NAME: MADHURO MIKE REG NO: N02223235H

FIN MAN TEST

BASM/MBA
DUE DATE: 8PM - 7/10/23 Send to: [email protected]
ALL Questions must be attempted.

1. Financial Management is mainly concerned with ________.

A. acquiring financial resources for firms activities

B. utilizing financial resources for firms activities

C. procurement of funds of the enterprise

D. All of the above

2. Select the correct option.

A. Profits maximisation can be part of a Wealth maximisation strategy

B. Wealth maximisation can be part of a Profits maximisation strategy

C. Profits maximisation and Wealth maximisation strategy are the same

D. Wealth maximisation is completely different from Profits maximisation strategy

3. According to Massie, Financial management is the __________activity of a business.

A. operational B. marketing C. human resource management D. sales

4. Financial management process deals with _______

A. investments B. financing decisions C. profit maximization D. more assets

5. Financial management mainly focuses on _______.

A. Arrangement of funds B. Efficient management of every business

C. Brand dimension D. All elements of acquiring and using means

of financial resources for financial activities

6. Financial management is an _______ function of any business.

A. organic B. inorganic C. conventional D. least important

7. ______ is concerned with the duties of the financial managers in the business firm.

A. Financial Management B. Accounting Management

C. Personnel Management D. Merger

8. The financial management function has become _____ and complex.

A. Less demanding B. More demanding C. Less important D. Outdated

9. The ______ approach of financial management provides an analytical framework

for financial problems.

A. Classical B. Traditional C. Modern D. Empirical

10. The ______approach of financial management fully ignores the internal decision-
making.T5

A. Business finance B. Traditional C. Modern D. two sided

11. Current ratio of a concern is 1, its net working capital will be _________.

A. Positive. B. Neutral. C. Negative. D. None of the above.

12. Risk-return trade off implies_____________.

A. Increasing the portfolio of the firm through increased production.

B. Not taking any loans which increases the risk.
C. Not granting credit to risky customers.
D. Taking decision in such a way which optimizes the balance between risk and return.

13._____________ is a specific risk factor.

A. Market risk. B. Inflation risk. C. Interest rate risk. D. Financial risk.

14._____________ is not a diversifiable or specific risk factor.

A. Company strike. B. Bankruptcy of a major supplier.

C. Death of a key company officer. D. Industrial recession.

15. Mr Andile purchased 100 stocks of FBC Ltd, for $21 on March 15, sold for $35 on 14
March 14 of the following year. In the company paid a dividend of $2.50 per share, Andile’s
holding period return is______________.

A.11.90%. B.45.40%. C.66.70%. D.78.60%

16. The 182-day annualized T bills rate is 9%p.a., the return on market is 15% p.a., and the
beta of stock B is1.5. The required rate of return from investment in stock B is___________.

A.17% p.a. B.18% p.a. C.19% p.a. D.20% p.a.

17. The major benefit of diversification is to____________.

A. Increase the expected return. B. Increase the size of the investment portfolio.
C. Reduce brokerage commissions. D. Reduce the expected risk.

18. The risk free rate of return is 8% the expected rate of return on market portfolio is15%,
the beta of ECO Boards equity stock is 1.4. The required rate on ECO Boards equity
is__________________.

A.15.4%. B.16.8%. C.17.2%. D.17.8%

19.________ is concerned with the acquisition, financing, and management of assets with
some overall goal in mind.

A. Financial management. B. Profit maximization.

C. Agency theory. D. Social responsibility.

20.__________ is concerned with the maximization of a firm's earnings after taxes.

A. Shareholder wealth maximization. B. Profit maximization.
C. Stakeholder maximization. D. EPS maximization.

21. All constituencies with a stake in the fortunes of the company are known as __________.
A. Shareholders. B. Stakeholders. C.Creditors. D. Customers.

22. Which of the following statements is not correct regarding earnings per share (EPS)
maximization as the primary goal of the firm?

A. EPS maximization ignores the firm's risk level.

B.EPS maximization does not specify the timing or duration of expected EPS.
C.EPS maximization naturally requires all earnings to be retained.
D.EPS maximization is concerned with maximizing net income.

23.__________ is concerned with the maximization of a firm's stock price.

A. Shareholder wealth maximization. B. Profit maximization.

C. Stakeholder welfare maximization. D.EPS maximization.

24. Corporate governance success includes three key groups. _____________ represents
these three groups.

A. Suppliers, managers, and customers.

B. Board of directors, executive officers, and common shareholders.
C. Suppliers, employees, and customers.
D. Common shareholders, managers, and employees.

