Financial Planning MCQ Quiz - Objective Question with Answer for Financial Planning - Download Free PDF

Key Points A financial plan is a comprehensive document that outlines an individual's or organization's financial goals, strategies, and actions to achieve those goals. It typically covers various financial aspects, including income, expenses, savings, investments, and debt management.

Key elements of a financial plan include:

• Budgeting: Developing a budget that outlines expected income and expenses, ensuring that spending aligns with financial goals and priorities.
• Cash Flow Management: Managing cash flow effectively to ensure a balance between income and expenses, ensuring sufficient liquidity for day-to-day operations and financial obligations.
• Saving and Investing: Setting aside funds for saving and investing to build wealth, achieve long-term financial goals, and create a financial cushion for unexpected expenses.
• Debt Management: Developing strategies to manage and reduce debt, including repayment plans, debt consolidation, or refinancing options.
• Risk Management: Assessing and mitigating financial risks through strategies such as insurance, emergency funds, and diversification of investments.
• Retirement Planning: Planning for retirement by determining retirement goals, estimating future expenses, and developing strategies to accumulate sufficient funds for a comfortable retirement.
• Tax Planning: Optimizing tax efficiency by understanding applicable tax laws, deductions, credits, and utilizing tax-advantaged investment accounts or strategies.

Financial Planning Question 2:

1. Economic growth
2. Setting of Heavy Industry
3. Modernisation
4. None of these
5. None of the above/More than one of the above.

Answer (Detailed Solution Below)

Financial Planning Question 2 Detailed Solution

The correct answer is the Setting of Heavy Industry.

Key Points Objectives of Planning:

Economic Growth: Planning can aim to stimulate and sustain economic growth by setting strategies and actions that promote increased production, investment, and employment. This may involve initiatives to attract new businesses, develop infrastructure, enhance productivity, and encourage innovation. The objective is to achieve a higher level of economic output, leading to increased income, improved living standards, and enhanced economic opportunities for individuals and communities.

Industrial and Technological Modernization: Planning can focus on modernizing industries and adopting advanced technologies to improve productivity, efficiency, and competitiveness. This may include initiatives to promote digitalization, automation, research and development, and skills development. The objective is to upgrade existing industries, foster new sectors, and leverage technological advancements to drive economic growth and improve the overall quality of products and services.

Infrastructure Development: Planning often includes objectives related to infrastructure development, such as transportation networks, energy systems, communication technologies, and public facilities. Investing in infrastructure can facilitate economic growth by improving connectivity, reducing transaction costs, and creating an environment conducive to business activities.

Human Capital Development: Planning can prioritize objectives related to human capital development, including education, skills training, and healthcare. By investing in human capital, organizations and governments aim to enhance the knowledge, skills, and capabilities of individuals, which in turn promotes economic growth, innovation, and social development.

Hence, the correct answer is Setting up of Heavy industries.

Financial Planning Question 3:

1. Human resource management
2. Marketing strategies
3. Financial aspects and budgets
4. Project management

Answer (Detailed Solution Below)

Financial Planning Question 3 Detailed Solution

The correct answer is Financial aspects and budgets.

Key Points A financial plan is a comprehensive document that outlines an individual's or organization's financial goals, strategies, and actions to achieve those goals. It typically covers various financial aspects, including income, expenses, savings, investments, and debt management.

Key elements of a financial plan include:

• Budgeting: Developing a budget that outlines expected income and expenses, ensuring that spending aligns with financial goals and priorities.
• Cash Flow Management: Managing cash flow effectively to ensure a balance between income and expenses, ensuring sufficient liquidity for day-to-day operations and financial obligations.
• Saving and Investing: Setting aside funds for saving and investing to build wealth, achieve long-term financial goals, and create a financial cushion for unexpected expenses.
• Debt Management: Developing strategies to manage and reduce debt, including repayment plans, debt consolidation, or refinancing options.
• Risk Management: Assessing and mitigating financial risks through strategies such as insurance, emergency funds, and diversification of investments.
• Retirement Planning: Planning for retirement by determining retirement goals, estimating future expenses, and developing strategies to accumulate sufficient funds for a comfortable retirement.
• Tax Planning: Optimizing tax efficiency by understanding applicable tax laws, deductions, credits, and utilizing tax-advantaged investment accounts or strategies.

