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.

512. The cash management refers to management of ___________.

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cash only
cash and bank balances
cash and near cash assets
fixed assets
✅ The correct answer is C.
The cash management refers to management of cash and near cash assets. Cash management is the process of collecting and managing cash flows. Cash management can be important for both individuals and companies. In business, it is a key component of a company’s financial stability.

513. A point where profile of net present value crosses horizontal axis at plotted graph indicates project

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costs
cash flows
internal rate of return
external rate of return
✅ The correct answer is C.
A point where profile of net present value crosses horizontal axis at plotted graph indicates project internal rate of return. The internal rate of return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.

514. A major difference between real and nominal returns is that_______________.

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real returns adjust for inflation and nominal returns do not
real returns use actual cash flows and nominal returns use expected cash flows
real returns adjust for commissions and nominal returns do not
real returns show the highest possible return and nominal returns show the lowest possible return
✅ The correct answer is A.
A major difference between real and nominal returns is that real returns adjust for inflation and nominal returns do not.

515. In finance, “working capital” means the same thing as

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Total assets
Fixed assets
Current assets
Current assets minus current liabilities.
✅ The correct answer is D.
In finance, “working capital” means the same thing as current assets minus current liabilities. Working capital is the amount of cash a business can safely spend. It’s commonly defined as current assets minus current liabilities.

516. The return after the pay off period is not considered in case of __________.

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Payback period method
Interest rate method
Present value method
Discounted cash flow method
✅ The correct answer is A.
The return after the pay off period is not considered in case of Payback period method. Payback period is the time in which the initial outlay of an investment is expected to be recovered through the cash inflows generated by the investment. It is one of the simplest investment appraisal techniques.

517. Liquidity risk_____________.

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is the risk that investment bankers normally face
is lower for small OTCEI stocks than for large NSE stocks
is the risk associated with secondary market transactions
increases whenever interest rates increase.
✅ The correct answer is D.
Liquidity risk increases whenever interest rates increase. Liquidity risk is the risk that a company or bank may be unable to meet short term financial demands.

518. The bonus issue is permitted to be made out of __________ and premium collected in cash.

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free reserves
free interest
free bonus
free cash dividend
✅ The correct answer is A.
The bonus issue is permitted to be made out of free reserves and premium collected in cash. A bonus issue, also known as a scrip issue or a capitalization issue, is an offer of free additional shares to existing shareholders.

519. Noncash revenues and noncash charges if it subtracted from net income is equal to

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free cash flow
retained cash flow
net cash flow
financing cash flow
✅ The correct answer is C.
Noncash revenues and noncash charges if it subtracted from net income is equal to net cash flow. Net cash flow refers to the difference between a company’s cash inflows and outflows in a given period. In the strictest sense, net cash flow refers to the change in a company’s cash balance as detailed on its cash flow statement.

520. An effect of interest rate risk and investment risk on a bond’s yield is classified as

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reinvestment premium
investment risk premium
maturity risk premium
defaulter’s premium
✅ The correct answer is C.
An effect of interest rate risk and investment risk on a bond’s yield is classified as maturity risk premium. A maturity risk premium is the amount of extra return you’ll see on your investment by purchasing a bond with a longer maturity date.