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

Financial Mangement MCQs

  

 

1. 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-True
      b)
      c)
      d)
   2.   1-False, 2-True
   3.   1-False, 2-False
   4.   1-True, 2-False
2. ____________ and____________ carry a fixed rate of interest and are to be paid off irrespective of the firm’s revenues.
   1.   Debentures, Dividends
   2.   Dividends, Treasury notes
   3.   Debentures, Bonds
   4.   Dividends, Bonds
3. 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-True, 2-True
   2.   1-True, 2-False
   3.   1-False, 2-False
   4.   1-False, 2-True
4. Credit policy of every company is largely influenced by _____________ and _____________.
   1.   Liquidity, profitability
   2.   Liability, profitability
   3.   Liability, liquidity
   4.   Liquidity, accountability
5. 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.   Investment decision
   2.   Dividend decision
   3.   Liquidity decision
   4.   Finance decision
6. 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.   28032
   2.   25088
   3.   22056
   4.   24048
7. How are earnings per share calculated?
   1.   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.
   2.   Use the income statement to determine earnings after taxes (net income) and divide by the number of common shares outstanding
   3.   Use the income statement to determine earnings after taxes (net income) and divide by the number of common and preferred shares outstanding.
   4.   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
8. Which of the following would NOT improve the current ratio?
   1.   Borrow short term to finance additional fixed assets.
   2.   Sell fixed assets to reduce accounts payable.
   3.   Sell common stock to reduce current liabilities.
   4.   Issue long-term debt to buy inventory.
9. 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.   sales increased relative to expenses.
   3.   Govt. increased the tax rate.
   4.   dividends were decreased.
10. 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 greater than average financial risk when compared to other firms in its industry.
    2.   will be viewed as having high creditworthiness.
    3.   has less liquidity than other firms in the industry.
    4.   will not experience any difficulty with its creditors.
11. 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. 26.1 million
    2.   Rs. 23.7 million
    3.   Rs. 7.4 million
    4.   Rs. 18.7 million
12. A company can improve (lower) its debt-to-total assets ratio by doing which of the following?
    1.   Borrow more.
    2.   Sell common stock
    3.   Shift long-term to short-term debt.
    4.   Shift short-term to long-term debt.
13. Which of the following statements (in general) is correct?
    
    1.   A low receivables turnover is desirable.
    2.   The higher the tax rate for a firm, the lower the interest coverage ratio.
    3.   The lower the total debt-to-equity ratio, the lower the financial risk for a firm.
    4.   An increase in net profit margin with no change in sales or assets means a poor ROI.
14. Debt-to-total assets (D/TA) ratio is .4. What is its debt-to-equity (D/E) ratio?
    1.   0.2
    2.   0.6
    3.   0.667
    4.   0.333
15. A firm's operating cycle is equal to its inventory turnover in days (ITD)
    1.   plus its receivable turnover in days (RTD).
    2.   minus its RTD.
    3.   plus its RTD minus its payable turnover in days (PTD)
    4.   minus its RTD minus its PTD.
16. 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. 7,000 decrease in cash.
    2.   Rs. 12,012 decrease in notes payable.
    3.   Rs. 10,001 increase in accounts payable.
    4.   Rs. 5,005 decrease in accounts receivable.
17. Uses of funds include a (an):
    1.   decrease in cash.
    2.   increase in fixed assets.
    3.   tax refund.
    4.   increase in any liability.
18. Which of the following would be included in a cash estimation/ budget?
    1.   depreciation charges.
    2.   patent amortization.
    3.   goodwill.
    4.   dividends.
19. Which of the following is NOT a cash outflow for the firm?
    1.   depreciation.
    2.   dividends.
    3.   taxes.
    4.   interest payments.
20. 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.