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.

581. An unsystematic risk which can be eliminated but market risk is the

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aggregate risk
remaining risk
effective risk
ineffective risk
✅ The correct answer is B.
An unsystematic risk which can be eliminated but market risk is the An unsystematic risk which can be eliminated but market risk is the remaining risk. Unsystematic risk is the risk that is inherent in a specific company or industry. By investing in a range of companies and industries, unsystematic risk can be drastically reduced through diversification.

583. Retained earnings are ?

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an indication of a company’s liquidity
the same as cash in the bank
not important when determining dividends
the cumulative earnings of the company after dividends.
✅ The correct answer is D.
Retained earnings are the cumulative earnings of the company after dividends. Retained earnings are the profits that a company has earned to date, less any dividends or other distributions paid to investors. This amount is adjusted whenever there is an entry to the accounting records that impacts a revenue or expense account.

584. Which of the following factors influence(s) the capital structure of a business entity?

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Bargaining power with the suppliers
Demand for the product of the company
Technology adopted
Adequate of the assets to meet any sudden spurt in demand
✅ The correct answer is C.
Technology adopted factors influence the capital structure of a business entity. The capital structure is how a firm finances its overall operations and growth by using different sources of funds.

586. In retention growth model, payout ratio is subtracted from one to calculate

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present value ratio
future value ratio
retention ratio
growth ratio
✅ The correct answer is C.
In retention growth model, payout ratio is subtracted from one to calculate retention ratio. The retention ratio refers to the percentage of net income that is retained to grow the business, rather than being paid out as dividends.

588. The rational expectations model of dividend policy says that ______________.

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Since the expectations of the investors are always rational, there will be no effect of dividend policy on the valuation of the firm
If the investors have rational expectations, they will value a dividend paying firm higher than a non-dividend paying firm
If the declared dividend is in line with expectations of the investors, there will be no effect on the valuation of the firm
If the declared dividend is in accordance with the expectations, the change in the firms value will be minimal
✅ The correct answer is D.
The rational expectations model of dividend policy says that If the declared dividend is in accordance with the expectations, the change in the firms value will be minimal.

589. Which of the following is the expression for operating leverage?

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Contribution/EBIT
EBT/Contribution
Contribution/EAT
Contribution/Quantity
✅ The correct answer is A.
Contribution/EBIT is the expression for operating leverage. Operating leverage is a cost-accounting formula that measures the degree to which a firm or project can increase operating income by increasing revenue.

590. Mostly in financials, risk of portfolio is smaller than that of assets

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mean
weighted average
mean correlation
negative correlation
✅ The correct answer is B.
Mostly in financial, risk of portfolio is smaller than that of assets is weighted average. One of the most basic principles of finance is that diversification leads to a reduction in risk unless there is a perfect correlation between the returns on the portfolio investments. Owing to the diversification benefits, standard deviation of a portfolio of investments (stocks, projects, etc.) should be lower than the weighted average of the standard deviations of the individual investments.