Financial Planning Question 4:

1. Economic growth
2. Setting of Heavy Industry
3. Modernisation
4. None of these

Answer (Detailed Solution Below)

Financial Planning Question 4 Detailed Solution

The correct answer is the Setting of Heavy Industry.

Key Points Objectives of Planning:

Economic Growth: Planning can aim to stimulate and sustain economic growth by setting strategies and actions that promote increased production, investment, and employment. This may involve initiatives to attract new businesses, develop infrastructure, enhance productivity, and encourage innovation. The objective is to achieve a higher level of economic output, leading to increased income, improved living standards, and enhanced economic opportunities for individuals and communities.

Industrial and Technological Modernization: Planning can focus on modernizing industries and adopting advanced technologies to improve productivity, efficiency, and competitiveness. This may include initiatives to promote digitalization, automation, research and development, and skills development. The objective is to upgrade existing industries, foster new sectors, and leverage technological advancements to drive economic growth and improve the overall quality of products and services.

Infrastructure Development: Planning often includes objectives related to infrastructure development, such as transportation networks, energy systems, communication technologies, and public facilities. Investing in infrastructure can facilitate economic growth by improving connectivity, reducing transaction costs, and creating an environment conducive to business activities.

Human Capital Development: Planning can prioritize objectives related to human capital development, including education, skills training, and healthcare. By investing in human capital, organizations and governments aim to enhance the knowledge, skills, and capabilities of individuals, which in turn promotes economic growth, innovation, and social development.

Hence, the correct answer is Setting up of Heavy industries.

Financial Planning Question 5:

1. Profit maximization takes into account the firm's risk level.
2. Profit maximization will not result in increased short-term profits at the expense of long-term
3. Profit maximization takes into account the impact on individual shareholders' EPS.
4. Profit maximization is more concerned with maximizing net income than with stock price.

Answer (Detailed Solution Below)

Profit maximization is more concerned with maximizing net income than with stock price.

Financial Planning Question 5 Detailed Solution

The Correct answer is ‘ Profit maximization is more concerned with maximizing net income than with stock price.’

Key Points Financial Management:

• Financial managers must establish financial management objectives to ensure efficient procurement, resource utilization, and cost minimization. The following are the most important financial management goals that businesses in all industries must prioritize. Such as Profit Maximization, Wealth Maximization, Proper Mobilization of resources and Business Survival.
• Profit Maximization: The primary goal of financial management is to maximize profit in both the short and long run. It even includes wealth maximization, in which the value or hold over dividends of each shareholder should increase. These outcomes are linked to business performance, so the better a company performs, the higher the market value of its shares.

Important Points Profit maximization takes into account the firm's risk level: This option is Incorrect because Financial managers must establish financial management objectives to ensure efficient procurement, resource utilization, and cost minimization.

Profit maximization will not result in increased short-term profits at the expense of long-term: This option is Incorrect because The primary goal of financial management is to maximize profit in both the short and long run.

Profit maximization takes into account the impact on individual shareholders' EPS: This option is Incorrect because The primary goal of financial management is to maximize profit in both the short and long run.

Profit maximization is more concerned with maximizing net income than with stock price: This option is correct because It even includes wealth maximization, in which the value or hold over dividends of each shareholder should increase. These outcomes are linked to business performance, so the better a company performs, the higher the market value of its shares.

Top Financial Planning MCQ Objective Questions

Financial Planning Question 6:

Name the process that enables the management to foresee the fund requirements, both the quantum as well as the timing.

