Financial Management Test

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Financial Management Test - 28

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Weekly Quiz Competition

Question 1
1 / -0

_________ is used for investment in current assets.

A
Fixed Capital

B
Working Capital

C
Both of above

D
None of the above

Solution

Working capital is used to invest in current assets, pay off short-term debt, and cover day-to-day costs. The difference between a company's current assets and current liabilities is known as working capital.
Question 2
1 / -0

Which of the following is not an importance of financial planning?

A
It helps in avoiding business shocks and surprises.

B
If helps in co-ordinating various business functions.

C
If helps to reduce waste, duplication of efforts and gaps in planning.

D
It tries to delink the present with the future.

Solution

Financial planning is an important part of the overall planning of any business enterprise. Financial Planning:
1. helps in avoiding business shocks and surprises.
2. helps in coordinating various business functions.
3. helps to reduce waste, duplication of efforts, and gaps in planning.
4. tries to link the present with the future.
5. helps in forecasting what may happen in the future.
Hence, D is the correct option.
Question 3
1 / -0

The financial plans are drawn by taking into consideration

A
Performance of the organisation

B
Growth prospects

C
Investments

D
All of the above

Solution

Financial planning takes into consideration the growth, performance, investments and requirement of funds for a given period. It includes both short-term as well as long-term planning. Financial planning is an important part of overall planning of any business enterprise.
Question 4
1 / -0

As the financial leverage of a company increases, it leads to

A
An increase in the cost of funds but a decline in the financial risk

B
A decline in the cost of funds but an increase in the financial risk

C
Both a decline in the cost of funds and financial risk

D
Both an increase in the cost of funds and financial risk

Solution

As the financial leverage increases, the cost of funds declines because of increased use of cheaper debt but the financial risk increases. The impact of financial leverage on the profitability of a business can be seen through EBIT-EPS analysis.
Question 5
1 / -0

Name the process that enables the management to foresee the fund requirements, both the quantum as well as the timing.

A
Dividend decision

B
Capital budgeting decisions

C
Financial planning

D
Financial management

Solution

Financial planning is essentially the preparation of a financial blueprint of an organisations future operations. The objective of financial planning is to ensure that enough funds are available at right time.
Question 6
1 / -0

A higher financial leverage ratio indicates that

A
The dependency of the firm on the debt is more.

B
The dependency of the firm on the debt is less.

C
The proportion of equity in the total capital is high.

D
None of the above

Solution

The proportion of debt in the overall capital is also called financial leverage. As the financial leverage increases, the cost of funds declines because of increased use of cheaper debt but the financial risk increases.
Question 7
1 / -0

A company is likely to declare higher dividends if

A
Tax rate has no effect on dividend declaration

B
Tax rates are high

C
Tax rates are relatively lower

D
None of the above

Solution

The dividend decision is, to some extent, affected by the difference in the tax treatment of dividends and capital gains. If tax on dividend is higher, it is better to pay less byway of dividends. As compared to this, higher dividends may be declared if tax rates are relatively lower.
Question 8
1 / -0

Sky Limited is a company dealing in healthcare products. The company is earning high profits but is short on cash, so it has decided to declare less dividends in the current financial year. Identify the factor related to dividend decision being described in the above lines.

A
Contractual constraints

B
Cash flow position

C
Earning

D
Preference of shareholders

Solution

The payment of dividends involves an outflow of cash. A company may be earning profit but may be short on cash. The availability of enough cash in the company is necessary for the declaration of dividends.
Hence, B is the correct option.
Question 9
1 / -0

Which of the following is not an objective of financial planning?

A
Ensuring enough funds are available at the right time

B
Ensuring smooth business operations

C
Ensuring excess availability of funds at the right time

D
All of the above

Solution

The objective of financial planning is to ensure that enough funds are available at right time. If adequate funds are not available the firm will not be able to honor its commitments and carry out its plans. On the other hand, if excess funds are available, it will unnecessarily add to the cost and may encourage wasteful expenditure.
Question 10
1 / -0

Name the decision which affects both the profitability and the financial risk.

A
Capital structure decision

B
Capital budgeting decision

C
Financial planning decision

D
All of the above

Solution

Capital structure of a company affects both the profitability and the financial risk. A capital structure will be said to be optimal when the proportion of debt and equity is such that it results in an increase in the value of the equity share.

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Financial Management Test - 28

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Financial Management Test - 28

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Question 1

Fixed Capital

Working Capital

Both of above

None of the above

Solution

Question 2

It helps in avoiding business shocks and surprises.

If helps in co-ordinating various business functions.

If helps to reduce waste, duplication of efforts and gaps in planning.

It tries to delink the present with the future.

Solution

Question 3

Performance of the organisation

Growth prospects

Investments

All of the above

Solution

Question 4

An increase in the cost of funds but a decline in the financial risk

A decline in the cost of funds but an increase in the financial risk

Both a decline in the cost of funds and financial risk

Both an increase in the cost of funds and financial risk

Solution

Question 5

Dividend decision

Capital budgeting decisions

Financial planning

Financial management

Solution

Question 6

The dependency of the firm on the debt is more.

The dependency of the firm on the debt is less.

The proportion of equity in the total capital is high.

None of the above

Solution

Question 7

Tax rate has no effect on dividend declaration

Tax rates are high

Tax rates are relatively lower

None of the above

Solution

Question 8

Contractual constraints

Cash flow position

Earning

Preference of shareholders

Solution

Question 9

Ensuring enough funds are available at the right time

Ensuring smooth business operations

Ensuring excess availability of funds at the right time

All of the above

Solution

Question 10

Capital structure decision

Capital budgeting decision

Financial planning decision

All of the above

Solution

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