25. In 2 years’ time, you are to receive $10, 000. If the interest rate were to suddenly
decrease, the present value of that future amount to you would __________.

A. Fall. B. Rise. C. Remain unchanged. D. Cannot be determined.

26. Interest paid (earned) on both the original principal borrowed (lent) and previous interest
earned is often referred to as __________.

A. Present value. B. Simple interest. C. Future value. D. Compound interest.

27. The long-run objective of financial management is to _____________.

A. Maximize per share. B. Maximize the value of the firm's common stock.
C. Maximize return on investment. D. Maximize market share.

28.What is the present value of a $1, 000 ordinary annuity that earns 8% annually for an
infinite number of periods?

A. $80. B. $800. C. $1, 000. D. $12, 500.

29. Which one of the following is / are for the relevance theory?

A. Gordon. B. Walter. C. Residual. D. Both (a) and (b).

30. A set of possible values that a random variable can assume and their associated
probabilities of occurrence are referred to as __________.

A. Probability distribution. B. The expected return.

C. The standard deviation. D. Coefficient of variation.

31. The basic objective of Financial Management is ________________.

A. Maximization of profit. B. Maximization of shareholder's wealth
C. Ensuring Financial discipline in the firm. D. All of these.

32. Financial structure refers to ________________.

A. Short-term resources. B. All the financial resources.
C. Long-term resources. D. All of these.

33. The market value of the firm is the result of__________.

A. Dividend decisions. B. Working capital decisions.

C. Capital budgeting decisions. D. Trade-off between risk and return.

34. Cost of capital is __________________.

A. Lesser than the cost of debt capital.

B. Equal to the last dividend paid to the equity shareholders.
C. Equal to the dividend expectations of equity shareholders for the coming year.
D. None of the above.

35. In Walter model formula D stands for _________________.

A. Dividend per share. B. Direct dividend.

C. Direct earnings. D. None of these.
36.___________ security is known as variable income security.

A. Debentures. B. Preference shares. C. Equity shares. D. None of these.

37. Quick asset does not include ____________.

A. Government bonds. B. Book debts.

C. Advance for supply of raw materials. D. Inventories.

37. Long term finance is required for ______________.

A. Current assets. B. Fixed assets. C. Intangible assets. D. None of these.

38. Financial leverage can be measured in ___________________.

A. Stock term. B. Flow term. C. Both (a) and (b). D. None of these.

39. Current ratio of a concern is 1, its net working capital will be _________.

A. Positive. B. Neutral. C. Negative. D. None of the above.

40. Which of the following statements is correct regarding profit maximization as the primary
goal of the firm?

A. Profit maximization considers the firm's risk level.

B. Profit maximization will not lead to increasing short-term profits at the expense of
lowering expected future profits.
C. Profit maximization does consider the impact on individual shareholder's EPS.
D. Profit maximization is concerned more with maximizing net income than the stock price.

41. If a company issues bonus shares, the debt equity ratio ________________.

A. Remain unaffected. B. Will be affected.

C. Will improve. D .None of the above.

42. Which of the following is not normally a responsibility of the treasurer of the modern
corporation but rather the controller?

A. Budgets and forecasts. B. Asset management.

C. Investment management. D. Financial management.

43. The __________ decision involves determining the appropriate make-up of the right-hand
side of the balance sheet.

A. Asset management. B. Financing. C. Investment. D. Capital budgeting.

44. The Treasurer should report to _______________.

A. Chief Financial Officer. B. Vice President of Operations.

C. Chief Executive Officer. D Board of Directors.
45. The __________ decision involves a determination of the total amount of assets needed,
the composition of the assets, and whether any assets need to be reduced, eliminated, or
replaced.

A. Asset management. B. Financing. C. Investment. D. Accounting.

46. Which of the following is the most important of the three financial management
decisions?

A. Asset management decision. B. Financing decision.

C. Investment decision. D. Accounting decision.

47. The __________ decision involves efficiently managing the assets on the balance sheet
on a day-to-day basis, especially current assets.

A. Asset management. B. Financing. C. Investment. D. Accounting.

48._____________ is not normally a responsibility of the controller of the modern

corporation.

A. Budgets and forecasts. B. Asset management.

C. Financial reporting to the IRS. D. Cost accounting.

49. Which of the following is the first step in the capital budgeting process?

A. Final approval. B. Screening the proposal.

C. Implementing the proposal. D. Identification of investment proposal

50. The term _________________ refers to the period in which the project will generate the
necessary cash flow to recoup the initial investment.

