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Financial Management Test - 25

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Financial Management Test - 25
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Weekly Quiz Competition
  • Question 1
    1 / -0
    Financial Management is concerned with -
    A. Investment decisions
    B. Labour turnover decisions
    C. Financing decisions
    D. Personnel policy decisions
    E. Dividend decisions
    Select the correct answer from the options given below.
    Solution
    1. 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.
    2. 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.
    3. 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 2
    1 / -0
    Financial statement differ from management accounting statements because____________
    Solution
    Financial statement differs from management accounting statements because they are mainly prepared for external users of financial information like shareholders, investors and government. Where the statements under management accounting are prepared for using inside the organisation. Management accounts are used by managers and people in the organisation to examine the growth of the firm and take decisions based on the report.
  • Question 3
    1 / -0
    __________ means deciding the quantum of investment out of available finance on long term basis as well as on short-term basis.
    Solution
    The Investment Decision relates to the decision made by the investors or the top level management with respect to the amount of funds to be deployed in the investment opportunities.
    Simply, selecting the type of assets in which the funds will be invested by the firm is termed as the investment decision. These assets fall into two categories:
    • Long Term Assets
    • Short-Term Assets
  • Question 4
    1 / -0
    __________ comprises two decisions,viz.,
    (i) Financial Planning and
    (ii) Capital structure decision.
    Solution

    The Financing Decision is yet another crucial decision made by the financial manager relating to the financing-mix of an organization. It is concerned with the borrowing and allocation of funds required for the investment decisions.

    The financing decision involves two sources from where the funds can be raised: using a company’s own money, such as share capital, retained earnings or borrowing funds from the outside in the form debenture, loan, bond, etc.

    The objective of financial decision is to maintain an optimum capital structure, i.e. a proper mix of debt and equity, to ensure the trade-off between the risk and return to the shareholders.

  • Question 5
    1 / -0
    Decisions for raising funds from long-term sources are called __________.
    Solution
    The capital structure is how a firm finances its overall operations and growth by using different sources of long term 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. 
  • Question 6
    1 / -0
    ____________ means pre-estimating financial needs of an organization to ensure availability of adequate finance.
    Solution
    Financial Planning is the process of estimating the capital required and determining it’s competition. It is the process of framing financial policies in relation to procurement, investment and administration of funds of an enterprise.
    Financial planning is the task of determining how a business will afford to achieve its strategic goals and objectives.
  • Question 7
    1 / -0
    To guard against the dangers of excess payment arising out of double insurance or over insurance made by the insured, insurance companies provide in their agreement _________________.
  • Question 8
    1 / -0
    _____ the lead time, higher the quantity of material to be stored and higher is the amount of working capital requirement.
    Solution
    Higher the lead time, higher the quantity of materials to be stored and higher is the amount of working capital requirement.
    As current asset will increase with increase in lead time.
    Meaning of lead time-the time between the initiation and completion of a production process.
  • Question 9
    1 / -0
    Interest paid by other than financial enterprises is shown in cash flow statement under ________________.
  • Question 10
    1 / -0
    The working capital requirement of a business thus, become ____ with ______ rate of inflation.
    Solution
    If there is increase or rise in price then the price of raw materials and cost of labour will rise, it will result in an increase in working capital requirement. The effect of rise in price on working capital will be different for different businessmen.
    Therefore, working capital requirement becomes higher with higher inflation rate.
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