Financial Management MCQ

Table of Contents

Financial Management focuses on decisions relating to how much and what types of assets to acquire, how to raise the capital needed to purchase assets, how to run the firm so as to maximize its value.

Financial Management is one of the areas of finance that deals with managing all the financial resources of the organization for the smooth functioning of the organization’s goals.

Generally, a firm or corporation is the purpose for which the finance functions are carried out. Financial management emphasizes the practical significance of financial numbers.

Financial management creates value and organizational agility through the allocation of scarce resources among competing business opportunities.

It helps implement and monitor business strategies and achieve business objectives. Financial Management has mainly two goals. They are

Profit maximization and
Value maximization (Shareholder wealth maximization)

Try these MCQs on Financial Management.

Unit 1: Introduction to Financial Management

What is the primary goal of financial management

a) to maximize the return
b) to minimize the risk
c) to maximize wealth of owners
d) to maximize profit

The focal point of financial management in a firm is

a) The number and types of products or services provided by the firm.
b) The minimization of the amount of taxes paid by the firm.
c) The creation of value for shareholders.
d) The dollars profits earned by the firm.

Unit 2: Capital Structure and Leverage

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MCQs,

Which of these is not a part of Capital Structure?

a) Equity Shares
b) Debentures
c) Short-term borrowings
d) Bonds

Capital Structure refers to which of the following options:

a) Current assets and current liabilities
b) Shareholders equity
c) Long term debt, preferred stock and common stock options
d) None of the above

The main aim of capital structure is to:

a) Maximise owner’s return and minimise the cost of capital
b) Maximise owner’s return and maximise the cost of capital
c) Minimise owner’s return and minimise the cost of capital
d) Minimise owner’s return and maximise the cost of capital

The process of financing the assets of a business is known as:

a) Asset Structure
b) Owners Structure
c) Financial Structure
d) Capital Structure

Capital Structure is an optimal mix of which one of the following options:

a) Sales and profits
b) Debt and equity
c) Current assets and fixed assets
d) None of the above

Capital structure ______________ financial structure

a) Is a part of
b) Is not a part of
c) Is the same as
d) Is different from

To get a broad idea of the risk profile of a business, one should look at their ________

a) Capital structure
b) Dividend policy
c) Profit and loss statement
d) None of the above

Capital Structure is a part of ___________:

a) The asset side of a balance sheet
b) The liability side of a balance sheet
c) The Trial Balance
d) None of the above

Which of the following options is a part of the Capital Structure of a company?

a) Short-term borrowings
b) Accounts payable
c) Equity shares
d) None of the above

Which of the above factors helps to determine the capital structure of a firm?

a) Government policies
b) Degree of Control
c) Cost of capital
d) All of the above

In an organisation, the shareholders’ wealth is represented by:

a) The salary paid to employees
b) The market price of a share
c) The book value of a firm’s assets
d) None of the above

The market price of an equity share is determined by:

a) The president of a company
b) The board of directors
c) Buyers and sellers of those shares
d) The stock exchange where those shares are getting traded

The price at which a bond gets traded at a stock exchange is known as:

a) Maturity Value
b) Market Value
c) Face Value
d) Redemption Value

_ and __ are two financial instruments that carry a fixed rate of interest and they have to be paid off regardless of whether the firm earns revenue or not.

a) Equity Shares, Preference Shares
b) Equity Shares, Debentures
c) Bonds, Debentures
d) Equity Shares, Bonds

Which of the following methods should a company use to improve (lower) its debt to equity ratio?

a) Buy common stock
b) Shift long-term debt to short term debt
c) Borrow more
d) Shift short-term debt to long-term debt

The claims by preferred shareholders on a firm’s assets and income come those of ordinary shareholders and those of creditors.

a) Before; also before
b) After; after
c) Before; after
d) After; before

Which of the following options is an example of marketable securities?

a) Long-term equity securities
b) Long-term debt instruments
c) Short-term debt instruments
d) Short-term equity securities

Which of the following options is false?

a) The cost of equity capital is lower than the cost of debt before taxes
b) The cost of equity capital is very difficult to estimate
c) The cost of equity capital is the minimum rate that a business should earn on the part of investment financed by equity
d) None of the above

The equity shares of a company must give a higher return than debt because:

a) Bonds require a market premium
b) Demand for equity shares is greater than bonds
c) Demand for equity shares is lesser than bonds
d) Equity shares involve more systematic risk

Which of these options, apart from cash, are instruments to distribute profits to shareholders?

a) Stock purchase
b) Bonus shares
c) Stock split
d) All of the above

Unit 3: Dividend and Dividend Policy MCQs

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Dividend is derived from Latin word……..

