Test: Financial Management - 2


20 Questions MCQ Test Business Studies (BST) Class 12 | Test: Financial Management - 2


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QUESTION: 1

A fixed asset should be financed through:

Solution:
QUESTION: 2

Current assets of a business firm should be financed through:

Solution:

Current assets of a business should be financed through both long term and short-term liabilities. Current assets of a firm are those assets which could be consumed, exhausted or sold within a year.
The short-term financial needs of the companies are generally met from Trade Credit. Consumer Credit, Installment Credit, Account Receivable Financing, Bank Credit and Other Sources. The need for short-term finance arises to finance the current assets of a business like an inventory of raw material and finished goods, debtors, minimum cash and bank balance etc.
 Sources of long-term finance are shares, debentures, bonds.
etc.  These are required to maintain Working capital margin of the company. Working Capital Margin means the additional amount that a business must maintain over and above its regular working capital required to meet the unforeseen expenses.
So in certain circumstances the long-term investments can be used to finance the current assests.

QUESTION: 3

Financial Management is mainly concerned with ______________.

Solution:

Financial Management is mainly concerned with the effective funds management in the business. Financial management is that managerial activity which is concernedwith the planning and controlling of the firm's financial resources.

QUESTION: 4

Which of the following is not a financial Decision?

Solution:
QUESTION: 5

The primary goal of the financial management is __________.

Solution:

Profit maximization is the main aim of any business and therefore it is also an objective of financial management. Profit maximization, in financial management, represents the process or the approach by which profits Earning Per Share (EPS) is increased. In simple words, all the decisions whether investment or financing etc. are focused on maximizing the profits to optimum levels.
Profit maximization is the traditional approach and the primary objective of financial management. It implies that every decision relating to business is evaluated in the light of profits. All the decisions with respect to new projects, acquisition of assets, raising capital etc are studied for their impact on profits and profitability. If the result of a decision is perceived to have a positive effect on the profits, the decision is taken further for implementation.

QUESTION: 6

Long term investment decision is also known as _____________

Solution:
QUESTION: 7

Short-term Investment Decision is also known as ____

Solution:

Working capital is a measure of both a company's operational efficiency and its short-term financial health. The working capital ratio (current assets/current liabilities), or current ratio, indicates whether a company has enough short-term assets to cover its short-term debt.

QUESTION: 8

Which of the following is not concerned with the Long term investment decision

Solution:

A long-term investment is an account a company plans to keep for more than a year such as shares, bonds, debentures, real estate, machinery, etc. 
Inventory or stock are the goods and materials that a business holds for later to re-sell it. Inventory, for example, is converted into cash when items are sold to customers. Therefore they are a type of short term investment.

QUESTION: 9

Which of the following affects capital budgeting decision?

Solution:
QUESTION: 10

Shareholders funds refer to ________________

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QUESTION: 11

Short term investment decisions affect the ___________

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QUESTION: 12

The primary goal of the financial management is ____________.

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QUESTION: 13

Portion of profit after tax, which is distributed to shareholders is a___

Solution:

The money left over is called the "profit after tax" (PAT). When a company distributes its PAT among its shareholders, such distributions are known as "dividends Decision." 

QUESTION: 14

Which of the following affects the Dividend Decision of a company?

Solution:

Dividend decisions, as the very name suggests, refers to the decision-making mechanism of the management to declare dividends. It is crucial for the top management to determine the portion of earnings distributable as the dividend at the end of every reporting period.
1.      Amount of Earnings: dividend can be paid out of current and past earnings so it is the main determining factor of dividend policy.
2.      Cash flow position: Dividend involves an outflow of cash. A company may be profitable but short in cash. Availability of enough cash in the company is necessary for declaration of dividend.
3.      Taxation policy: The taxation rate affects the net earnings of a company and thereby its dividend policy also. If tax on dividend is higher, it is better to pay less by way of dividends.
All the given reasons affects the Dividend Decision of a company.

QUESTION: 15

Which of the following affects the Dividend Decision of a company?

Solution:
QUESTION: 16

__________ means estimating the funds requirement of a business and determining the sources of funds for current and fixed assets and future expansion prospects.

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QUESTION: 17

The main objective of financial planning is to ensure that_________

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QUESTION: 18

Cost of advertising and printing prospectus is called__________

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QUESTION: 19

_______ refers to the increase in profit earned by the equity shareholders due to the presence of fixed financial charges like interest.

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QUESTION: 20

Favourable financial leverage is a situation where _____

Solution:

Financial leverage is the amount of debt that an entity uses to buy more assets. Leverage is employed to avoid using too much equity to fund operations. Financial leverage is favorable when the uses to which debt can be put generate returns greater than the interest expense associated with the debt.

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