS maximization.
ANSWER: A
34.Corporate governance success includes three key groups. _____________ represents these
three groups.
A .Suppliers, managers, and customers.
B. Board of directors, executive officers, and common shareholders.
C. Suppliers, employees, and customers.
D .Common shareholders, managers, and employees.
ANSWER: B
35.In 2 years you are to receive Rs.10, 000. If the interest rate were to suddenly decrease, the
present value of that future amount to you would __________.
A. Fall.
B. Rise.
C. Remain unchanged.
D. Cannot be determined.
ANSWER: B
36.Interest paid (earned) on both the original principal borrowed (lent) and previous interest
earned is often referred to as __________.
A. Present value.
B. Simple interest.
C .Future value.
D. Compound interest.
ANSWER: D
37.The long-run objective of financial management is to _____________.
A. Maximize earnings per share.
B. Maximize the value of the firm's common stock.
C. Maximize return on investment.
D. Maximize market share.
ANSWER: B
38.What is the present value of a Rs.1, 000 ordinary annuity that earns 8% annually for an
infinite number of periods?
A.Rs.80.
B.Rs.800.
C.Rs.1, 000.
D.Rs.12, 500.
ANSWER: D
39.Which one of the following is / are the relevance theory?
A.Gorden.
B.Walter.
C.Residual.
D.Both (a) and (b).
ANSWER: A
40.A set of possible values that a random variable can assume and their associated
probabilities of occurrence are referred to as __________.
A. Probability distribution.
B .The expected return.
C. The standard deviation.
D. Coefficient of variation.
ANSWER: A
UNIT-III
41.The weighted average of possible returns, with the weights being the probabilities of
occurrence is referred to as __________.
A. A probability distribution.
B. The expected return.
C .The standard deviation.
D. Coefficient of variation.
ANSWER: B
42.___________ on capital gain and current income may influence form of capital.
A.Legal stipulation.
B.Rate of tax.
C.Capital market condition.
D.Cost of floating.
ANSWER: B
43.The most important and common form of dividend is ________________.

A.Stock dividend.
B.Cash dividend.
C.Bond dividend.
D.Scrip’s dividend.
ANSWER: A
44.________ form of market efficiency states that current security prices fully reflect all
information, both public and private.
A.Weak.
B.Semi-strong.
C.Strong.
D.Flexible.
ANSWER: C
45.Which form of market efficiency states that current prices fully reflect the historical
sequence of prices?
A.Weak.
B.Semi-strong.
C.Strong.
D.Flexible.
ANSWER: A
46.______________ form of market efficiency states that current prices fully reflect all
publicly available information.
A.Weak.
B.Semi-strong.
C.Strong.
D.Flexible.
ANSWER: B
47.__________ is concerned with the acquisition, financing, and management of assets with
some overall goal in mind.
C.Agency theory.
D.Social responsibility.
ANSWER: A
48.__________ is the employment of an asset is sources of fund for which the firm has to pay
a fixed cost or fixed return.
C.Asset management.
D.Leverage.
ANSWER: D
49._____________ is the minimum required rate of earnings or the cut off rate of capital
expenditure.
A.Cost of capital.
B.Working capital
C.Equity capital.
D.None of the above.
ANSWER: A
50._________________ is a long term planning for financing proposed capital outlay.
A.Capital Budgeting.
B.Budgeting.
C.Cash Budget.
D.Sales Budget.
ANSWER: A
51.Which of the following is the first step in capital budgeting process?
A.Final approval.
B.Screening the proposal.
C.Implementing proposal .
D. Identification of investment proposal.
ANSWER: D
52.The term _________________ refers to the period in which the project will generate the
necessary cash flow to recoup the initial investment.
A. Internal return.
B. Payback period.
C. Discounting return.
D. Accounting return.
ANSWER: B
53.A mutually exclusive project can be selected as per payback period when it is _________.
A. Less.
B. More.
C. More than 5 years.
ANSWER: A
54.The project can be selected if its profitability index is more than ______.
A.1%.
B.3%.
C.5%.
D.10%.
ANSWER: A
55.Initial outlay 50,000, life of the asset 5 yrs, estimated annual cash flow 12,500, IRR =
____________.
A.5%
B.6%
C.8%
D.10%
ANSWER: C
56.A project costs Rs, 1,00,000 annual cash flow of Rs. 20,000 for 8 years. Its payback
period is
______________.
A.1 year.
B.2 years.
C.3 years.
D.5 years.
ANSWER: D
57.X ltd issues rupees 50,000 8% debentures at a discount of 5%. The tax rate is 50% the cost
of debt capital is __________.
A.4%.
B.4.2%.
C.4.6%.
D.5%.
ANSWER: B
58.Cost of the project is 6,00,000 , life of the project is 5 years annual cash flow is 2,00,000
cut off rate is 10% the discounted pay back period is ______________.
A.2 yrs.
B.2 yrs 6 months.
C.3 yrs.
D.3 yrs 9 months.
ANSWER: D
59.To increase the given present value, the discounted rate should be adjusted
A. Upward.
B. Downward.
C. No change.
D. Constant.
ANSWER: B
60.Which form of market efficiency states that current security prices fully reflect all
information, both public and private?
A.Weak.
B.Semi-strong.
C.Strong.
D.Highly strong.
ANSWER: C
UNIT-IV
61.
Which form of market efficiency states that current prices fully reflect the historical sequence
of prices?
A.Weak.
B.Semi-strong.
C.Strong.
D.Highly strong.
ANSWER: A
62.________________ is one that maximizes value of business, minimizes overall cost of
capital, that is flexible, simple and futuristic, that ensures adequate control on affairs of
business by the owners and so on.
A.Minimal capital structure.
B.Moderate capital structure.
C.Optimal capital structure.
D.Deficit capital structure.
ANSWER: C
63.___________________ refers to make-up of a firm's capitalization.
A. Capital structure.
B. Capital budgeting.
C. Equity shares.
D. Dividend policy.
ANSWER: A
64._____________ of different sources of capital influences capital structure.
A.Restrictive covenants.
B.Tax advantage.
C.Cost of capital.
D.Trading on equity.
ANSWER: C
65.___________ of debt capital is a factor in favor of using more debt capital.
A.Tax advantage.
B.Debt equity norms.
C.Leverage effect.
D.Security of assets.
ANSWER: A
66.__________ is a payment of additional shares to shareholders in lieu of cash.
A.Stock split.
B.Stock dividend.
C.Extra dividend.
D.Regular dividend.
ANSWER: B
67._______________ such as restriction on business expansion, on raising additional capital,
on declaration of dividend, nominee directors on the board, convertibility clause, etc.
A.Trading on equity.
B.Security of assets.
C.Restrictive covenants.
D.Debt capacity of a business.
ANSWER: C
68.Debt capacity of a business needs _____________.
A.Restriction.
B.Consideration.
C. Leverage.
D.Security
ANSWER: B
68.Financial leverage refers to the rate of change in earnings per share for a given change in
earnings
___________________.
A. Before tax.
B. Before interest.
C. Before interest and tax.
D. After interest and tax.
ANSWER: C
70.Security of assets is determining factor for using ________.
A Debt capital.
B. Equity capital.
C. Preference capital.
D .Cost of capital.
ANSWER: A
71..Land at prime locations, modern buildings, machinery in good condition, etc are accepted
as
__________.
A. Funds.
B. Security.
C .Liquid cash.
D. Debt.
ANSWER: B
72.____________ refers the period between commencement of project construction and first
commercial operation of the project.
A.Maturity period.
B.Initial period.
C.Gestation period.
D.Growth period.
ANSWER: C
73.Financial risk perception is an influencing factor of _____________.
A. Equity structure.
B. Preference structure.
C. Debt structure.
D. Capital structure.
ANSWER: D
74.____________ bonds are again superior to ordinary bonds in terms of sale ability.
A.Redeemable.
B.Irredeemable.
C.Convertible.
D.Non-convertible.
ANSWER: C
75.__________, roll over, swap early retirement and the like need to be adopted when
needed.
A.Periodic servicing.
B.Involvement.
C.Responsibility.
D.Investment.
ANSWER: A
76.The risk averse prefers debt instruments, while the risk seekers go for ________.
A. Equity investments.
B. Preference investments.
C. Debt investments.
D. None of these.
ANSWER: A
77.When capital market is booming, firms can take market route to ________.
A. Raise capital.
B. Decrease capital.
C .Stop growing.
D Stagnate.
ANSWER: A
78.__________ is the expected cash dividend that is normally paid to shareholders.
A.Stock split.
B.Stock dividend.
C.Extra dividend.
D.Regular dividend.
ANSWER: C
79.What method of stock repurchase occurs when the buyer seeks bids within a specified
price range and accepts the lowest price that will allow it to acquire the entire block of
securities desired?
A.Dutch-auction.
B.Fixed-price.
C.Open-market.
D.Fair-warning.
ANSWER: A
UNIT-V
80.The __________ is the proportion of earnings that are paid to common shareholders in the
form of a cash dividend.
A. Retention rate.
B.1 plus the retention rate.
C. Growth rate.
D. Dividend pay-out ratio.
ANSWER: A
81. A method of budgeting that estimates todays value of money to be received in the future;
It is discounted due to the uncertainty of its true value in the future and for the cost of the
capital is______________.
A. Cash inflow.
B. Cash outflow.
C. Discounted cash flow.
D .Payback period
ANSWER: C
82.The long-run objective of financial management is to ___________.
A. Maximize earnings per share.
B. Maximize the value of the firm's common stock.
C. Maximize return on investment.
D. Maximize market share.
ANSWER: A
83.The field of finance is closely related to the fields of _________.
A. Statistics and economics.
B. Statistics and risk analysis.
C. Economics and accounting.
D. Accounting and comparative return analysis.
ANSWER: C
84.The ultimate measure of performance is _____________.
A. Amount of the firm's earnings.
B .The how the earnings are valued by the investor.
C. The firm's profit margin.
D.Return on the firm's total assets.
ANSWER: B
85.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.
ANSWER: A
86.A main benefit to the corporate form of organization is __________.
A. Double taxation of corporate income.
B. Simplicity of decision making and low organizational complexity.
C. Limited liability for the corporate shareholders.
D. A major management role exists for the firm's owners.
ANSWER: C
87.Capital is allocated by financial markets by _______________.
A. A lottery system between investment dealers.
B. Pricing securities based on their risk and expected future cash flows
C. By pricing risky securities higher than low-risk securities.
D .By a government risk-rating system based on AAA for low risk and CCC for high
risk.
ANSWER: B
88.The allocation of capital is determined by _________.
A. Expected rates of return.
B. The Bank of Canada.
C .The initial sale of securities in the primary market.
D. The size of the federal debt.
ANSWER: A
89.The mix of debt and equity in a firm is referred to as the firm's _______.
A. Primary capital.
B. Capital composition.
C .Cost of capital.
D. Capital structure.
ANSWER: C
90.The main focus of finance for the last 40 years has been _______.
A. Mergers and acquisitions.
B. Conglomerate firms.
C. Inflation.
D .Risk-return relationships.
ANSWER: A
91.Rate of tax on capital gain and current income may influence form of _________.
A. Equity.
B. Preference.
C. Debt.
D. Capital.
ANSWER: D
92.In finance, "working capital" means the same thing as __________.
A. Total assets.
B. Fixed assets.
C. Current assets.
D. Current assets minus current liabilities.
ANSWER: C
93.In deciding the appropriate level of current assets for the firm, management is confronted
with
_____________.
A. A trade-off between profitability and risk.
B. A trade-off between liquidity and marketability.
C. Atrade-off between equity and debt.
D. Trade-off between current assets and profitability.
ANSWER: A
94.___________ varies inversely with profitability.
A.Liquidity.
B.Risk.
C.Accounts.
D.Trade.
ANSWER: A
95.Permanent working capital ___________.
A. Varies with seasonal needs.
B. Includes fixed assets.
C. Is the amount of current assets required to meet a firm's long-term minimum needs.
D. Includes accounts payable.
ANSWER: C
96.Net working capital refers to ___________.
A.total assets minus fixed assets.
B.current assets minus current liabilities.
C.current assets minus inventories.
D.current assets.
ANSWER: B
97.Earlier a debt equity norm of _______ was generally insisted on by the controller of
capital issues.
A.1:1.
B.1:2.
C.2:1.
D.2:2.
ANSWER: C
98.The symptom of large inventory accumulation in anticipation of price rise in future will be
indicated by ________.
A.Asset turnover ratio.
B.Working Capital turnover ratio.
C. Inventory turnover ratio.
D. All of the above.
ANSWER: C
99.To financial analysts, "gross working capital" means the same thing as ________.
A. Fixed assets.
B. Current assets.
C. Working capital.
D. Cost of capital.
ANSWER: B
100.An example of fixed asset is________.
A.Live stock.
B.Value stock.
C.Income stock.
D.All of the above.
ANSWER: A
18UBM306 FINANCIAL MANAGEMENT
K2 QUESTIONS
UNIT-I
1. What is the financial management?
2. Why financial management need for business?
3. What are the functions of financial management?
4. Define finance.
5. What are the objectives of financial management?
6. What is profit maximization?
7. What is wealth maximization?
8. What are the short term sources of finance?
9. What are the long term sources of finance?
10. Define shares.
UNIT-II
11.Which factors affects financial decisions.
12.Define cost of capital.
13.Define Equity.
14.What is preferred stock?
15.Define Weighted average cost of capital.
16.What is operating leverage?
17.Define financial leverage.
18.Define leverage.
19.Write any two advantages of leverage.
20.Write any two advantages of cost of capital,
UNIT-III
21.What is meant by optimal capital structure?
22.List the factors influencing capital structure.
23.Give the meaning of dividend.
24. Listout the determinants of dividend policy.
25.What are the major sources available for dividends?
26.List the classification of dividend.
27.What are the sources available for dividends?
28.Define general dividend policy.
29. Give the meaning of dividend policy.
30.Define capital structure.
UNIT-IV
31.Define capital budgeting.
32.Write any two objectives of capital budgeting.
33.Explain capital budgeting decisions.
34.Write two types of capital budgeting.
35.Briefly explain methods of capital budgeting.
36.Expand ARR.
37.How do you calculate the ARR?
38.Expand IRR.
39.State the steps of capital budgeting process.
40.Write a note on internal rate of return.
UNIT-V
41.Define working capital.
42.Write the objectives of working capital management.
43.Write the objectives of working capital management
44.List the factors affecting working capital
45.Mention the need of working capital management
46.Draw the working capital cycle
47.List the various components of operating cycle.
48. Define cash management.
49.What is receivable management?
50. Explain credit policies.
18 UBM 306 – FINANCIAL MANAGEMENT
SECTION B(K3 Questions)
UNIT-I
1. Discover the scope of finance functions.
2. List the objectives of financial management.
3. Compare profit maximization and wealth maximization.
4. List out the characteristics of profit maximization
5.List out the characteristics of Wealth maximization
6. Analyze and explain what is shares and its features.
7. List the advantages of shares.
8. List the disadvantages of shares.
9. Distinguish shares and debentures.
10. List the advantages of debentures.
UNIT-II
11. Assume and write the brief note about preferred stock.
12. Analye and brief note on debt.
13. Discover and write brief note about financing decision.
14. Assume the characteristics of cost of capital.
15. Discover the factors affecting cost of capital.
16. Examine the systems of weighted average cost of capital.
17. List the significance of financial leverage.
18.List the limitations of financial leverage.
19.List the significance and of operating leverage.
20.List the limitations of operating leverage.

