Financial Management

Financial Management MCQs with Answers and Explanations | Corporate Finance & Investment Objective Questions

Master the core concepts of Financial Management with our comprehensive set of MCQs with answers and detailed explanations. Covering topics such as time value of money, capital budgeting, cost of capital, working capital management, capital structure, dividend policy, risk and return, portfolio management, and financial planning, these questions are ideal for students, teachers, and candidates preparing for professional and competitive exams (CA, ACCA, ICMA, CFA, MBA, BBA, CSS, PMS, NTS, FPSC, PPSC, UPSC, etc.). Each MCQ is followed by a clear explanation to build strong concepts, sharpen decision-making skills, and enhance exam readiness. Perfect for practice, revision, and self-assessment in the field of Financial Management and Corporate Finance.

91. Cash flows that should be considered for decision in hand are classified as

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relevant cash flows
irrelevant cash flows
marginal cash flows
transaction cash flows
✅ The correct answer is A.
Cash flows that should be considered for decision in hand are classified as relevant cash flows. It states that they must be cash flows that occur in the future and are incremental. While on the face of it obvious, only costs or revenues that give rise to a cash flow should be included.

92. Offering cash discount to customers result in _______.

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reducing the average collection period
increasing the average collection period
increasing sales
decreasing sales
✅ The correct answer is A.
Offering cash discount to customers result in reducing the average collection period. A cash discount is a deduction allowed by some sellers of goods or by some providers of services in order to motivate customers to pay within a specified time. The cash discount is also referred to as an early payment discount.

94. Second step in binomial approach of option pricing is to define range of values

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at expiration
at buying date
at exchange closing time
at exchange opening time
✅ The correct answer is A.
Second step in binomial approach of option pricing is to define range of values at expiration. An expiration date in derivatives is the last day that a derivative, such as options or futures, is valid. On or before this day, investors will have already decided what to do with their expiring position.

95. An earning of business which is available for free distribution to all stockholders and creditors is classified as

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free cash flows
free distribution
available income
cash income
✅ The correct answer is A.
An earning of business which is available for free distribution to all stockholders and creditors is classified as free cash flows. Free cash flow represents the cash a company generates after cash outflows to support operations and maintain its capital assets.

97. Dollar return is divided by invested amount which is used for calculating the

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rate of return
return amount
investment rate
received amount
✅ The correct answer is A.
Dollar return is divided by invested amount which is used for calculating the rate of return. A rate of return (RoR) is the net gain or loss on an investment over a specified time period, expressed as a percentage of the investment’s initial cost. Gains on investments are defined as income received plus any capital gains realized on the sale of the investment.

98. Markets in which outstanding securities are traded by investors are classified as

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primary markets
secondary markets
initial public offering market
stock market
✅ The correct answer is B.
Markets in which outstanding securities are traded by investors are classified as secondary markets. The secondary market is where investors buy and sell securities they already own. It is what most people typically think of as the “stock market,” though stocks are also sold on the primary market when they are first issued.

99. In expected rate of return for constant growth, expected total rate of return is equal to

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buying pricing
dividend yield
rate of return
selling pricing
✅ The correct answer is B.
In expected rate of return for constant growth, expected total rate of return is equal to dividend yield. The dividend yield is the ratio of a company’s annual dividend compared to its share price.

100. Under the P/E model, stock price is a product of_____________.

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EPS and DPS
P/E ratio and EPS
EPS and required return
P/E ratio and required return
✅ The correct answer is B.
Under the P/E model, stock price is a product of P/E ratio and EPS. The price-to-earnings ratio (P/E) is a valuation method used to compare a company’s current share price to its per-share earnings.