1. Financial management
2. Capital budgeting decisions
3. Dividend decision
4. Financial planning

Answer (Detailed Solution Below)

Financial Planning Question 6 Detailed Solution

The correct answer is Financial planning

Key Point

• Financial planning is the process of taking a comprehensive look at your financial situation and building a specific financial plan to reach your goals.
• Financial planning often delves into multiple areas of finance, including investing, taxes, savings, retirement, your estate, insurance and more.
• Financial planning is the practice of putting together a plan for your future, specifically around how you will manage your finances and prepare for all of the potential costs and issues that may arise.
• The process involves evaluating your current financial situation, identifying your goals and then developing and implementing relevant recommendations.
• Financial planning is holistic and broad, and it can encompass a variety of services,
• Rather than focusing on a single aspect of your finances, it views clients as real people with a variety of goals and responsibilities.
• It then addresses a number of financial realities to figure out how to best enable people to make the most of their lives.
• Financial planning is not the same as asset management. Asset management generally refers to managing investments for a client.
• This includes choosing the stocks, bonds, mutual funds and other investments in which a client should invest their money.

Financial Planning Question 7:

1. Estimation of expected profit, Preparation of a sales forecast, Preparation of financial statements
2. Preparation of a sales forecast, Preparation of financial statements, Estimation of expected profit
3. Preparation of a sales forecast, Estimation of expected profit, Preparation of financial statements
4. Preparation of financial statements, Estimation of expected profit, Preparation of a sales forecast

Answer (Detailed Solution Below)

Option 2 : Preparation of a sales forecast, Preparation of financial statements, Estimation of expected profit

Financial Planning Question 7 Detailed Solution

The correct answer is Preparation of a sales forecast, Preparation of financial statements, Estimation of expected profit.

Key Points

• The Financial Plan portrays all of the activities, assets, machinery, and materials that are required to accomplish these targets, within a stipulated time frame .
• Preparation of a sales forecast,
• Preparation of financial statements,
• Estimation of expected profit is the correct sequence of the financial planning process
• Financial planning is the process of taking a comprehensive look at your financial situation and building a specific financial plan to reach your goals.
• Financial planning often delves into multiple areas of finance, including investing, taxes, savings, retirement, your estate, insurance and more.
• Financial planning is the practice of putting together a plan for your future, specifically around how you will manage your finances and prepare for all of the potential costs and issues that may arise.
• The process involves evaluating your current financial situation, identifying your goals and then developing and implementing relevant recommendations.
• Financial planning is holistic and broad, and it can encompass a variety of services,
• Rather than focusing on a single aspect of your finances, it views clients as real people with a variety of goals and responsibilities.
• It then addresses a number of financial realities to figure out how to best enable people to make the most of their lives.
• Financial planning is not the same as asset management. Asset management generally refers to managing investments for a client.
• This includes choosing the stocks, bonds, mutual funds and other investments in which a client should invest their money
• Financial planning is undertaking the responsibility of deciding how a business will stand to accomplish its primary objectives and goals.

Financial Planning Question 8:

Vikrant joins his father’s business of Organic masalas, near Kotgarh in Himachal after completing his MBA. In order to capture a major share of the market, he decided to sell the product in small attractive packages by using the latest packaging technology. His father suggested that they hire financial consultants to estimate the amount of funds that would be required for the purpose and the timings when it would be required. The concept being discussed by Vikrant’s father, links which financial decision with the investment decision?

1. Dividend decision
2. Financial planning
3. Capital structure decision
4. Financing decision

Answer (Detailed Solution Below)

Financial Planning Question 8 Detailed Solution

The correct answer is Financial planning

Key Points

• Financial planning is the process of taking a comprehensive look at your financial situation and building a specific financial plan to reach your goals.
• Financial planning often delves into multiple areas of finance, including investing, taxes, savings, retirement, your estate, insurance and more.
• Financial planning is the practice of putting together a plan for your future, specifically around how you will manage your finances and prepare for all of the potential costs and issues that may arise.
• The process involves evaluating your current financial situation, identifying your goals and then developing and implementing relevant recommendations.
• Financial planning is holistic and broad, and it can encompass a variety of services,
• Rather than focusing on a single aspect of your finances, it views clients as real people with a variety of goals and responsibilities.
• It then addresses a number of financial realities to figure out how to best enable people to make the most of their lives.
• Financial planning is not the same as asset management. Asset management generally refers to managing investments for a client.
• This includes choosing the stocks, bonds, mutual funds and other investments in which a client should invest their money.