UNIT-III
21.Define capital structure and analyze what are the factors influencing capital structure?
22. Following are the figures related to PQR Co:
Sales Rs. 10,00,000 variable costs 40% of sales, and fixed cost Rs. 2,00,000, interest Rs. 15,000.
Calculate operating, financial and combined leverage. Also state change in the above leverages if
selling price is increased by 15%.
23. Analyze the features of optimal capital structure.

24. Analyse and explain what is dividend?
25. Analyse and explain what is dividend policy?
26. Assume and write brief note on dividend policy general.
27. Examine the concepts of working capital.
28. Discover the classification of dividend policy.
29. List the components of capital structure.
30. Assume the importance of capital structure.
UNIT-IV
31. Contrast the objectives of capital budgeting.
32. Discover the principles of capital budgeting.
33. List the importance of capital budgeting.
34. Assume the process of capital budgeting.
35. The company wants to reduce the labour cost by installing a new machine. Two types of
machines are available in the market, machine X and machine Y. Machine X would cost
Rs.18,000where as machine Y would cost Rs.15,000.Both the machines can reduce annual
labour cost by Rs. 3000.Caculate payback period method of both the machine and recommend
the best machine.
36. Analyse and list the various capital budgeting methods.

37. Examine the concept of payback period capital budgeting method.
38. Examine the concept of Net present valuecapital budgeting method.
39. Examine and write the concept of Internal rate of return capital budgeting method.
40. Assume and write the process of profitability index capital budgeting method.
UNIT-V
41. Analyze and write brief note about working capital management.
42. List the concepts of working capital.
42. Assume the importance of working capital.
43. Analyze and write the short notes on cash management.
44. Discover the objectives of cash management.
45. Discover the importance of cash management.
46. Inspect and explain the motives of holding cash.
47. Inspect how payment and credit limit set up?
48. Discover the importance of receivables management.
49. Discover the benefits of credits policies.
50. Analyze and write the objectives of receivables management

18 UBM 306 – FINANCIAL MANAGEMENT
SECTION - C(K4 &K5 Questions)
UNIT-I
1. Formulate the objectives of financial management.
2. Elaborate and write the difference between profit maximization and wealth maximization.
3.Develop retained earnings with its advantages and disadvantages.
4. Discuss in detail note on the short term sources of finance.
5.Discuss in detail note on the long term sources of finance.
UNIT-II
6. Discuss in detail note on cost of specific sources of capital.
7. Explain weighted average cost of capital.
8. Construct the cost of reserves and preferred stock sources.
9. Predict the difference between operating and financial leverages
10. Formulate computation of cost of capital.
UNIT-III
11. The sources of capital structure are enumerated below
Equity share Rs. 8,00,000

14% preference share Rs. 5,00,000
10% term loan Rs. 10,00,000
The expected dividend on equity capital is 10%. The company tax rate is 50%.Caculate the
weighted average cost of capital, before and after tax.
12. Develop the factors affecting dividend policy.

13. Imagine and write the types of dividend policy.
14. Elaborate the factors affecting capital structure.
15. Discuss in detail note on the determinants of dividend policy.
UNIT-IV
16. Predict and write the objectives of capital budgeting.
17. Imagine the factors influencing capital budgeting.
18. Formulate the methods of capital budgeting.
19. Discuss the types of capital budgeting.
20. Machines A and B are detailed below.
ITEMS MACHINE A MACHINE B

Cost 50,000 50,000
Annual earnings after
depreciation and taxes.
1st year 3,000 11,000
2nd year 5,000 9,000
3rd year 7,000 7,000
4th year 9,000 5,000
5th year 11,000 3,000
35,000 35,000
Depreciation has been charged on straight line basis and estimated life of both machines is 5
years. You are required to find out
1. Average rate of return on machines A and B.
2. Which machine is better from the point of view of payback period and why?
3. Calculate average rate of return when salvage value of machine A turns out to be Rs. 3000 and
when B machine has zero salvage value.
UNIT-V
21. Discuss the determinants of working capital.
22. Formulate the types of working capital.
23. Estimate and explain the strategies of cash management.
24. Imagine and explainthe elements of credit policies.
25. Build the steps involved in receivables management.