A. Internal return. B. Payback period. C. Discounting return. D. Accounting return.

51. A mutually exclusive project can be selected as per payback period when it is _________.

A. Less. B. More. C. More than 5 years. D. None of the above.

52. The project can be selected if its profitability index is more than ______.

A.1%. B.3%. C.5%. D.10%.

53. The Initial outlay is 50 000, the life of the asset is 5 years, estimated annual cash flow
12,500, then IRR = ____________.

A.5% B.6% C.8% D.10%

54. A project’s initial capital outlay is $100 000 and has an annual cash flow of $20 000 for 8
years. Its’ payback period is ______________.

A.1 year. B.2 years. C.3 years. D.5 years.

55. X Ltd issues a $50 00 8% debenture stock at a discount of 5%. If the tax rate is 50%, the
cost of debt capital is __________.
A.4%. B.4.2%. C.4.6%. D.5%.

56. The cost of the project is $600 000, its life is 5 years and has an annual cash flow of
$200 000. If the cut-off rate is 10%. the discounted payback period is ______________.

A.2 yrs. B.2 yrs 6 months. C.3 yrs. D.3 yrs 9 months.

57. To increase the given present value, the discounted rate should be adjusted:

A. Upward. B. Downward. C. No change. D. Constant

60. Financial leverage measures ____________.

A. sensitivity of EPS with respect to % change in level of EBIT

B. % variation in the level of production
C. sensitivity of EBIT with respect of % change with respect to output
D. no change with EBIT and EPS

58.The weighted average of possible returns, with the weights being the probabilities of
occurrence is referred to as __________.

A. A probability distribution. B. The expected return.

C. The standard deviation. D. Coefficient of variation.

59.___________ on capital gain and current income may influence form of capital.

A. Legal stipulation. B. Rate of tax.

C. Capital market condition. D. Cost of floating.

60. The most important and common form of dividend is ________________.

A. Stock dividend. B. Cash dividend. C. Bond dividend. D. Scrip dividend.

61.________ form of market efficiency states that current security prices fully reflect all
information, both public and private.

A. Weak. B. Semi-strong. C. Strong. D. Flexible.

62. Which form of market efficiency states that current prices fully reflect the historical
sequence of prices?

A. Weak. B. Semi-strong. C. Strong. D. Flexible

63.______________ form of market efficiency states that current prices fully reflect all
publicly available information.

A. Weak. B. Semi-strong. C. Strong. D. Flexible

64.__________ is concerned with the acquisition, financing, and management of assets with
some overall goal in mind.
A. Financial management. B. Profit maximization.
C. Agency theory. D. Social responsibility.

65._____________ is the minimum required rate of earnings or the cut off rate of capital
expenditure.

A. Cost of capital. B. Working capital

C. Equity capital. D. None of the above.

66._________________ is a long term planning for financing a proposed capital outlay.

A. Capital Budgeting. B. Budgeting. C. Cash Budget. D. Sales Budget.

67. To increase the given present value, the discounted rate should be adjusted:

A. Upward. B. Downward. C. No change. D. Constant

68. Financial leverage measures ____________.

A. sensitivity of EPS with respect to % change in level of EBIT

B. % variation in the level of production
C. sensitivity of EBIT with respect of % change with respect to output
D. no change with EBIT and EPS

69. Permanent working capital ___________.

A. Varies with seasonal needs.

B. Includes fixed assets.
C. Is the amount of current assets required to meet a firm's long-term minimum needs.
D. Includes accounts payable.

70. Net working capital refers to ___________.

A. total assets minus fixed assets. B. current assets minus current liabilities.
C. current assets minus inventories. D. current ass
71. BMW Ltd has the following capital structure: Equity share $800 000;
14% preference share $500 000; 10% term loan $1 000 000. The expected dividend on equity
capital is 10%. The company tax rate is 50%. Calculate the weighted average cost of capital,
before and after tax.

WACC = (0.1 x 800 000)/4 300 000 + (0.14 x 500 000)/4 300 000 + (0.1 x 0.5 x 1 000 000)/4
300 000 =

72. The company wants to reduce the labour cost by installing a new machine. Two types of
machines are available in the market, machine X and machine Y. Machine X would cost
$18 000 whereas machine Y would cost $15 000. Both machines can reduce annual labour
cost by $3 000. Calculate payback period for each machine and recommend the best machine.

73. The following figures have been extracted from the books of related to PQR Ltd:
Sales are $1 000 000 and variable costs are 40% of sales, fixed cost amount to $200 000 and
interest is $15 000. Calculate: the operating leverage, financial leverage and combined
leverage. Also state change in the above leverages if selling price is increased by 15%.