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Financial Management MCQ Questions and Solutions with Explanations | Commerce

Financial Management MCQ Questions and answers with easy and logical explanations. Commerce provides you all type of quantitative and competitive aptitude mcq questions with easy and logical explanations. Financial Management MCQ is important for exams like B.COM, M.COM, BBA, BBM, CA, CS, CMA, CPA, CFA, UPSC, NET, Banking and other commerce department exam. Page-2 section-3

Each section contains 100 MCQs on Financial Management .
11
Degree of total leverage can be applied in measuring change in _________.
Discuss
Answer & Solution
Answer: Option C
Solution:
Degree of total leverage can be applied in measuring change in EPS to a percentage change in quantity. Degree of total leverage is the ratio of percentage change in earnings per share to percentage change in sales revenue.
12
Investors can normally afford to assume larger risks in the ____ phase of the life- cycle.
Discuss
Answer & Solution
Answer: Option B
Solution:
Investors can normally afford to assume larger risks in the consolidation phase of the life- cycle.
13
The measure of business risk is __________.
Discuss
Answer & Solution
Answer: Option A
Solution:
The measure of business risk is 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.
14
__________ is the most important investment decision because it determines the risk-return characteristics of the portfolio.
Discuss
Answer & Solution
Answer: Option D
Solution:
Asset allocation is the most important investment decision because it determines the risk-return characteristics of the portfolio. Asset allocation is an investment strategy that aims to balance risk and reward by apportioning a portfolio's assets according to an individual's goals, risk tolerance and investment horizon.
15
The value of EBIT at which EPS is equal to zero is known as ____________.
Discuss
Answer & Solution
Answer: Option B
Solution:
The value of EBIT at which EPS is equal to zero is known as Financial break-even point. Financial break-even point is the level of earnings before interest and taxes that will result in zero net income or zero earnings per share. It equals the company's interest expense plus dividends paid to preferred stock-holders and associated taxes.
16
A model for optimizing the selection of securities is the ______ model.
Discuss
Answer & Solution
Answer: Option C
Solution:
A model for optimizing the selection of securities is the Markowitz model. Harry Markowitz model (HM model), also known as Mean-Variance Model because it is based on the expected returns (mean) and the standard deviation (variance) of different portfolios, helps to make the most efficient selection by analyzing various portfolios of the given assets.
17
Degree of financial leverage is a measure of relationship between ___________.
Discuss
Answer & Solution
Answer: Option A
Solution:
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.
18
The Markowitz model identifies the efficient set of portfolios, which offers the ____________.
Discuss
Answer & Solution
Answer: Option A
Solution:
The Markowitz model identifies the efficient set of portfolios, which offers the highest return for any given level of risk or the lowest risk for any given level of return. Harry Markowitz model (HM model), also known as Mean-Variance Model because it is based on the expected returns (mean) and the standard deviation (variance) of different portfolios, helps to make the most efficient selection by analyzing various portfolios of the given assets.
19
Operating leverage examines.
Discuss
Answer & Solution
Answer: Option A
Solution:
Operating leverage examines the effect of the change in the quantity on EBIT. Operating leverage is a cost-accounting formula that measures the degree to which a firm or project can increase operating income by increasing revenue. A business that generates sales with a high gross margin and low variable costs has high operating leverage.
20
Which of the following is not normally one of the reasons for a change in an investor's circumstances?
Discuss
Answer & Solution
Answer: Option B
Solution:
Change in legal considerations is not normally one of the reasons for a change in an investor's circumstances.