Tag: nature and significance of management

Questions Related to nature and significance of management

The _________ decision relates to how the firm's funds are invested in different assets.

functional area of management financial management nature and significance of management organisation of commerce and management business studies

  1. profit

  2. invetment

  3. financing

  4. dividend

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Correct Option: B
Explanation:

Investment Decision relates to the determination of total amount of assets to be held in the firm, the composition of these assets and the business risk of the firm as perceived by its investors. It is the most important financial decision. Since funds involve cost and are available in a limited quantity, its proper utilization is very necessary to achieve the goal of wealth maximization.

Investment decisions includes investment in fixed assets (called as capital budgeting). Investment in current assets are also a part of investment decisions called as working capital decisions.

With an increase of investment in fixed assets, there is a commensurate ________ in the working capital.

functional area of management financial management nature and significance of management organisation of commerce and management business studies

  1. decrease

  2. increase

  3. equality

  4. None of the above

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Correct Option: B
Explanation:

Net working capital= current asset- current liablities

Therefore increase in investments in fixed assets will lead to increase in the working capital

Which of the following is not a broad decisions in financial decision-making?

functional area of management financial management nature and significance of management organisation of commerce and management business studies

  1. Investment decison

  2. Cost decision

  3. Financing decision

  4. Dividend decision

Show answer
Correct Option: B
Explanation:
  1. Investment decisions includes investment in fixed assets (called as capital budgeting). Investment in current assets are also a part of investment decisions called as working capital decisions.
  2. Financial decisions - They relate to the raising of finance from various resources which will depend upon decision on type of source, period of financing, cost of financing and the returns thereby.
  3. Dividend decision - The finance manager has to take decision with regards to the net profit distribution. Net profits are generally divided into two:
  • Dividend for shareholders- Dividend and the rate of it has to be decided.
  • Retained profits- Amount of retained profits has to be finalized which will depend upon expansion and diversification plans of the enterprise.

Financial management aims at _________ the cost of funds procured, keeping the risk under control and achieving effective deployment of such funds.

functional area of management financial management nature and significance of management organisation of commerce and management business studies

  1. increasing

  2. equaling

  3. reducing

  4. nullifying

Show answer
Correct Option: C
Explanation:

Financial Management is concerned with optimal procurement as well as usage of finance.

Financial Management aims at reducing the cost of funds procured, keeping the risk under control and achieving effective deployment of such funds. It also aims at ensuring availability of enough funds whenever required as well as avoiding idle finance.

Under the amount of long term and short term financing to be used, the current liabilities cost is  ______ than long term liabilities.

functional area of management financial management nature and significance of management organisation of commerce and management business studies

  1. more

  2. less

  3. equal

  4. nil

Show answer
Correct Option: B
Explanation:

Financial management involves decisions about the proportion of long term and short term finance. An organisation wanting to be more liquid would raise relatively more amount on long term basis. There is a choice between liquidity and profitability. The underlying assumption here is that current liabilities cost less than long term liabilities.

_________ term investment decision are concerned with the decisions about the levels of cash, inventories and debtors.

functional area of management financial management nature and significance of management organisation of commerce and management business studies

  1. Long

  2. Short

  3. Medium

  4. Both a and c

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Correct Option: B
Explanation:
The investment made in the current assets or short term assets is termed as Working Capital Management. The working capital management deals with the management of current assets that are highly liquid in nature.
The investment decision in short-term assets is crucial for an organization as a short term survival is necessary for the long-term success. Through working capital management, a firm tries to maintain a trade-off between the profitability and the liquidity.
Short-term investments are part of the account in the current assets section of a company's balance sheet. This account contains any investments that a company has made that is expected to be converted into cash within one year. 

An expansion of business which is a result of capital budgeting decision is likely to affect virtually all items in the __________ account of the business.

functional area of management financial management nature and significance of management organisation of commerce and management business studies

  1. Balance sheet

  2. Trading

  3. Profit and loss

  4. Trading and profit and loss

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Correct Option: C
Explanation:

All items in the Profit and Loss Account, e.g., Interest, Expense, Depreciation, etc. and an expansion of business which is a result of capital budgeting decision is likely to affect virtually all items in the profit and loss account of the business.

The quantum of ________ assets as well as its break-up is an aspect affected by finance.

functional area of management financial management nature and significance of management organisation of commerce and management business studies

  1. current

  2. non-current

  3. tangible

  4. intangible

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Correct Option: A
Explanation:

The above statement is used to describe the function of financial management. The quantum of current assets and its breakup into cash, inventory and receivables means financial management decisions regarding how much to invest in current assets and its breakup into cash, inventory i.e stock, debtors.

Under the risk factor of financing decision, the risk associated with different sources is _________.

functional area of management financial management nature and significance of management organisation of commerce and management business studies

  1. same

  2. different

  3. higher

  4. lower

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Correct Option: B
Explanation:

The primary goal of both investment and financing decisions is to maximize shareholder value. Investment decisions revolve around how to best allocate capital to maximize their value. Financing decisions revolve around how to pay for investments and expenses. Companies can use existing capital, borrow, or sell equity.

Risk factor for financing decision, the risk associated with different sources is different because every source is different with diff interest, payback period,profitability index etc.

Under the amount of long term and short term financing to be used, the underlying assumption is that current liabilities cost _______ than long term liabilities.

functional area of management financial management nature and significance of management organisation of commerce and management business studies

  1. more

  2. less

  3. equal

  4. nil

Show answer
Correct Option: B
Explanation:

Current liabilities have high interest rates with shorter duration to pay off hence,

Under the amount of long term and short term financing to be used, the underlying assumption is that current liabilities cost less than long term liabilities.