R.Visalakshi
B. COM SEMESTER 5- MCQ
FINANCIAL MANAGEMENT
1. Accounting Ratios are important tools used by
(a) Managers, (c) Investors,
(b) Researchers, (d) All of the above
2. Net Profit Ratio Signifies:
(a) Operational Profitability, (c) Big-term Solvency,
(b) Liquidity Position, (d) Profit for Lenders.
3. Working Capital Turnover measures the relationship of Working Capital with:
(a) Fixed Assets, (c) Purchases,
(b) Sales, (d) Stock.
4. In Ratio Analysis, the term Capital Employed refers to:
(a) Equity Share Capital, (c) Shareholders' Funds,
(b) Net worth, (d) None of the above.
5. Dividend Payout Ratio is:
(a) PAT Capital, (c) Pref. Dividend ÷ PAT,
(b) DPS ÷ EPS (d) Pref. Dividend ÷ Equity Dividend.
6. DU PONT Analysis deals with:
(a) Analysis of Current Assets, (c) Capital Budgeting,
(b) Analysis of Profit, (d) Analysis of Fixed Assets.
7. In Net Profit Ratio, the denominator is:
(a) Net Purchases, (c) Credit Sales,
(b) Net Sales, (d) Cost of goods sold.
8. Inventory Turnover measures the relationship of inventory with:
(a) Average Sales, (c) Total Purchases,
(b) Cost of Goods Sold, (d) Total Assets.
9. The term 'EVA' is used for:
(a) Extra Value Analysis, (c) Expected Value Analysis,
(b) Economic Value Added, (d) Engineering Value Analysis.
10. Return on Investment may be improved by:
(a) Increasing Turnover, (c) Increasing Capital Utilization,
(b) Reducing Expenses, (d) All of the above.
11. In Current Ratio, Current Assets are compared with:
(a) Current Profit, (c) Fixed Assets,
(b) Current Liabilities, (d) Equity Share Capital.
12. ABC Ltd. has a Current Ratio of 1.5: 1 and Net Current Assets of Rs. 5,00,000. What are the
Current Assets?
(a) Rs. 5,00,000, (c) Rs. 15,00,000,
(b) Rs. 10,00,000, (d) Rs. 25,00,000
13. There is deterioration in the management of working capital of XYZ Ltd. What does it refer to?
(a) That the Capital Employed has reduced, (c) That debtors collection period has increased,
(b) That the Profitability has gone up, (d) That sale has decreased.
14. Which of the following does not help to increase Current Ratio?
(a) Issue of Debentures to buy Stock, (c) Sale of Investment to pay Creditors,
(b) Issue of Debentures to pay Creditors, (d) Avail Bank Overdraft to buy Machine.
15. Debt to Total Assets Ratio can be improved by:
(a) Borrowing More, (c) Issue of Equity Shares,
(b) Issue of Debentures, (d) Redemption of Debt.
16. Ratio of Net Income to Number of Equity Shares known as:
(a) Price Earnings Ratio, (c) Earnings per Share,
(b) Net Profit Ratio, (d) Dividend per Share.
17. Trend Analysis helps comparing performance of a firm
(a) With other firms, (c) With other industries,
(b) Over a period of firm, (d) None of the above.
18. A Current Ratio of Less than One means:
(a) Current Liabilities < Current Assets, (c) Current Assets < Current Liabilities,
(b) Fixed Assets > Current Assets, (d) Share Capital > Current Assets.
19. A firm has Capital of Rs. 10,00,000; Sales of Rs. 5,00,000; Gross Profit of Rs. 2,00,000 and
Expenses of Rs. 1,00,000. What is the Net Profit Ratio?
(a) 20%, (b) 50%, (c) 10%, (d) 40%.
20. XYZ Ltd. has earned 8% Return on Total Assests of Rs. 50,00,000 and has a Net Profit Ratio of
5%. Find out the Sales of the firm.
(a) Rs. 4,00,000, (b) Rs. 2,50,000, (c) Rs. 80,00,000, (d) Rs. 83,33,333.
21. Suppliers and Creditors of a firm are interested in
(a) Profitability Position, (c) Market Share Position,
(b) Liquidity Position, (d) Debt Position.
22. Which of the following is a measure of Debt Service capacity of a firm?
(a) Current Ratio, (c) Interest Coverage Ratio,
(b) Acid Test Ratio, (d) Debtors Turnover.
23. Gross Profit Ratio for a firm remains same but the Net Profit Ratio is decreasing. The reason for
such behavior could be:
(a) Increase in Costs of Goods Sold, (c) Increase in Dividend,
(b) If Increase in Expense, (d) Decrease in Sales.
24. Which of the following statements is correct?
(a) A Higher Receivable Turnover is not desirable,
(b) Interest Coverage Ratio depends upon Tax Rate,
(c) Increase in Net Profit Ratio means increase in Sales,
(d) Lower Debt-Equity Ratio means lower Financial Risk.
25. Debt to Total Assets of a firm is .2. The Debt to Equity boo would be:
(a) 0.80, (b) 0.25, (c) 1.00, (d) 0.75
26. Which of the following helps analysing return to equity Shareholders?
(a) Return on Assets, (c) Net Profit Ratio,
(b) Earnings Per Share, (d) Return on Investment.
27. Return on Assets and Return on Investment Ratios belong to:
(a) Liquidity Ratios, (c) Solvency Ratios,
(b) Profitability Ratios, (d) Turnover.
28. XYZ Ltd. has a Debt Equity Ratio of 1.5 as compared to 1.3 Industry average. It means that the
firm has:
(a) Higher Liquidity, (c) Higher Profitability,
(b) Higher Financial Risk, (d) Higher Capital Employed.
29. Ratio Analysis can be used to study liquidity, turnover, profitability, etc. of a firm. What does
Debt-Equity Ratio help to study?
(a) Solvency, (b) Liquidity, (c) Profitability, (d) Turnover,
30. In Inventory Turnover calculation, what is taken in the numerator?
(a) Sales, (c) Opening Stock,
(b) Cost of Goods Sold, (d) Closing Stock.
31. Financial Planning deals with:
(a) Preparation of Financial Statements, (c) Preparing Budgets,
(b) Planning for a Capital Issue, (d) All of the above.
32. Financial planning starts with the preparation of:
(a) Master Budget, (c) Balance Sheet,
(b) Cash Budget, (d) None of the above.
33. Which of the following is not a part of Master Budget?
(a) Projected Balance Sheet, (c) Operating Budgets,
(b) Capital Expenditure Budget, (d) Budget Manual.
34. Which of the following is not shown in Cash Budget?
(a) Proposed Issue of Capital, (c) Interest on loan,
(b) Loan Repayment, (d) Depreciation.
35. During year 1, the sales and Cost of goods sold were Rs. 6,00,000 and Rs. 4,30,000 respectively.
Next year, the sales are expected to increase by 10%. The Cost of goods sold for next year would
be:
(a) Rs. 4,30,000, (b) Rs. 4,90,000, (c) Rs. 4,73,000, (d) Rs. 4,40,000.
36. In 'Percentage of Sales' method of preparation of Projected Financial Statements, the Operating
Expenses should be projected on the basis of:
(a) % of Profit before tax, (c) % of Gross Profit,
(b) % of Cost of goods Sold, (d) % of Sales.
37. In'% of Sales' method, various items of balance sheet are estimated on the basis of.
(a) % of Share Capital, (c) % of Fixed Assets,
(b) % of Sales in current year, (d) % of Sales in preceding year.
38. In Projected Balance Sheet, a balancing figure:
(a) May appear on Assets Side, (c) Would never appear,
(b) May appear on Liabilities Side, (d) Any of (a) or (&).
39. Procedure for preparation of 'Projected Financial Statements' should start from:
(a) Projection of Fixed Assets, (c) Projection of Sales,
(b) Projection of Capital, (d) Projection of Profit.
40. Which of the following is not considered which preparing cash budget?
(a) Accrual Principle, (c) Conservation Principle,
(b) Difference in Capital, and Revenue items, (d) All of the above.
41. Which of the following may not be apart of projected Financial Statements?
(a) Projected Income Statement, (c) Projected Cash Flow Statement,
(b) Projected Trial Balance, (d) Projected Balance Sheet.
42. Process of Financial Planning ends with:
(a) Preparation of Projected Statements,
(b) Preparation of Actual Statements,
(c) Comparison of Actual with Projected,
(d) Ordering the employees that projected figures m come true.
43. Which of the following is not true for cash Budge?
(a) That shortage or excess of cash would appear in a particular period.
(b) All inflows would arise before outflows for those periods.
(c) Only revenue nature cash flows are shown.
(d) Proposed issue of share capital in shown as an inflow
44. Capital Budgeting is a part of:
(a) Investment Decision, (c) Marketing Management,
(b) Working Capital Management, (d) Capital Structure.
45. Capital Budgeting deals with:
(a) Long-term Decisions, (c) Both (a) and (b),
(b) Short-term Decisions, (d) Neither (a) nor (b).
46. Which of the following is not used in Capital Budgeting?
(a) Time Value of Money, (c) Net Assets Method,
(b) Sensitivity Analysis, (d) Cash Flows.
47. Capital Budgeting Decisions are:
(a) Reversible, (c) Unimportant,
(b) Irreversible, (d) All of the above.
48. Which of the following is not incorporated in Capital Budgeting?
(a) Tax-Effect, (c) Required Rate of Return,
(b) Time Value of Money, (d) Rate of Cash Discount.
49. Which of the following is not a capital budgeting decision?
(a) Expansion Programme, (c) Replacement of an Asset,
(b) Merger, (d) Inventory Level.
50. A sound Capital Budgeting technique is based on:
(a) Cash Flows, (c) Interest Rate on Borrowings,
(b) Accounting Profit, (d) Last Dividend Paid.
51. Which of the following is not a relevant cost in Capital Budgeting?
(a) Sunk Cost, (c) Allocated Overheads,
(b) Opportunity Cost, (d) Both (a) and (c) above.
52. Capital Budgeting Decisions are based on:
(a) Incremental Profit, (c) Incremental Assets,
(b) Incremental Cash Flows, (d) Incremental Capital.
53. Which of the following does not effect cash flows proposal?
(a) Salvage Value, (c) Tax Rate Change,
(b) Depreciation Amount, (d) Method of Project Financing.
54. Cash Inflows from a project include:
(a) Tax Shield of Depreciation, (c) Raising of Funds,
(b) After-tax Operating Profits, (d) Both (a) and (b).
55. Which of the following is not true with reference capital budgeting?
(a) Capital budgeting is related to asset replacement decisions,
(b) Cost of capital is equal to minimum required return,
(c) Existing investment in a project is not treated as sunk cost,
(d) Timing of cash flows is relevant.
56. Which of the following is not followed in capital budgeting?
(a) Cash flows Principle, (c) Accrual Principle,
(b) Interest Exclusion Principle, (d) Post-tax Principle.
57. Depreciation is incorporated in cash flows because it:
(a) Is unavoidable cost, (c) Reduces Tax liability,
(b) Is a cash flow, (d) Involves an outflow.
58. Which of the following is not true for capital budgeting?
(a) Sunk costs are ignored, (c) Incremental cash flows are considered,
(b) Opportunity costs are excluded, (d) Relevant cash flows are considered.
59. Which of the following is not applied in capital budgeting?
(a) Cash flows be calculated in incremental terms,
(b) All costs and benefits are measured on cash basis,
(c) All accrued costs and revenues be incorporated,
(d) All benefits are measured on after-tax basis.
60. Evaluation of Capital Budgeting Proposals is based on Cash Flows because:
(a) Cash Flows are easy to calculate, (c) Cash is more important than profit,
(b) Cash Flows are suggested by SEBI, (d) None of the above.
61. Which of the following is not included in incremental A flows?
(a) Opportunity Costs, (c) Change in Working Capital,
(b) Sunk Costs, (d) Inflation effect.
62. A proposal is not a Capital Budgeting proposal if it:
(a) is related to Fixed Assets, (c) brings short-term benefits only,
(b) brings long-term benefits, (d) has very large investment.
63. In Capital Budgeting, Sunk cost is excluded because it is:
(a) of small amount, (c) not reversible,
(b) not incremental, (d) All of the above.
64. Savings in respect of a cost is treated in capital budgeting as:
(a) An Inflow, (c) (c) Nil,
(b) (b) An Outflow, (d) (d) None of the above.
65. In capital budgeting, the term Capital Rationing implies:
(a) That no retained earnings available,
(b) That limited funds are available for investment,
(c) That no external funds can be raised,
(d) That no fresh investment is required in current year
66. Feasibility Set Approach to Capital Rationing can be applied in:
(a) Accept-Reject Situations, (c) Mutually Exclusive Projects,
(b) Divisible Projects, (d) None of the above
67. In case of divisible projects, which of the following can be used to attain maximum NPV?
(a) Feasibility Set Approach, (c) Profitability Index Approach,
(b) Internal Rate of Return, (d) Any of the above
68. In case of the indivisible projects, which of the following may not give the optimum result?
(a) Internal Rate of Return, (c) Feasibility Set Approach,
(b) Profitability Index, (d) All of the above
69. Profitability Index, when applied to Divisible Projects, impliedly assumes that:
(a) Project cannot be taken in parts,
(b) NPV is linearly proportionate to part of the project taken up,
(c) NPV is additive in nature,
(d) Both (b) and (c)
70. If there is no inflation during a period, then the Money Cashflow would be equal to:
(a) Present Value, (c) Real Cashflow + Present Value ,
(b) Real Cashflow, (d) Real Cashflow - Present Value
71. The Real Cashflows must be discounted to get the present value at a rate equal to:
(a) Money Discount Rate, (c) Real Discount Rate,
(b) Inflation Rate, (d) Risk free rate of interest
72. Real rate of return is equal to:
(a) Nominal Rate × Inflation Rate, (c) Nominal Rate - Inflation Rate,
(b) Nominal Rate ÷ Inflation Rate, (d) Nominal Rate + Inflation Rate
73. If the Real rate of return is 10% and Inflation s Money Discount Rate is:
(a) 14.4%, (b) 2.5%, (c) 25%, (d) 14%
74. If the Money Discount Rate is 19% and Inflation Rate is 12%, then the Real Discount Rate is:
(a) 7%, (b) 5%, (c) 5.70%, (d) 6.25%
75. Money Discount Rate if equal to:
(a) (1 + Inflation Rate) (1 + Real Rate)-1, (c) (1 + Real Rate) 4- (1 + Inflation Rate)-1,
(b) (1 + Inflation Rate) 4- (1 + Real Rate)-1, (d) (1 + Real Rate) + (1 + Inflation Rate)-1
76. Real Discount Rate is equal to:
(a) (1 + Inf. Rate) (1 + Money D Rate)-1, (c) (1 + Money D Rate) 4- (1 + Inf. Rate)-1,
(b) (1 + Money D Rate) + (1 + Inf. Rate)-1, (d) (1 + Money D Rate) - (1 + Inf. Rate)-1
77. Which of the following cannot be true?
(a) Inflation Rate > Money Dis. Rate, (c) Inflation Rate < Real Dis. Rate,
(b) Real Dis. Rate < Money Dis. Rate (d) Inflation Rate = Real Dis. Rate
78. Money Cash flows should be adjusted for:
(a) Only Inflation Effect, (c) None of (a) and (b),
(b) Only Time Value of Money, (d) Both of (a) and (b)
79. EAV should be used in case of:
(a) Divisible Projects, (c) One-off Investments
(b) Repetitive Projects, (d) Indivisible Projects
80. EAV is Equal to:
(a) NPV × PVAF(r,n) (c) NPV ÷ PVAF(r,n)
(b) NPV + PVAF(r,n) (d) NPV-PVAF(r,n)
81. If a project has positive NPV, its EAV is
(a) Equal to NPV, (c) Less than NPV,
(b) More than NPV, (d) Any of the above
82. Two mutually exclusive projects with different economic lives can be compared on the basis of
(a) Internal Rate of Return, (c) Net Present Value,
(b) Profitability Index, (d) Equivalent Annuity Value
83. Risk in Capital budgeting implies that the decision-maker knows___________of the cash flows.
(a) Variability, (c) Certainty,
(b) Probability, (d) None of the above
84. In Certainty-equivalent approach, adjusted cash flows are discounted at:
(a) Accounting Rate of Return, (c) Hurdle Rate,
(b) Internal Rate of Return, (d) Risk-free Rate
85. Risk in Capital budgeting is same as:
(a) Uncertainty of Cash flows, (c) Certainty of Cash flows,
(b) Probability of Cash flows, (d) Variability of Cash flows
86. Which of the following is a risk factor in capital budgeting?
(a) Industry specific risk factors, (c) Project specific risk factors,
(b) Competition risk factors, (d) All of the above
87. In Risk-Adjusted Discount Rate method, the normal rate of discount is:
(a) Increased, (c) Unchanged,
(b) Decreased, (d) None of the above
88. In Risk-Adjusted Discount Rate method, which one is adjusted?
(a) Cash flows, (c) Rate of discount,
(b) Life of the proposal, (d) Salvage value
89. NPV of a proposal, as calculated by RADR real CE Approach will be:
(a) Same, (c) Both (a) and (b),
(b) Unequal, (d) None of (a) and (b)
90. Risk of a Capital budgeting can be incorporated
(a) Adjusting the Cash flows, (c) Adjusting the life,
(b) Adjusting the Discount Rate, (d) All of the above
91. Which element of the basic NPV equation is adjusted by the RADR?
(a) Denominator, (b) Numerator, (c) Both, (d) None
92. In CE Approach, the CE Factors for different years are:
(a) Generally increasing, (c) Generally same,
