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If the rate of inflation is high, an organisation is required to invest more in working capital due to increased price of raw-material and cost of labour.

The process of estimating the fund requirements of a business and specifying the sources of funds is called financial planning.

                                     OR

Financial planning is the preparation of a financial blueprint of an organisation's future operations.

Objectives of financial planning:

(i) To ensure availability of funds whenever required which involves estimation of the funds required, the time at which these funds are to be made available and the sources of these funds.

(ii) To see that the firm does not raise resources unnecessarily as excess funding is almost as bad as inadequate funding. Financial planning ensures that enough funds are available at right time.

(i) Bread: A small amount of working capital is needed as the product is sold for cash or at very short credit and have a quick cash turnover

(ii) Sugar: A large amount of working capital is needed because the ratio of raw material of the total cost is quite high and the raw materials availability is seasonal.

(iii) Coolers: It is a seasonal product. Therefore, it requires large amount of working capital to store the output during the non-seasonal period.

(iv) Furniture manufacturing against specific order: It requires small working capital as it is quickly converted into cash sales and many times advance from customers is also available.

(v) Motor car: A large amount of working capital is required because the gestation period is long.

The working capital requirement will be less as ire is engaged in a 'Service Industry'. A service firm needs less working capital as it do not have to maintain inventory and has least operating cycle.

Factors which will affect his fixed capital requirements are:

(i) Scale of operation.

(ii) Growth Prospects.

(iii) Financial alternatives

(iv) Diversification

Factors affecting fixed capital requirements are explained below:

(i) Nature of business: A manufacturing concern requires more fixed capital to purchase fixed assets. For example, plant and machinery, etc. as compared to a trading concern.

(ii) Scale of operations: A larger organisation operating at a higher scale needs bigger plant, more space, etc., and therefore requires more fixed capital as compared to the smaller organisations.

(iii) Choice of technique: The business organisations using capital intensive techniques require more fixed capital whereas companies using labourintensive techniques require less capital.

(iv) Technology upgradation: Industries in which technology upgradation is fast need more amount of fixed capital as when new, technology is invented, old machines become obsolete and they need to buy, new plants and machinery whereas companies where technological upgradation is slow they require less fixed capital as they can manage with old machines.

(v) Growth prospects : Companies which are expanding and have high growth plan require more fixed capital, to invest in more plant and machinery and other fixed assets in comparison to the companies having slow growth track or less growth prospects.

(vi) Diversification: Companies which have plans to diversify their business activities by including more range of products require more fixed capital. For producing more products they require more plants and machinery which means more fixed capital is required in comparison to the companies having no diversification plans.

(vii) Level of Collaboration: If companies are preferring collaborations, joint ventures then companies will need less fixed capital as they can share plant and machinery with their collaborations but if company prefers to operate as independent unit then there is more requirement of fixed capital.

(viii) Financing alternatives: Availability of leasing facility reduces the requirement of fixed capital to be invested in outright purchase of the fixed asset.

i. Fixed capital refers to investment in long-term assets. 

ii. Management of fixed capital involves allocation of firm’s capital to different longterm assets. 

iii. These decisions are called investment decisions or capital budgeting decisions. These decisions affect the growth, profitability and risk of the business in the longrun.

Factors affecting the requirement of fixed capital

i. Nature of the Business: 

a. The type of business has a bearing upon the fixed capital requirements. 

b. For example, a trading concern needs lower investment in fixed assets compared with a manufacturing organization; since it does not require to purchase plant and machinery etc. 

ii. Scale of Operations: A larger organization operating at a higher scale needs bigger plant, more space, etc. and therefore, requires higher investment in fixed assets when compared with the small organization. 

iii. Choice of Technique: 

a. Some organizations are capital-intensive whereas others are labour-intensive. 

b. A capital intensive organization requires higher investment in plant and machinery as it relies less on manual labour. The requirement of fixed capital for such organizations would be higher. 

c. Labour intensive organizations, on the other hand, require less investment in fixed assets. Hence, their fixed capital requirement is lower. 

iv. Technology Upgradation: 

a. In certain industries, assets become obsolete sooner. 

b. Consequently the replacements become due faster. Higher investment in fixed assets may, therefore, be required in such cases. 

c. For example, computers become obsolete faster and are replaced much sooner than, say, furniture. Thus such organizations which use assets which are prone to obsolescence require higher fixed capital to purchase such assets. 

v. Growth Prospects: 

a. Higher growth of an organization generally requires higher investment in fixed assets. 

b. Even when such growth is expected, a business may choose to create higher capacity in order to meet the anticipated higher demand quicker. 

c. This entails higher investment in fixed assets and consequently higher fixed capital. 

