Section.

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Chapter.1 Part.2
Introduction To Financial Management

1. _____________ is a business activity which concerns with the acquisition and

conversation of capital funds in meeting financial needs and overall objectives of a
business enterprise.
a) Personal finance
b) Business finance
c) Mortgage finance
d) Investment finance

2. The key functions of a financial manager include all of the following EXCEPT:
a) Planning to estimate the financial requirement of the business concern
b) Upkeep of records and other routine functions
c) Controlling such as apply techniques of budgetary control
d) Co-ordinating with various functional departments

3. As the size grows, financial decisions become more and more complex as the
amount involves also is large.
a) TRUE
b) FALSE

4. The objectives involved in financial management include all of the following

EXCEPT:
a) Maintaining enough supply of funds for the organization.
b) Ensuring shareholders get good returns on their investment.
c) Optimum and efficient utilization of funds .
d) Creating high-risk high-profit investment opportunities.

5. Charitable organizations (nonprofit organizations) aren’t concerned with the finance

function activities cause there isn’t a motive for profits.
a) TRUE
b) FALSE

6. The nature of finance function can be outlined as follows EXCEPT:

a) concerned with external environmental factors which affect basic business
activities.
b) The central focus of finance function is Upkeeping of financial records.
c) Finance functions are performed in all business firms.
d) involved with the data analysis for use in decision making.

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7. The financial management department of any company is handled by a financial
manager who in turn ___________ .
a) Calculates the capital required and form the capital structure.
b) Invests the capital available and allocate the profits.
c) Maintains Effective management and control of money.
d) Performs all of the above functions.
8. The job of a finance manager is confined to__________ :
(a) Raising funds
(b) Management of cash
(c) Raising of funds and their effective utilization
(d) None of these
9. Marginal cost of capital is the cost of:
(a) Additional Sales
(b) Additional Funds
(c) Additional Interests
(d) None of the above
10. Financial decision involves:
(a) Investment, financing and dividend decision
(b) Investment, financing and sales decision
(c) Financing, dividend and cash decision
(d) None of these
11. Which of the following is NOT a function of financial management?
(a) Deciding the best sources of finance.
(b) Spending money on capital expansion
(c) Preparation of Tax Returns
(d) Evaluating how much dividends to pay shareholders.
12. What is the best criterion in evaluating the performance of a financial manager:
(a) Maximization of Corporate Profits.
(b) Maximizing a company's market share.
(c) Maximizing shareholder wealth
(d) Beating the competition.
13. Which of shall be part of a financial manager's dividend (or operating) decisions:
a. Spending money on Capital Expenditure.
b. Raising money using equity finance.
c. Spending money on revenue expenditure.
d. Borrowing Funds.
14. Which of the following would be part of a financial manager's investment decision:
a. Spending money on Capital Expenditure.
b. Raising money using equity finance.
c. Spending money on revenue expenditure.
d. Borrowing Funds.

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15. The market value of a firm can be affected by:
a. Investors' perceptions of the firm.
b. The investments a firm's managers may make
c. The dividend payments made by the firm
d. All of the above
16. Wealth maximization is superior to profit maximization as the goal of financial
management, because:
a. Profits include estimates, in addition to cash flows.
b. Profits ignore time value of money.
c. Profit maximization disregards financial risk.
d. All of the above
17. What is the main criticism in using shareholder wealth as the best criterion in
evaluating the performance of a financial manager:
(a) It does not take into account the shareholder's exposure to financial risk.
(b) It does not take into account the size of the shareholders’ investment.
(c) Maximizing profits is a more suitable criterion.
(d) Share market prices can be manipulated in the short term.

18. Managerial finance ___________

A) involves tasks such as budgeting, financial forecasting, cash management, and funds
procurement.
B) involves the design and delivery of advice and financial products.
C) recognizes funds on an accrual basis.
D) devotes the majority of its attention to the collection and presentation of financial data.
19. ________ is concerned with the duties of the financial manager in the business firm.
A) Financial Services
B) Financial Manager
C) Managerial Finance
D) None of the above

20. Profit maximization fails because it ignores all EXCEPT

A) the timing of returns.
B) earnings per share.
C) cash flows available to stockholders.
D) risk.
21. As the risk of a stock investment increases, investors'
A) return will increase.
B) return will decrease.
C) required rate of return will decrease.
D) required rate of return will increase.

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22. A decision to acquire a new and modern plant to upgrade an old one is a:
a) Financing decision
b) Working capital decision
c) Investment decision
d) Dividend decision
23. The decision in financial management which determines the proportion between
debt and equity is called __________ .
a) Financing decision
b) Investment decision
c) Capital structure
d) Dividend decision

24. Which decisions are taken by the Financial Manager?

a) Investment Decisions
b) Financing decision
c) Dividend Decisions
d) All the above
25. The sources for raising borrowed funds include ___________ .
a) Retained Earnings, and Venture Fund
b) Loans from financial institutions, and issue of debentures
c) Convertible Debentures, and Retained Earnings
d) Private Equity
26. ____________ decision considers how the investments under consideration are to be
funded.
A) Investment
B) Financing
C) Dividend
D) Capital
27. Which of the following is not the responsibility of financial management?
A. allocation of funds to current and capital assets
B. obtaining the best mix of financing alternatives
C. preparation of the firm's accounting statements
D. development of an appropriate dividend policy

28. The cost of monitoring management is considered to be a (an):

A. bankruptcy cost.
B. transaction cost.
C. agency cost.
D. institutional cost.

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29. __________ is concerned with the branch of economics relating the behavior of
principals and their agents.
A. Financial management
B. Profit maximization
C. Agency theory
D. Social responsibility
30. 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.
31. The financial manager is interested in the cash inflows and outflows of the firm,
rather than the accounting data, in order to ensure ____________ .
A) profitability.
B) the ability to pay dividends.
C) the ability to acquire new assets.
D) solvency.
32. The key role of the financial manager is
A) decision making.
B) the presentation of financial statements.
C) the preparation of data for future evaluation.
D) the collection of financial data.
33. If a company's managers are NOT owners of the company, then they are
A) dealers.
B) agents.
C) outsiders.
D) brokers.
34. In a corporation, the members of the board of directors are elected by the ____ .
A) chief executive officer.
B) creditors.
C) stockholders.
D) employees.
35. All of the following as considered stakeholders EXCEPT:
A) consumers
B) suppliers
C) employees
D) competitors

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A financial manager must choose between four alternative Assets: 1, 2, 3, and 4. Each
asset costs $35,000 and is expected to provide earnings over a three-year period as
described below.

36. Based on the profit maximization goal, the financial manager would choose
A) Asset 1.
B) Asset 2.
C) Asset 3.
D) Asset 4.

A financial manager must choose between three alternative investments. Each asset is
expected to provide earnings over a three-year period as described below.

37. Based on the wealth maximization goal, the financial manager would
A) choose Asset 1.
B) choose Asset 2.
C) choose Asset 3.
D) be indifferent between Asset 1 and Asset 2.

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 Answers to the MCQ Questions
Question Number Answer Question Number Answer
1 B 21 D
2 B 22 C
3 A 23 A
4 D 24 D
5 B 25 B
6 B 26 B
7 D 27 C
8 C 28 C
9 B 29 C
10 A 30 D
11 C 31 D
12 C 32 A
13 C 33 B
14 A 34 C
15 D 35 D
16 D 36 B
17 D 37 A
18 A - -
19 C - -
20 B - -