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This set of Financial Management Multiple Choice Questions & Answers (MCQs) focuses on Financial Management Set 16

Q1 | If risk free rate of return is 8%, Return on market portfolio is 12%, beta = 1.5, then theexpected rate of return according to CAPM is equal to
  • 10%
  • 14%
  • 18%
  • 24%
Q2 | Net salvage value of a fixed asset is
  • Excess of salvage value over book value
  • Excess of book value over salvage value
  • Scrape value
  • Salvage value of fixed assets less any income tax payable on the excess of salvage value over book value
Q3 | The discount rate which equates the present value of cash inflows with the present value of cash out flows is called -------
  • Opportunity cost
  • Sunk cost
  • explicit cost
  • Direct cost
Q4 | A company can increase its value and reduce the overall cost of capital by increasing theproportion of debt in its capital structure according to ----- approach
  • Net income approach
  • Net operating income approach
  • Traditional approach
  • None of these
Q5 | Net income approach was suggested by
  • Modigliani and Miller
  • Durand
  • Walter
  • None of these
Q6 | To judge the comparative risk of projects having same cost and same NPV which method is used
  • Certainty equivalent method
  • Sensitivity technique
  • Standard deviation method
  • Coefficient of variation method
Q7 | While evaluating capital investment proposals, the time value of money is considered in case of
  • Pay back method
  • NPV
  • Accounting rate of return
  • None of these
Q8 | Depreciation is included in cost in case of
  • Pay back method
  • NPV
  • Accounting rate of return
  • Present value index
Q9 | Which of the following is/ are the assumptions of net income approach?
  • The cost of debt is less than the cost of equity
  • There are no taxes
  • The risk perception of investors is not changed by the use of debt
  • All of the above
Q10 | Capital gearing refers to the relationship between equity capital and-----
  • Long term debt
  • Short term debt
  • Preference capital
  • None of these
Q11 | A company should follow the policy of ----- gear during inflation or boom period
  • High gear
  • Low gear
  • Medium gear
  • Any of the above
Q12 | Which of the following factors is/ are considered when a capital structure decision is taken?
  • Cost of capital
  • Dilution control
  • Floatation cost
  • All of the above
Q13 | Which of the following is not a source of long term finance?
  • Equity capital
  • Preference capital
  • Commercial paper
  • Debenture capital
Q14 | A cumulative preference share is one
  • In which all the unpaid dividends are carried forward and payable.
  • Which can be converted into equity shares
  • Which can be redeemed
  • Which entitle the preference shareholders to participate in surplus profits and assets.
Q15 | Which of the following g is a determinant of working capital of a firm?
  • Depreciation policy
  • Taxes payable by the company
  • Production policy
  • All of the above
Q16 | Under trading means
  • Having low amount of working capital
  • High turnover of working capital
  • Sales are less compared to assets employed
  • Assets are less compared to sales generated
Q17 | which of the following was set up based on the recommendations of Vaghul Committee?
  • National Stock Exchange
  • Stock Holding Corporation of India Ltd
  • Discount and Finance House of India Ltd
  • National Securities Depository Ltd
Q18 | Shelf stock refers to
  • Perishable goods
  • Items that are to be packaged and sold
  • Stocks which is to be stored in the shelf
  • Items that are stored by the firm and sold with little or no modification
Q19 | Which of the following is not an assumption of EOQ model?
  • Cost of carrying is a fixed proportion of the average value of inventory
  • The demand is even throughout the year
  • The usage for one year can be anticipated
  • Cost per order is proportional to the size of the order
Q20 | Which of the following costs is not associated with inventories?
  • Material cost
  • Ordering cost
  • Carrying cost
  • Cost of long term debt locked in inventories
Q21 | When a company liberalizes its cash discount policy
  • It increases the cost of discount
  • It leads to an increase in the average collection period
  • The discount period may be lengthened
  • All of the above
Q22 | Which of the following is not associated with cash management of a firm?
  • Stretching accounts payable without affecting the credit of the firm
  • Speedy collection of receivables
  • Investing surplus funds in long term securities
  • Maintaining liquidity
Q23 | Which of the following is not a motive for holding cash?
  • Transaction purpose
  • Precaution against unexpected expenses
  • Extending loans to group companies
  • Speculation purpose
Q24 | Cash management does not call for
  • Lengthening creditor’s period
  • Lengthening debtor’s period
  • Investing surplus funds
  • Nullifying idle funds
Q25 | Which of the following is not a function of a finance manager?
  • Mobilization of funds
  • Manipulate share price of the company
  • Deployment of funds
  • Control over use of funds