Students of class 12 Business Studies should refer to MCQ Questions Class 12 Business Studies Financial Management with answers provided here which is an important chapter in Class 12 Business Studies NCERT textbook. These MCQ for Class 12 Business Studies with Answers have been prepared based on the latest CBSE and NCERT syllabus and examination guidelines for Class 12 Business Studies. The following MCQs can help you to practice and get better marks in the upcoming class 12 Business Studies examination

Chapter 9 Financial Management MCQ with Answers Class 12 Business Studies

MCQ Questions Class 12 Business Studies Financial Management provided below have been prepared by expert teachers of grade 12. These objective questions with solutions are expected to come in the upcoming Standard 12 examinations. Learn the below provided MCQ questions to get better marks in examinations.

Question. Other things remaining the same, an increase in the tax rate on corporate profit will
(a) Make the debt relatively cheaper
(b) Make the debt relatively the dearer
(c) Have no impact on the cost of debt
(d) We can’t say 

Question. Current assets of a business firm should be financed through:
(a) Current liability only
(b) Long term liability only
(c) Fixed liabilities only
(d) Both types (i.e., long- and short-term liabilities) 

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

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

Question. Higher Working capital usually results in:
(a) Higher current ratio, higher risk and higher profits
(b) Lower current ratio, higher risk and profits
(c) Higher equity, lower risk and lower profits
(d) Lower equity, lower risk and higher profits. 

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

Question. Current assets are those assets which get converted into cash:
(a) Within six months
(b) Within one year 
(c) Between one year and three years
(d) Between three and five years.

Question. Financial leverage is called favourable if:
(a) Return on investment is lower than the cost of debt.
(b) ROI is higher than the cost of Debt
(c) Debt is easily available.
(d) If the degree of existing financial leverage is low. 

Question. A fixed asset should be financed through:
(a) A Long-term liability
(b) A Short-term liability
(c) A Medium-term liability
(d) A Mix of long- and short-term liabilities 

Question. A decision to acquire a new and modern plant to upgrade an old one is a
(a) Financing decision
(b) Working capital decision
(c) Investment decision
(d) None of the above 

Assertion-Reasoning MCQs :

Question. Assertion (A) Business finance refers to the money required for carrying out business activities.
Reason (R) Financing decisions involves careful selection of assets, in which funds are to be invested.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A) is true, but Reason (R) is false
(d) Assertion (A) is false, but Reason (R) is true

Question. Assertion (A) Financial management is an imaginative function.
Reason (R) Financial management is one of the functional areas of management.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A) is true, but Reason (R) is false
(d) Assertion (A) is false, but Reason (R) is true

Question. Assertion (A) Shareholders Wealth Maximisation (SWM) and not the profit maximisation is an appropriate and operationally feasible financial management goal.
Reason (R) There exists a principal agent relationship between the shareholders and the management of the company.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A) is true, but Reason (R) is false
(d) Assertion (A) is false, but Reason (R) is true

Question. Assertion (A) Primary aim of financial management is to maximise shareholder’s wealth.
Reason (R) Company’s funds belong to the shareholders and the return earned by them determine their market value and price.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A) is true, but Reason (R) is false
(d) Assertion (A) is false, but Reason (R) is true

Question. Assertion (A) Effective and efficient management of finance enables the firm to prosper and grow.
Reason (R) Without adequate finance, business can survive only for a short time.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A) is true, but Reason (R) is false
(d) Assertion (A) is false, but Reason (R) is true

Question. Assertion (A) Financial planning means estimating the requirements of a business and determining source of funds.
Reason (R) Capital structure refers to the mix between owners and borrowed funds.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A) is true, but Reason (R) is false
(d) Assertion (A) is false, but Reason (R) is true

Question. Assertion (A) Finance is the life blood of business.
Reason (R) Finance is very essential for the smooth running of the business.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A) is true, but Reason (R) is false
(d) Assertion (A) is false, but Reason (R) is true

Question. Assertion (A) A sound financial plan should be rigid.
Reason (R) In a financing programme, flexibility for future should not be allowed.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A) is true, but Reason (R) is false
(d) Assertion (A) is false, but Reason (R) is true

Fill In The Blanks : 

Question. Capital budgeting decisions are very crucial for any business because _______. they affect the earning capacity of the business in the long run.