1. Business cycle: The need for the working capital is affected by various stages of the business cycle. During the boom period, the demand of a product increases and sales also increase. Therefore, more working capital is needed. On the contrary, during the period of depression, the demand declines and it affects both the production and sales of goods. Therefore, in such a situation less working capital is required.

2. Operating efficiency: Operating efficiency means efficiently completing the various business operations. Operating efficiency of every organisation happens to be different. Some such examples are:

(a) converting raw material into finished goods at the earliest,

(b) selling the finished goods quickly, and

(c) quickly getting payments from the debtors. A company which has a better operating efficiency has to invest less in stock and the debtors. Therefore, it requires less working capital, while the case is different in respect of companies with less operating efficiency.

3. Availability of raw material: Availability of raw material also influences the amount of working capital. If the enterprise makes use of such raw material which is available easily throughout the year, then less working capital will be required, because there will be no need to stock it in large quantity. On the contrary, if the enterprise makes use of such raw material which is available only in some particular months of the year whereas for continuous production it is needed all the year round, then large quantity of it will be stocked. Under the circumstances, more working capital will be required.

4. Level of competitions: Higher competition requires large stocks to meet urgent orders from customers and thus higher working capital.

The companies having growth prospects require higher amount of working capital so that they are able to meet higher production and sales target whenever required.

(i) Nature of business, as a trading concern needs a lower investment in fixed assets as compared to a manufacturing concern since it doesn't require to purchase the plant and machinery.

(ii) Scale of operations, as a larger organisation operating at a higher scale needs bigger plant and more space and hence higher investment in fixed assets.

(iii) Choice of technique, as a capital intensive organisation requires higher investment in plant and machinery and thus requires higher fixed capital than a labour intensive organisation.

(iv) Technology up gradation, as industries where assets become obsolete sooner requires higher fixed capital to purchase such assets.

(v) Higher growth prospects, require higher investment in fixed assets to meet anticipated demand quicker.

(vi) Availability of financing alternatives like leasing requires lower investment in fixed assets and hence requires less fixed capital.

(vii) Collaboration reduces the level of investment in fixed asset.

Factors affecting fixed capital requirements are explained below:

(i) Nature of business: A manufacturing concern requires more fixed capital to purchase fixed assets. For example, plant and machinery, etc. as compared to a trading concern.

(ii) Scale of operations: A larger organisation operating at a higher scale needs bigger plant, more space, etc., and therefore requires more fixed capital as compared to the smaller organisations.

(iii) Choice of technique: The business organisations using capital intensive techniques require more fixed capital whereas companies using labourintensive techniques require less capital.

(iv) Technology upgradation: Industries in which technology upgradation is fast need more amount of fixed capital as when new, technology is invented, old machines become obsolete and they need to buy, new plants and machinery whereas companies where technological upgradation is slow they require less fixed capital as they can manage with old machines.

(v) Growth prospects : Companies which are expanding and have high growth plan require more fixed capital, to invest in more plant and machinery and other fixed assets in comparison to the companies having slow growth track or less growth prospects.

(vi) Diversification: Companies which have plans to diversify their business activities by including more range of products require more fixed capital. For producing more products they require more plants and machinery which means more fixed capital is required in comparison to the companies having no diversification plans.

(vii) Level of Collaboration: If companies are preferring collaborations, joint ventures then companies will need less fixed capital as they can share plant and machinery with their collaborations but if company prefers to operate as independent unit then there is more requirement of fixed capital.

(viii) Financing alternatives: Availability of leasing facility reduces the requirement of fixed capital to be invested in outright purchase of the fixed asset.

Factors affecting fixed capital requirements are explained below:

(i) Nature of business: A manufacturing concern requires more fixed capital to purchase fixed assets. For example, plant and machinery, etc. as compared to a trading concern.

(ii) Growth prospects : Companies which are expanding and have high growth plan require more fixed capital, to invest in more plant and machinery and other fixed assets in comparison to the companies having slow growth track or less growth prospects.

