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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-6

Each section contains 100 MCQs on Financial Management .
11
Net investment in operating capital is Rs 5000 and net operating profit after taxes is Rs 8000 then free cash flow would be
Discuss
Answer & Solution
Answer: Option C
Solution:
Free cash flow = Operating profit after tax - Net investment in operating capital
= 8000 - 5000 = Rs. 3000.
12
Situation in which new business reduces an existing business of firm is classified as
Discuss
Answer & Solution
Answer: Option B
Solution:
Situation in which new business reduces an existing business of firm is classified as cannibalization effect. Market cannibalization is a sales loss caused by a company's introduction of a new product that displaces one of its own older products rather than increasing the company's overall market share.
13
In cash flow estimation and risk analysis, real rate will be equal to nominal rate if there is
Discuss
Answer & Solution
Answer: Option A
Solution:
In cash flow estimation and risk analysis, real rate will be equal to nominal rate if there is no inflation.
14
In cash flow estimation, depreciation shelters company's income from
Discuss
Answer & Solution
Answer: Option C
Solution:
In cash flow estimation, depreciation shelters company's income from taxation. Cash flow indicates a cash outflow and cash inflows. It is necessary to estimate the cash flow in the process of analyzing investment proposal. While analyzing the cash flow, it is also necessary to estimate the cash outflow as well as cash inflow.
15
Weighted average cost of debt, preferred stock and common equity is classified as
Discuss
Answer & Solution
Answer: Option D
Solution:
Weighted average cost of debt, preferred stock and common equity is classified as cost of capital. Cost of capital is the required return necessary to make a capital budgeting project, such as building a new factory, worthwhile.
16
An investment outlay cash flow is Rs 4000, operating cash flow is Rs 1000 and salvage cash flow is Rs 5000 then free cash flow would be
Discuss
Answer & Solution
Answer: Option A
Solution:
Free cash flow = Investment outlay cashflow + Operating cash flow + salvage cash flow =
4000 + 1000 + 5000 = Rs. 10000.
17
Rate of return which is required to satisfy stockholders and debt holders is classified as
Discuss
Answer & Solution
Answer: Option B
Solution:
Rate of return which is required to satisfy stockholders and debt holders is classified as weighted average cost of capital. Weighted average cost of capital ( WACC) is the average after-tax cost of a company's various capital sources used to finance the company.
18
Net investment in operating capital is Rs 7000 and net operating profit after taxes is Rs 11,000 then free cash flow will be
Discuss
Answer & Solution
Answer: Option D
Solution:
Free cash flow = Net operating profit after taxes - Net investment in operating capital
= 11000 - 7000 = Rs. 4000.
19
Free cash flow is Rs 17000 and net investment in operating capital is Rs 10000 then net operating profit after taxes would be
Discuss
Answer & Solution
Answer: Option B
Solution:
Net operating profit after tax = Free cash flow + Net investment in operating capital
= 17000 + 10000 = Rs. 27000.
20
An investment outlay cash flow is Rs 2000, an operating cash flow is Rs 1500 and salvage cash flow is Rs 3000 then free cash flow would be
Discuss
Answer & Solution
Answer: Option D
Solution:
Free cash flow = Investment outlay cashflow + operating cash flow + salvage cash flow
= 2000 + 1500 + 3000
= Rs. 6500.