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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-1 section-6

Each section contains 100 MCQs on Financial Management .
1
Net present value, profitability index, payback and discounted payback are methods to
Discuss
Answer & Solution
Answer: Option B
Solution:
Net present value, profitability index, payback and discounted payback are methods to evaluate projects. The most frequently mentioned and described static methods of investment projects evaluation include: The payback period. Account of comparative costs. Account of comparative profit. Account of comparative profitability. The average rate of return on investment. Test of the first year.
2
Required increasing in current assets and an increasing in current liabilities is subtracted to calculate
Discuss
Answer & Solution
Answer: Option A
Solution:
Net working capital is the aggregate amount of all current assets and current liabilities. It is used to measure the short-term liquidity of a business, and can also be used to obtain a general impression of the ability of company management to utilize assets in an efficient manner.
3
Cash flows that could be generated from an owned asset by company but not use in project are classified as
Discuss
Answer & Solution
Answer: Option C
Solution:
Cash flows that could be generated from an owned asset by company but not use in project are classified as opportunity costs. Opportunity costs represent the benefits an individual, investor or business misses out on when choosing one alternative over another.
4
In capital budgeting, cost of capital is used as discount rate and is based on pre-determines
Discuss
Answer & Solution
Answer: Option B
Solution:
In capital budgeting, cost of capital is used as discount rate and is based on pre-determines cost of debt and equity. Cost of debt refers to the effective rate a company pays on its current debt. The cost of equity is the return a company requires to decide if an investment meets capital return requirements.
5
Economists consider effects of started project on other parts of company or on environment of company is called
Discuss
Answer & Solution
Answer: Option A
Solution:
Economists consider effects of started project on other parts of company or on environment of company is called externalities. An externality is an economic term referring to a cost or benefit incurred or received by a third party. However, the third party has no control over the creation of that cost or benefit. An externality can be both positive or negative and can stem from either the production or consumption of a good or service.
6
Situation in which company replaces existing assets with new assets is classified as
Discuss
Answer & Solution
Answer: Option A
Solution:
Situation in which company replaces existing assets with new assets is classified as replacement projects. A replacement project is an undertaking in which the company eliminates a project at the end of its life and substitutes another investment.
7
Relevant cash flow which company expects when its will implement project is classified as
Discuss
Answer & Solution
Answer: Option C
Solution:
Relevant cash flow which company expects when its will implement project is classified as incremental cash flow. Incremental cash flow is the additional operating cash flow that an organization receives from taking on a new project. A positive incremental cash flow means that the company's cash flow will increase with the acceptance of the project.
8
Free cash flow is Rs 12000, an operating cash flow is Rs 4000, an investment outlay cash flow is Rs 5000 then salvage cash flow would be
Discuss
Answer & Solution
Answer: Option D
Solution:
Salvage Cash flow = Free cash flow - Operating cash flow - Investment outlay cash flow
= 12000 - 4000 - 5000 = Rs. 3000.
9
Cash flows that should be considered for decision in hand are classified as
Discuss
Answer & Solution
Answer: Option A
Solution:
Cash flows that should be considered for decision in hand are classified as relevant cash flows. It states that they must be cash flows that occur in the future and are incremental. While on the face of it obvious, only costs or revenues that give rise to a cash flow should be included.
10
Nominal interest rates and nominal cash flows are usually reflected the
Discuss
Answer & Solution
Answer: Option A
Solution:
Nominal interest rates and nominal cash flows are usually reflected the inflation effects. Inflation has the following effects on production activities: Inflation may or may not result in an increase in production. As long as the economy does not reach the full employment stage, inflation has a favorable effect on production. Usually, as the price level increases, profits increase too.