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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-7 section-5

Each section contains 100 MCQs on Financial Management .
61
A point where profile of net present value crosses horizontal axis at plotted graph indicates project
Discuss
Answer & Solution
Answer: Option C
Solution:
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.
62
Modified rate of return and modified internal rate of return with exceed cost of capital if net present value is
Discuss
Answer & Solution
Answer: Option A
Solution:
Modified rate of return and modified internal rate of return with exceed cost of capital if net present value is positive. The modified internal rate of return is a financial measure of an investment's attractiveness. It is used in capital budgeting to rank alternative investments of equal size. As the name implies, MIRR is a modification of the internal rate of return and as such aims to resolve some problems with the IRR.
63
Payback period in which an expected cash flows are discounted with help of project cost of capital is classified as
Discuss
Answer & Solution
Answer: Option A
Solution:
Payback period in which an expected cash flows are discounted with help of project cost of capital is classified as discounted payback period.
64
In alternative investments, constant cash flow stream is equal to initial cash flow stream in approach which is classified as
Discuss
Answer & Solution
Answer: Option B
Solution:
In alternative investments, constant cash flow stream is equal to initial cash flow stream in approach which is classified as equivalent annual annuity. The equivalent annual annuity approach is one of two methods used in capital budgeting to compare mutually exclusive projects with unequal lives. The EAA approach calculates the constant annual cash flow generated by a project over its lifespan if it was an annuity.
65
In capital budgeting, a negative net present value results in
Discuss
Answer & Solution
Answer: Option C
Solution:
Economic value added is the incremental difference in the rate of return over a company's cost of capital. In essence, it is the value generated from funds invested in a business. If the economic value added measurement turns out to be negative, this means that management is destroying the value of the funds invested in a business
66
Number of years forecasted to recover an original investment is classified as
Discuss
Answer & Solution
Answer: Option A
No explanation is given for this question. Let's Discuss on Board
67
In capital budgeting, term of bond which has great sensitivity to interest rates is
Discuss
Answer & Solution
Answer: Option A
Solution:
In capital budgeting, term of bond which has great sensitivity to interest rates is long-term bonds. Bond with a maturity period of more than 15 years. Long bonds pay higher interest rates but have greater credit and inflation risk. Also called long bond
68
Process in which managers of company identify projects to add value is classified as
Discuss
Answer & Solution
Answer: Option A
Solution:
Process in which managers of company identify projects to add value is classified as capital budgeting. Capital budgeting is the process a business undertakes to evaluate potential major projects or investments.
69
A discount rate which equals to present value of TV to project cost present value is classified as
Discuss
Answer & Solution
Answer: Option B
Solution:
A discount rate which equals to present value of TV to project cost present value is classified as modified internal rate of return. The internal rate of return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
70
An uncovered cost at start of year is Rs 300, full cash flow during recovery year is Rs 650 and prior years to full recovery is 4 then payback would be
Discuss
Answer & Solution
Answer: Option D
Solution:
Upto 4 years full cost recovered, only left portion is Rs 300
Cash flow during current year = Rs 650
So 300 recovered with in period of 300/650 = 0.4615
Than payback would be = 4 + 0.4615
= 4.46 years