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.

673. The constant growth model of equity valuation assumes that _____________.

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the dividends paid by the company remain constant
the dividends paid by the company grow at a constant rate of growth
the cost of equity may be less than or equal to the growth rate
the growth rate is less than the cost of equity.
✅ The correct answer is B.
The constant growth model of equity valuation assumes that the dividends paid by the company grow at a constant rate of growth.

674. Bonds which are more risky than corporate bonds and are issued by major corporations are classified as

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common stocks
corporate stocks
leases
preferred stocks
✅ The correct answer is D.
Bonds which are more risky than corporate bonds and are issued by major corporations are classified as preferred stocks. Preferred stockholders have a higher claim to dividends or asset distribution than common stockholders.

675. Earnings Per Share (EPS) is equal to __________.

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Profit before tax/No of outstanding shares
Profit after tax/No of outstanding shares
Profit after tax/Amount of equity share capital
Profit after tax less equity dividends/No of outstanding shares
✅ The correct answer is B.
Earnings Per Share (EPS) is equal to Profit after tax/No of outstanding shares. It is calculated by dividing the company’s net income with its total number of outstanding shares. It is a tool that market participants use frequently to gauge the profitability of a company before buying its shares.

677. In mutually exclusive projects, project which is selected for comparison with others must have

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higher net present value
lower net present value
zero net present value
all of above
✅ The correct answer is A.
In mutually exclusive projects, project which is selected for comparison with others must have higher net present value. A positive net present value indicates that the projected earnings generated by a project or investment – in present dollars – exceeds the anticipated costs, also in present dollars. It is assumed that an investment with a positive NPV will be profitable, and an investment with a negative NPV will result in a net loss.

678. Mutual fund allows investors to sale out their share during any normal trading hours is classified as

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exchange traded fund
management expense
money trade fund
capital trade fund
✅ The correct answer is A.
Mutual fund allows investors to sale out their share during any normal trading hours is classified as exchange traded fund. Exchange Traded Funds (ETFs) are mutual funds listed and traded on stock exchanges like shares. Index ETFs are created by institutional investors swapping shares in an index basket, for units in the fund.

679. Average rate of return which is required by all investors of company is classified as

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extrinsic cost of capital
weighted average cost of capital
mean cost of capital
standard cost of cash
✅ The correct answer is B.
Average rate of return which is required by all investors of company is classified as weighted average cost of capital. The weighted average cost of capital (WACC) is a calculation of a firm’s cost of capital in which each category of capital is proportionately weighted. All sources of capital, including common stock, preferred stock, bonds, and any other long-term debt, are included in a WACC calculation.