Financial Management | Chapter 2 | Part 2 | MBA MCQs | FM

Financial Mangement MCQs

  

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1. XYZ is an oil based business company, which does not have adequate working capital. It fails to meet its current obligation, which leads to bankruptcy. Identify the type of decision involved to prevent risk of bankruptcy.
   1.   Liquidity decision
   2.   Finance decision
   3.   Dividend decision
   4.   Investment decision
2. Uses of funds include a (an):
   1.   increase in any liability.
   2.   increase in fixed assets.
   3.   tax refund.
   4.   decrease in cash.
3. The gross profit margin is unchanged, but the net profit margin declined over the same period. This could have happened if
   1.   cost of goods sold increased relative to sales.
   2.   Govt. increased the tax rate.
   3.   sales increased relative to expenses.
   4.   dividends were decreased.
4. Which of the following would be included in a cash estimation/ budget?
   1.   goodwill.
   2.   patent amortization.
   3.   dividends.
   4.   depreciation charges.
5. Kanji Company had sales last year of Rs. 265 million, including cash sales of Rs. 25 million. If its average collection period was 36 days, its ending accounts receivable balance is closest to . (Assume a 365-day year.)
   1.   Rs. 7.4 million
   2.   Rs. 26.1 million
   3.   Rs. 23.7 million
   4.   Rs. 18.7 million
6. A firm's operating cycle is equal to its inventory turnover in days (ITD)
   1.   minus its RTD.
   2.   plus its RTD minus its payable turnover in days (PTD)
   3.   minus its RTD minus its PTD.
   4.   plus its receivable turnover in days (RTD).
7. Credit policy of every company is largely influenced by _____________ and _____________.
   1.   Liquidity, profitability
   2.   Liability, profitability
   3.   Liquidity, accountability
   4.   Liability, liquidity
8. Consider the below mentioned statements: 1. The dividends are not cumulative for equity shareholders, that is, they cannot be accumulated and distributed in the later years. 2.
   Dividends are taxable. State True or False:
   1.   1-True, 2-False
   2.   1-True, 2-True
      b)
      c)
      d)
   3.   1-False, 2-False
   4.   1-False, 2-True
9. Consider the below mentioned statements: 1. A debt-equity ratio of 2:1 indicates that for every 1 unit of equity, the company can raise 2 units of debt. 2. The cost of floating a debt is greater than the cost of floating an equity issue. State True or False:
   1.   1-False, 2-True
   2.   1-True, 2-True
   3.   1-True, 2-False
   4.   1-False, 2-False
10. How are earnings per share calculated?
    1.   Use the income statement to determine earnings after taxes (net income) and divide by the number of common shares outstanding
    2.   Use the income statement to determine earnings after taxes (net income) and divide by the number of common and preferred shares outstanding.
    3.   Use the income statement to determine earnings after taxes (net income) and divide by the forecasted period's earnings after taxes. Then subtract 1 from the previously calculated value
    4.   Use the income statement to determine earnings after taxes (net income) and divide by the previous period's earnings after taxes. Then subtract 1 from the previously calculated value.
11. ____________ and____________ carry a fixed rate of interest and are to be paid off irrespective of the firm’s revenues.
    1.   Dividends, Treasury notes
    2.   Debentures, Dividends
    3.   Debentures, Bonds
    4.   Dividends, Bonds
12. The rate of interest offered by the fixed deposit scheme of a bank for 365 days and above is 12%. What will be the status of Rs. 20000, after two years if it is invested at this point of time?
    1.   24048
    2.   25088
    3.   28032
    4.   22056
13. Palo Alto Industries has a debt-to-equity ratio of 1.6 compared with the industry average of 1.4. This means that the company
    1.   has less liquidity than other firms in the industry.
    2.   has greater than average financial risk when compared to other firms in its industry.
    3.   will be viewed as having high creditworthiness.
    4.   will not experience any difficulty with its creditors.
14. Debt-to-total assets (D/TA) ratio is .4. What is its debt-to-equity (D/E) ratio?
    1.   0.333
    2.   0.6
    3.   0.667
    4.   0.2
15. A company can improve (lower) its debt-to-total assets ratio by doing which of the following?
    1.   Sell common stock
    2.   Borrow more.
    3.   Shift short-term to long-term debt.
    4.   Shift long-term to short-term debt.
16. Which of the following statements (in general) is correct?
    
    1.   An increase in net profit margin with no change in sales or assets means a poor ROI.
    2.   The lower the total debt-to-equity ratio, the lower the financial risk for a firm.
    3.   The higher the tax rate for a firm, the lower the interest coverage ratio.
    4.   A low receivables turnover is desirable.
17. Which of the following is NOT a cash outflow for the firm?
    1.   interest payments.
    2.   depreciation.
    3.   taxes.
    4.   dividends.
18. Which of the following would NOT improve the current ratio?
    1.   Borrow short term to finance additional fixed assets.
    2.   Issue long-term debt to buy inventory.
    3.   Sell fixed assets to reduce accounts payable.
    4.   Sell common stock to reduce current liabilities.
19. Which of the following would be considered a application of funds?
    1.   a decrease in accounts receivable.
    2.   a decrease in cash.
    3.   an increase in account payable.
    4.   an increase in cash.
20. If the following are balance sheet changes: Rs. 5,005 decrease in accounts receivable
    Rs. 7,000 decrease in cash
    Rs. 12,012 decrease in notes payable Rs. 10,001 increase in accounts payable a "use" of funds would be the:
    1.   Rs. 10,001 increase in accounts payable.
    2.   Rs. 7,000 decrease in cash.
    3.   Rs. 5,005 decrease in accounts receivable.
    4.   Rs. 12,012 decrease in notes payable.