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.

11. An annual estimated costs of assets uses up every year are included

A) depreciation and amortization
B) net sales
C) net profit
D) net income
✅ ANSWER: A
An annual estimated costs of assets uses up every year are included depreciation and amortization. Depreciation represents the cost of capital assets on the balance sheet being used over time, and amortization is the similar cost of using intangible assets like goodwill over time.

12. Collection of net income, amortization and depreciation is divided by common shares outstanding to calculate

A) cash flow of financing activities
B) cash flow per share
C) cash flow of investment
D) cash flow of operations
✅ ANSWER: B
Collection of net income, amortization and depreciation is divided by common shares outstanding to calculate cash flow per share. Cash flow per share can be calculated by dividing cash flow earned in a given reporting period (usually quarterly or annually) by the total number of shares outstanding during the same term. Because the number of shares outstanding can fluctuate, a weighted average is typically used.

13. Rate denoted as r* is best classified as

A) real risk-free interest rate
B) real-risk free nominal rate
C) real-risk free quoted rate
D) real-risk free nominal premium
✅ ANSWER: A
Rate denoted as r* is best classified as real risk-free interest rate. The Risk-Free Rate of return is the interest rate an investor can expect to earn on an investment that carries zero risk.

14. Long period of bond maturity leads to

A) more price change
B) stable prices
C) standing prices
D) mature prices
✅ ANSWER: A
Long period of bond maturity leads to more price change. With bonds, term to maturity is the time between when the bond is issued and when it matures, known as its maturity date, at which time the issuer must redeem the bond by paying the principal or face value.

15. During planning period, a marginal cost for raising a new debt is classified as

A) debt cost
B) relevant cost
C) borrowing cost
D) embedded cost
✅ ANSWER: B
During planning period, a marginal cost for raising a new debt is classified as relevant cost. Relevant cost is a managerial accounting term that describes avoidable costs that are incurred when making business decisions. The concept of relevant cost is used to eliminate unnecessary data that could complicate the decision-making process.

16. If payment of security is paid as Rs 100 at end of year for three years, it is an example of

A) fixed payment investment
B) lump sum amount
C) fixed interval investment
D) annuity
✅ ANSWER: D
If payment of security is paid as Rs 100 at end of year for three years, it is an example of annuity. An annuity is a contract between you and an insurance company in which you make a lump sum payment or series of payments and, in return, obtain regular disbursements beginning either immediately or at some point in the future.

18. Miller- Orr Model is suitable in those circumstances when the ________.

A) Demand for cash is steady
B) Demand for cash is not steady
C) Carry cost and transaction cost are to be kept at minimum
D) Demand for cash is variable
✅ ANSWER: D
The Miller-Orr model of cash management is developed for businesses with uncertain cash inflows and outflows. This approach allows lower and upper limits of cash balance to be set and determine the return point (target cash balance).

19. In capital asset pricing model, covariance between stock and market is divided by variance of market returns is used to calculate

A) sales turnover of company
B) risk rate of company
C) beta coefficient of company
D) weighted mean of company
✅ ANSWER: C
In capital asset pricing model, covariance between stock and market is divided by variance of market returns is used to calculate beta coefficient of company. beta of a company measures how the company’s equity market value changes with changes in the overall market. It is used in the Capital Asset Pricing Model (CAPM) to estimate the return of an asset.
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