(a) Dividendum
(b) Divend
(c) Divided
(d) None of the above

The corporate income which is given to the shareholders as a return on investment is known as

(a) Share
(b) Dividends
(c) Income
(d) Profit

When the corporate declared dividend between two general meetings is known as

(a) Extra dividend
(b) Composite dividend
(c) Interim dividend
(d) None of the above

When a company gives a part of dividend as cash and another part in scrip, bond, property is call as

(a) Extra dividend
(b) Composite dividend
(c) Interim dividend
(d) None of the above

Dividend is defined under section ……. Under company act 2013

a) 2(25)
b) 2(15)
c) 2(5)
d) 2(35)

Retained earnings are

(a) Internal sources of funds
(b) External sources of funds
(c) Both
(d) None of the above

Dividend is the which component of the total rate of return

(a) Capital return
(b) Current return
(c) Both
(d) None of the above

Dividend can be paid in the form of

(a) Share
(b) Security
(c) Cash
(d) All of the above

Punishment to failure to distribute dividend come under section

(a) 117
(b) 127
(c) 137
(d) 147

Which resolution is required to be passed for the declaration of dividend in the general meeting of the company?

(a) Ordinary resolution
(b) Special resolution
(c) Both
(d) None of the above

What is the rate of interest paid by company for punishment for failure to distribute dividend

(a) 8%
(b) 18%
(c) 28%
(d) 38%

The Market price of the share is least affected by

(a) Steady dividend at higher level
(b) Steady dividend at lower level
(c) Steady dividend at current level
(d) None of the above

In which policy, a corporate entity follows when more profitable investment proposal are available to it and the entity needs funds?

(a) Steady dividend at higher level
(b) Steady dividend at lower level
(c) Steady dividend at current level
(d) None of the above

The policy of a corporate entity to decide the rate of dividend in the proportion of its earnings is known as

(a) Steady dividend policy
(b) Regular dividend plus extra dividend
(c) No dividend policy
(d) Fluctuating in earning policy

Which one of the following is a payment of either cash or shares of stock that is paid out of earnings to a firm’s shareholders?

A) Interest
B) Distribution
C) Retained earnings
D) Dividend
E) Stock Repurchase

Which one of the following best defines a regular cash dividend?

A. Distribution by a firm to its shareholders
B. Payment from any source by a firm to its owners
C. One-time payment of cash by a firm to its shareholders
D. Cash payment by a firm to its owners as part of a firm’s normal operations
E. Distribution of the proceeds from the sale of a portion of a firm’s operations

The management of a corporate entity decides to retain a large part of profits in business and pays minimum dividend as per.

(a) Strict dividend policy
(b) Stable dividend policy
(c) Liberal dividend policy
(d) None of the above

Which dividend may be consider as long term dividend

(a) Liberal dividend policy
(b) Strict dividend policy
(c) Stable dividend policy
(d) None of the above

A policy of consistency in the payment of dividend is known as

(a) Stable dividend policy
(b) Strict dividend policy
(c) Liberal dividend policy
(d) None of the above

Which dividend ensure a fixe ratio of “dividend to income”

(a) Constant dividend per share
(b) Stable dividend payout ratio
(c) Constant dividend per share plus extra dividend
(d) None of the above

Which one of the following is the date on which the board of directors agrees to pay a dividend and passes a resolution to do so?

A. Date of record
B. Ex-dividend date
C. Payment date
D. Declaration date
E. Public announcement date

On which one of the following dates is the determination made as to which shareholders will receive a dividend payment?

A. Date of record
B. Ex-dividend date
C. Payment date
D. Declaration date
E. Public announcement date

On which one of the following dates are dividend checks mailed?

A. Date of record
B. Ex-dividend date
C. Payment date
D. Declaration date
E. Public announcement date

Which one of the following is a non-cash payment made by a firm to its shareholders and is a payment that lessens the value of each outstanding share?

A. Reverse stock split
B. Cash distribution
C. Stock dividend
D. Regular dividend
E. Liquidating dividend

When a company gives dividend as share or debenture of other corporate is known as

(a) Scrip dividend
(b) Composite dividend
(c) Interim dividend
(d) None of the above

When a corporate pays dividend in kind rather than cash is known as

(a) Scrip dividend
(b) Composite dividend
(c) Property dividend
(d) Interim dividend

Unit 4: Raising Capital MCQs

Unit 5: Short-Term Financial Planning MCQs

Unit 6: Short-term Financial Management MCQs

Unit 7: Introduction to Derivatives MCQs

Smirti

(Founder of Management Notes)
MBA,BBA.

I am Smirti Bam, an enthusiastic edu blogger with a passion for sharing insights into the dynamic world of business and management through this website.

I hold a MBA degree from Presidential Business School, Kathmandu, and a BBA degree with a specialization in Finance from Apex College,