Main Objectives of Financial Planning

• Identifying the sources from where the funds can be raised and ensuring that the required funds are available to the firm as and when needed.
• For this, under financial planning, an estimation is made regarding the number of funds which would be required for various business operations.
• In addition, an estimation is made regarding the time at which the funds would be needed.
• To ensure that there is proper utilisation of funds in the sense that there is neither surplus nor inadequate funding by the firm. In other words, it ensures that situations of both excess or shortage of funds are avoided.
• This is because while inadequate funds obstruct operations of the firm, excess funding leads to wasteful expenditure by the firm. Thus, proper financial planning ensures optimal utilisation of funds by the firm.

Financial Planning Question 9:

1. Human resource management
2. Marketing strategies
3. Financial aspects and budgets
4. Project management

Answer (Detailed Solution Below)

Financial Planning Question 9 Detailed Solution

The correct answer is Financial aspects and budgets.

Key Points A financial plan is a comprehensive document that outlines an individual's or organization's financial goals, strategies, and actions to achieve those goals. It typically covers various financial aspects, including income, expenses, savings, investments, and debt management.

Key elements of a financial plan include:

• Budgeting: Developing a budget that outlines expected income and expenses, ensuring that spending aligns with financial goals and priorities.
• Cash Flow Management: Managing cash flow effectively to ensure a balance between income and expenses, ensuring sufficient liquidity for day-to-day operations and financial obligations.
• Saving and Investing: Setting aside funds for saving and investing to build wealth, achieve long-term financial goals, and create a financial cushion for unexpected expenses.
• Debt Management: Developing strategies to manage and reduce debt, including repayment plans, debt consolidation, or refinancing options.
• Risk Management: Assessing and mitigating financial risks through strategies such as insurance, emergency funds, and diversification of investments.
• Retirement Planning: Planning for retirement by determining retirement goals, estimating future expenses, and developing strategies to accumulate sufficient funds for a comfortable retirement.
• Tax Planning: Optimizing tax efficiency by understanding applicable tax laws, deductions, credits, and utilizing tax-advantaged investment accounts or strategies.

Financial Planning Question 10:

1. Profit maximization takes into account the firm's risk level.
2. Profit maximization will not result in increased short-term profits at the expense of long-term
3. Profit maximization takes into account the impact on individual shareholders' EPS.
4. Profit maximization is more concerned with maximizing net income than with stock price.

Answer (Detailed Solution Below)

Profit maximization is more concerned with maximizing net income than with stock price.

Financial Planning Question 10 Detailed Solution

The Correct answer is ‘ Profit maximization is more concerned with maximizing net income than with stock price.’

Key Points Financial Management:

• Financial managers must establish financial management objectives to ensure efficient procurement, resource utilization, and cost minimization. The following are the most important financial management goals that businesses in all industries must prioritize. Such as Profit Maximization, Wealth Maximization, Proper Mobilization of resources and Business Survival.
• Profit Maximization: The primary goal of financial management is to maximize profit in both the short and long run. It even includes wealth maximization, in which the value or hold over dividends of each shareholder should increase. These outcomes are linked to business performance, so the better a company performs, the higher the market value of its shares.

Important Points Profit maximization takes into account the firm's risk level: This option is Incorrect because Financial managers must establish financial management objectives to ensure efficient procurement, resource utilization, and cost minimization.

Profit maximization will not result in increased short-term profits at the expense of long-term: This option is Incorrect because The primary goal of financial management is to maximize profit in both the short and long run.

Profit maximization takes into account the impact on individual shareholders' EPS: This option is Incorrect because The primary goal of financial management is to maximize profit in both the short and long run.

Profit maximization is more concerned with maximizing net income than with stock price: This option is correct because It even includes wealth maximization, in which the value or hold over dividends of each shareholder should increase. These outcomes are linked to business performance, so the better a company performs, the higher the market value of its shares.

