Financial Management Mcqs

here are key Multiple Choice Questions (MCQs) on Financial Management, covering core topics like capital budgeting, cost of capital, and financial analysis.

Which theory suggests dividend policy affects firm value?

A. Dividend irrelevance theory (MM)

B. Bird-in-hand theory

C. Clientele effect

D. All of the above

Correct answer is: D. All of the above

What is the formula for operating leverage?

A. Contribution / EBIT

B. EBIT / Sales

C. Fixed cost / Contribution

D. Sales / EBIT

Correct answer is: A. Contribution / EBIT

Which of the following is NOT a current asset?

A. Cash

B. Inventory

C. Machinery

D. Accounts receivable

Correct answer is: C. Machinery

What is the objective of working capital management?

A. Maximize current liabilities

B. Maintain optimal balance of current assets and liabilities

C. Maximize fixed assets

D. Minimize cash balance

Correct answer is: B. Maintain optimal balance of current assets and liabilities

What is the primary goal of financial management?

A. Maximize sales

B. Maximize profit

C. Maximize shareholder wealth

D. Minimize costs

Correct answer is: C. Maximize shareholder wealth

Which of the following is a long-term source of finance?

A. Trade credit

B. Bank overdraft

C. Equity shares

D. Commercial paper

Correct answer is: C. Equity shares

What does NPV stand for?

A. Net Positive Value

B. Net Present Value

C. Nominal Present Value

D. Net Profit Value

Correct answer is: B. Net Present Value

A project has an IRR higher than the cost of capital. What should the firm do?

A. Reject

B. Indifferent

C. Accept

D. Delay

Correct answer is: C. Accept

Which ratio measures a firm’s liquidity?

A. Debt-equity ratio

B. Current ratio

C. Gross profit ratio

D. Return on equity

Correct answer is: B. Current ratio

What is the cost of retained earnings compared to cost of equity?

A. Always higher

B. Always lower

C. Generally equal but no flotation cost

D. Zero

Correct answer is: C. Generally equal but no flotation cost