(b) Generally decreasing, (d) None of the above
93. Which of the following is correct for RADR?
(a) Accept a project if NPV at RADR is negative,
(b) Accept a project if IRR is more than RADR
(c) RADR is overall cost of capital plus risk-premium ,
(d) All of the above.
94. In Playback Period approach to risk the target payback period is
(a) Not adjusted, (c) Adjusted downward ,
(b) Adjusted upward, (d) (b) or (c)
95. In Sensitivity Analysis, the emphasis is on assessment of sensitivity of
(a) Net Economic Life, (c) Both (a) and (b),
(b) Net Present Value, (d) None of (a) and (b)
96. Most Sensitive variable as given by the Sensitivity Analysis should be:
(a) Ignored, (c) Given the maximum importance,
(b) Given Least important, (d) None of the above
97. Expected Value of Cashflow, EVCF, is:
(a) Certain to occur, (c) Arithmetic Average Cashflow,
(b) Most likely Cashflows, (d) Geometric Average Cashflow
98. Concept of joint probability is used in case of:
(a) Independent Cashflows, (c) Dependent Cashflows,
(b) Uncertain Cashflows, (d) Certain Cashflows
99. Decision-tree approach is used in:
(a) Proposals with longer life, (c) Independent Cashflows,
(b) Sequential decisions, (d) Accept-Reject Proposal
100. Cost of Capital refers to:
(a) Flotation Cost, (c) Required Rate of Return,
(b) Dividend, (d) None of the above.
101. Which of the following sources of funds has an Implicit Cost of Capital?
(a) Equity Share Capital, (c) Debentures,
(b) Preference Share Capital, (d) Retained earnings.
102. Which of the following has the highest cost of capital?
(a) Equity shares, (c) Bonds,
(b) Loans, (d) Preference shares.
103. Cost of Capital for Government securities is also known as:
(a) Risk-free Rate of Interest, (c) Rate of Interest on Fixed Deposits,
(b) Maximum Rate of Return, (d) None of the above.
104. Cost of Capital for Bonds and Debentures is calculated on:
(a) Before Tax basis, (c) Risk-free Rate of Interest basis,
(b) After Tax basis, (d) None of the above.
105. Weighted Average Cost of Capital is generally denoted by:
(a) kA, (b) kw, (c) k0, (d) kc,
106. Which of the following cost of capital require tax adjustment?
(a) Cost of Equity Shares, (c) Cost of Debentures,
(b) Cost of Preference Shares, (d) Cost of Retained Earnings.
107. Which is the most expensive source of funds?
(a) New Equity Shares, (c) New Debts,
(b) New Preference Shares, (d) Retained Earnings.
108. Marginal cost of capital is the cost of:
(a) Additional Sales, (c) Additional Interests,
(b) Additional Funds, (d) None of the above.
109. In case the firm is all-equity financed, WACC would be equal to:
(a) Cost of Debt, (c) Neither (a) nor (b),
(b) Cost of Equity, (d) Both (a) and (b).
110. In case of partially debt-financed firm, k0 is less
(a) Kd , (c) Both (a) and (b),
(b) Ke, (d) None of the above.
111. In order to calculate Weighted Average Cost of weights may be based on:
(a) Market Values, (c) Book Values,
(b) Target Values, (d) All of the above.
112. Firm's Cost of Capital is the average cost of:
(a) All sources, (c) Share capital,
(b) All borrowings, (d) Share Bonds & Debentures.
113. An implicit cost of increasing proportion of debt is:
(a) Tax should would not be available on new debt,
(b) P.E. Ratio would increase,
(c) Equity shareholders would demand higher return,
(d) Rate of Return of the company would decrease.
114. Cost of Redeemable Preference Share Capital is:
(a) Rate of Dividend,
(b) After Tax Rate of Dividend,
(c) Discount Rate that equates PV of inflows and out-flows relating to capital,
(d) None of the above.
115. Which of the following is true?
(a) Retained earnings are cost free,
(b) External Equity is cheaper than Internal Equity,
(c) Retained Earnings are cheaper than External Equity,
(d) Retained Earnings are costlier than External Equity.
116. Cost of capital may be defined as:
(a) Weighted Average cost of all debts,
(b) Rate of Return expected by Equity Shareholders,
(c) Average IRR of the Projects of the firm,
(d) Minimum Rate of Return that the firm should earn.
117. Minimum Rate of Return that a firm must earn in order to satisfy its investors, is also known as:
(a) Average Return on Investment, (c) Net Profit Ratio,
(b) Weighted Average Cost of Capital, (d) Average Cost of borrowing.
118. Cost of Capital for Equity Share Capital does not imply that:
(a) Market Price is equal to Book Value of share,
(b) Shareholders are ready to subscribe to right issue,
(c) Market Price is more than Issue Price,
(d) Any of the three options.
119. In order to calculate the proportion of equity financing used by the company, the following
should be used:
(a) Authorised Share Capital,
(b) Equity Share Capital plus Reserves and Surplus,
(c) Equity Share Capital plus Preference Share Capital,
(d) Equity Share Capital plus Long-term Debt.
120. The term capital structure denotes:
(a) Total of Liability side of Balance Sheet,
(b) Equity Funds, Preference Capital and Long term Debt,
(c) Total Shareholders Equity,
(d) Types of Capital Issued by a Company.
121. Debt Financing is a cheaper source of finance because of:
(a) Time Value of Money, (c) Tax-deductibility of Interest,
(b) Rate of Interest, (d) Dividends not Payable to lenders.
122. In order to find out cost of equity capital under CAPM, which of the following is not required:
(a) Beta Factor, (c) Market Price of Equity Share,
(b) Market Rate of Return, (d) Risk-free Rate of Interest.
123. Tax-rate is relevant and important for calculation of specific cost of capital of:
(a) Equity Share Capital, (c) Debentures,
(b) Preference Share Capital, (d) (a) and (b) above.
124. Advantage of Debt financing is:
(a) Interest is tax-deductible, (c) Does not dilute owners control,
(b) It reduces WACC, (d) All of the above.
125. Cost of issuing new shares to the public is known as:
(a) Cost of Equity, (c) Flotation Cost,
(b) Cost of Capital, (d) Marginal Cost of Capital.
126. Cost of Equity Share Capital is more than cost of debt because:
(a) Face value of debentures is more than face value of shares,
(b) Equity shares have higher risk than debt,
(c) Equity shares are easily saleable,
(d) All of the three above.
127. Which of the following is not a generally accepted approach for Calculation of Cost of Equity?
(a) CAPM, (c) Rate of Pref. Dividend Plus Risk,
(b) Dividend Discount Model, (d) Price-Earnings Ratio.
128. Operating leverage helps in analysis of:
(a) Business Risk, (c) Production Risk,
(b) Financing Risk, (d) Credit Risk
129. Which of the following is studied with the help of financial leverage?
(a) Marketing Risk, (c) Foreign Exchange Risk,
(b) Interest Rate Risk, (d) Financing risk
130. Combined Leverage is obtained from OL and FL by their:
(a) Addition, (b) Subtraction, (c) Multiplication, (d) Any of these
131. High degree of financial leverage means:
(a) High debt proportion, (c) Equal debt and equity,
(b) Lower debt proportion, (d) No debt
132. Operating leverage arises because of:
(a) Fixed Cost of Production, (c) Variable Cost,
(b) Fixed Interest Cost, (d) None of the above
133. Financial Leverage arises because of:
(a) Fixed cost of production, (c) Interest Cost,
(b) Variable Cost, (d) None of the above
134. Operating Leverage is calculated as:
(a) Contribution ÷ EBIT, (c) EBIT ÷Interest,
(b) EBIT÷PBT, (d) EBIT ÷Tax
135. Financial Leverage is calculated as:
(a) EBIT÷ Contribution, (c) EBIT÷ Sales,
(b) EBIT÷ PBT, (d) EBIT ÷ Variable Cost
136. Which combination is generally good for firms
(a) High OL, High FL (c) High OL, Low FL,
(b) Low OL, Low FL, (d) None of these
137. Combined leverage can be used to measure the relationship between:
(a) EBIT and EPS, (c) Sales and EPS,
(b) PAT and EPS, (d) Sales and EBIT
138. FL is zero if:
(a) EBIT = Interest, (c) EBIT = Fixed Cost,
(b) EBIT = Zero, (d) EBIT = Pref. Dividend
139. Business risk can be measured by:
(a) Financial leverage, (c) Combined leverage,
(b) Operating leverage, (d) None of the above
140. Financial Leverage measures relationship between
(a) EBIT and PBT, (c) Sales and PBT,
(b) EBIT and EPS, (d) Sales and EPS
141. Use of Preference Share Capital in Capital structure
(a) Increases OL, (c) Decreases OL,
(b) Increases FL, (d) Decreases FL
142. Relationship between change in sales and change m is measured by:
(a) Financial leverage, (c) Operating leverage,
(b) Combined leverage (d) None of the above
143. Operating leverage works when:
(a) Sales Increases, (c) Both (a) and (b),
(b) Sales Decreases, (d) None of (a) and (b)
144. Which of the following is correct?
(a) CL= OL + FL, (c) OL= OL × FL,
(b) CL=OL-FL, (d) OL=OL÷FL
145. If the fixed cost of production is zero, which one of the following is correct?
(a) OL is zero, (c) CL is zero,
(b) FL is zero, (d) None of the above
146. If a firm has no debt, which one is correct?
(a) OL is one, (c) OL is zero,
(b) FL is one, (d) FL is zero
147. If a company issues new share capital to redeem debentures, then:
(a) OL will increase, (c) OL will decrease,
(b) FL will increase, (d) FL will decrease
148. If a firm has a DOL of 2.8, it means:
(a) If sales increase by 2.8%, the EBIT will increase by 1%,
(b) If EBIT increase by 2.896, the EPS will increase by 1 %,
(c) If sales rise by 1%, EBIT will rise by 2.8%,
(d) None of the above
149. Higher OL is related to the use of higher:
(a) Debt, (c) Fixed Cost,
(b) Equity, (d) Variable Cost
150. Higher FL is related the use of:
(a) Higher Equity, (c) Lower Debt,
(b) Higher Debt, (d) None of the above
151. In order to calculate EPS, Profit after Tax and Preference Dividend is divided by:
(a) MP of Equity Shares, (c) Face Value of Equity Shares,
(b) Number of Equity Shares, (d) None of the above.
152. Trading on Equity is :
(a) Always beneficial, (c) Never beneficial,
(b) May be beneficial, (d) None of the above.
153. Benefit of 'Trading on Equity' is available only if:
(a) Rate of Interest < Rate of Return, (c) Both (a) and (b),
(b) Rate of Interest > Rate of Return, (d) None of (d) and (b).
154. Indifference Level of EBIT is one at which:
(a) EPS is zero, (c) EPS is highest,
(b) EPS is Minimum, (d) None of these.
155. Financial Break-even level of EBIT is one at which:
(a) EPS is one, (c) EPS is Infinite,
(b) EPS is zero, (d) EPS is Negative.
156. Relationship between change in Sales and d Operating Profit is known as:
(a) Financial Leverage, (c) Net Profit Ratio,
(b) Operating Leverage, (d) Gross Profit Ratio.
157. If a firm has no Preference share capital, Financial Break even level is defined as equal to
(a) EBIT, (c) Equity Dividend,
(b) Interest liability, (d) Tax Liability.
158. At Indifference level of EBIT, different capital have:
(a) Same EBIT, (c) Same PAT,
(b) Same EPS, (d) Same PBT.
159. Which of the following is not a relevant factor m EPS Analysis of capital structure?
(a) Rate of Interest on Debt, (c) Amount of Preference Share Capital,
(b) Tax Rate, (d) Dividend paid last year.
160. For a constant EBIT, if the debt level is further increased then
(a) EPS will always increase, (c) EPS will never increase,
(b) EPS may increase, (d) None of the above.
161. Between two capital plans, if expected EBIT is more than indifference level of EBIT, then
(a) Both plans be rejected, (c) One is better than other,
(b) Both plans are good, (d) None of the above.
162. Which of the following is true for Net Income Approach?
(a) Higher Equity is better, (c) Debt Ratio is irrelevant,
(b) Higher Debt is better, (d) None of the above.
163. In case of Net Income Approach, the Cost of equity is:
(a) Constant, (c) Decreasing,
(b) Increasing, (d) None of the above.
164. In case of Net Income Approach, when the debt proportion is increased, the cost of debt:
(a) Increases, (c) Constant,
(b) Decreases, (d) None of the above.
165. Which of the following is true of Net Income Approach?
(a) VF = VE+VD, (c) VD = VF+VE,
(b) VE = VF+VD, (d) VF = VE-VE,
166. Net Operating Income Approach, which one of the lowing is constant?
(a) Cost of Equity, (c) WACC & kd,
(b) Cost of Debt, (d) Ke and Kd
167. NOI Approach advocates that the degree of debt financing is:
(a) Relevant, (c) Irrelevant,
(b) May be relevant, (d) May be irrelevant.
168. 'Judicious use of leverage' is suggested by:
(a) Net Income Approach, (c) Traditional Approach,
(b) Net Operating Income Approach, (d) All of the above.
169. Which one is true for Net Operating Income Approach?
(a) VD = VF - VE, (c) VE = VF - VD,
(b) VE = VF + VD, (d) VD = VF + VE.
170. In the Traditional Approach, which one of the following remains constant?
(a) Cost of Equity, (c) WACC,
(b) Cost of Debt, (d) None of the above.
171. In MM-Model, irrelevance of capital structure is based on:
(a) Cost of Debt and Equity, (c) Decreasing k0,
(b) Arbitrage Process, (d) All of the above.
172. That there is no corporate tax' is assumed by:
(b) Net Operating Income Approach, (d) All of these.
173. That personal leverage can replace corporate leverage' is assumed by:
(a) Traditional Approach, (c) Net Income Approach,
(b) MM Model, (d) Net Operating Income Approach.
174. Which of the following argues that the value of levered firm is higher than that of the unlevered
firm?
(a) Net Income Approach, (c) MM Model with taxes,
(b) Net Operating Income Approach, (d) Both (a) and (c).
175. In Traditional Approach, which one is correct?
(a) ke rises constantly, (c) k0 decreases constantly,
(b) kd decreases constantly, (d) None of the above.
176. Which of the following assumes constant kd and ke?
(b) Net Operating Income Approach, (d) MM Model.
177. Which of the following is true?
(a) Under Traditional Approach, overall cost of capital remains same,
(b) Under NI Approach, overall cost of capital remains same,
(c) Under NOI Approach, overall cost of capital remains same,
(d) None of the above.
178. The Traditional Approach to Value of the firm m that:
(a) There is no optimal capital structure,
(b) Value can be increased by judicious use of leverage
(c) Cost of Capital and Capital structure are m dent,
(d) Risk of the firm is independent of capital structure
179. A firm has EBIT of Rs. 50,000. Market value of debt is Rs. 80,000 and overall capitalization rate
is 20%. Market value of firm under NOI Approach is:
(a) Rs. 2,50,000, (b) Rs. 1,70,000, (c) Rs. 30,000, (d) Rs. 1,30,000.
180. Which of the following is incorrect for NOI?
(a) k0 is constant, (c) ke is constant,
(b) kd is constant, (d) kd& k0 are constant.
181. Which of the following is incorrect for value of the firm?
(a) In the initial preposition, MM Model argues that value is independent of the financing mix.
(b) Total value of levered and unlevered firms is otherwise arbitrage will take place.
(c) Total value incorporates borrowings by firm but excludes personal borrowing.
(d) Total value does not change because underlying does not change with financing mix.
182. Which of the following appearing in the balance! generates tax advantage and hence affects the c,
structure decision ?
(a) Reserves and Surplus, (c) Preference Share Capital,
(b) Long-term debt, (d) Equity Share Capital.
183. In MM Model with taxes, where 'r' is the interest rate, ‘D’ is the total debt and 't' is tax rate, then
present valued shields would be:
(a) r×D×t, (c) D×t,
(b) r×D, (d) (D× r)/(l-t).
184. ‘Bird in hand' argument is given by
(a) Walker's Model, (c) MM Mode,
(b) Gordon's Model, (e) Residuals Theory
185. Residuals Theory argues that dividend is a
(a) Relevant Decision , (c) Passive Decision,
(b) Active Decision, (d) Irrelevant Decision
186. Dividend irrelevance argument of MM Model is based on:
(a) Issue of Debentures, (c) Arbitrage ,
(b) Issue of Bonus Share, (d) Hedging
187. Which of the following is not true for MM Model?
(a) Share price goes up if dividend is paid ,
(b) Share price goes down if dividend is not paid,
(c) Market value is unaffected by Dividend policy,
(d) All of the above.
188. Which of the following stresses on investor's preference reorient dividend than higher future
capital gains ?
(a) Walter's Model, (c) Gordon's Model,
(b) Residuals Theory, (d) MM Model.
189. MM Model of Dividend irrelevance uses arbitrage between
