Financial Management Set 4

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 4

Q1 | Capital Budgeting is a part of:
  • Investment Decision
  • Working Capital Management
  • Marketing Management
  • Capital Structure
Answer: Investment Decision
Q2 | Capital Budgeting deals with:
  • Long-term Decisions
  • Short-term Decisions
  • Both (a) and (b)
  • Neither (a) nor (b)
Answer: Long-term Decisions
Q3 | Which of the following is not used in Capital Budgeting?
  • Time Value of Money
  • Sensitivity Analysis
  • Net Assets Method
  • Cash Flows.
Answer: Net Assets Method
Q4 | Capital Budgeting Decisions are:
  • Reversible
  • Irreversible
  • Unimportant
  • All of the above
Answer: Irreversible
Q5 | Which of the following is not incorporated in Capital Budgeting?
  • Tax-Effect
  • Time Value of Money
  • Required Rate of Return
  • Rate of Cash Discount
Answer: Rate of Cash Discount
Q6 | Which of the following is not a capital budgeting decision?
  • Expansion Programme
  • Merger
  • Replacement of an Asset
  • Inventory Level
Answer: Inventory Level
Q7 | A sound Capital Budgeting technique is based on:
  • Cash Flows
  • Accounting Profit
  • Interest Rate on Borrowings
  • Last Dividend Paid
Answer: Accounting Profit
Q8 | Which of the following is not a relevant cost in Capital Budgeting?
  • Sunk Cost
  • Opportunity Cost
  • Allocated Overheads
  • Both (a) and (c) above.
Answer: Both (a) and (c) above.
Q9 | Capital Budgeting Decisions are based on:
  • Incremental Profit
  • Incremental Cash Flows
  • Incremental Assets
  • Incremental Capital
Answer: Incremental Cash Flows
Q10 | Which of the following does not effect cash flows proposal?
  • Salvage Value
  • Depreciation Amount
  • Tax Rate Change
  • Method of Project Financing
Answer: Method of Project Financing
Q11 | Cash Inflows from a project include:
  • Tax Shield of Depreciation
  • After-tax Operating Profits
  • Raising of Funds
  • Both (a) and (b)
Answer: Both (a) and (b)
Q12 | Which of the following is not true with reference capital budgeting?
  • Capital budgeting is related to asset replacement decisions,
  • Cost of capital is equal to minimum required return,
  • Existing investment in a project is not treated as sunk cost,
  • Timing of cash flows is relevant.
Answer: Existing investment in a project is not treated as sunk cost,
Q13 | Which of the following is not followed in capital budgeting?
  • Cash flows Principle
  • Interest Exclusion Principle
  • Accrual Principle
  • Post-tax Principle
Answer: Accrual Principle
Q14 | Depreciation is incorporated in cash flows because it:
  • Is unavoidable cost
  • Is a cash flow
  • Reduces Tax liability
  • Involves an outflow
Answer: Reduces Tax liability
Q15 | Which of the following is not true for capital budgeting?
  • Sunk costs are ignored,
  • Opportunity costs are excluded,
  • Incremental cash flows are considered,
  • Relevant cash flows are considered
Answer: Opportunity costs are excluded,
Q16 | Which of the following is not applied in capital budgeting?
  • Cash flows be calculated in incremental terms
  • All costs and benefits are measured on cash basis,
  • All accrued costs and revenues be incorporated,
  • All benefits are measured on after-tax basis.
Answer: All accrued costs and revenues be incorporated,
Q17 | Evaluation of Capital Budgeting Proposals is based on Cash Flows because:
  • Cash Flows are easy to calculate
  • Cash Flows are suggested by SEBI
  • Cash is more important than profit
  • None of the above
Answer: Cash is more important than profit
Q18 | Which of the following is not included in incremental A flows?
  • Opportunity Costs
  • Sunk Costs
  • Change in Working Capital
  • Inflation effect
Answer: Sunk Costs
Q19 | A proposal is not a Capital Budgeting proposal if it:
  • is related to Fixed Assets
  • brings long-term benefits
  • brings short-term benefits only
  • has very large investment.
Answer: brings short-term benefits only
Q20 | In Capital Budgeting, Sunk cost is excluded because it is:
  • of small amount
  • not incremental
  • not reversible
  • All of the above
Answer: not incremental
Q21 | Savings in respect of a cost is treated in capital budgeting as:
  • An Inflow
  • An Outflow
  • Nil
  • None of the above.
Answer: An Inflow
Q22 | In capital budgeting, the term Capital Rationing implies:
  • That no retained earnings available
  • That limited funds are available for investment
  • That no external funds can be raised,
  • That no fresh investment is required in current year
Answer: That limited funds are available for investment
Q23 | Feasibility Set Approach to Capital Rationing can be applied in:
  • Accept-Reject Situations
  • Divisible Projects
  • Mutually Exclusive Projects
  • None of the above
Answer: Accept-Reject Situations
Q24 | In case of divisible projects, which of the following can be used to attain maximumNPV?
  • Feasibility Set Approach
  • Internal Rate of Return
  • Profitability Index Approach
  • Any of the above
Answer: Profitability Index Approach
Q25 | In case of the indivisible projects, which of the following may not give the optimumresult?
  • Internal Rate of Return
  • Profitability Index
  • Feasibility Set Approach
  • All of the above
Answer: Feasibility Set Approach
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