Financial Planning Question 11:

1. When the raw material is easily available
2. When the growth prospects of the business are high
3. The scale of the business operation is small
4. When the rate of inflation is low

Answer (Detailed Solution Below)

Financial Planning Question 11 Detailed Solution

The correct answer is ​When the growth prospects of the business are high

Key Points Working Capital

• Working capital refers to the capital of a business used in day-to-day activities.
• Two main concepts of working capital:
• Gross working capital: It simply implies investment in current assets.
• Net working capital: It implies the excess of current assets (cash in hand/at bank, bills receivable, debtors etc.) over current liabilities (obligatory payments which are due; for example, bills payable, outstanding expenses etc.). Algebraically, Net Working Capital = Current Assets − Current Liabilities Factors affecting the requirement of working capital

Type of business:

• The nature of business is one of the important determinants of working capital requirements. a. For instance, trading organizations have shorter operating cycles, i.e. no processing is done in such organizations. Accordingly, they require low working capital. b. As against this, an organization dealing in manufacturing would require large working capital. This is because it involves a large operating cycle, i.e. the raw materials first need to be transformed to finished goods before they are offered for sale.

The scale of operations:

• Firms that operate on a larger scale require greater working capital than those which operate on a lower scale. This is because firms with greater scale of operations are required to maintain high stock of inventory and debtors. As against this, a business with smaller scale of operation requires less working capital.

Fluctuations in the business cycle:

• In various phases of the business cycle, the requirement of working capital is different. For instance, in the phase of boom, both production and sales are higher. Accordingly, the requirement of working capital is also high. As against this, in the phase of depression, the demand is low, and so production and sale are low. Accordingly, there is less requirement of working capital.

Production cycle:

• The production cycle refers to the time gap between receiving goods and their processing into final goods. Longer the production cycle for a firm, the larger are the requirements of Factors Affecting the Requirement of Fixed Capital BUSINESS STUDIES FINANCIAL MANAGEMENT www.topperlearning.com 13 working capital and vice versa. This is because a longer production cycle would imply greater inventories and other related expenses, so a greater requirement of working capital.

Growth prospects:

• Higher growth prospects imply higher production, sales and inputs. Accordingly, higher growth prospects for a company imply a greater requirement of working capital.

Seasonal factors:

• Companies require a huge amount of working capital because of the high level of activity in the peak season, whereas during the lean season they require less as the activities reduce. 7) Credit allowed: Credit policy refers to the average period for collection of sale proceeds. This depends on the credit worthiness of clients. So, a company that allows a liberal credit policy will require more working capital.

Credit availed:

• A company/firm may get credit from its suppliers depending on their credit worthiness. The more they get such credit, the more the requirement of working capital reduces.

Operating efficiency:

• Companies with a high degree of operating efficiency will require less working capital, whereas companies having a low level of efficiency will require more working capital because efficiency may help the company/firm in reducing the level of raw materials required, average time for which finished goods inventory is held, etc.

Availability of raw materials:

• If raw materials are easily and continuously available, then lower levels of stocks would suffice. This will help the firm/company to avoid storing a large number of raw materials, thereby reducing the need of working capital. However, if the lead time between placing the order and supply of goods increases, then the company will require to store a large amount of stock of raw materials which will lead to more requirements of working capital.

Level of competition:

• If the market is more competitive, the company will require larger stocks of finished goods in order to supply goods on time. So, they maintain higher inventories which require a large amount of capital.

Financial Planning Question 12:

It is essentially the preparation of a financial blueprint of an organisation’s future operations. Identify the related concept.

1. Financial management
2. Financial planning
3. Capital budgeting decisions
4. Dividend decision

Answer (Detailed Solution Below)

Financial Planning Question 12 Detailed Solution

The correct answer is Financial Planning

Key Points

Financial planning

• Financial planning is the process of taking a comprehensive look at your financial situation and building a specific financial plan to reach your goals.
• Financial planning often delves into multiple areas of finance, including investing, taxes, savings, retirement, your estate, insurance and more.
• Financial planning is the practice of putting together a plan for your future, specifically around how you will manage your finances and prepare for all of the potential costs and issues that may arise.
• The process involves evaluating your current financial situation, identifying your goals and then developing and implementing relevant recommendations.
• Financial planning is holistic and broad, and it can encompass a variety of services,
• Rather than focusing on a single aspect of your finances, it views clients as real people with a variety of goals and responsibilities.
• It then addresses a number of financial realities to figure out how to best enable people to make the most of their lives.
• Financial planning is not the same as asset management. Asset management generally refers to managing investments for a client.
• This includes choosing the stocks, bonds, mutual funds and other investments in which a client should invest their money
• Financial planning involves designing the blueprint of the overall financial operations of a company such that the right amount of funds are available for various operations at the right time.
  