(a) Dividend and Bonus, (c) Profit and Investment,
(b) Dividend and Capital Issue, (d) None of the above
190. If ke = r, then under Walter's Model, which of the following is irrelevant?
(a) Earnings per share, (c) DP Ratio,
(b) Dividend per share, (d) None of the above
191. MM Model argues that dividend is irrelevant as
(a) the value of the firm depends upon earning power,
(b) the investors buy shares for capital gain,
(c) dividend is payable after deciding the retained earnings,
(d) dividend is a small amount
192. Which of the following represents passive dividend policy ?
(a) that dividend is paid as a % of EPS,
(b) that dividend is paid as a constant amount,
(c) that dividend is paid after retaining profits for reinvestment,
(d) all of the above
193. In case of Gordon's Model, the MP for zero payout is zero. It means that
(a) Shares are not traded, (c) Investors are not ready to offer any price,
(b) Shares available free of cost, (d) None of the above
194. Gordon's Model of dividend relevance is same as
(a) No-growth Model of equity valuation, (c) Price-Earning Ratio
(b) Constant growth Model of equity (d) Inverse of Price Earnings Ratio
valuation,
195. If 'r' = 'ke', than MP by Walter's Model and Gordon's Model for different payout ratios would be
(a) Unequal, (b) Zero, (c) Equal, (d) Negative
196. Dividend Payout Ratio is
(a) PAT÷ Capital, (c) Pref. Dividend ÷ PAT,
(b) DPS ÷ EPS, (d) Pref. Dividend ÷ Equity Dividend
197. Dividend declared by a company must be paid in
(a) 20 days, (b) 30 days, (c) 32 days, (d) 42 days
198. Dividend Distribution Tax is payable by
(a) Shareholders to Government, (c) Company to Government,
(b) Shareholders to Company, (d) Holding to Subsidiary Company
199. Shares of face value of Rs. 10 are 80% paid up. The company declares a dividend of 50%.
Amount of dividend per share is
(a) Rs. 5, (b) Rs.4, (c) Rs. 80, (d) Rs. 50
200. Which of the following generally not result in increase in total dividend liability ?
(a) Share-split, (c) Bonus Issue,
(b) Right Issue, (d) All of the above
Answers : 1. (d); 2. (a) 3. (a); 4. (d); 5. (b); 6. (b); 7. (b); 8. (b); 9. (b); 10. (d); 11. (b); 12. (c); 13.
(c); 14. (d); 15. (d); 16. (c); 17. (b); 18. (c);19. (a); 20. (c);21. (b);22. (c);23. (b);24. (d);25.
(b);26. (b); 27. (b); 28. (b); 29. (a); 30. (b) 31. (c); 32. (d); 33. (d); 34. (d); 35. (c); 36. (d); 37.
(d), 38 (d), 39. (c); 40. (d); 41. (b); 42. (c); 43. (c)44(a), 45(a), 46(c), 47(b), 48(d), 49(d), 50(a),
51(d), 52(b), 53(d), 54(d), 55(c), 56 (c), 57(c), 58(b), 59(c), 60(c), 61(b), 62(c), 63(b), 64(a)65.
(b); 66. (a); 67. (c); 68. (c); 69. (d); 70. (b); 71. (c); 72. (b); 73. (a); 74. (d);75 (a); 76. (c); 77.
(a); 78. (c); 79. (b);80. (c); 81. (c); 82. (d)83. (b) 84. (d) 85. (d) 86. (d) 87. (a) 88. (c) 89. (b) 90.
(d) 91. (a) 92. (b). 93. (c) 94. (c) 95. (b) 96. (c) 97. (b) 98. (c) 99. (b)l00 (c), 101 (d), 102 (a), 103
(a), 104 (b), 105 (c), 106 (c), 107 (a), 108 (b), 109 (b), 110 (b), 111 (d), 112 (a), 113(c), 114 (c),
115(c), 116 (d), 117(b), 118 (d), 119 (b), 120 (b), 121(c), 122 (c), 123 (c), 124 (d), 125 (c), 126
(b), 127(c)128. (a), 129. (d), 130. (c), 131. (a), 132. (a),133. (c), 134. (a), 135. (b), 136. (c), 137.
(c), 138. (b), 139. (b), 140. (b), 141. (b), 142. (b), 143. (c), 144. (c), 145. (d), 146. (b), 147. (d),
148. (c), 149. (c), 150. (b)151. (b),152. (b), 153. (a), 154. (d), 155. (b), 156. (b), 157. (b), 158.
(b), 159. (d), 160. (b), 161. (c): l62 (b), 163 (a), 164 (c), 165 (a), 166 (c), 167 (c), 168 (c), 169
(c), 170 (d) 171 (b), 172 (d), 173 (b), 174 (d), 175 (d), 176 (a), 177 (c), 178 (b), 179 (b) 180 (c),
181 (d), 182 (b), 183(c)184 (b),185(c), 186(c), 187(c), 188(c), 189(b), 190(c), 191 (a), 192(c),
193(c), 194(b), 195(c)l96 (b), 197 (b), 198 (c), 199 (b), 200 (a)
B COM SEMESTER 6- MCQ
Management Accounting
1. Statement of cash flows includes
A) Financing Activities
B) Operating Activities
C) Investing Activities
D) All of the Above
2. In cash flows, when a firm invests in fixed assets and short-term financial investments
results in
A) Increased Equity
B) Increased Liabilities
C) Decreased Cash
D) Increased Cash
3. A firm that issues stocks and bonds to raise funds results in
A) Decreases Cash
B) Increases Cash
C) Increases Equity
D) Increases Liabilities
4. The purchase value of assets over its serviceable life is categorised as
A) Appreciated Liabilities
B) Appreciated Assets
C) Depreciation
D) Appreciation
5. The basic financial statements include
A) Statement of Cash Flows
B) Statement of Retained Earnings
C) Balance Sheet and Income Statement
D) None of the Above
6. The statement of cash flow clarifies cash flows according to
A) Operating and Non-operating Flows
B) Inflow and Outflow
C) Investing and Non-operating Flows
D) Operating, Investing, and Financing Activities
7. Cash flow example from a financial activity is
A) Payment of Dividend
B) Receipt of Dividend on Investment
C) Cash Received from Customers
D) Purchase of Fixed Asset
8. Cash flow example from an investing activity is
A) Issue of Debenture
B) Repayment of Long-term Loan
C) Purchase of Raw Materials for Cash
D) Sale of Investment by Non-Financial Enterprise
9. Cash flow example from an operating activity is
A) Purchase of Own Debenture
B) Sale of Fixed Assets
C) Interest Paid on Term-deposits by a Bank
D) Issue of Equity Share Capital
10. Which item comes under financial activities in cash flow?
A) Redemption of Preference Share
B) Issue of Preference Share
C) Interest Paid
D) All of the above
11. As per AS-3, Cash Flow Statement is mandatory for
A) All enterprises
B) Companies listed on a stock exchange
C) Companies with a turnover of more than Rs 50 crores
a) Both A and B
b) Both A and C
c) Both C and B
12. Listed Enterprises need to prepare Cash Flow Statement only under indirect method.
a) True
b) False
13. In the case of financial enterprises, the cash flow resulting from interest and dividend
received and interest paid should be classified as cash flow from
a) Operating activities
b) Financing activities
c) Investing activities
d) None of the above
14. In case of other enterprises cash flow arising from interest paid should be classified as cash
flow from ________ while dividends and interest received should be stated as cash flow
from ____.
a) Operating activities, financing activities
b) Financing activities, investing activities
c) Investing activities, operating activities
15. Issue of bonus shares and conversion of debentures into equity are shown as a footnote to
the Cash Flow Statement.
a) True
b) False
16. When a fixed asset is bought as hire purchase, interest element is classified under ______
and loan element is classified under________.
a) Operating activities, financing activities
b) Financing activities, investing activities
c) Investing activities, operating activities
17. Which of the following statements are false?
A) Old Furniture written off doesn’t affect cash flow.
B) Cash flow statement is a substitute for cash account.
C) Appropriation of retained earnings is not shown in Cash flow statement.
D) Net cash flow during a period can never be negative.
a) A, B, C
b) B, C, D
c) C, D, A
18. Which of the following is not a cash inflow?
a) Decrease in debtors
b) Issue of shares
c) Decrease in creditors
d) Sale of fixed assets
19. Which of the following is not a cash outflow?
a) Increase in Prepaid expenses
b) Increase in debtors
c) Increase in stock
d) Increase in creditors
20. Which of the following is a conventional method of ascertaining cost?
a) Absorption costing
b) Full Costing
c) Both a & b
21. Under absorption costing, profit is ascertained
a) On the basis of difference between sales and total cost.
b) By computation as per desired rate of profit on sales or cost
c) Both a and b
d) None of the above.
22. While ascertaining gross profit under absorption costing, only that portion of
manufacturing overheads is deducted from sales revenue which is associated with the
goods sold.
a) True
b) False
23. Under absorption costing among fixed expenses
a) Fixed manufacturing expenses are included in unit cost
b) Fixed non-manufacturing expenses are included in unit cost
c) Both a and b
24. Absorption costing is used for
a) Price determination on basis of full cost
b) Solution of separation of costs
c) Calculation of gross and net profit
d) All of the above
25. Absorption costs helps in
a) Difference between product cost and period cost
b) Charged of fixed factory overheads on inventory
c) Both a and b
26. Which of the following statements are true?
A) Absorption costing helps in preparation of fixed budget.
B) Absorption costing is dependent on level of level of output.
C) Absorption costing is very helpful in taking managerial decisions.
D) Absorption costing helps to conform with accrual and matching concept.
a) A and B
b) B and C
c) A and D
d) B and D
27. Fixed expenses decrease per unit with the increases in production and increases per unit
with the decrease in production.
a) True
b) False
28. Marginal costs is taken as equal to
a) Prime Cost plus all variable overheads
b) Prime Cost minus all variable overheads
c) Variable overheads
29. If total cost of 100 units is Rs 5000 and those of 101 units is Rs 5030 then increase of Rs
30 in total cost is
a) Marginal cost
b) Prime cost
c) All variable overheads
30. Marginal cost is computed as
a) Prime cost + All Variable overheads
b) Direct material + Direct labor + Direct Expenses + All variable overheads
c) Total costs – All fixed overheads
d) All of the above
31. Marginal costing is also known as
a) Direct costing
b) Variable costing
c) Both a and b
A. Marginal costing is not an independent system of costing.
B. In marginal costing all elements of cost are divided into fixed and variable components.
C. In marginal costing fixed costs are treated as product cost.
D. Marginal costing is not a technique of cost analysis.
a) A and B
b) B and C
c) A and D
d) B and D
33. While computation of profit in marginal costing
a) Total marginal cost is deducted from total sales revenues
b) Total marginal cost is added to total sales revenues
c) Fixed cost is added to contribution
34. Which of the following are the assumptions of marginal costing?
A) All the elements of cost can be divided into fixed and variable components.
B) Total fixed cost remains constant at all levels of output.
C) Total variable costs varies in proportion to the volume of output.
D) Per unit selling price remain unchanged at all levels of operating activity.
a) A and B
b) B and C
c) A and D
d) A, B C and D
35. In two periods total costs amounts to Rs 50000 and Rs 40000 against production of 20000
and 15000 units respectively. Determine marginal cost per unit and fixed cost.
a) Rs 2 and Rs 10,000
b) Rs 4 and Rs 5000
c) Rs 10 and Rs 8000
36. Under High and Low Point method, the output at two different levels is compared with the
amount of __________ incurred at these two points.
a) Total fixed costs
b) Total costs
c) Total fixed costs
37. Given Maximum value of production and minimum value of production is 10,000 and
5000 units respectively. Maximum total cost is RS 25,000 and minimum total cost is Rs
15,000. Determine total fixed cost and per unit marginal cost.
a) Rs 2 per unit, Rs 5,000
b) Rs 5 per unit, Rs 2000
c) Rs 10 per unit, Rs 10,000
38. Under method of least squares, a linear equation is developed in the form of ______
wherein Y is total cost, a=fixed cost, b= marginal cost and X is output.
a) Y=a+bX
b) Y=a-bX
c) Y=a*bX
39. In Analytical method of calculating marginal costing, it is determined on the basis of past
records.
a) True
b) False
40. Theory of contribution is the excess of sales over variable costs.
a) a)True
b) b)False
41. Which of the following statements related to Contribution Analysis are ture?
a) If contribution is zero, there is loss equal to fixed costs
b) If contribution is negative, loss is less than fixed costs
c) If contribution is positive and more than fixed cost there will be profit.
d) All of the above
42. When contribution is negative but less than fixed cost,
a) There is loss equal to fixed costs
b) There is loss more than fixed costs
c) There will be loss less than fixed costs
d) All of above are false
43. When contribution is positive but equal to fixed cost,
a) There is loss equal to fixed costs
b) There is loss more than fixed costs
c) There will be loss less than fixed costs
d) There will be neither profit not loss
44. Opportunities to achieve further growth within current businesses are:
a) Intensive Opportunities
b) Integrative Opportunities
c) Diversification Opportunities
45. Absorption costing is also known as
a) Historical costing
b) Total costing
c) Both a and b
46. Given production is 1,00,000 units, fixed costs is Rs 2,00,000 Selling price is Rs 10 per
unit and variable cost is Rs 6 per unit. Determine profit using technique of marginal
costing.
a) Rs 2,00,000
b) Rs 8,00,000
c) Rs 6,00,000
a) In absorption costing, cost is divided into three major parts while in marginal costing cost
is divided into two main parts.
b) IN absorption costing period is important and in marginal costing product is important.
c) Both a and b
48. In context of net operating profit, which of the following statements are true?
a) If all costs are variable, the amount of profit obtained in marginal costing and absorption
costing will be same.
b) If the volume of sales and output is equal in a period, profit will be same in absorption
costing and marginal costing.
c) Both a and b
49. Under absorption costing, managerial decisions are based on
a) Profit
b) Contribution
c) Profit volume ratio
50. If sales is less than production and there is no opening stock, it suggests there is closing
stock. In such a scenario, profit under marginal costing will be less than the one shown by
absorption costing.
a) True
b) False
51. In the calculation of return on shareholders investments the referred investment deals with
A. All reserves
B. Preference and equity capital only
C. All appropriations
D. All of the above
52. Which of the following is an advantage of standard costing?
A. Measuring efficiency
B. Facilitates cost control
C. Determination of variance
D. All of the above
53. The assets of a business can be classified as
A. Only fixed assets
B. Only current assets
C. Fixed and current assets
D. None of the above
54. Which of the following is the test of the long term liquidity of a business?
A. Interest coverage ratio
B. Stock turnover ratio
C. Operating ratio
D. Current ratio
55. The term management accounting was first coined in
a) 1960
b) 1950
c) 1945
d) 1955
56. Management accounting is
A) Subjective
B) Objective
a) Only A
b) Only B
c) Both A and B
57. The use of management accounting is
a) Optional
b) Compulsory
c) Legally obligatory
d) Compulsory to some and optional to others
58. The management accounting can be stated an extension of
A) Cost Accounting
B) Financial Accounting
C) Responsibility Accounting
a) Both A and B
b) Both A and C
c) Both B and C
d) A, B, C
59. Which of the following is true about management accounting?
A) Management accounting is associated with presentation of accounting data.
B) Management accounting is extremely sensitive to investors needs.
a) Only A
b) Only B
c) Both A and B
60. Management accounting assists the management
a) Only in control
b) Only in direction
c) Only in planning
d) In planning, direction and control
61. Which of the following are tools of management accounting?
A) Decision accounting
B) Standard costing
C) Budgetary control
D) Human Resources Accounting
a) A, B and D
b) A, C and D
c) A, B and C
d) A, B , C, D
62. Management accounting is related with
a) The problem of choice making
b) Recording of transactions
c) Cause and effect relationships
A. A and B
B. B and C
C. A and C
D. All are false
63. Management accountancy is a structure for
A. Costing
B. Accounting
C. Decision making
D. Management
64. Who coined the concept of management accounting?
A. R.N Anthony
B. James H. Bliss
C. J. Batty
