Please refer to Chapter 9 Financial Management MCQ Class 12 Business Studies with answers below. These multiple-choice questions have been prepared based on the latest NCERT book for Class 12 Business Studies. Students should refer to MCQ Questions for Class 12 Business Studies with Answers to score more marks in Grade 12 Business Studies exams. Students should read the chapter Financial Management and then attempt the following objective questions.

MCQ Questions Class 12 Business Studies Chapter 9 Financial Management

The Financial Management MCQ Class 12 Business Studies provided below covers all important topics given in this chapter. These MCQs will help you to properly prepare for exams.

Question. Higher debt-equity ratio results in:
(a) a Higher degree of financial risk
(b) a Higher degree of operating risk
(c) Higher EPS
(d) Lower financial risk

Question. This decision is about the quantum of finance to be raised from various long-term sources.
(a) Investment decision
(b) Financing decision
(c) Dividend decision
(d) Capital budgeting decision

Question. This decision relates to how the firm’s funds are invested in different assets,
(a) Investment decision
(b) Financing decision
(c) Dividend decision
(d) None of the above

Question. Which of the following affects capital budgeting decision?
(a) Investment Criteria and interest rate
(b) Rate of Return
(c) Cash Flow of the Project
(d) All of the above

Question. Financial Management is mainly concerned with ______________
(a) All aspects of acquiring and utilizing financial resources for firms activities
(b) Arrangement of funds
(c) Efficient Management of every business
(d) Profit maximization

Question . Companies with a higher growth pattern are likely to:
(a) Dividends are not affected by growth considerations
(b) Pay higher dividends
(c) Pay lower dividends
(d) None of the above

Question. Business finance is needed to
(a) Establish a business
(b) Run a business
(c) Expand a business
(d) All of the above

Question. Primary aim of financial management is to
(a) Maximise shareholder’s wealth
(b) Wealth maximisation concept
(c) Maximisation of the market value of equity shares
(d) All of the above

Question. This decision is about the quantum of finance to be raised from various long-term sources.
(a) Investment decision
(b) Financing decision
(c) Dividend decision
(d) Capital budgeting decision

Question. A fixed asset should be financed through:
(a) A long-term liability
(b) A short-term liability
(c) A mix of long and short-term liabilities
(d) None of the above

Question. Companies with a higher growth pattern are likely to:
(a) Dividends are not affected by growth considerations
(b) Pay higher dividends
(c) Pay lower dividends
(d) None of the above

Question. If dividend portion of total earnings is high, portion of retained earnings will be
(a) high.
(b) low.
(c) moderate.
(d) equal.

Question. _ is concerned with optimum procurement as well as usage of finance.
(a) Financial Analysis
(b) Financial Planning
(c) Financial Management
(d) Budgeting

Question. ___ represents investment in current assets required for day-to-day operations of the business.
(a) Long-term capital
(b) Working capital
(c) Capital Budgeting
(d) Medium-term capital

Question. The working capital requirement of a business is not likely to be high when?
(a) The nature of business is trading
(b) Scale of operation of business is small
(c) It is difficult to procure raw material
(d) The rate of inflation is low

Question. The total capital of Uranium Private Limited is ?50 lacs. The amount of debt is ?20 lacs. The company has earned a profit of ^10 lacs during the current financial year. Its return on investment (ROI) for the present year is
(a) 20%
(b) 40%
(c) 10%
(d) 80%

Question. Business finance is needed to
(a) Establish a business
(b) Run a business
(c) Expand a business
(d) All of the above

Question. The working capital requirement of a business is not likely to be high when?
(a) The nature of business is trading
(b) Scale of operation of business is small
(c) It is difficult to procure raw material
(d) The rate of inflation is low

Question. If a company is borrowing funds @ 10% and the tax rate is 30%, the after-tax cost of debt is only
(a) 10%
(b) 3%
(c) 20%
(d) 7%

Question. If in a particular situation, the earnings per share (EPS) falls with the increased use of debt, it indicates that
(a) The rate of return on investment (Rol) is less than the cost of debt.
(b) The rate of return on investment is more than the cost of debt.
(c) The cost of debt is less than the rate of return on investment.
(d) None of the above

Question. A higher financial leverage ratio indicates that
(a) The dependency of the firm on the debt is more.
(b) The dependency of the firm on the debt is less.
(c) The proportion of equity in the total capital is high.
(d) None of the above

Question. Which one of the following is related to planning, organising, directing and controlling of financial activities?
(a) Financial decision
(b) Capital structure
(c) Investment decision
(d) Financial management

Question. During AGM of Prakash Ltd. CEO, Mr. Rajnesh put the expansion plan for the coming year before shareholders and asked for suitable source of finance to finance manager. Finance manager, Mr. Kant proposed issue of debentures than equity with a plan that they can be paid back whenever requirement of funds is over.
In this case, which component is affecting financing decision?
(a) Flotation cost
(b) Flexibility
(c) Return of investment
(d) Risk

Question. Avik is the finance manager of Mars Ltd. in the current year, the company earned high profit. However, Avik thinks that it is better to declare smaller dividend as he is unsure about the earning potential of the company in the coming years. Avik’s choice of dividend decision is based on which of the factor that affect it?
(a) Amount of earnings
(b) Stability in earnings
(c) Stability of dividends
(d) Growth opportunities

Question. The fund raising exercise also costs something. This cost is called
(a) Fixed cost
(b) Flotation cost
(c) Bearing cost
(d) Variable cost

Question. In the paint industry, various raw materials are mixed in different proportions with petroleum for manufacturing different kind of paints. One specific raw material is not readily available to the manufacturing company.
Bonter paints company is also facing this problem and because of this there is a time lag between placing the order and the actual receipt of the material.
But once it receives the raw material, it takes less time in converting it into finished goods. Identify the factor affecting working capital requirements of this industry.
(a) Nature of business
(b) Seasonal factors
(c) Operating efficiency
(d) Availability of raw material

