MCQ On Finance Management

1.

The only feasible purpose of financial management is
- A.
  
  Wealth Maximization
- B.
  
  Sales Maximization
- C.
  
  Profit Maximization
- D.
  
  Assets maximization
Correct Answer
A. Wealth Maximization

Explanation
The correct answer is Wealth Maximization. Financial management aims to maximize the wealth of the shareholders by making decisions that increase the value of the company's stock. This involves making strategic investment decisions, managing cash flow efficiently, and optimizing the capital structure. While sales maximization and profit maximization are important goals, they may not necessarily lead to long-term wealth creation. Similarly, assets maximization focuses on increasing the size of the company's assets, but it may not necessarily result in maximizing shareholder wealth. Therefore, wealth maximization is the most appropriate purpose of financial management.

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2.

Financial management process deals with
- A.
  
  Investments
- B.
  
  Financing decisions
- C.
  
  Both a and b
- D.
  
  None of the above
Correct Answer
B. Financing decisions

Explanation
The correct answer is "Financing decisions" because the financial management process involves making decisions about how to obtain the necessary funds to support the operations and growth of a business. This includes determining the most appropriate sources of financing, such as debt or equity, and deciding on the optimal capital structure. By making effective financing decisions, a company can ensure it has the necessary funds to invest in opportunities and achieve its financial goals.

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3.

Agency cost consists of
- A.
  
  Binding
- B.
  
  Monitoring
- C.
  
  Opportunity and structure cost
- D.
  
  All of the above
Correct Answer
D. All of the above

Explanation
Agency cost refers to the expenses incurred by a principal-agent relationship due to conflicts of interest between the two parties. These conflicts arise because the agent may not always act in the best interest of the principal. The costs associated with agency problems include binding costs, which are expenses incurred to create contracts and ensure compliance; monitoring costs, which are expenses incurred to supervise and control the agent's actions; and opportunity and structure costs, which are expenses incurred due to the limitations and constraints imposed on the agent's decision-making. Therefore, the correct answer is "All of the above" as all these costs contribute to agency cost.

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4.

Finance Function comprises
- A.
  
  Safe custody of funds only
- B.
  
  Expenditure of funds only
- C.
  
  Procurement of finance only
- D.
  
  Procurement & effective use of funds
Correct Answer
D. Procurement & effective use of funds

Explanation
The correct answer is "Procurement & effective use of funds." The finance function is not limited to just the safe custody of funds or the expenditure of funds. It also involves the procurement of finance, which refers to obtaining funds from various sources, and the effective use of funds, which involves allocating and investing the funds in a way that maximizes returns and achieves the organization's financial goals. Therefore, the finance function encompasses both the procurement and effective use of funds.

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5.

The objective of wealth maximization takes into account
- A.
  
  Amount of returns expected
- B.
  
  Timing of anticipated returns
- C.
  
  Risk associated with uncertainty of returns
- D.
  
  All of the above
Correct Answer
D. All of the above

Explanation
The objective of wealth maximization takes into account all of the mentioned factors. It considers the amount of returns expected, which means that it aims to maximize the value of investments and generate higher profits. It also takes into consideration the timing of anticipated returns, as it is important to receive returns in a timely manner to meet financial goals. Additionally, wealth maximization considers the risk associated with uncertainty of returns, as it aims to minimize risk and maximize the overall wealth of the investor. Therefore, all of these factors are considered in the objective of wealth maximization.

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MCQ On Finance Management

The only feasible purpose of financial management is

Financial management process deals with

Agency cost consists of

Finance Function comprises

The objective of wealth maximization takes into account