Scope and Objectives of Financial Management

30 original test MCQs, 2 marks each. Practice and separate-test stems differ. T001-T010 use one shared case below; T011-T030 stand alone.

Original practice, not official ICAI questions or suggested answers. Scores are temporary and not synced to Study Hub. Value/cash/accounting/tax/legal boundaries are included in the review pack.

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Mira Components: shared case for T001-T010

Shared case: Mira Components (T001-T010) All figures are Rs lakh except share counts/prices. Mira opens the quarter with cash 12. Confirmed operating collections are 18 and operating cash payments 20. Machine payment 8 is planned. Minimum closing cash reserve is 2. A proposed cash payout is 3. No new facility is arranged, and no legal dividend conclusion is supplied. The machine has appropriately risk/timing-adjusted cash-benefit PV 15 and cost PV 11. A mutually exclusive alternative has benefit PV 13 and cost PV 10. Both are operationally feasible; PV costs are not extra quarter cash payments. Mira has 100000 shares at Rs 30, and debt market value 12. Combined value in this case means equity plus debt, with no other adjustments. Valid quarterly accrual sales are 25 and related expenses incurred 17; they are distinct from the operating cash figures above. The manager is paid only for current profit, delays necessary maintenance to improve his bonus, and proposes a prestige renovation with no supported cash benefit. Owners are absent from daily management. Marketing wants to extend credit, and the lender covenant restricts further borrowing. Answer T001-T010 using these facts. Each question is separately scored; answers do not depend on your previous choice.

Quarter cash item	Rs lakh
Opening cash	12
Collections	18
Operating payments	20
Machine cash payment	8
Minimum closing cash	2
Proposed payout	3

FM-C01-T001 · 2 marks

Read shared case

From the shared case, cash before machine and payout is?

A. Rs 8 lakh. B. Rs 12 lakh. C. Rs 10 lakh. D. Rs 30 lakh.

FM-C01-T002 · 2 marks

Read shared case

After machine payment but before payout, closing cash and reserve gap are?

A. Rs 4 lakh cash and Rs 2 lakh gap. B. Rs 2 lakh cash and no gap against Rs 2 lakh reserve. C. Rs 10 lakh cash and Rs 8 lakh gap. D. Negative Rs 2 lakh cash and no gap.

FM-C01-T003 · 2 marks

Read shared case

If the proposed payout is also made, closing cash before financing and cash needed to restore the reserve are?

A. Rs 2 lakh closing cash; no funding need. B. Rs 1 lakh closing cash; Rs 1 lakh needed. C. Rs 3 lakh closing cash; Rs 2 lakh needed. D. Negative Rs 1 lakh closing cash; Rs 3 lakh needed for the reserve.

FM-C01-T004 · 2 marks

Read shared case

Machine value added on the supplied PV basis is?

A. Rs 15 lakh. B. Rs 7 lakh after subtracting payout. C. Rs 4 lakh. D. Rs 26 lakh.

FM-C01-T005 · 2 marks

Read shared case

Which mutually exclusive investment wins on supplied comparable value alone?

A. Machine: Rs 4 lakh versus alternative Rs 3 lakh, with separate liquidity check. B. Both despite mutual exclusivity. C. Neither because accounting sales are 25. D. Alternative solely because gross cost PV is lower.

FM-C01-T006 · 2 marks

Read shared case

Mira's equity market value is?

A. Rs 12 lakh. B. Rs 42 lakh. C. Rs 300 lakh. D. Rs 30 lakh.

FM-C01-T007 · 2 marks

Read shared case

Combined equity-plus-debt market value under the case convention is?

A. Rs 360 lakh. B. Rs 30 lakh. C. Rs 18 lakh. D. Rs 42 lakh.

FM-C01-T008 · 2 marks

Read shared case

Valid accrual quarterly profit from the supplied sales/expense figures is?

A. Negative Rs 2 lakh because cash payments exceed collections. B. Rs 10 lakh because opening cash belongs to profit. C. Rs 8 lakh, not cash available by itself. D. Rs 25 lakh because no expense is relevant.

FM-C01-T009 · 2 marks

Read shared case

Which part most directly grounds manager-owner agency conflict?

A. Every market share price movement. B. An operating payment exceeding a receipt automatically proves self-interest. C. The mere existence of an accountant. D. Bonus-driven maintenance delay and unsupported personal prestige spending.

FM-C01-T010 · 2 marks

Read shared case

Which combined assessment fits the credit extension and borrowing restriction?

A. Review collection/funding effects and actual covenant compliance before financing commitments. B. Treat credit extension as no financial issue and covenant as irrelevant. C. Assume the covenant automatically authorises extra borrowing. D. Assume all credit sales convert instantly to cash.

FM-C01-T011 · 2 marks

A treasurer obtains funds but never assesses asset allocation or the operating cycle. What is missing?

A. Proof that funding cost is always zero. B. Effective utilisation and integrated financial planning. C. A requirement to borrow every day. D. The need to stop all accounting.

FM-C01-T012 · 2 marks

A firm chooses a warehouse and then sources equity to pay for it. Which classification fits?

A. Warehouse choice is financing and source choice is production inspection. B. Both are dividend decisions only. C. Warehouse choice is investment; source choice is financing. D. Neither has financial implications.

FM-C01-T013 · 2 marks

Project X gives larger forecast profit but much greater uncertainty. Which conclusion is unsupported?

A. Risk needs evaluation. B. Profit must be clearly defined. C. X necessarily provides greater shareholder value from its profit figure alone. D. Timing of cash returns matters.

