Financial Management Set 14

Bachelor of Business Administration (BBA),

Master of Commerce (M.com),

Bachelor of Accounting and Finance (BAF),

Bachelor of Business Administration in Finance (BBA Finance),

Cost Accounting

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This set of Financial Management Multiple Choice Questions & Answers (MCQs) focuses on Financial Management Set 14

Q1 | According to rate or return is the ratio of average values of
  • Profit before tax to book value o the investment
  • Profit after tax to salvage value of the investment
  • Profit before tax to present value of the investment
  • Profit after tax to the book value of the investment
Answer: Profit after tax to the book value of the investment
Q2 | Which of the following is/ are the drawbacks of Accounting Rate of Return criterion
  • It gives equal weightage to near flows and distant flows
  • It is calculated using the accounting income and not cash flows
  • The cut off of ARR is arbitrarily fixed
  • All of the above
Answer: All of the above
Q3 | Which of the following is true about NPV?
  • It considers all the cash flows
  • It gives more weightage to distant flows than to near term flows
  • It considers time value of money
  • Both a and c above
Answer: Both a and c above
Q4 | In IRR , the cash inflows are assumed to be reinvested in the project at
  • Internal rate of return
  • Cost of capital
  • Risk free rate
  • Risk adjusted rate
Answer: Internal rate of return
Q5 | For a project, benefit cost ratio is equal to one, then
  • IRR will be greater than one
  • IRR will be greater than discount rate
  • IRR will be less than discount rate
  • IRR will be equal to discount rate
Answer: IRR will be equal to discount rate
Q6 | Which of the following is a non discounting technique for appraising a project?
  • Net present value
  • Pay back period
  • Internal rate of return
  • Cost benefit ratio
Answer: Pay back period
Q7 | If the present value of cash in flows from a project is Rs4.50 crore, initial outlay is Rs3.75crore then the net benefit cost ratio is
  • 0.17
  • 0.20
  • 0.75
  • 0.83
Answer: 0.20
Q8 | Which of the following is not considered for cost benefit analysis of capital decisions
  • Opportunity cost
  • Incremental cost
  • Sunk cost
  • All of these
Answer: Sunk cost
Q9 | If NPV for a project is negative, then
  • IRR = Cost of capital
  • IRR > Cost of capital
  • BCR = 1
  • IRR < Cost of capital
Answer: IRR < Cost of capital
Q10 | The net cash flows of the project and their present values are as followsYear 1 2 3 4 Net cash flow (Rs) 5100 5100 5100 7100 PVIF @12% 0.893 0.797 0.712 0.636 Present Value (Rs) 4554 4065 3631 4516 The initial investment in the project is Rs12500, What is the NPV of the project?
  • 4066
  • 4166
  • 4266
  • 4566
Answer: 4266
Q11 | Higher the risk involved in a firm, ------- is the cost of capital
  • High
  • Low
  • Medium
  • None of these
Answer: High
Q12 | The composition of a company’s capitalization is called
  • Capital Structure
  • Financial structure
  • Long term source
  • Short term source
Answer: Capital Structure
Q13 | The entire items on the liability side of a balance sheet is called
  • Capital structure
  • Financial structure
  • Long term source
  • Short term source
Answer: Financial structure
Q14 | Net operating income approach was suggested by
  • Modigliani and Miller
  • Durand
  • Walter
  • None of these
Answer: Durand
Q15 | Overall cost of capital, according to ------ approach, decreases up to a certain point, remainsunchanged for moderate increase in debt thereafter, and increase beyond a certain point
  • Net income
  • Net operating income
  • Traditional
  • MM approach
Answer: Traditional
Q16 | According to MM approach, two identical firms in all respects except their capital structurecan not have different market values or cost of capital because of-----
  • Leverage
  • Trading on equity
  • Arbitrage process
  • None of these
Answer: Arbitrage process
Q17 | If funds are required for productive purpose ------- finance is suitable
  • Debt
  • Equity
  • Retained earnings
  • None of these
Answer: Debt
Q18 | If funds are required for unproductive purpose or general development on permanent basis ------- finance is suitable
  • Debt
  • Equity
  • Bank overdraft
  • None of these
Answer: Equity
Q19 | According to ------ method it is assumed that each of the future cash flows isimmediately reinvested in another project at a certain rate of return until the termination of the project
  • NPV
  • IRR
  • Pay back method
  • Terminal value method
Answer: Terminal value method
Q20 | When the cost of the project differ significantly which method of capital budgeting is used
  • NPV
  • IRR
  • Pay back method
  • Profitability index
Answer: Profitability index
Q21 | To judge the comparative risk of projects having same cost and different NPV whichmethod is used
  • Certainty equivalent method
  • Sensitivity technique
  • Standard deviation method
  • Coefficient of variation method
Answer: Coefficient of variation method
Q22 | Under ----- method more than one forecast of the future cash inflows ie. Optimistic, pessimistic and most likely are made
  • Certainty equivalent method
  • Sensitivity technique
  • Standard deviation method
  • Coefficient of variation method
Answer: Sensitivity technique
Q23 | ------- is a graphical representation of the relationship between a present decision and futureevents, future decisions and their consequences.
  • Certainty equivalent method
  • Sensitivity technique
  • Standard deviation method
  • Decision tree analysis
Answer: Decision tree analysis
Q24 | The return after the pay off period is not considered in case of
  • Pay back method
  • NPV
  • Present value index
  • IRR
Answer: Pay back method
Q25 | The cash inflows on account of operations are presumed to have been reinvested at the cutoff rate in case of
  • Pay back method
  • NPV
  • Accounting rate of return
  • IRR
Answer: NPV
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