FMSM Practice Tests With Answers

Jul 17, 2026

Uploaded by Theodore

FMSM practice questions with answers covering core concepts in financial management and corporate finance decision-making. The content focuses on long-term objectives for value creation, the scope of finance decisions (investment, financing, and dividend), roles and functions of finance managers, and common valuation and risk measures. It addresses financial gearing and capital structure effects, liquidity and solvency, business versus financial risk, leverage theory, leverage degrees, payout and retention logic, dividend valuation models, capital budgeting methods, cash-flow discounting techniques, and profitability ratios from shareholders’ perspectives.

LanguageEnglish

CategoryExam

FormatPDF

Pages39

Reading Time1 h 38 min

AccessFree to download

FSM PRACTICE QUESTION 1: 1. Long Term Objective of financial Management is to: (a) maximize earnings per share (b) maximize the value of firm’s common stock (c) maximize return on investment (d) maximize market share 2. Financial management is concerned with – (a) Investment Decisions (b) Finance Decisions (c) Dividend Decisions (d) All of the above 3. Which of the following is not function of finance manager? (a) Managing Assets (b) Managing Funds (c) Managing Economy (d) Managing Flow of Internal Funds 4. The goal of overlooks the interest of other parties than the shareholders and is therefore criticized and considered as unrealistic, inappropriate and immoral: (a) Wealth Maximization (b) Profit Maximization (c) Both of above (d) None of above 5. The lower the levels of financial gearing, the more are the financial policies of the company: (a) Aggressive (b) Conservative (c) Moderate (d) Any of above 6. Using borrowed funds or fixed cost funds in the capital structure of a company is called (a) Risk Bearing (b) Liquidity (c) Financial Gearing (d) Financial Distress 7. The funds raised by the issue of………..are the best from the risk point of view for the company. (a) Equity shares (b) Debentures (c) Both (A) & (B) (d) None of the above 8. means ability of the business to meet short-term obligations: (a) Profitability (b) Liquidity (c) Solvency (d) Efficiency 9. One can get a reasonably accurate broad idea about the risk profile of the firm from its – (a) Dividend policy (b) Capital structure (c) Debt service ratio (d) Earning yield 10. Business Risk is: (a) Avoidable risk (b) Unavoidable risk (c) Not relevant (d) Less important than financial risk 11. Inability to pay fixed financial payments e.g. payment of interest, preference dividend, return of the debt capital, [etc. is](etc. is) called as – (a) Business risk (b) Financial risk (c) Operating risk (d) (a) and (c) 12. explains that due to the arbitrage mechanism the value of a leveraged firm cannot be higher than that of an unlevered firm, other things being equal: (a) Net Income Approach (b) Net Operating Income Approach (c) Traditional Approach (d) MM Approach 13. Degree of is the ratio of percentage change in earning per share to the percentage change in sales. (a) Financial leverage (b) Operating leverage (c) Combined leverage (d) Working leverage 14. If the Return on Investment (ROI) exceeds the rate of interest on debt, it is ………financial leverage. (a) Unfavourable (b) Adverse (c) A favourable (d) Negative 15. Payout ratio is subtracted from one to calculate – (a) Growth ratio (b) Present value ratio (c) Retention ratio (d) Future value ratio 16. Model is also known as Dividend Capitalization Model: (a) Walter (b) Gordon (c) Modigliani Miller (d) None of above 17. is understood to be the best available method for evaluati

Jul 17, 2026

Uploaded by Theodore