Financial Management Test

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Financial Management Test - 2

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Weekly Quiz Competition

Question 1
1 / -0

Short-term Investment Decision is also known as ____

A
Capital Budgeting

B
Working capital

C
Dividend Decision

D
None of these

Solution

Short term investment decisions are the decisions related with the bills receivables, inventories, levels of cash and debtors etc. These decisions are also known as working capital decisions.
Question 2
1 / -0

Current assets of a business firm should be financed through:

A
long-term liability only

B
both types (i.e. long and short term liabilities)

C
current liability only

D
None of these

Solution

Current assets are those assets which, in the normal routine of the business, get converted into cash or cash equivalents within one year e.g. inventories, debtors etc. Hence these should be financed by both long term and short term libility.
Question 3
1 / -0

Long term investment decision is also known as _____________

A
Working Capital

B
Capital Budgeting

C
Dividend Decision

D
None of these

Solution

Long term investment decision involves committing the finance on a long term basis. It is also known as capital budgeting decision.
Question 4
1 / -0

Higher working capital usually results in:

A
higher equity, lower risk and lower profits

B
higher current ratio, higher risk and higher profits

C
lower equity, lower risk and higher profits

D
lower current ratio, higher risk and profits

Solution

Working capital refers to excess of current assets over current liabilities.Higher current ratio, higher risks, higher profits indicates large scale operation thus require large working capital.
Question 5
1 / -0

Other things remaining the same, an increase in the tax rate on corporate profits will:

A
make the debt relatively cheaper

B
have no impact on the cost of debt

C
make the debt relatively the dearer

D
None of these

Solution

Cost of Debt is affected by tax rate because Interest on Debt is a deductible expense. A higher tax rate, thus, makes debt relatively cheaper as compared to equity. For Example: If the firm borrows @10% and tax rate is @30%, then the after cost of debt will be @7%.
Question 6
1 / -0

A fixed asset should be financed through:

A
a mix of long and short-term liabilities

B
a short-term liability

C
a long-term liability

D
None of these

Solution

Fixed assets remains in the business for more than one year. Decision to invest in fixed assets are irrevocable. Therefore these assets should be financed by Fixed Capital. These decisions are called capital budgeting decisions. Management of fixed capital involves allocation of firm's capital to different long term assets.
Question 7
1 / -0

Financial planning arrives at:

A
doing only what is possible with the funds that the firms has at its disposal

B
minimising the external borrowing by resorting to equity issues

C
ensuring that the firm faces neither a shortage nor a glut of unusable funds

D
entering that the firm always have significantly more funds than required so that there is no paucity of funds

Solution

Financial planning is the process of estimating the fund requirement of a business and specifying the sources of funds. It decides how much to spend and on what to spend. Thus ensures optimal utilisation of funds.
Question 8
1 / -0

What is the main function of financial management?

A
Procurement of Funds

B
Financial Planning

C
Allocation of Net Profits

D
All of these

Solution

Financial management is concerned with management decisions relating to optimal procurement of funds, investment of funds in long term and short term assets of the firm. It is wider in scope as it includes financial planning also.
Question 9
1 / -0

Which of the following is not concerned with Long-term Investment decision?

A
Advertisement campaign

B
Day to day working

C
Purchase of fixed asset

D
Launching a new product line

Solution

Investment decision relates to how the firm's funds are invested in different assets. The firm invests its funds in acquiring fixed assets as well as current assets. When decisions are taken regarding fixed assets then it is called capital budgeting decisions.
Question 10
1 / -0

Which of the following affects capital budgeting decision?

A
Cash Flow of the Project

B
Investment Criteria and interest rate

C
Rate of Return

D
All of these
Solution
- These decisions are based on expected rate of return and risks involved from each proposal
- When a proposal involves huge cash flow in return it expects to generate cash flows
- Capital budgeting techniques are applied to each proposal before selecting a particular project. Amount of investment, interest rate etc should keep in mind.

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Re-Attempt Weekly Quiz Competition

Financial Management Test - 2

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Financial Management Test - 2

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SHARING IS CARING

Question 1

Capital Budgeting

Working capital

Dividend Decision

None of these

Solution

Question 2

long-term liability only

both types (i.e. long and short term liabilities)

current liability only

None of these

Solution

Question 3

Working Capital

Capital Budgeting

Dividend Decision

None of these

Solution

Question 4

higher equity, lower risk and lower profits

higher current ratio, higher risk and higher profits

lower equity, lower risk and higher profits

lower current ratio, higher risk and profits

Solution

Question 5

make the debt relatively cheaper

have no impact on the cost of debt

make the debt relatively the dearer

None of these

Solution

Question 6

a mix of long and short-term liabilities

a short-term liability

a long-term liability

None of these

Solution

Question 7

doing only what is possible with the funds that the firms has at its disposal

minimising the external borrowing by resorting to equity issues

ensuring that the firm faces neither a shortage nor a glut of unusable funds

entering that the firm always have significantly more funds than required so that there is no paucity of funds

Solution

Question 8

Procurement of Funds

Financial Planning

Allocation of Net Profits

All of these

Solution

Question 9

Advertisement campaign

Day to day working

Purchase of fixed asset

Launching a new product line

Solution

Question 10

Cash Flow of the Project

Investment Criteria and interest rate

Rate of Return

All of these

Solution

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