(iii) Diversification: Companies which have plans to diversify their business activities by including more range of products require more fixed capital. For producing more products they require more plants and machinery which means more fixed capital is required in comparison to the companies having no diversification plans.

(iv) Level of Collaboration: If companies are preferring collaborations, joint ventures then companies will need less fixed capital as they can share plant and machinery with their collaborations but if company prefers to operate as independent unit then there is more requirement of fixed capital.

1. Yes. I agree with the views of Arun because the main objective of sole proprietorship concerns are profit maximization. In sole proprietorship, only a single person invests capital and the whole profit is enjoyed by himself.

2. The feasible criteria for assessing the financial performance of a company is wealth maximization.

The objective of the financial management is to maximise shareholders wealth by choosing the best investment and financing alternatives considering their costs and benefits.

The working capital requirement will be less as ire is engaged in a 'Service Industry'. A service firm needs less working capital as it do not have to maintain inventory and has least operating cycle.

Factors which will affect his fixed capital requirements are:

(i) Scale of operation.

(ii) Growth Prospects.

(iii) Financial alternatives

(iv) Diversification

Factors affecting fixed capital requirements are explained below:

(i) Nature of business: A manufacturing concern requires more fixed capital to purchase fixed assets. For example, plant and machinery, etc. as compared to a trading concern.

(ii) Scale of operations: A larger organisation operating at a higher scale needs bigger plant, more space, etc., and therefore requires more fixed capital as compared to the smaller organisations.

(iii) Choice of technique: The business organisations using capital intensive techniques require more fixed capital whereas companies using labourintensive techniques require less capital.

(iv) Technology upgradation: Industries in which technology upgradation is fast need more amount of fixed capital as when new, technology is invented, old machines become obsolete and they need to buy, new plants and machinery whereas companies where technological upgradation is slow they require less fixed capital as they can manage with old machines.

(v) Growth prospects : Companies which are expanding and have high growth plan require more fixed capital, to invest in more plant and machinery and other fixed assets in comparison to the companies having slow growth track or less growth prospects.

(vi) Diversification: Companies which have plans to diversify their business activities by including more range of products require more fixed capital. For producing more products they require more plants and machinery which means more fixed capital is required in comparison to the companies having no diversification plans.

(vii) Level of Collaboration: If companies are preferring collaborations, joint ventures then companies will need less fixed capital as they can share plant and machinery with their collaborations but if company prefers to operate as independent unit then there is more requirement of fixed capital.

(viii) Financing alternatives: Availability of leasing facility reduces the requirement of fixed capital to be invested in outright purchase of the fixed asset.

According to Prof. M. Kimbal, “Financial management means acquisition of fund, its optimum utilization and its appropriate allocation

Company procures capital by issuing various types of securities like; equity share, preference share, debenture, etc. The decisions about these securities are reflected in company’s capital structure. In what proportion various types of securities are to be issued is decided by Finance Manager.

Generally, longer the production cycle higher the capital needed.

Capital Structure means proportion and magnitude of different securities and sources utilized by a company to raise its finance.

Capital structure which has proper ratio of equity share capital and debt is called optimum capital structure

Fixed capital means Long-Term Capital which is usually invested in business fixed assets for five years or for more period.

Capital structure refers to the mix between owners' personal and borrowed funds. It represents the proportion of equity’ and debt. Capital Structure = (Debt/Equity)

Characteristics of Fixed Capital:

• Long-term
• Different Ratio in various Types of Business,
• Components
• Less Liquidity
• Risk
• Depreciation and
• Sources.

It is concerned with mobilization of finance for the purpose of Investment

Fixed Capital or Working Capital

Fixed capital is refers to investments in long-term assets or fixed assets.

Nature of business.

By long term loan, we mean that for the development programs such as an expansion of the level of production, modernization of production methods, etc. finance is required. This type of finance is required for financing the fixed capital of an undertaking. This means it is raised against securities. The only thing is that long term finance is costlier than short term finance because its rate of interest is high.

The names of three organizations in the ‘Mutual Funds’ are 

1. Unit Trust of India, 

2. S.B.I. Magnum Equity Fund 

3. L.I.C. Growth Fund.

When the current assets are lesser than the current liabilities it is called negative working capital.]

Correct option is (A) Positive working capital

Land, machinery, plant, vehicles, furniture, computers and printers, etc.

It refers to the net working capital.