1. Identifying the sources from where the funds can be raised and ensuring that the required funds are available to the firm as and when needed. For this, under financial planning, an estimation is made regarding the amount of funds which would be required for various business operations.
2. An estimation is made regarding the time at which the funds would be needed.
3. To ensure that there is proper utilisation of funds in the sense that there is neither surplus nor inadequate funding by the firm.
4. In other words, it ensures that situations of both excess or shortage of funds are avoided.
5. This is because while inadequate funds obstruct operations of the firm, excess funding leads to wasteful expenditure by the firm. Thus, proper financial planning ensures optimal utilisation of funds by the firm

Financial Planning Question 13:

It is essentially the preparation of a financial blueprint for an organisation‘s future operations. Identify the related concept.

1. Financial management
2. Financial planning
3. Capital budgeting decisions
4. Dividend decision

Answer (Detailed Solution Below)

Financial Planning Question 13 Detailed Solution

The correct answer is Financial planning

Key Points

• Financial management refers to efficient acquisition, allocation and usage of funds by a company for its smooth working.
• The main objectives of financial management are to reduce the expenses involved in procuring funds, to control risk and to achieve effective deployment of funds.

Importance of Financial Management

The role of financial management is as such that it has a direct impact on all the financial aspects/activities of a company. Certain aspects affected by financial management decisions are

• Size and composition of fixed assets:
  • The amount of money invested in fixed assets is an outcome of investment decisions. So, if more amount of capital is decided to be invested in fixed assets, then it will increase the value of the total share of fixed assets by the amount invested.
  • The quantum of current assets and its constituents like cash, bills receivable, inventory etc. is also influenced by management decisions. It is also dependent on the amount invested in fixed assets, decisions about credit and inventory management etc.
  • Financial management determines the quantum of funds to be raised for the short term and long term. In case a firm requires more liquid assets, then it will prefer to have more long-term finance even when their profits will decrease due to payment of more interest in comparison to shortterm debts.
  • Financial management also takes decisions regarding the proportion of debt and/or equity.
  • All items in the profit and loss account are affected by financial management decisions. For example, higher amount of debt will lead to increase in the expense in the form of interest payment in the future.
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  Financial Planning Question 14:

  Which of the following is not an objective of planning?
  1. Economic growth
  2. Setting of Heavy Industry
  3. Modernisation
  4. None of these

  Answer (Detailed Solution Below)

  Option 2 : Setting of Heavy Industry

  Financial Planning Question 14 Detailed Solution

  The correct answer is the Setting of Heavy Industry.

  

  Key Points Objectives of Planning:

  Economic Growth: Planning can aim to stimulate and sustain economic growth by setting strategies and actions that promote increased production, investment, and employment. This may involve initiatives to attract new businesses, develop infrastructure, enhance productivity, and encourage innovation. The objective is to achieve a higher level of economic output, leading to increased income, improved living standards, and enhanced economic opportunities for individuals and communities.

  Industrial and Technological Modernization: Planning can focus on modernizing industries and adopting advanced technologies to improve productivity, efficiency, and competitiveness. This may include initiatives to promote digitalization, automation, research and development, and skills development. The objective is to upgrade existing industries, foster new sectors, and leverage technological advancements to drive economic growth and improve the overall quality of products and services.

  Infrastructure Development: Planning often includes objectives related to infrastructure development, such as transportation networks, energy systems, communication technologies, and public facilities. Investing in infrastructure can facilitate economic growth by improving connectivity, reducing transaction costs, and creating an environment conducive to business activities.

  Human Capital Development: Planning can prioritize objectives related to human capital development, including education, skills training, and healthcare. By investing in human capital, organizations and governments aim to enhance the knowledge, skills, and capabilities of individuals, which in turn promotes economic growth, innovation, and social development.

  Hence, the correct answer is Setting up of Heavy industries.