D. American Accounting
65. Management accounting deals with
A. Quantitative information
B. Qualitative information
C. Both a and b
66. Management accounting highlights staff relationship with top management as well as other
personnel.
A. True
B. False
67. The definition â˜Management Accounting is the presentation of accounting information
in such a way as to assist management in the creation of policy and the day-to-day
operation of an undertaking.â™
A. Ango-American Council on Productivity
B. AICPA
C. Robert N. Anthony
D. All of the above
68. The second term for Horizontal Analysis is
A. Dynamic Analysis
B. Inter-firm Analysis
C. Time-series Analysis
D. All of the above
69. Vertical analysis is also known as
A. Static analysis
B. Structural analysis
C. Cross-sectional analysis
D. All of the above
70. The assessment of financial statements by a shareholder is an example of
A. Vertical Analysis
B. Horizontal Analysis
C. Internal Analysis
D. External Analysis
71. Trend percentages and trend ratios are used in
A. Static Analysis
B. Dynamic Analysis
C. Horizontal Analysis
D. Vertical Analysis
A) Vertical Analysis is also termed as dynamic analysis.
B) Horizontal analysis is also termed as dynamic analysis.
C) Static Analysis is not extremely useful for the long-term financial planning.
A. Both A and B
B. Both A and C
C. Both B and C
D. A, B , C
A) Funds Flow statement is one of the ways to analysis & interpret financial statements.
B) Cash Flow Statement is one of the ways to analysis & interprets financial statements.
C) Common-size statement one of the ways to analysis & interprets financial statements.
A. Both A and B
B. Both A and C
C. Both B and C
D. A, B, C
74. Which of the following statements are true about Horizontal Analysis?
A) It do not examines the periodical trend
B) It is useful for long-term analysis.
C) It is useful for long â“term planning.
A. Both A and B
B. Both A and C
C. Both B and C
D. A, B, C
A) Comparative financial statement is an example of horizontal analysis.
B) Trend Analysis is an example of vertical analysis.
C) Cash flow analysis is an example of horizontal analysis.
A. Both A and B
B. Both A and C
C. Both B and C
D. A, B, C
76. John N. Myer stated that vertical and horizontal analysis forms the back-bone of financial
statement analysis technique.
A. True
B. False
77. Ratio analysis is an important approach of horizontal analysis.
A. True
B. False
78. The 3 Ps, i.e. the three objectives of analysis and interpretation of financial statements are :
Progress, Position and Prospects.
A. True
B. False
79. Comparison of financial statements highlights the trend of the _________ of the business.
A. Financial position
B. Performance
C. Profitability
D. All of the above
80. Analysis of any financial Statement comprises
A. Balance sheet
B. P&L Account
C. Trading account
D. All of the above
81. Which of the following are techniques, tools or methods of analysis and interpretation of
financial statements?
A. Ratio Analysis
B. Average Analysis
C. Trend Analysis
D. All of the above
82. Interpretation of accounts is the
A. Art and science of translating the figures
B. To know financial strengths and weaknesses of a business
C. To know the causes for the prevailing performance of business
D. All of the above
83. The only feasible purpose of financial management is
A. Wealth Maximization
B. Sales Maximization
C. Profit Maximization
D. Assets maximization
84. Financial management process deals with
A. Investments
B. Financing decisions
C. Both a and b
85. Agency cost consists of
A. Binding
B. Monitoring
C. Opportunity and structure cost
D. All of the above
86. 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
87. 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
88. 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
89. Time value of money indicates that
A. A unit of money obtained today is worth more than a unit of money obtained in
future
B. A unit of money obtained today is worth less than a unit of money obtained in
future
C. There is no difference in the value of money obtained today and tomorrow
90. Time value of money supports the comparison of cash flows recorded at different time
period by
A. Discounting all cash flows to a common point of time
B. Compounding all cash flows to a common point of time
C. Using either a or b
91. If the nominal rate of interest is 10% per annum and there is quarterly compounding, the
effective rate of interest will be:
A. 10% per annum
B. 10.10 per annum
C. 10.25%per annum
D. 10.38% per annum
92. Relationship between annual nominal rate of interest and annual effective rate of interest,
if frequency of compounding is greater than one:
A. Effective rate > Nominal rate
B. Effective rate < Nominal rate
C. Effective rate = Nominal rate
93. Mr. X takes a loan of Rs 50,000 from HDFC Bank. The rate of interest is 10% per annum.
The first installment will be paid at the end of year 5. Determine the amount of equal
annual installments if Mr. X wishes to repay the amount in five installments.
A. Rs 19500
B. Rs 19400
C. Rs 19310
94. If nominal rate of return is 10% per annum and annual effective rate of interest is 10.25%
per annum, determine the frequency of compounding:
A. 1
B. 2
C. 3
95. Present value tables for annuity cannot be straight away applied to varied stream of cash
flows.
A. True
B. False
96. Heterogeneous cash flows can be made comparable by
A. Discounting technique
B. Compounding technique
C. Either a or b
97. Risk of two securities with different expected return can be compared with:
A. Coefficient of variation
B. Standard deviation of securities
C. Variance of Securities
98. Efficient portfolios can be defined as those portfolios which for a given level of risk
provides
A. Maximum return
B. Average return
C. Minimum return
99. CAPM accounts for:
A. Unsystematic risk
B. Systematic risk
C. Both a and b
100. Which among the following presents a bird's-eyeview of the operations for the entire
period of a business?
A. Balance sheet
B. Profit and loss a/c
C. Cash flow statements
D. Position statement
101. ________ is the relationship between quick assets and current liabilities .
A. Current ratio
B. Absolute liquidity ratio
C. Acid test ratio
D. Proprietary ratio
102. When the concept of ratio is defined in respected to the items shown in the financial
statements, it is termed as
A. Accounting ratio
B. Financial ratio
C. Costing ratio
103. The definition, “The term accounting ratio is used to describe significant relationship
which exist between figures shown in a balance sheet, in a profit and loss account, in a
budgetary control system or in a any part of the accounting organization” is given by
A. Biramn and Dribin
B. Lord Keynes
C. J. Betty
104. The relationship between two financial variables can be expressed in:
A. Pure ratio
B. Percentage
C. Rate or time
D. Either of the above
105. Liquidity ratios are expressed in
A. Pure ratio form
B. Percentage
C. Rate or time
106. Which of the following statements are true about Ratio Analysis?
A) Ratio analysis is useful in financial analysis.
B) Ratio analysis is helpful in communication and coordination
C) Ratio Analysis is not helpful in identifying weak spots of the business.
D) Ratio Analysis is helpful in financial planning and forecasting.
a) A, B and D
b) A, C and D
c) A, B and C
d) A, B , C, D
107. Profit for the objective of calculating a ratio may be taken as
A. Profit before tax but after interest
B. Profit before interest and tax
C. Profit after interest and tax
D. All of the above
108. Which of the following falls under Profitability ratios?
A) General Profitability ratios
B) Overall Profitability ratios
C) Comprehensive Profitability ratios
A. A and B
B. A and C
C. B and C
109. General Profitability ratios are based on
A. Investments
B. Sales
C. a & B
110. Gross Profit ratio is also termed as
A. Gross Profit Margin
B. Gross Margin to net sales
C. Both a and b
D. All of the above
111. While calculating Gross Profit ratio,
A. Closing stock is deducted from cost of goods sold
B. Closing stock is added to cost of goods sold
C. Closing stock is ignored
112. While calculating Gross Profit, if net profit is given,
A. It can be converted into gross profit by adding interest to it
B. It can be converted into Gross profit by adding indirect expenses to it
C. Both a and b
113. Gross profit ratio is calculated by
A. (Gross Profit/Gross sales)*100
B. (Gross Profit/Net sales)*100
C. (Net Profit/Gross sales)*100
114. Given Sales is 1, 20,000 and Gross Profit is 30,000, the gross profit ratio is
A. 24%
B. 25%
C. 40%
D. 44%%
115. What will be the Gross Profit if, total sales is Rs 2,60,000 Cost of net goods sold is Rs
2,00,000 and Sales return is Rs 10,000?
A. 13%
B. 28%
C. 26%
D. 20%
116. If selling price is fixed 25% above the cost, the Gross Profit ratio is
A. 13%
B. 28%
C. 26%
D. 20%
117. Gross Profit ratio should be adequate to cover
A. Selling expenses
B. Administrative expenses
C. Dividends
D. All of the above
118. Which statement is prepared in the process of funds flow analysis?
A. Schedule of changes in working capital
B. Funds Flow Statement
C. Both a and b
119. Funds Flow Statement is prepared on the basis of data of P&L statement and two
consecutive balance sheets.
A. True
B. False
C. Value delivery
120. Which of the following rules stands true while preparation of Schedule of changes in
working capital?
A) An increase in current assets increases working capital.
B) An increase in current assets decreases working capital.
C) An increase in current liabilities decreases working capital.
D) An increase in current liabilities increases working capital
A. A and C
B. A and D
C. B and D
D. A, B, C and D
121. If reserve for bad and doubtful debts is mentioned in the question of Funds Flow Statement
Preparation, it can be shown as
A. In the schedule by deducting from total debtors under current assets
B. In the schedule separately under the heading of capital liabilities
C. Both a & b
122. Funds Flow Statement is also known as
A. Statement of Funds Flow
B. Statement of Sources and Application of Funds
C. Statement of Sources and Uses of Funds
D. All of the above
123. Given Net profit for the year Rs 2, 50,000 Transferred to general reserves Rs 40,000 and
old machinery bought for Rs 50,000 was sold for Rs 20,000. Calculate funds from
operations.
A. Rs 2, 80,000
B. Rs 2, 20,000
C. Rs 2, 90,000
D. Rs 3, 00,000
124. Which of the following are sources of funds?
A) Issue of bonus shares
B) Issue of shares against the purchase of fixed assets
C) Conversion of debentures into shares
D) Conversion of loans into shares
a) A and C
b) A and D
c) A, B, C and D
125. The share capital of A Ltd. stood at Rs 20,00,000 in 2013 and at Rs 26 lac in 2014. As per
records, the company bought asset of another company for Rs 6 lac payable in fully paid
shares. These assets included Goodwill Rs 2,00,000 Machinery Rs 1, 83, 600 and Stock Rs
2,16,400. What is the fund from issue of shares?
A. Rs 2,15,600
B. Rs 2,16,400
C. Rs 2,00,000
126. Debentures are Rs 2,50,000 and Rs 3,50,000 in the balance sheet of 2013 and 2014. 1000
of the debentures of Rs 100 each were issued at par in 2014 of which 400 debentures were
issued to a supplier for the purchase of a machine. Determine amount of issue for
debentures for the purpose of funds flow statement.
A. Rs 60,000
B. Rs 40,000
C. RS 10,000
127. In the balance sheet of Praveen for 2013 and 2014, 4% debentures are Rs 5,00,000 and Rs
4,00,000, respectively. Profit on redemption of debentures in 2013 is nil while in 2014 is
Rs 4,000. What is the amount of redemption for the purpose of funds flow statement?
A. Rs 96,000
B. Rs 1,04,000
C. Rs 9,00,000
D. Rs 9,04,000
128. The balance of property at cost has been RS 20,000 and Rs 17,000 in 2013 and 2014
respectively. The profit on sale of property of Rs 2000 is credited to Capital Reserves
Account. New property costing Rs 5000 bought in 2014. Determine sale of proceeds from
land.
A. Rs 3000
B. Rs 10,000
C. Rs 7000
D. Rs 15,000
129. of Ram at end of 2013 and 2014 disclose investments in shares of Rs 2000 and Rs 3000,
respectively. Rs 100 as pre-acquisition dividend has been credited to investments account.
Determine purchase of investments.
A. RS 5000
B. Rs 1000
C. Rs 1,100
130. The balance of fixed assets of Y Ltd. at cost at the end of 2013 and 2014 were Rs 5,70,800
and Rs 6,15,300. During the year 2014 a machinery costing Rs 60,000 was sold.
Determine the purchase of fixed assets.
A. Rs 1,04,500
B. Rs 1,40,500
C. Rs 1,64,500
131. Which of the following are applications of funds?
A. Payment of dividend on share capital
B. Payment of tax
C. Increase in working capital
D. All of above
132. Which of the following are treated as long term investments?
A. Non-current investments
B. Trade Investments
C. Sinking fund investments
D. All of the above
133. Provision of taxation is treated as
A. As a current liability
B. As an appropriation of profits
C. Either a or b
134. As per accounting standard AS3, provision for taxation should be treated as
A. As a current liability
B. As an appropriation of profits
C. Either a or b
135. Which of the following statement is true?
A. If the amount of good will increases during current year, the difference is treated as
purchase of goodwill.
B. If the amount of good will decreases during current year, It will treated as written
off.
C. Both a and b
136. The opening and closing balance of general reserves are Rs 10,000 and Rs 9,000,
respectively. It is stated in addition information that a loss of Rs 1000 has been written off
in general reserves. In such a case, decline in reserve and loss on investment will be
adjusted in P&L account.
A. True
B. False
137. As per Accounting Standard-3, Cash Flow is classified into
A. Operating activities and investing activities
B. Investing activities and financing activities
C. Operating activities and financing activities
D. Operating activities, financing activities and investing activities
138. Cash Flow Statement is also known as
A. Statement of Changes in Financial Position on Cash basis
B. Statement accounting for variation in cash
C. Both a and b
139. The objectives of Cash Flow Statement are
A) Analysis of cash position
B) Short-term cash planning
C) Evaluation of liquidity
D) Comparison of operating Performance
a) Both A and B
b) Both A and C
c) Both B and D
d) A, B, C, D
140. In cash flow statement, the item of interest is shown in
A) Operating Activities
B) Financing Activities
C) Investing Activities
A. Both A and B
B. Both A and C
C. Both B and C
D. A, B, C
141. Cash Flow Statement is based upon
A. Cash basis of accounting
B. Accrual basis of accounting
C. Credit basis of accounting
A) Cash Flow Statement is helpful in the formation of policies.
B) Cash Flow Statement is useful for external analysis
C) Cash Flow Statement is helpful in estimating future cash flow
A. Both A and B
B. Both A and C
C. Both B and C
A) Cash flow reveals only the inflow of cash
B) Cash flow reveals only the outflow of cash
C) Cash flow is a substitute for income statement
D) Cash flow statement is not a replacement of funds flow statement.
A. Only A
B. Only B
C. Both B and C
D. Only D
144. Cash flow statement is based upon _________ while Funds Flow Statement recognizes
_______.
A. Cash basis of accounting, accrual basis of accounting
B. Accrual basis of accounting, cash basis of accounting
C. Both are based on cash basis of accounting
145. Statement of changes in working capital is prepared separately in
A. Cash Flow Statement
C. Both a and b
146. Cash Flow Statement studies causes of change in working capital.
A. True
B. False
147. _________ reconciles the opening cash balance with the closing cash balance of a given
period on the basis of net decrease or increase in cash during that period.
A. Cash Flow Statement
C. Both a and b
A) Cash flow statement is more useful for short term cash planning.
B) Funds Flow statement is more useful in planning medium term and long term
financing.
