Financial Management Test

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Financial Management Test - 10

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Weekly Quiz Competition

Question 1
1 / -0

In inflation, ______ amount of capital is required than before in order to maintain the previous scale of production and sales.

A
fixed

B
less

C
no

D
more

Solution

Inflation means rise in prices. In such a situation more capital is required than before in order to maintain the previous scale of production and sales. Therefore, with the increasing rate of inflation, there is a corresponding increase in the working capital
Question 2
1 / -0

If raw material and other inputs are easily available on credit, ______ amount of working capital is needed.

A
fixed

B
more

C
less

D
no
Question 3
1 / -0

Which one of the following statements regarding 'financial literacy' is not true?

A
Its objective is to make people aware of the risks and rewards of investments so that they can make an informed choice.

B
India has a formal nationwide structured financial education programme.

C
This would enhance the effectiveness and integrity of financial markets.

D
It reduces the government burden in protecting the common person from elements of market failure.
Question 4
1 / -0

A company which has a better operating efficiency requires ______ working capital.

A
less

B
more

C
no

D
fixed

Solution

Operating efficiency means efficiently completing the various business operations. Operating efficiency of every organisation happens to be different.

Some such examples are: (i) converting raw material into finished goods at the earliest, (ii) selling the finished goods quickly, and (iii) quickly getting payments from the debtors. A company which has a better operating efficiency has to invest less in stock and the debtors.

Therefore, it requires less working capital, while the case is different in respect of companies with less operating efficiency.
Question 5
1 / -0

The goal of financial management is _______________.

A
Maximization of profit

B
Maximization of shareholder's wealth

C
Ensuring financial discipline in the organization

D
Expanding market

Solution

The foremost objective of financial management is to maximize the wealth of equity shareholders. The financial manager in a company makes decisions for the owners, i.e. the shareholders of the firm. He must take decisions that will ultimately prove gainful for the shareholders via increasing the market price of the shares.
Hence, option (B) is the correct answer.
Question 6
1 / -0

Which of the following is not a business transaction?

A
Bought furniture 25,000 for business

B
Paid for salaries of employees, 20,000

C
Cash withdraw from personal bank account , 10,000 for personal use

D
All of the above.
Question 7
1 / -0

Unfavourable financial leverage

A
Indicates a low level of profitability

B
Indicates a high level of profitability

C
Makes borrowings more costly

D
Both (a) and (c)

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.
An excessive amount of financial leverage increases the risk of failure, since it becomes more difficult to repay debt.
Unfavorable leverage occurs when the firm does not earn as the funds cost.
This indicate low level of profitability and also it makes borrowings more costly.
Question 8
1 / -0

The capital structure is represented by:

A
$$Long\ term\ debt+Preferred\ stock+Net\ worth$$

B
$$Short-term\ debt+ Preferred\ stock + Net\ worth$$

C
$$Long\ term\ debt + Short-term\ debt$$

D
$$Preferred\ stock + Debentures + Net\ worth$$

Solution

The capital structure is how a firm finances its overall operations and growth by using different sources of funds. Debt comes in the form of bond issues or long-term notes payable, while equity is classified as common stock, preferred stock or retained earnings. Short-term debt such as working capital requirements is also considered to be part of the capital structure. Net worth is the amount by which assets exceed liabilities. Another way to say this is, it’s the value of everything you own, minus all your debts.
$$Capital\ structure = Long\ term\ debt+Preferred\ stock+ Net\ worth.$$
Question 9
1 / -0

The concept of financial leverage has a direct relationship with ______.

A
Capital structure management

B
Cost of capital

C
Dividend policy

D
Capital bugeting

Solution

Financial leverage is generally used by any company who have debt in their capital structure. The leverage means the performance of the business by employing debts into capital structure influences the return that a firm can deliver to it's owner. In this way, concept of financial leverage has a direct relationship with capital structure management.
Question 10
1 / -0

The management of working capital is concerned with the following activities ________________.

A
Short-term operations

B
Long-term operations

C
Medium-term operations

D
Both (a) and (b)

Solution

Working capital management is defined as the management of short-term liabilities and short-term assets. The process is used continuously to operate and generate cash flow to meet the need for short-term obligations and daily operational expenses.

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Financial Management Test - 10

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Financial Management Test - 10

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Question 1

fixed

less

no

more

Solution

Question 2

fixed

more

less

no

Question 3

Its objective is to make people aware of the risks and rewards of investments so that they can make an informed choice.

India has a formal nationwide structured financial education programme.

This would enhance the effectiveness and integrity of financial markets.

It reduces the government burden in protecting the common person from elements of market failure.

Question 4

less

more

no

fixed

Solution

Question 5

Maximization of profit

Maximization of shareholder's wealth

Ensuring financial discipline in the organization

Expanding market

Solution

Question 6

Which of the following is not a business transaction?

Bought furniture 25,000 for business

Paid for salaries of employees, 20,000

Cash withdraw from personal bank account , 10,000 for personal use

All of the above.

Question 7

Indicates a low level of profitability

Indicates a high level of profitability

Makes borrowings more costly

Both (a) and (c)

Solution

Question 8

$$Long\ term\ debt+Preferred\ stock+Net\ worth$$

$$Short-term\ debt+ Preferred\ stock + Net\ worth$$

$$Long\ term\ debt + Short-term\ debt$$

$$Preferred\ stock + Debentures + Net\ worth$$

Solution

Question 9

Capital structure management

Cost of capital

Dividend policy

Capital bugeting

Solution

Question 10

Short-term operations

Long-term operations

Medium-term operations

Both (a) and (b)

Solution

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