Question. Capital Budgeting Decisions are very crucial for any business since _________________. (Complete the sentence) 

Question. Making investment in a new machine to replace an existing one or acquiring a new fixed asset or opening a new branch, etc. are __________________ (Short-term Investment Decisions/ Capital Budgeting Decisions)

Question. A decision is taken in financial management to put capital of the company in different assets. This decision is called ________. 

Question. The size of assets, profitability and competitiveness are all affected by _________________. 

Question. The risk of default on payment of interest on borrowed funds and the repayment of debt is known as ______________. 

Question. _______________ decisions are concerned with the decisions about the levels of cash, inventory and receivables.

Question. Suppose there are two projects, A and B (with the same risk involved), with a rate of return of 10% and 12% respectively, then under normal circumstance, ___________ (Project A/ Project B) should be selected. 

Question. Large and reputed companies generally tend to pay higher dividends than the smaller companies because ________________. (Complete the sentence) 

Question. ___________________ normally involve huge amounts of investment and are irreversible except at a huge cost. Therefore, once made, it is often almost impossible for a business wriggle out of such decisions. Therefore, they need to be taken with most care. 

Question. Short-term investment decisions are also called ________________________. 

Question. Decision to invest in fixed assets must be taken very carefully as the investment usually quite large. Such decisions once taken are irrevocable except at a huge loss. Such decision are called __________. 

Question. If a business has high fixed operating costs (e.g. building rent, insurance premium, salaries, etc) __________ (higher/lower) debt financing is better. 

Question. If there is only one project, its viability in terms of ______________ and its comparability with the industry average is seen.

Case Based MCQs :

Direction Read the following text and answer the question no. (i) to (vi) on the basis of the same.
Raghav is trying to co-ordinate the functioning of various departments like sales and production. He  has been trying to do this with the help of a concept of financial management. He quite often calls people of both departments and tells them to work within means he has even prescribed a budget for it. During the time, when he is doing a lot of analysis, he connects the decision of present with the  outcomes of future. This can especially be seen in two of the prominent decisions, one is the investment and the other is the financing decision. So, the interlinking of these two decisions is assumed by him. When the year ends, it is easy for him to take some strong decisions. This happens because he is able to evaluate the performance of various departments in terms of revenue generated and the expense incurred. No business is risk proof.
However, he knows that at least business shocks which a business can suffer can be minimised, thus laying foundation for a better future. Less involvement in the work is definitely appreciable.

Question. Which concept of financial management has been highlighted in above case?
(a) Financial management
(b) Capital budgeting
(c) Capital structure
(d) Financial planning

Question. Which importance of financial planning is discussed in below lines?
‘‘Raghav is trying to coordinate the functioning of various departments like sales and production.’’
(a) Helps in avoidance of business shocks and surprises.
(b) Helps in coordinating various business functions.
(c) Helps in reducing waste and duplication of efforts.
(d) Provides link between investment and financing decision.

Question. “During the time, when he is doing a lot of analysis, he connects the decision of present with the outcome of future.”
Which importance of financial planning is discussed in above lines?
(a) Helps in coordinating various business activities
(b) Helps in reducing waste and duplication of work.
(c) Tries to link between present with the future.
(d) Helps in forecasting what may happen in future under different situation.

Question. ‘‘However, he knows that at least business shocks ……………… for a better future.’’
Which importance of financial planning is given in above lines?
(a) Helps in safety of funds
(b) Avoidance of waste and duplication of efforts
(c) Helps in forecasting what may happen in future 
(d) Helps in avoiding business shocks and surprises and helps the company in preparing for the future.

Question. “One is the investment and the other one is financing …… assumed by him.”
Which importance of financial planning is discussed in above paragraph?
(a) Helps in coordinating various business functions
(b) Helps in linking the present with the future
(c) Helps in linking the investment decision with the financing decision.
(d) Helps in valuation of actual performance easier.

