Match the following: List - I List - II (a) Matching approach $$1.$$ Dividend Policy (b) Structural ratios $$2.$$ Inventory Management (c) Ordering quantity $$3.$$ Financing Working Capital (d) Bonus shares $$4.$$ Capital Structure

$$(a) - 3, (b) - 4, (c) - 2, (d) - 1$$

$$(a) - 1, (b) - 2, (c) - 3, (d) - 4$$

$$(a) - 3, (b) - 4, (c) - 1, (d) - 2$$

$$(a) - 2, (b) - 1, (c) - 3, (d) - 4$$

Match the statements in List-I with dividend models in List-II as follows: List-I List-II (a) Dividend Capitalization Approach (i) Traditional Model (b) Dividend Policy has a bearing on the share valuation (ii) Gordon Model (c) Stock Market places more weight on dividends than on retain earnings (iii) Walter Model (d) Dividend payout is irrelevant to the value of the firm (iv) Modigliani and Miller Model

$$(a) - (ii), (b) - (iii), (c) - (i), (d) - (iv)$$

$$(a) - (i), (b) - (ii), (c) - (iv), (d) - (iii)$$

$$(a) - (iv), (b) - (i), (c) - (iv), (d) - (ii)$$

$$(a) - (iii), (b) - (iv), (c) - (ii), (d) - (i)$$

MCQ Questions for Class 12 Commerce Business Studies Financial Management Quiz 8

Financial Planning means

0%
the optimal procurement as well as the usage of finance.
0%
preparation of a financial blueprint of an organisations future operations.
0%
understanding of business finance, major financial decision areas, etc.
0%
the solution of three major issues relating to the financial operations of a firm.

Which of the following affects the WACC (Weighted Average Cost of Capital) of a company?

0%
Financing decision
0%
Floatation costs
0%
Investment decision
0%
Dividend decision

Raj has two projects A and B in hand. The same amount of risk is involved in both the projects. If the rate of return of project A and B is 20% and 15% respectively, then under normal circumstance, which of the two projects is likely to be selected?

0%
Project A
0%
Project B
0%
Both of the above
0%
None of the above

Which of the following is not an importance of financial planning?

0%
It helps in avoiding business shocks and surprises.
0%
If helps in co-ordinating various business functions.
0%
If helps to reduce waste, duplication of efforts and gaps in planning.
0%
It tries to delink the present with the future.

As the financial leverage of a company increases, it leads to

0%
An increase in the cost of funds but a decline in the financial risk
0%
A decline in the cost of funds but an increase in the financial risk
0%
Both a decline in the cost of funds and financial risk
0%
Both an increase in the cost of funds and financial risk

A higher financial leverage ratio indicates that

0%
The dependency of the firm on the debt is more.
0%
The dependency of the firm on the debt is less.
0%
The proportion of equity in the total capital is high.
0%
None of the above

Which of the following is required for the day-to-day operation of the business?

0%
Fixed capital
0%
Working capital
0%
Permanent capital
0%
All of the above

The financial plans are drawn by taking into consideration

0%
Performance of the organisation
0%
Growth prospects
0%
Investments
0%
All of the above

Sky Limited is a company dealing in healthcare products. The company is earning high profits but is short on cash, so it has decided to declare less dividends in the current financial year. Identify the factor related to dividend decision being described in the above lines.

0%
Contractual constraints
0%
Cash flow position
0%
Earning
0%
Preference of shareholders

Which of the following is not an objective of financial planning?

0%
Ensuring enough funds are available at the right time
0%
Ensuring smooth business operations
0%
Ensuring excess availability of funds at the right time
0%
All of the above

Name the decision which affects both the profitability and the financial risk.

0%
Capital structure decision
0%
Capital budgeting decision
0%
Financial planning decision
0%
All of the above

What combination of the following factors influences the working capital requirement?
(i) Market Conditions
(ii) Production Policy
(iii) Firm's goodwill
(iv) Supply conditions

0%
(i), (ii) and (iii)
0%
(ii), (iii) and (iv)
0%
(i), (iii) and (iv)
0%
(i), (ii) and (iv)

Insufficient working capital in any enterprise may also result in _______.
I. Failure to adapt to changes
II. Over-capitalization
III. Reduced availability of trade and cash discounts
IV. Reduced volume of production and sales

0%
I, II and III only
0%
I, III and IV only
0%
II and III only
0%
I and IV only

Which one of the following is not among the assumptions of the Modigliani-Miller model?

0%
Perfect capital market
0%
Equivalent risk classes
0%
Unity for dividend payout ratio
0%
Absence of taxes

Permanent working capital is generally financed through _________.

0%
long term capital funds
0%
government assistance
0%
internal financing
0%
short term loans from banks

Which of the following internal factors influence capital structure?
I. Cost of capital
II. Risk
III. Transferability
IV. Increased owner's profits

0%
I and II are correct
0%
III and IV are correct
0%
I, III and IV are correct
0%
All are correct

Explanation

Capital Structure constitutes two words i.e. Capital and Structure. The word

$‘capital’$ refers to the investment of funds in business while ‘structure’ means arrangement of different components in proper proportion.

Factors affecting capital structure:

Cost of capital : - It is a process of raising the funds which involves the cost in planning the capital structure, the use of capital should be capable of earning revenue to meet the cost of capital.

Risk Factor:- Risk influence the capital structure of the company.Debt contains low risk and hence debts are cheap whereas shares possess higher risk with higher return.

Transferability:- Many companies put their securities for quotation on the

stock exchange quotations and improve the transferability of shares.

Increased owner's profits:- Equity stock may result in a possible increase of operation to control in an enterprise.

When the Return On Investment (ROI) exceeds interest rate, the financial leverage is ______.

