T.Y B.COM
SEMESTER - 5
FINANCIAL MANAGEMENT
(FM)
MCQs - 2016 SEPTEMBER
1. Current ratio is 2.5:1. Net Working Capital is Rs. 3,00,000. Find the amount of Current Assets.
(A) Rs. 2,00,000
(B) Rs. 5,00,000
(C) Rs. 7,50,000
(D) Rs. 2,50,000
Solution :
CR = Current Ratio
CA = Current Assets
CL = Current Liability
NWC = Net Working Capital
-----> CR = CA / CL
2.5 = CA / CL
CA = 2.5 CL
NWC = CA - CL
3,00,000 = 2.5 CL - CL
1.5CL = 3,00,000
CL = 3,00,000/1.5
= 2,00,000
CA = 2.5CL
= 2.5 (2,00,000)
= 5,00,000
Answer : 5,00,000
2. Analyze the following:
|
Particulars |
1st year |
2nd year |
3rd year |
|
Current ratio |
2.10:1.00 |
2.20:1.00 |
2.60:1.00 |
|
Liquid ratio |
0.90:1.00 |
0.70:1.00 |
0.60:1.00 |
(A) Efficient utilization of assets
(B) Excess investment in inventory
(C) Profitability position is good
(D) None of the above
3. An Ageing schedule gives particulars about:
(A) Average Age of Directors
(B) Average Age of all Employees
(C) Accounts Receivables and Days Outstanding
(D) Accounts Payable and Days Outstanding
4. Which of the following represent finance functions?
(A) Investment decision
(B) Financing decision
(C) Liquidity decision
(D) All of the above
5. Wealth maximization means the maximization of _________ of investment in assets.
(A) Profits
(B) Net Present value
(C) Growth
(D) None of these
6. Capital budgeting is a part of:
(A) Dividend decision
(B) Liquidity decision
(C) Investment decision
(D) None of the above
7. Which of the following is an important dimension of a firm's credit policy?
(A) Credit Standards
(B) Cash Discount
(C) Credit Period
(D) All of the above
8. Which of the following is not a core concept of financial management?
(A) Risk & Return
(B) Cash Flow
(C) Value
(D) Liquidity
9. What is ignored in principle of Profit Maximization?
(A) Risk
(B) Time value of money
(C) Wealth creation
(D) All of the above
10. Net working capital is positive when:
(A) Current assets are higher than Current Liabilities
(B) Current Assets are lower than Current Liabilities
(C) Current Asset are equal to Current Liabilities
(D) None of the above
11. Pluto Ltd. had net income (PAT) of Rs. 2,00,000, paid income taxes of Rs. 60,000, and had interest expense of Rs. 16,000. What was Pluto Ltd's interest coverage ratio?
(A) 12.5 times
(B) 16.25 times
(C) 17.25 times
(D) 17.85 times
Solution:
EBIT 2,76,000
- Int 16,000
PBT 2,60,000
- tax 60,000
---------------------
PAT 2,00,000
ICR - Interest Coverage Ratio
ICR = EBIT / Int
= 2,76,000 / 16,000
= 17.25 times
Answer : 17.25 times
12. The figures of Profit and Loss account and Balance sheet are converted into percentages to some common base in __________.
(A) Comparative financial statements
(B) Trend ratios
(C) Common size financial statements
(D) None of the above
13. Objective of financial management is:
(A) Maximization of shareholder's wealth
(B) Maximization of profits
(C) Management of Liquidity
(D) Management of Fixed Assets
14. In Receivables Management, the collection programme of the firm, aimed at timely collection of receivables, may consists of:
i. Monitoring the state of receivables
ii. Dispatch of letters to customers whose due date is approaching
iii. Telephonic and telegraphic advice to customers around the due date
iv. Threat of legal action to overdue accounts
V. Legal action against overdue accounts
(A) i and i
(B) i, ii, iii
(C) i, ii, iii and iv
(D) i, ii, iii, iv and v
15. From the following information, calculate the value of Inventory:- Current ratio: 2:1, Quick ratio:- 1.5: 1, Current liabilities: Rs.80,000.
