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Financial Management Multiple Choice Questions and Answers | Financial Management MCQs

Questions
1 Degree of Combined leverage can be obtained by
A EBIT + Fixed Costs/EBIT - Total Interest Expense
B EBT/Sales
C Sales/Contribution x 100
D Sales/Cash x 100

Answer: EBIT + Fixed Costs/EBIT - Total Interest Expense
2 Which is called as Dividend Ratio Method?
A Dividend Yield Method
B Debt Equity Method
C Asset Method
D Equity Method

Answer: Dividend Yield Method
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3 Return on equity ratio is computed as
A Equity/ROA
B Annual Net Income/Average Stock holders Equity
C Debt/Equity
D ROA/Debt x 100

Answer: Annual Net Income/Average Stock holders Equity
4 The relationship between the financial leverage and firm's required rate of return to equity shareholders with corporate taxes is given by the
A YE = Cost/Sales
B YE = r0 + D/E (1 - TC)(r0 - rB)
C YE = Equity/Cost
D YE = Sales/Income

Answer: YE = r0 + D/E (1 - TC)(r0 - rB)
5 Cost of Preference Capital can be obtained by
A KP = E – P/2/D – E/100 (1 - Tax)
B KP = E – P/2/D + 1/100 x 100
C KP = D + 1/2 x 100
D KP = D + (M.V. - N.P./n)/(M.V. + N.P./2)

Answer: KP = D + (M.V. - N.P./n)/(M.V. + N.P./2)
6 Assertion (A) : High capital gearing leads to greater speculation.

Reason (R) : Proportion of equity share capital in relation to the total capital comprising the other securities is small leading to capitalisation being highly geared.

A Both A and R are true and R is the correct explanation of A
B Both A and R are true but R is not a correct explanation of A
C A is true but R is false
D A is false but R is true

Answer: A is false but R is true
7 Capital budgeting actually the process of making investment decisions in
A Sales Planning
B Production process and style
C Fixed Assets
D Current Assets

Answer: Fixed Assets
8 According to the concept of financial signaling, management behavior results in new debt issues being regarded as "____ news" by investors.
A good
B bad
C non-event
D risk-neutral

Answer: good
9 Factoring is a
A Financial Planning
B Production Plan
C Cost of Sales
D New Financial Service

Answer: New Financial Service
10 Degree of operating leverage can be computed by
A % change in Operating Income/% change in sales
B % Sales/% Profit
C Sales/Cost of Production
D Sales/Fixed Cost

Answer: % change in Operating Income/% change in sales

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