0%
Favourable
0%
Unfavourable
0%
Constant
0%
None of the above

Explanation

Return on investment $(ROI)$ is a measure of the profitability of an investment.
A high return on investment means that an investment generates favorable profit compared to its investment cost.
If an investment has a positive $ROI$ and there are no other opportunities with a higher $ROI$ then the investment should be undertaken.
A higher $ROI$ means that investment gains compare favorably to investment costs.

Match the following:

List - I	List - II
(a) Matching approach	$1.$ Dividend Policy
(b) Structural ratios	$2.$ Inventory Management
(c) Ordering quantity	$3.$ Financing Working Capital
(d) Bonus shares	$4.$ Capital Structure

0%
$(a) - 1, (b) - 2, (c) - 3, (d) - 4$
0%
$(a) - 3, (b) - 4, (c) - 1, (d) - 2$
0%
$(a) - 3, (b) - 4, (c) - 2, (d) - 1$
0%
$(a) - 2, (b) - 1, (c) - 3, (d) - 4$

The guiding principle in determining the capital structure of an enterprise:

0%
The nature of earnings
0%
Margin of gross profit
0%
Margin of net profit
0%
All of the above

Match the statements in List-I with dividend models in List-II as follows:

List-I	List-II
(a) Dividend Capitalization Approach	(i) Traditional Model
(b) Dividend Policy has a bearing on the share valuation	(ii) Gordon Model
(c) Stock Market places more weight on dividends than on retain earnings	(iii) Walter Model
(d) Dividend payout is irrelevant to the value of the firm	(iv) Modigliani and Miller Model

0%
$(a) - (ii), (b) - (iii), (c) - (i), (d) - (iv)$
0%
$(a) - (i), (b) - (ii), (c) - (iv), (d) - (iii)$
0%
$(a) - (iv), (b) - (i), (c) - (iv), (d) - (ii)$
0%
$(a) - (iii), (b) - (iv), (c) - (ii), (d) - (i)$

The working capital term loan representing excess borrowings

0%
Should be gradually reduced
0%
Should be allowed to go up
0%
Should not be allowed to go up
0%
Both (a) and (c)

Which of the following ratios are taken into consideration by a banker before sanctioning the loan?

0%
Proprietory Ratio
0%
Stock-Turnover Ratio
0%
Debt-Service Coverage Ratio
0%
All of the above

The degree of super-leverage would be calculated by________.

0%
Adding DOL (Degree of Operating Leverage) and DFL (Degree of Financial Leverage)
0%
Dividing DOL with DFL
0%
Multiplying DOL and DFL
0%
Subtrcting DOL from DFL

Explanation

Degree of super leverage=Degree of operating leverage x Degree of financial leverage

$DOL$ =

$\cfrac{contribution}{EBIT}$

$DFL$ =

$\cfrac{EBIT}{PBT}$

Degree of super leverage =

$\cfrac{Contribution}{PBT}$

$EBIT$ = Earning before intrest and tax

$PBT$ = Profit before tax

Pay-back period method is also called as ________.

0%
pay-out method
0%
pay-off method
0%
pay-back method
0%
all of the above

Which one of the following is not the internal factor affecting the weighted average cost of capital of a firm?

0%
Investment policy of the firm
0%
Capital structure of the firm
0%
Dividend policy followed
0%
Market risk premium for the firm

Financial leverage is called favorable if ____________.

0%
return on investment is lower than cost of debt
0%
return on investment is higher than cost of debt
0%
debt is nearly available
0%
the degree of existing financial leverage is low

Which one of the following assumptions is not covered in the Walter's Model of the dividend policy?

0%
All financing is done through retained earnings
0%
Firm's business risk does not change due to additional investments
0%
The firm has an infinite life
0%
The key variables like EPS and DPS keep on changing

Financial leverage in a firm is positively affected by:

0%
Intensity of tangible assets
0%
Operating leverage
0%
Profitability
0%
Tax Rate

Who formulated the following model for estimating the market price of equity share?

$P = \dfrac {D + \dfrac {R_{a}}{R_{c}}(E - D)}{R_{c}}$
Where,

$P =$ Market price of equity share

$D = DPS$

$E = EPS$

$E - D =$ Retained earning per share

$R_{a} =$ Internal rate of return on investment

$R_{c} =$ Cost of capital.

0%
Modigliani-Miller
0%
Myron-Gordon
0%
James E. Walter
0%
Clarkson and Elliot

Explanation

Professor James E. Walter that the choice of dividend policies almost always affects the value of the enterprise. His model shows clearly the importance of the relationship between the firm’s internal rate of return (r) and its cost of capital

$(k)$ in determining the dividend policy that will maximize the wealth of shareholders.

Walter’s formula to calculate the market price per share (P) is:

$P=\cfrac {\cfrac {D}{k}+\cfrac {E-D}{k} \times r} {k}$

P = market price per share
D = dividend per share
E = earnings per share

Which of the following definition of financial management is given by "Massie"?

0%
Financial management is the activity concerned with planning, raising, controlling and administering of funds used n the business.
0%
Financial management is that area of business management devoted to a judicious use of capital and a careful selection of source of capital in order to enable a spending unit to move in the direction of reaching its goals.
0%
Financial management is the operational activity of a business that is responsible for obtaining and effectively utilizing the funds necessary for efficient operations
0%
None of the above

CBSE Questions for Class 12 Commerce Business Studies Financial Management Quiz 8 - MCQExams.com

0:0:1

Practice Class 12 Commerce Business Studies Quiz Questions and Answers

CBSE Questions for Class 12 Commerce Business Studies Financial Management Quiz 8 - MCQExams.com

0:0:1

Practice Class 12 Commerce Business Studies Quiz Questions and Answers

Support mcqexams.com by disabling your adblocker.