(c) Current assets are financed through both long and short term liabilities.

The activity done at managerial level for planning and controlling financial resources for the business enterprise is called financial management

The management of finance is called financial management.

Financial planning.

The process of estimating the fund requirements of a business and specifying the source of funds is called financial planning.

                                         Or

Financial planning is the preparation of a financial blueprint of an organisations future operations.

Working capital gets circulated for short term and it is easily convertible cash (i.e. it has high liquidity). Hence, there is less risk in working capital.

The meaning of financial management is the process of raising, providing and managing the funds in the business.

1. Short term finance, Long term finance.

2. Trade Credit.

3. short term finance.

4. Indigenous bankers or money lenders.

5. shares.

Long term public deposits are those which a company can accept them to meet long term financial needs. The procedure to get these deposits is simple and does not involve many formalities. A company can accept these deposits for a period not exceeding 5 years (60 months). The maximum amount raised under public deposit shall not exceed 25% of the paid up capital of the company.

The advantage of long term deposits to the public is that they are unsecured and 8% to 10% of interest is allowed. The public can use their money in long term deposits and earn 8% to 10% interest.

By money market, we mean financial institution which deals with short term funds in the economy. Money market arranges funds for working capital. Funds can be borrowed under money market for a short period varying from a day, a week, a month or 3 to 6 months against the different types of instruments, such as trade bill, bank acceptances, bonds, treasury bills, etc. In money market commercial banks and Indigenous bankers play an important role in the money market.

The money market is different from the capital market. Funds from the money market can be borrowed for a short period, whereas in capital market money can be borrowed for the long term. The rate of interest under money market is high compared to the institutions of the capital market. The rate of the capital market is low. Commercial banks and indigenous bankers play an important role in money market whereas in the capital market, the financial institutions, finance corporations, investment trust, mutual fund, etc. play an important role in the capital market.

The stock exchange is one of the constituents of the capital market. A specialized market place that facilitates the exchange of securities that are already in existence is known as the Stock Exchange or Stock Market. The first stock Exchange originated in London in 1773. In India, the first Stock’ Exchange was started in Bombay in 1875. At present there are twenty-four Stock Exchanges in our country. Of them are thirteen are public limited companies and six are limited by guaranty and others are voluntary nonprofit making organizations. Only eight Stock Exchanges are permanent and others have to renew their license every year.

The Stock Exchanges regulate and control business in buying, selling and dealing in securities. They are regulated by the government. They do not engage only in the purchase and sale of securities but provide a place where members can carry out their business on their own account under codes, rules, and regulations. The National Stock Exchange Market was set up in the year 1993 for the purpose of providing a nationwide stock trading facility to investors, so as to bring the Indian financial market in line with the international financial market. Only the agents can operate the business in the stock exchanges. Shareholders have to open a separate account to buy and sell shares. It is called a Demat account. A demat account provides security of the shares.

By preparing cash flow statement and cash budget so that a definite cash balance can be maintained on hand.

Financial management has an important role to play in a business organisation. Decisions taken by the financial management have a direct bearing on the Financial Statements, e.g., Trading and Profit and Loss Account and Balance Sheet. They are the statements which reflect the progress of the business.

For the determination of various items of the financial statements, the financial management has the following role to play:

i. Determination of Fixed Assets: Fixed assets have an important contribution in the profits of a business organisation. Under the financial management, the total investment in the fixed assets and every separate fixed asset is determined. This is done through capital budgeting. For example, if it has been decided in the capital budgeting to invest rupees 500 crore, there will be an increase of rupees 500 crore in the fixed assets.

ii. Determination of Current Assets: Current assets are needed in the day to day transactions of business. Under the financial management, the total investment in current assets and every separate current asset is determined. For example, if the investment in current assets is rupees 100 crore, it will then be determined how much should be invested in cash, stock, debtors, etc.

iii. Determination of Proportion of Long-term and Short-term Finance: All the financial needs of business are fulfilled through long-term and short-term sources. Under financial management, a proportion of both the financial sources is determined. Long-term sources provide capital for business for a long time. Therefore, their use increases liquidity (meaning thereby that the business has the capacity to make quick payments in respect of daily payments). At the same time, the cost of long-term sources is higher than the cost of short term sources. Therefore, if there is more liquidity is required in business, more cost shall have to be borne, and vice-versa. Under financial management, the proportion of both these sources is determined on the basis of liquidity and cost analysis.