C) Cash Flow statement discloses the position of liquidity in a better way
A. Only A
B. Only B
C. Only C
D. A, B and C
149. _____ has/have accepted cash flow statement is more useful than funds flow statement,
particularly from view of analysis of liquidity of a firm.
A. Institute Of Chartered Accountants of India
B. FASB, America
C. SEBI
D. All of the above
150. Cash Flow Statement is prepared from
A. Profit and loss account
B. Balance Sheet
C. Additional Information
D. All of the above
151. Which of the following are cash flow from operating activities?
A) Cash Receipts from customers
B) Cash Paid to Supplier and Employees
C) Purchase of fixed assets
D) Sale of fixed assets
A. Both A and B
B. Both A and C
C. Both B and C
D. Both C and D
152. Match the column
A) Taxes Paid ------------------ i) Cash flow from investing activities
B) Repayment of loans -------------- ii) Cash flow from operating activities
C) Sale of fixed assets ----------------------- iii) Cash Flow from financing activities
A. A-ii), B-iii), C-i)
B. A-i), B-ii), C-iii)
C. A-iii), B-i), C-ii)
153. Cash payment to suppliers for services and goods is example of cash outflow.
A. True
B. False
154. For the calculation of cash flow from operating activities, payments and receipts shown in
Profit & Loss account are converted into payments and receipts actually in cash.
A. True
B. False
155. For the calculation of cash flow from operating activities, payments and receipts shown in
Profit & Loss account are converted into payments and receipts actually in cash by
eliminating
A. Non-cash revenue from the revenue earned
B. Non-cash expenses from expenses incurred
C. Both a & b
156. While preparing Cash Flow Statement, non-cash items and non-operating items are not
required to be adjusted under________
A. Indirect method
B. Direct method
C. Both a & b
157. Cash flow from sales is calculated by
A. Cash sales + Cash Collections
B. Sales + Opening debtors+ Opening B/R â“Closing Debtors â“ Closing B/R
C. Both a and b
158. Cash outflow on purchases is calculated by
A. Purchases + Opening Creditors + Opening B/P â“Closing Creditors-Closing B/P
B. Purchases + Opening Creditors - Closing Creditors +Closing B/P
C. Purchases - Opening Creditors - Opening B/P + Closing Creditors +Closing B/P
159. The amount of operating expenses which are actually been paid in cash are shown under:
A. Cash flow from sales
B. Cash outflow on purchases
C. Cash outflow on expenses
D. All of above are false
160. Given salary expenses Rs 40,000, Outstanding in the beginning of the year: Rs 5,000 and
outstanding at the end of the year Rs 10,000. Cash outflow on salary will be:
A. Rs 45,000
B. Rs 35000
C. Rs 55,000
D. Rs 15,000
161. In indirect method, net cash flow from operating activities is calculated on the basis of
A. Net Profit after tax
B. Net profit before tax
C. Both and b
162. Which of the following are added to net profit after tax and extraordinary items to reach to
net profit before tax and extraordinary items?
A) Provision for tax made during the year
B) Proposed dividend made during the year
C) Interim dividend
D) Transfer to General reserves and other reserves
A. Both A and B
B. Both A and C
C. Both B and C
D. A, B, C and D
163. Which of the following are cash flow from investing activities?
A) Interest received
C) Dividend received
D) Sale of fixed assets
E) Purchase of fixed assets
a) Both A and B
b) Both A and C
c) Both B and C
d) A, B, C and D
164. Which of the following are cash flow from financing activities?
A) Interest received
B) Dividend received
C) Interest paid
D) Dividend paid
A. Both A and B
B. Both A and C
C. Both C and D
D. A, B, C and D
165. Acquisition and disposal of long term assets is included in
A. Cash flow from investing activities
B. Cash flow from financing activities
C. Cash flow from operating activities
166. Which of the following statements represent example of cash flow from investing
activities?
A. Cash advances and loans made by financial enterprises
B. Cash advances and loans made to third parties
C. Both a and b
167. ABC Ltd had investment of Rs 68,000 as on 31.3.2013 and investment of Rs 56,000 as on
31.3.2014. During the year ABC Ltd sold 40% of its investments being held in the
beginning of period at a profit of Rs 16,800. Determine cash flow from investing activities.
A. Rs 59,200
B. Rs 28,800
C. Rs 72,800
168. Financing activities brings changes in
A. Size and composition of ownerâ™s equities
B. Borrowing of the enterprise
C. Both a and b
169. For year 2013 Equity Share Capital is Rs 3,00,000 Preference Share Capital is 1,00,000
10% debentures is 2,00,000 and Share premium is 30,000. For year 2014 Equity Share
Capital is Rs 4,00,000 Preference Share Capital is 60,000 10% debentures is 1,00,000 and
Share premium is 40,000. Also given, Dividend paid on shares Rs 15,000 and Interest paid
on debentures RS 20,000. Determine net cash flow from financing activities.
A. Cash inflow of Rs 65,000
B. Cash outflow of Rs 65,000
C. Cash inflow of Rs 56,000
D. Cash outflow of Rs 56,000
170. As per AS-3, Cash Flow Statement is mandatory for
A) All enterprises
B) Companies listed on a stock exchange
C) Companies with a turnover of more than Rs 50 crores
A. Both A and B
B. Both A and C
C. Both C and B
171. Listed Enterprises need to prepare Cash Flow Statement only under indirect method.
A. True
B. False
172. In the case of financial enterprises, the cash flow resulting from interest and dividend
received and interest paid should be classified as cash flow from
A. Operating activities
B. Financing activities
C. Investing activities
173. In case of other enterprises cash flow arising from interest paid should be classified as cash
flow from ________ while dividends and interest received should be stated as cash flow
from ____.
A. Operating activities, financing activities
B. Financing activities, investing activities
C. Investing activities, operating activities
174. Issue of bonus shares and conversion of debentures into equity are shown as a footnote to
the Cash Flow Statement.
A. True
B. False
175. When a fixed asset is bought as hire purchase, interest element is classified under ______
and loan element is classified under________.
A. Operating activities, financing activities
B. Financing activities, investing activities
C. Investing activities, operating activities
A) Old Furniture written off doesn’t affect cash flow.
B) Cash flow statement is a substitute for cash account.
C) Appropriation of retained earnings is not shown in Cash flow statement.
D) Net cash flow during a period can never be negative.
A. A, B, C
B. B, C, D
C. C, D, A
177. Which of the following is not a cash inflow?
A. Decrease in debtors
B. Issue of shares
C. Decrease in creditors
D. Sale of fixed assets
178. Which of the following is not a cash outflow?
A. Increase in Prepaid expenses
B. Increase in debtors
C. Increase in stock
D. Increase in creditors
179. Which of the following is a conventional method of ascertaining cost?
A. Absorption costing
B. Full Costing
C. Both a & b
180. Under absorption costing, profit is ascertained
A. On the basis of difference between sales and total cost.
B. By computation as per desired rate of profit on sales or cost
C. Both a and b
181. All costs are classified under ______ segments under absorption costing.
A. Five
B. Six
C. Four
D. Three
182. While ascertaining gross profit under absorption costing, only that portion of
manufacturing overheads is deducted from sales revenue which is associated with the
goods sold.
A. True
B. False
183. Under absorption costing among fixed expenses
A. Fixed manufacturing expenses are included in unit cost
B. Fixed non-manufacturing expenses are included in unit cost
C. Both a and b
A. Price determination on basis of full cost
B. Solution of separation of costs
C. Calculation of gross and net profit
D. All of the above
185. Absorption costs helps in
A. Difference between product cost and period cost
B. Charged of fixed factory overheads on inventory
C. Both a and b
186. Fixed expenses decrease per unit with the increases in production and increases per unit
with the decrease in production.
A. True
B. False
187. Marginal costs is taken as equal to
A. Prime Cost plus all variable overheads
B. Prime Cost minus all variable overheads
C. Variable overheads
188. If total cost of 100 units is Rs 5000 and those of 101 units is Rs 5030 then increase of Rs
30 in total cost is
A. Marginal cost
B. Prime cost
C. All variable overheads
189. Marginal cost is computed as
A. Prime cost + All Variable overheads
B. Direct material + Direct labor + Direct Expenses + All variable overheads
C. Total costs – All fixed overheads
D. All of the above
190. Marginal costing is also known as
A. Direct costing
B. Variable costing
C. Both a and b
191. Under High and Low Point method, the output at two different levels is compared with the
amount of __________ incurred at these two points.
A. Total fixed costs
B. Total costs
C. Total fixed costs
192. In Analytical method of calculating marginal costing, it is determined on the basis of past
records.
A. True
B. False
193. When contribution is positive but equal to fixed cost,
A. There is loss equal to fixed costs
B. There is loss more than fixed costs
C. There will be loss less than fixed costs
D. There will be neither profit not loss
194. Opportunities to achieve further growth within current businesses are:
A. Intensive Opportunities
B. Integrative Opportunities
C. Diversification Opportunities
195. Absorption costing is also known as
A. Historical costing
B. Total costing
C. Both a and b
196. Under absorption costing, managerial decisions are based on
A. Profit
B. Contribution
C. Profit volume ratio
197. Managers utilizes marginal costing for
A. Make or buy decision
B. Utilization of additional capacity
C. Determination of dumping price
D. All of the above
198. The problems associated with marginal costing are
A. Difficulties in divisions of costs
B. Problem of valuation of stocks
C. Ignores time elements
D. All of the above
199. ___________ is not suitable where selling price is determined on the basis of cost-plus
method.
A. Absorption costing
B. Marginal costing
C. Both a and b
200. Which of the following are added to net profit after tax and extraordinary items to reach to
net profit before tax and extraordinary items?
A. Provision for tax made during the year
B. Proposed dividend made during the year
C. Interim dividend
D. Transfer to General reserves and other reserves
a. Both A and B
b. Both A and C
c. Both B and C
d. A, B, C and D
A. Price determination on basis of full cost
B. Solution of separation of costs
C. Calculation of gross and net profit
D. All of the above
Answers
1. D) All of the Above 35. a) Rs 2 and Rs 10,000
36. b) Total costs
2. C) Decreased Cash 37. a) Rs 2 per unit, Rs 5,000
3. B) Increases Cash 38. a) Y=a+bX
4. C) Depreciation 39. a) True
5. D) None of the Above 40. a)True
6. D) Operating, Investing and 41. a) If contribution is zero, there is loss
Financing Activities equal to fixed costs
7. D) Purchase of Fixed Asset 42. c) There will be loss less than fixed
8. D) Sale of Investment by Non- costs
Financial Enterprise 43. d) There will be neither profit not
9. C) Interest Paid on Term-deposits by loss
a Bank 44. a) Intensive Opportunities
10. D) All of the above 45. c) Both a and b
11. c) Both C and B 46. a) Rs 2,00,000
12. a) True 47. c) Both a and b
13. a) Operating activities 48. c) Both a and b
14. b) Financing activities, investing 49. a) Profit
activities 50. a) True
15. a) True 51. D) All of the Above
16. b) Financing activities, investing 52. D) All of the Above
activities 53. Fixed and current assets
17. b) B, C, D 54. A) Interest coverage ratio
18. c) Decrease in creditors
19. d) Increase in creditors 55. b) 1950
20. c) Both a & b 56. a) Only A
21. c) Both a and b 57. a) Optional
22. a) True 58. d) A, B, C
23. a) Fixed manufacturing expenses are 59. a) Only A
included in unit cost 60. d) In planning, direction and control
24. a) Price determination on basis of full 61. c) A, B and C
cost 62. c) a and c
25. c) Both a and b 63. c) Decision making
26. d) B and D 64. b) James H. Bliss
27. a) True 65. c) Both a and b
28. a) Prime Cost plus all variable 66. b) False
overheads 67. a) Ango-American Council on
29. a) Marginal cost Productivity
30. a) Prime cost + All Variable 68. d) All of the above
overheads 69. d) All of the above
31. c) Both a and b 70. d) External Analysis
71. a) Static Analysis
32. a) A and B 72. c) Both B and C
33. a) Total marginal cost is deducted 73. d) A, B, C
from total sales revenues 74. c) Both B and C
34. d) A, B C and D 75. b) Both A and C
76. a) True 115. D) 20 %
77. b) False 116. B) 20%
78. a) True 117. D) All of the above
79. d) All of the above 118. A) Schedule of changes in working
80. d) All of the above capital
81. d) All of the above 119. A) True
82. d) All of the above 120. A) A and C
83. a) Wealth Maximization 121. C) Both a and b
84. b) Financing decisions 122. D) All of the above
85. d) All of the above 123. A) 2,80,000
86. d) Procurement & effective use of 124. d) None of the above
funds 125. B) Rs. 2,16,400
87. d) All of the above 126. A) Rs 60,000
88. d) All elements of acquiring and 127. A) 96,000
using means of financial resources for 128. B) 10,000
financial activities 129. C) 1,100
89. a) A unit of money obtained today is 130. A) 1,04,500
worth more than a unit of money 131. d) All of above
obtained in future 132. d) All of the above
90. c) Using either a or b 133. c) Either a or b
91. d) 10.38% per annum 134. b) As an appropriation of profits
92. a) Effective rate > Nominal rate 135. c) Both a and b
93. c) Rs 19310 136. b) False
94. b) 2 137. d) Operating activities, financing
95. a) True activities and investing activities
96. c) Either a or b 138. c) Both a and b
97. a) Coefficient of variation 139. d) A, B, C, D
98. a) Maximum return 140. c) Both B and C
99. b) Systematic risk 141. a) Cash basis of accounting
100. b) Profit and loss a/c 142. d) None of the above
101. c) Acid test ratio 143. D) only D
102. a) Accounting ratio 144. a) Cash basis of accounting, accrual
103. c) J. Betty basis of accounting
104. Either of the above 145. b) Funds Flow Statement
105. A) Pure ratio form 146. b) False
106. a) A, B and D 147. a) Cash Flow Statement
107. D) All of the above 148. d) A, B and C
108. A) A and B 149. d) All of the above
109. B) Sales 150. D) All of the above
110. C) Both A and B 151. a) Both a and b
111. A) Closing stock is deducted from 152. a) A-ii), B-iii), C-i)
cost of goods sold 153. b) False
112. a) It can be converted into gross 154. : a) True
profit by adding interest to it 155. c) Both a & b
113. ) (Gross profit / net sales) * 100 156. b) Direct method
157. c) Both a and b
114. B) 25 %
158. a) Purchases + Opening Creditors + 181. d) Three
Opening B/P â“Closing Creditors- 182. a) True
Closing B/P 183. a) Fixed manufacturing expenses are
159. c) Cash outflow on expenses included in unit cost
160. b) Rs 35000 184. a) Price determination on basis of full
161. b) Net profit before tax cost
162. d) A, B, C and D 186. a) True
163. d) A, B, C and D 187. a) Prime Cost plus all variable
164. c) Both C and D overheads
165. a) Cash flow from investing activities 188. a) Marginal cost
166. b) Cash advances and loans made to 189. a) Prime cost + All Variable
third parties overheads
167. b) Rs 28,800 190. c) Both a and b
168. c) Both a and b 191. b) Total costs
169. b) Cash outflow of Rs 65,000 192. a) True
170. c) Both C and B 193. d) There will be neither profit not
171. a) True loss
172. a) Operating activities 194. a) Intensive Opportunities
173. b) Financing activities, investing 195. c) Both a and b
activities 196. a) Profit
174. a) True 197. d) All of the above
175. b) Financing activities, investing 198. d) All of the above
activities 199. b) Marginal costing
176. b) B, C, D 200. d) A, B, C and D
177. c) Decrease in creditors 201. a) Price determination on basis of full
178. d) Increase in creditors cost
179. c) Both a & b

