Top 550+ Solved Financial Management MCQ Questions Answer
Q. According to traditional approach, the average cost of capital
a. Remains constant up to a degree of leverage and rises sharply thereafter with every increase in leverage.
b. Rises constantly with increase in leverage.
c. Deceases up to a certain point, remains unchanged for moderate increase in leverage and rises beyond a certain point.
d. Decreases at an increasing rate with increase in leverage.
Q. Which of the following is not a feature of an optimal capital structure?
a. Profitability
b. Safety
c. Flexibility
d. Control
Q. The cost of debt capital if interest rate is 15% and tax rate is 40% is
a. 6%
b. 8.5%
c. 9%
d. 10.5%
Q. Which of the following is not a feature of an optimal capital structure?
a. The company should make maximum use of leverage at a minimum cost
b. The capital structure should be flexible to be able to meet the changing condition
c. The company should aim at not using excessive debt in its capital structure
d. The company should make minimum use of leverage at a minimum cost.
Q. Which of the following is not an assumption of Miller and Modigliani approach?
a. There are no corporate or personal income tax
b. Investors are assumed to be rational and behave accordingly
c. There is no corporate tax though there are personal income tax
d. Capital markets are perfect
Q. The bond yield plus risk premium approach is a method of finding out the cost of
a. Preference capital
b. Equity capital
c. Debenture capital
d. Term loans
Q. According to net operating income approach
a. The equity capitalization rate remains constant with any increase or decrease in the degree of leverage
b. The overall capitalization rate of the firm remains constant
c. The cost of debt remains constant
d. Both b and c
Q. While calculating the weighted average cost of capital, market value weights are preferredbecause
a. Book value weights are historical in nature
b. It is vary difficult to estimate book value weights at the time of calculating the weighted average cost
c. This is in conformity with the definition of cost of capital as the investor’s minimum required rate of return
d. Book value weights fluctuate violently.
Q. Which profit is considered for calculating Average Rate of Return?
a. Earnings before interest, depreciation and tax
b. Average profit after tax and depreciation
c. Average profit after depreciation but before tax
d. Average profit after depreciation but before tax
Q. A project costs Rs50,000 and will yield annual cash inflows of Rs20,000 for 5years.Calculate its payback period.
a. 2 years
b. 5 years
c. 2.5 years
d. 3 years
Q. Capital structure decisions should always aim at having debt component in order to
a. Gain tax savings
b. Gain control over the company
c. Balance the capital structure
d. Increase the earnings available for shareholders.
Q. ------ refers to a situation where a firm is not in a position to invest in all profitableprojects due to the constraints on availability of funds
a. Capital budgeting
b. Over capitalization
c. Capital expenditure control
d. Capital rationing
Q. ------ refers to the minimum return expected by its suppliers
a. Trading on equity
b. Time value of money
c. Cost of capital
d. Capital gearing
Q. The ratio which is obtained by dividing the present value of future cash inflows by thepresent value of cash out flows is called
a. Net Present Value
b. IRR
c. Profitability Index
d. Average rate of return