(A) 40,000
(B) 60,000
(C) 1,60,000
(D) 4,000
Solution:
CR = Current Ratio
CA = Current Assets
CL = Current Liabilities
QR = Quick Ratio
CR = CA/CL
2 = CA/80,000
CA = 80,000 x 2
= 1,60,000
QR = CA - Stock / CL
1.5 = 1,60,000 - Stock / 80,000
80,000 x 1.5 = 1,60,000 - Stock
1,20,000 = 1,60,000 - Stock
Stock = 1,60,000 - 1,20,000
= 40,000
Answer: 40,000
16. _________ is the amount of working capital which is required to maintain minimum level of current assets in carry out the normal business operations.
(A) Permanent working capital
(B) Temporary working capital
(C) Both (A) and (B)
(D) None of the above
17. Which of the following is not a spontaneous source of short term funds?
(A) Trade credit
(B) Outstanding expenses
(C) Bills Payable
(D) Financial Institution Loan
18. If credit sales are Rs.1,80,000, average collection period is 30 days and variable cost to sales ratio is 60% Calculate the opportunity cost of investment in receivables @ 20%. (Assume 360 days in a year).
(A) Rs.9,000
(B) Rs.1,800
(C) Rs.15,000
(D) Rs.500
19. __________ shows the speed with which capital invested in assets is rotated in the business and converted into sales.
(A) Profitability Ratio
(B) Leverage Ratio
(C) Liquidity Ratio
(D) Turnover Ratio
20. Cash discount term of 3/10, net 30 means:
(A) 10% discount if payment is made in thirty days
(B) 3% discount if payment made by 10th day, otherwise, full payment is due by thirtieth day
(C) 10% discount if payment is made in 3 days, otherwise full payment is due by thirtieth day
(D) None of the above
21. Gross Working Capital is equal to:
(A) Total Current assets
(B) Total Current liabilities
(C) Total Liabilities
(D) Total Assets
22. A tighter collection policy will have the following impact:
(A) Bad debts will decrease
(B) Investment in receivables will decrease
(C) Collection expenses will increase
(D) All of the above
23. Price - Earning Ratio of the company is 9 times and its Earning per share is Rs.5. What is the market price of the company's share?
(A) Rs.45
(B) Rs.54
(C) Rs.60
(D) Rs.1.80
Solution:
PER = Price Earning Ratio
MPS = Market Price Share
EPS = Earning Per Share
PER = MPS / EPS
9 = MPS / 5
MPS = 9 x 5
= 45
24. Which of the following represents the financing decision?
(A) Declaring Dividend
(B) Investment in Current assets
(C) Designing Optimal Capital Structure
(D) Investment in Long term assets
25. Which of the following is not a source of short term finance?
(A) Bank Overdraft
(B) Retained Earnings
(C) Cash Credit
(D) Bills Discounting
26. Under which approach of financing the current assets, the life of the assets is matched with maturity period of liabilities?
(A) Conservative Approach
(B) Defensive Approach
(C) Aggressive Approach
(D) Hedging Approach
27. Match the following
|
i. Transaction Motive |
a. To protect against uncertainties |
|
ii. Precautionary Motive |
b. To tap profit making opportunities arising from fluctuations |
|
iii. Speculative Motive |
c. To meet the transaction need |
(A) i - a, ii - b, iii - c
(B) i - c, ii - a, iii - b
(C) i - c, ii - b, iii-a
(D) None of the above
28. Match the following
|
i. Operating Cycle |
a. Inventory Period |
|
ii. Cash Cycle |
b. Inventory period + Accounts Receivable Period |
|
iii. Production Cycle |
c. Inventory period + Accounts Receivable Period
- Accounts Payable Period |
(A) i - c, ii - a, iii - b
(B) i - c, ii - b, iii - a
(C) i - b, ii - c, iii - a
(D) None of the above
29. Aggressive Approach of current assets investment policy refers to
(A) High level of investment in current assets
(B) Low level of investment in current assets
(C) Neither very high nor very low level of investment in current assets
(D) Zero investment in current assets
30. Cash flows are generated out of:
(A) Operating activities
(B) Financing activities
(C) Investing activities
(D) All of the above
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