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18 UBM 306 FINANCIAL MANAGEMENT

Multiple Choice Questions.

43.The most important and common form of dividend is ________________.

SECTION B(K3 Questions)

1. Discover the scope of finance functions.

2. List the objectives of financial management.

3. Compare profit maximization and wealth maximization.

4. List out the characteristics of profit maximization

5.List out the characteristics of Wealth maximization

6. Analyze and explain what is shares and its features.

7. List the advantages of shares.

8. List the disadvantages of shares.

9. Distinguish shares and debentures.

10. List the advantages of debentures.

12. Analye and brief note on debt.

13. Discover and write brief note about financing decision.

14. Assume the characteristics of cost of capital.

15. Discover the factors affecting cost of capital.

16. Examine the systems of weighted average cost of capital.

17. List the significance of financial leverage.

18.List the limitations of financial leverage.

19.List the significance and of operating leverage.

20.List the limitations of operating leverage.

22. Following are the figures related to PQR Co:

23. Analyze the features of optimal capital structure.

36. Analyse and list the various capital budgeting methods.

42. List the concepts of working capital.

42. Assume the importance of working capital.

43. Analyze and write the short notes on cash management.

44. Discover the objectives of cash management.

45. Discover the importance of cash management.

46. Inspect and explain the motives of holding cash.

47. Inspect how payment and credit limit set up?

48. Discover the importance of receivables management.

49. Discover the benefits of credits policies.

50. Analyze and write the objectives of receivables management

SECTION - C(K4 &K5 Questions)

1. Formulate the objectives of financial management.

3.Develop retained earnings with its advantages and disadvantages.

4. Discuss in detail note on the short term sources of finance.

5.Discuss in detail note on the long term sources of finance.

6. Discuss in detail note on cost of specific sources of capital.

7. Explain weighted average cost of capital.

8. Construct the cost of reserves and preferred stock sources.

9. Predict the difference between operating and financial leverages

10. Formulate computation of cost of capital.

11. The sources of capital structure are enumerated below

Equity share Rs. 8,00,000

12. Develop the factors affecting dividend policy.

17. Imagine the factors influencing capital budgeting.

18. Formulate the methods of capital budgeting.

19. Discuss the types of capital budgeting.

20. Machines A and B are detailed below.

ITEMS MACHINE A MACHINE B

1. Average rate of return on machines A and B.

21. Discuss the determinants of working capital.

22. Formulate the types of working capital.

23. Estimate and explain the strategies of cash management.