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.

121. In stock option, a little chance exists for large gain on stock when price of stock

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have volatile movement
moves freely
rarely moves
stays same
✅ The correct answer is C.
In stock option, a little chance exists for large gain on stock when price of stock rarely moves. A stock option gives an investor the right, but not the obligation, to buy or sell a stock at an agreed upon price and date.

122. Economists consider effects of started project on other parts of company or on environment of company is called

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externalities
foreign effects
weighted effects
opportunity effects
✅ The correct answer is A.
Economists consider effects of started project on other parts of company or on environment of company is called externalities. An externality is an economic term referring to a cost or benefit incurred or received by a third party. However, the third party has no control over the creation of that cost or benefit. An externality can be both positive or negative and can stem from either the production or consumption of a good or service.

124. Degree of financial leverage is a measure of relationship between ___________.

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EPS and EBIT
EBIT and quantity produced
EPS and quantity produced
EPS and sales
✅ The correct answer is A.
Degree of financial leverage is a measure of relationship between EPS and EBIT. The degree of financial leverage (DFL) measures the percentage change in EPS for a unit change in operating income, also known as earnings before interest and taxes (EBIT). This ratio indicates that the higher the degree of financial leverage, the more volatile earnings will be.

125. Method of stock valuation which is multiple of earning per share, book value and net income is classified as

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stock multiple analysis
dividend multiple analysis
market multiple analysis
stock and multiple analysis
✅ The correct answer is C.
Method of stock valuation which is multiple of earning per share, book value and net income is classified as market multiple analysis. A market multiples analysis is a financial modeling method of assigning a value to assets or to a business.

126. An annual interest payment divided by current price of bond is considered as

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current yield
maturity yield
return yield
earning yield
✅ The correct answer is A.
An annual interest payment divided by current price of bond is considered as current yield. Current yield is an investment’s annual income (interest or dividends) divided by the current price of the security. This measure examines the current price of a bond, rather than looking at its face value.

128. Method in which company finds other companies considered in same line of business to evaluate divisions is classified as

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pure play method
same play method
division line method
single product method
✅ The correct answer is A.
Method in which company finds other companies considered in same line of business to evaluate divisions is classified as pure play method. Pure play method is an approach used to estimate beta coefficient of a company whose stock is not publicly traded.

130. ___________ shifts the weights of securities in the portfolio to take advantage of areas that is expected to do relatively better than other areas.

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portfolio management
market timing
momentum strategy
sector rotation
✅ The correct answer is D.
Sector rotation shifts the weights of securities in the portfolio to take advantage of areas that is expected to do relatively better than other areas. Sector rotation is a theory of stock market trading patterns. In this context, a sector is understood to mean a group of stocks representing companies in similar lines of business.