FM-C01-T014 · 2 marks

Two projects have benefit PV/cost PV of 80/76 and 71/64. All relevant assumptions are comparable. Which is correct?

A. Both add exactly the same value. B. First wins because 80 exceeds 71. C. Second adds Rs 7 versus first Rs 4, despite smaller gross benefits. D. First adds Rs 156.

FM-C01-T015 · 2 marks

An analyst receives risk-adjusted PVs and subtracts another arbitrary ten per cent for the same risk. What is the defect?

A. Every PV must be discounted twice. B. Unsupported double adjustment can distort the comparison. C. The adjustment automatically creates cash funding. D. Risk can never enter valuation.

FM-C01-T016 · 2 marks

A report labels shares x price "equity plus debt value" but omits debt. What is correct?

A. Every enterprise-value convention is identical regardless of cash. B. Correct the label or include debt under the explicitly chosen total-value convention. C. Debt value must always be negative. D. Share count automatically contains debt.

FM-C01-T017 · 2 marks

A CFO becomes a strategic adviser. Which inference is wrong?

A. Pricing decisions may need financial analysis. B. Acquisition planning can need finance input. C. Finance may assess outsourcing effects. D. Traditional budgeting/reporting/control duties automatically disappear.

FM-C01-T018 · 2 marks

A company expands credit sales but cannot pay suppliers until customers collect. What should finance avoid?

A. Assuming sales growth always finances itself immediately. B. Forecasting collections and obligations. C. Assessing working-capital requirements. D. Considering suitable cash funding.

FM-C01-T019 · 2 marks

Cash opens at Rs 3 lakh, receipts 9, operating payments 8 and equipment payment 5. Before funding, closing cash is?

A. Rs 4 lakh after omitting equipment. B. Negative Rs 1 lakh. C. Rs 9 lakh. D. Rs 25 lakh.

FM-C01-T020 · 2 marks

Before funding cash is negative Rs 1 lakh and desired minimum is Rs 2 lakh. Required additional cash is?

A. No funding because the reserve is a profit figure. B. Rs 2 lakh only. C. Rs 3 lakh. D. Rs 1 lakh only.

FM-C01-T021 · 2 marks

A valid accrual profit statement is positive while collections lag. Which conclusion is correct?

A. Discard accounting records as useless. B. Convert all books automatically to cash recognition. C. Keep valid recognition and add cash planning for finance decisions. D. Assume profit is immediately available cash.

FM-C01-T022 · 2 marks

A forecast shows one temporary cash shortage which can be addressed by an agreed feasible plan. Which claim exceeds the evidence?

A. Due commitments should be assessed. B. A definite statutory insolvency ruling has already occurred. C. Forecast remedies need feasibility checks. D. Cash timing needs attention.

FM-C01-T023 · 2 marks

A supply buffer reduces stoppage risk but locks funds and increases obsolescence exposure. What fits?

A. Balance justified operating needs against cash cost/risk. B. Stock is never a financial concern. C. Automatically choose unlimited inventory. D. Automatically choose zero inventory.

FM-C01-T024 · 2 marks

A new production process needs capital; quantitative staff provide forecasts and marketing estimates demand. What should finance do?

A. Allow marketing to guarantee all funding. B. Use their inputs to assess cash needs, value and funding together. C. Ignore all specialist input because accounting alone settles every forecast. D. Treat the equipment as free because production proposed it.

FM-C01-T025 · 2 marks

A manager made a reasonable decision on available evidence but the market later deteriorated. No personal-interest facts are supplied. What is appropriate?

A. Do not infer agency conflict solely from the poor outcome. B. Every loss proves personal perks. C. Owners and managers can never have any conflict. D. A poor result establishes embezzlement automatically.

FM-C01-T026 · 2 marks

A control costs Rs 1 lakh and credibly avoids Rs 0.7 lakh loss annually on comparable assumptions. Which is correct on this quantified basis alone?

A. Net annual effect is negative Rs 0.3 lakh; investigate other justified benefits before choosing. B. Net effect is positive Rs 1.7 lakh. C. Every control must be adopted whatever its effects. D. Cost never matters to agency control.

FM-C01-T027 · 2 marks

Managers receive long-term incentives but face no monitoring and can manipulate the performance inputs. Which is correct?

A. Incentives need safeguards and do not guarantee elimination of agency conflict. B. The pay label alone guarantees alignment. C. Manipulation automatically maximises owner wealth. D. All monitoring is forbidden once incentives exist.

FM-C01-T028 · 2 marks

A risky project violates the stated borrowing covenant unless lender consent is obtained. What is a finance response?

A. Assume consent without asking. B. Declare all debt contracts irrelevant to risk. C. Ignore terms because a project looks profitable. D. Assess consent or a compliant revised plan, not assume wealth objectives excuse breach.

FM-C01-T029 · 2 marks

A comparison explicitly assumes qualifying borrower interest deduction at a stated tax rate. Which remains unsupported?

A. Universal deductions should not be inferred beyond the assumption. B. Investor tax and borrower deduction are distinct. C. The borrower assumption may be used within its stated scope. D. The lender's interest income must therefore be tax-free.

FM-C01-T030 · 2 marks

A firm retains earnings to fund a feasible project. What should not be done?

A. Consider shareholder payout and growth needs together. B. Check payout capacity separately. C. Assess financing consequences of retention. D. Count retention and the same retained cash as two independent funding sources.