Question. Which of the following statements is not true?
(a) Maintaining adequate liquidity is a secondary objective of financial planning.
(b) Stock market reaction is an important factor while making dividend decisions.
(c) Companies with lower ICR can borrow more funds.
(d) None of the above

Question. REI Agro Food Ltd. is a famous multinational company. Mr. SK Nagi is its finance manager. He is making efforts to increase the market value of capital invested by the equity shareholders. He already knew it could be possible only when price of the shares increases and price of shares increase only if financing, investment and dividend decisions are taken optimally. He did the same and achieved success.
Which objective of financial management has been referred here?
(a) Maximising the wealth of equity shareholders
(b) Effective utilisation of funds
(c) Ensures safety of funds
(d) Avoiding idle finance

Question. Though the dividends are free of tax in the hands of shareholders, which tax is levied on the companies for the dividend?
(a) Dividend payout tax
(b) Dividend allocation tax
(c) Dividend distribution tax
(d) None of these

Question. Financial procedures are determined by
(a) financial planning.
(b) financial leverage.
(c) financial decisions.
(d) capital structure.

Question. Which of the following statements is not true?
(a) The cost of debt is higher than cost of equity.
(b) The lender’s risk is lower then equity shareholder’s risk.
(c) The interest paid on debt is treated as a tax deductible expense.
(d) None of the above

Question. Arrange the following steps involved in the process of financial planning in the correct sequence.
(a) Estimation of expected profit, Preparation of a sales forecast, Preparation of financial statements
(b) Preparation of a sales forecast, Preparation of financial statements, Estimation of expected profit
(c) Preparation of a sales forecast, Estimation of expected profit, Preparation of financial statements
(d) Preparation of financial statements, Estimation of expected profit, Preparation of a sales forecast

Question. Under which of the following circumstances a company is not likely to declare a higher dividend?
(a) When the earnings of the company are high
(b) When a company has a lucrative forthcoming business opportunity
(c) When the cash flow position of the company is strong
(d) None of the above

Question. Which of the following sources of capital should not be selected by a business if its fixed cost is high?
(a) Equity shares
(b) Preference shares
(c) Debentures
(d) All of the above

Question. The inability of a business to meet its fixed financial obligations, like payment of interest, is known as
(a) Business risk
(b) Financial risk
(c) Long-term risk
(d) Market risk

Question. While taking a loan from a financial institution, Lokesh Enterprises signed an agreement that they shall not pay dividend to its shareholder more than 15% until the loan is repaid, or dividend shall not be declared if the liquidity ratio is found to be less than 1:1. Identify the factor related to dividend decision being described in the above case.
(a) Access to capital market
(b) Preferences of shareholders
(c) Contractual constraints
(d) Legal constraints

Question. Kapil Limited is a company dealing in ready-to-eat food products. Over the years, the earning potential of the company has gone up and it enjoys a good reputation. The Financial Manager is confident of the fact that not just the earnings of the current year, but of our future years are likely to be high. Identify the related factor of dividend decision being described in the given lines.
(a) Earnings
(b) Stability of earnings
(c) Stability of dividend
(d) Growth prospects

Question. These decisions affect the liquidity as well as profitability of a business.
(a) Capital budgeting decision
(b) Financing decision
(c) Working capital decision
(d) Dividend decision

Question. Primary aim of financial management is to
(a) Maximise shareholder’s wealth
(b) Wealth maximisation concept
(c) Maximisation of the market value of equity shares
(d) All of the above

Question. _____ refers to the structure of total capital funds raised by the company.
(a) Fixed capital
(b) Capital structure
(c) Capital requirements
(d) Under capitalization

Question. Which of the following is not a feature of a financial plan?
(a) Simplicity
(b) Cost
(c) Flexibility
(d) Foresight

Question. Financial management is concerned with managerial activities relating to
(a) Planning
(b) Procurement and administration of funds
(c) Optimum utilization of funds
(d) All of the above

Question. Higher debt-equity ratio results in:
(a) a Higher degree of financial risk
(b) a Higher degree of operating risk
(c) Higher EPS
(d) Lower financial risk

Question. Which of the following affects the Dividend Decision of a company?
(a) Taxation Policy
(b) Cash Flow Position
(c) Earnings
(d) All of the above

Question. Favourable financial leverage is a situation where _____
(a) ROI is higher than the rate of interest on debt
(b) ROI is Equal to the Rate of interest on debt
(c) ROI is lower than the rate of interest on debt
(d) None of the above

Question. Financial planning arrives at:
(a) Doing only what is possible with the funds that the firms have at its disposal
(b) Entering that the firm always have significantly more funds than required so that there is no paucity of funds
(c) Minimising the external borrowing by resorting to equity issues
(d) Ensuring that the firm faces neither a shortage nor a glut of unusable funds

Question. Short-term Investment Decision is also known as ____
(a) Working capital
(b) Dividend Decision
(c) Capital Budgeting
(d) None of the above

Question . Higher dividend per share is associated with:
(a) High earnings, high cash flows, stable earnings, and high growth opportunities
(b) High earnings, high cash flows, stable earnings, and lower growth opportunities
(c) High earnings, low cash flows, stable earnings, and lower growth opportunities
(d) High earning, high cash flows, unstable earnings, and higher growth opportunities

Question . The cheapest source of finance is:
(a) Preference share
(b) Retained earning
(c) Equity share capital
(d) Debenture

Question. Business finance is needed to
(a) Establish a business
(b) Run a business
(c) Expand a business
(d) All of the above. 

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