This a MCQ (Multiple Choice Question) based practice test of Chapter 9 - Financial Management of Business Studies of Class XII (12) for the quick revision/preparation of School Board examinations
Q The cheapest source of finance is:
The cheapest source of finance is retained earnings. Retained income refers to that portion of net income or profits of an organisation that it retains after paying off dividends.
A decision to acquire a new and modern plant to upgrade an old one is a:
Investment decision is related to careful selection of assets in winch funds will be invested by firms. Thus, the above case comes under the investment decision.
Other things remaining the same, an increase in the tax rate on corporate profits will:
When there is an increase in the tax on corporate profit, the debt becomes relatively cheaper. This is because interest that is to be paid to the debtors is deducted from the total income before calculating the value of tax. Thus, as the value of tax increases, the debt becomes relatively cheaper.
Companies with a higher growth pattern are likely to:
Financial leverage is called favourable if:
Financial Leverage refers to the proportion of debt in the overall capital. It is said to be a favourable situation when the return on investment becomes higher than the cost of debt. In other words, as the Return on investment becomes greater, the earning per share also increases and the financial leverage is said to be favourable.
Higher debt-equity ratio results in:
Higher debt- equity ratio refers to a situation where the proportion of debt in total capital is higher. This implies higher degree of financial risk. This is because in case of debt, it is obligatory for a business to make interest payments and the return of principal to the debtors. Thus, higher debt increases the financial risk for the business.
Higher working capital usually results in:
Companies with high amounts of working are easily able to meet their short-term obligations as they have sufficient liquid funds. Which means they have a higher current ratio. The higher the ratio, the more capable the company.
As the company has high working capital they are able to loan and advance money to small business which increases their risk of bad debts and lack of return.
If the company has high working capital means it will run more smoothly than any company, making the company having a high rate of profit.
Current assets are those assets which get converted into cash:
Financial planning arrives at:
Financial Planning aims at ensuring that the firm faces neither a shortage nor a glut (excess) of unusable funds. If there is a shortage of funds then the firm will not be able to carry out its planned activities and commitments. On the other hand, if there are excess funds available then it adds to the cost of business and also encourages wastage of funds. Thus, financial planning focuses on ensuring the availability of just enough funds at the right time.
Higher dividend per share is associated with:
If Company is having smooth cash flow then they can prefer to give high rate on dividend...If a company have stable earning then they can give high rate on dividend but if a company is having unstable earning they prefer to give low rate of dividend If a company has low growth opportunity they must go for higher rate of dividend but if a company is having good growth opportunity they prefer to give less dividend more or profit retained in the business