Financial Management Test

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Financial Management Test - 21

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Weekly Quiz Competition

Question 1
1 / -0

Under the risk factor of financing decision, the risk associated with different sources is _________.

A
same

B
different

C
higher

D
lower

Solution

The primary goal of both investment and financing decisions is to maximize shareholder value. Investment decisions revolve around how to best allocate capital to maximize their value. Financing decisions revolve around how to pay for investments and expenses. Companies can use existing capital, borrow, or sell equity.
Risk factor for financing decision, the risk associated with different sources is different because every source is different with diff interest, payback period,profitability index etc.
Question 2
1 / -0

With an increase of investment in fixed assets, there is a commensurate ________ in the working capital.

A
decrease

B
increase

C
equality

D
None of the above

Solution

Net working capital= current asset- current liablities
Therefore increase in investments in fixed assets will lead to increase in the working capital
Question 3
1 / -0

Short term investment decisions are also called as __________ decisions.

A
capital budgeting

B
wealth maximization

C
working capital

D
both a and b

Solution

Working capital is the amount of liquid assets which an organization has at its disposal. Working capital investments are required to pay for unexpected and unplanned expenses to build a business and meet the business’s short-term duties and obligations.
Question 4
1 / -0

The amount of debt, equity share capital, preference share capital are __________ by financial decisions, which is a part of financial management.

A
affected

B
not affected

C
minutely affected

D
largely affected

Solution

The primary goal of both investment and financing decisions is to maximize shareholder value. Investment decisions revolve around how to best allocate capital to maximize their value. Financing decisions revolve around how to pay for investments and expenses. Companies can use existing capital, borrow, or sell equity.

The amount of debt, equity share capital, preference share capital are affected by financial decisions, which is a part of financial management.
Question 5
1 / -0

Market price of equity shares ________ if the benefits from a decision exceed the cost involved.

A
increases

B
decreases

C
equalizes

D
both a and c

Solution

Market price of equity shares will increase because if benefit from a decision exceeds the cost involved, wealth maximization will increase hence if revenue covers the cost then ultimately earning per share will increase.
Question 6
1 / -0

Which of the following is not a factor affecting financing decision?

A
Cost

B
Risk

C
Investment

D
Cash flow position of the business

Solution

Factors affecting financing decision:-
(i) Cost
(ii) Cash flow position
(iii) Level of fixed operating cost
(iv) Control considerations
(v) Risk
Question 7
1 / -0

Which of the following is not a broad decisions in financial decision-making?

A
Investment decison

B
Cost decision

C
Financing decision

D
Dividend decision
Solution
Investment decisions includes investment in fixed assets (called as capital budgeting). Investment in current assets are also a part of investment decisions called as working capital decisions.
Financial decisions - They relate to the raising of finance from various resources which will depend upon decision on type of source, period of financing, cost of financing and the returns thereby.
Dividend decision - The finance manager has to take decision with regards to the net profit distribution. Net profits are generally divided into two:
Dividend for shareholders- Dividend and the rate of it has to be decided.
Retained profits- Amount of retained profits has to be finalized which will depend upon expansion and diversification plans of the enterprise.
Question 8
1 / -0

_________ term investment decision are concerned with the decisions about the levels of cash, inventories and debtors.

A
Long

B
Short

C
Medium

D
Both a and c

Solution

The investment made in the current assets or short term assets is termed as Working Capital Management. The working capital management deals with the management of current assets that are highly liquid in nature.
The investment decision in short-term assets is crucial for an organization as a short term survival is necessary for the long-term success. Through working capital management, a firm tries to maintain a trade-off between the profitability and the liquidity.
Short-term investments are part of the account in the current assets section of a company's balance sheet. This account contains any investments that a company has made that is expected to be converted into cash within one year.
Question 9
1 / -0

Under the amount of long term and short term financing to be used, the current liabilities cost is ______ than long term liabilities.

A
more

B
less

C
equal

D
nil

Solution

Financial management involves decisions about the proportion of long term and short term finance. An organisation wanting to be more liquid would raise relatively more amount on long term basis. There is a choice between liquidity and profitability. The underlying assumption here is that current liabilities cost less than long term liabilities.
Question 10
1 / -0

What are the factors affecting the choice of capital structure?

A
Interest Coverage Ratio

B
Debt Service Coverage Ratio

C
Return on Investment

D
All of the above

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Re-Attempt Weekly Quiz Competition

Financial Management Test - 21

Result

Financial Management Test - 21

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Rank

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SHARING IS CARING

Question 1

same

different

higher

lower

Solution

Question 2

decrease

increase

equality

None of the above

Solution

Question 3

capital budgeting

wealth maximization

working capital

both a and b

Solution

Question 4

affected

not affected

minutely affected

largely affected

Solution

Question 5

increases

decreases

equalizes

both a and c

Solution

Question 6

Cost

Risk

Investment

Cash flow position of the business

Solution

Question 7

Investment decison

Cost decision

Financing decision

Dividend decision

Solution

Question 8

Long

Short

Medium

Both a and c

Solution

Question 9

more

less

equal

nil

Solution

Question 10

Interest Coverage Ratio

Debt Service Coverage Ratio

Return on Investment

All of the above

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