Financial Management MCQ-FINANCIAL PLANNING AND CAPITAL STRUCTURE for CPD-1, C1

FINANCIAL PLANNING AND CAPITAL STRUCTURE

Estimating capital requirements, fixed capital, working capital, capitalization, patterns of capital structure.

 

Multiple choice questions:

1.   Which of the following is not included under qualities of optimum capital structure?

a.      Minimum cost of capital

b.     Minimum risk

c.      Maximum control

d.     Minimum profit

 

2.   Which factors affect working capital?

a.      Nature of business

b.     Credit policy

c.      Production policy

d.     All of these

 

3.   Which of the following may be defined as relative change in profits due to a change in sale. Put the relevant words on blank?

a.      Leverage

b.     BEP

c.      P/V

d.     MOS

 

4.   Which is not included under leverage?

a.      Financial leverage

b.     Operating leverage

c.      Administrative leverage

d.     None of these

 

5.   A ……………..degree of leverage implies that a large change in profits occurs due to a relatively small change in sales

a.      High

b.     Low

c.      Medium

d.     None of these

6.   Financial leverage occurs when …………………….

a.      A firm borrows fund

b.     A firm financing to the other

c.      A firm merge with other

d.     None of these

 

7.   The concept of cost of capital can also be explained in terms of …………..cost

a.      Variable cost

b.     Capital cost

c.      Fixed cost

d.     Opportunity cost

 

8.   “cost of capital is the borrowing rate.” This statement is –

a.      True

b.     False

 

9.   The concept of cost of capital is very important from which points of view?

a.      Capital expenditure decisions

b.     Capital structure decisions

c.      Make or buy decisions

d.     Both a and b

 

10.     Capital investment is not necessarily an investment in tangible assets

a.      Correct

b.     Incorrect

 

11.     The working capital released on the end of a project is not cash inflow of the final year

a. Correct

b.Incorrect

 

12.     Depreciation on fixed asset is included in cost in computing discounted cash flows

a. Correct

b.Incorrect

 

13.     The capital budgeting generally refers to acquiring inputs with long-term returns

a. Correct

b.Incorrect

 

14.     Pay back period is also called as

a. Pay out method

b.Pay off method

c. Pay back method

d.All of these

 

15.     Economic life of a project is 8 years and its costs are Rs. 5,00,000. Annual savings (cash inflow) is Rs. 1,00,000. Hence post pay back profit would be

a. Rs. 2,50,000

b.Rs. 4,00,000

c. Rs. 3,00,000

d.Rs. 2,00,000

 

16.     A plant would cost Rs 50,000 and would fetch Rs. 10,000 in first year, Rs. 20,000 in second year, Rs. 20,000 in third year. Hence pay back would be

a. 3 years

b.4 years

c. 2 years

d.One year

 

17.     Working capital is the difference between current assets and

a. Current liabilities

b.Fixed assets

c. Tangible assets

d.Goodwill

 

18.     Which is the long term sources of working capital?

a. Issue of shares

b.Floating of debentures

c. Loans

d.Depreciation

 

19.     Which one of the following is not merit of net present value?

a. Considers all cash flows

b.True measure of probability

c. Based on the concept of the time value money

d.Requires estimates of cash flows which is a tedious task

 

 

 

 

Key answers:

1.   (d) Minimum profit

2.   (d) All of these

3.   (a) Leverage

4.   (c) Administrative leverage

5.   (a) high

6.   (a) A firm borrows fund

7.   (d) Opportunity cost

8.   (a) True

9.   (d) Both a and b

10.  (a) correct

11.  (b) incorrect

12.  (b) incorrect

13.  (a) Correct

14.  (d) All of these

15.  (c ) Rs. 3,00,000

16.  (a) 3 years

17.  (a) current liabilities

18.  (d) depreciation

19.   (a)