Question. Which type of financial planning is focused in the above case?
(a) Short-term financial planning
(b) Long-term financial planning
(c) Medium-term financial planning
(d) None of the above

Direction Read the following text and answer the question no. (i) to (vi) on the basis of the same.
AVP is renowned multiplex operator in India. It own around 560 screens in 110 properties at 80  locations in the country. Considering the fact that there is more growing trend among the people to  spend more of there disposable income on entertainment, company planned to add more screen at existing locations and start at new locations also.
Further, they plan to add food chain also at their locations. The company planned to float equity  shares in market to raise the desired capital. The issue was fully subscribed and paid. Over the year, the sale and the profit of the company have increased tremendously and it has been declaring higher dividend and the market price of its share has increased manifolds.

Question. Identify the decision involved in the lines, “The company planned to float equity shares in market to raise the desired capital. The issue was fully subscribed and paid.”
(a) Financing decision
(b) Investment decision
(c) Dividend decision
(d)None of these

Question. The above case highlights the fulfillment of one of the prime objectives of financial management by AVP company. Identify the objective.
(a) Profit maximisation
(b) Increasing customer base
(c) Wealth maximisation of shareholders
(d) None of the above

Question. “Over the years, the sale and the profit of the company have increased tremendously and it has been declaring higher dividend and the market price of its share has increased manifolds.” The quoted lines highlighted one of the factors affecting dividend decision. Identify the factor.
(a) Taxation policy
(b) Legal restrictions
(c) Stability of earnings
(d)None of these

Question. Which financial decision is highlighted in the lines, “Considering the fact that there is more growing trend among the people to spend more of there disposable income on entertainment, company planned to add more screen at existing locations and start at new locations also”?
(a) Investment decision
(b) Financing decision
(c) Dividend decision
(d)None of these

Question. Dividend decisions are affected by various factors. Which one of the following factors is not affected by dividend decision?
(a) Stability of dividend
(b) Shareholder’s preference
(c) Earnings
(d) Flotation cost

Question. “The company planned to float equity shares in market to raise the desired capital.” Which capital requirement is highlighted in the given line?
(a) Fixed capital
(b)Working capital
(c) Financial capital
(d)None of these

Direction Read the following text and answer the question no. (i) to (vi) on the basis of the same.
Neelabh Sarin, the finance manager and Atul Chopra the MD of Tata Ltd. were discussing regarding the source of finance to be raised for modernisation of their existing plant. Quoting that ‘Sensex has soared by 6,078 points in the last 4 years’, Neelabh Sarin suggests that equity should be preferred while Atul Chopra wanted to opt for debt. Company has high operating cost over period.

Question. Keeping in mind the high operating costs of the company, suggest the source of finance that should be used for modernisation of existing plant.
(a) Equity
(b) Debt
(c) Both (a) and
(b) (d)None of these

Question. Identify the factor highlighted in below lines which affects this decision ‘‘Sensex has soared by 6,078 points in last 4 years.’’
(a) Cash flow position
(b) Stock market condition
(c) Taxation policy
(d) Legal constraints

Question. Stock market condition is a factor related to
(a) financing decision
(b) investment decision
(c) dividend decision
(d) financial planning

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

Question. Which one is favourable financial leverage?
(a) RoI > Rate of interest on debt
(b) RoI < Rate of interest on debt
(c) Both (a) and (b)
(d) None of the above

Question. “Neelabh Sarin, the finance manager and Atul Chopra the MD of Tata Ltd. were discussing regarding the source of finance to be raised for modernisation of their existing plant.” Identify the decision involved in the given lines.
(a) Financing
(b) Investment
(c) Dividend
(d) None of these

We hope the above multiple choice questions for Class 12 Business Studies for Chapter 9 Financial Management provided above with answers based on the latest syllabus and examination guidelines issued by CBSE, NCERT and KVS are really useful for you. Financial Management is an important chapter in Class 12 as it provides very strong understanding about this topic. Students should go through the answers provided for the MCQs after they have themselves solved the questions. All MCQs have been provided with four options for the students to solve. These questions are really useful for benefit of class 12 students. Please go through these and let us know if you have any feedback in the comments section.