iv. Determination of Proportion of Various Sources of Long-term Finance: Long-term financial sources include primarily equity share capital, preference share capital, retained earning, debenture, long-term loan, etc. Under financial management, the proportion of various long-term financial sources is determined. All the sources have their merits and demerits. After making an analysis of their merits and demerits, a balanced decision is taken.

v. Determination of Various Items of Profit and Loss Account: Various items included in the profit and loss get influenced or affected by different financial decisions. For example, interest is related to the amount of debt, depreciation is related to the amount of long-term assets, discount is related to the position of liquidity (which means that if the position of liquidity is good, discount can be earned by making timely payments) etc.

• Being a specialized function of general management, financial management is mainly concerned with raising of finance and its optimum and effective utilization for achievement of goals of the organization.
• It deals with planning, organizing, directing, co‐ordinating and controlling financial activities.
• It is also called as ‘Resource Management’.

Definitions of Financial Management:

• In the words of Ezra Soloman, “Financial Management is concerned with effective use of an important economic resource, namely capital funds”.
• In the words of Kuchal S. C., “Financial Management deals with procurement of funds and their effective utilization in business”.

Role of Financial Management:

The role of financial management can be explained with reference to the functions performed by it. They are ‘routine functions’ and ‘executive functions’.

Routine Functions:  [Mnemonic: KFC CD]

i. Record Keeping and Reporting: 

• The finance manager has to keep records of all financial transactions and send the reports to different departmental heads.

ii.    Preparing various Financial Statements:

• The finance manager prepares various financial statements to analyze the position and performance of an organization.

iii. Cash Planning: 

• Cash planning is properly done by the finance manager as it allows the company to plan its working capital.

iv. Credit Management:

• The financial manager has to manage the credit properly.
• This means managing the funds which are due (with the creditors) and accordingly deciding the credit period that is to be offered to the debtors.

v. Reporting to Directors:

• Providing accurate information to Board of Directors on current financial position for making decisions of purchases, marketing, pricing etc.

Executive functions: [Mnemonic: CAR DIP]

i. Checking and Analysis of Financial Performance:

• An organization prepares and analyzes various financial statements which helps in improving techniques of financial control. 

ii. Advising Board of Directors:

• A finance manager brings to the notice of the Board of Directors problems related to finance and also suggests possible solutions for the same. 
• He also gives advice on important matters such as pricing, expansion, acquisition, dividend policy etc.

iii. Forecasting Financial Requirements: 

• Forecasting of finance means projection of financial needs of business for future.
• In simple words, forecasting means budgeting financial needs of the expected programmes.  
• An organization requires capital i.e. fixed capital (long term) and working capital (short term) for running its business.  
• Forecasting not only considers the amount of funds required but also considers: when the funds are required,   duration for which funds are required, anz kind of funds (i.e. owned or borrowed).

iv. Deciding Sources of Funds:

• After determining the amount of finance required, various sources (such as shares, debentures, financial institutions, money lenders etc.) of raising such funds are to be considered.
• Utmost care is to be taken while selecting the source as there needs to be a proper balance between owned funds and owed funds.
• Further, there has to be a proper balance between long term funds and short term funds.

v. Investment Decisions:

• After raising the funds, these funds must be wisely utilized.
• Investment decision ensures effective utilization of funds raised by the organization in: long term assets or fixed assets such as land, building, machinery, furniture etc. short term assets or current assets such as inventory, account receivables, etc.
• The decision regarding fixed assets is popularly known as ‘capital budgeting’.
• Whereas, the decision regarding current assets is known as ‘working capital management’.  
• It becomes the responsibility of the finance manager to ensure efficient utilization of every current asset to maintain control on cash inflow and cash outflow.

vi. Dividend Policy:

• A finance manager has to decide the proportion of profit that it is to be retained in the business for future expansion and the proportion that is to be distributed as dividend among shareholders. 
• It is the prime duty of the finance manager to balance the investor’s expectations and use of retained earnings for future expansion or acquisition of additional assets

Class 12 Business Studies MCQ Questions Financial Management with Answers are made by the subject matter experts for utmost precision and accuracy. At Sarthaks eConnect, Students will get an in-depth understanding of all of the class 12 business studies. Most importantly, all the questions are designed as per the syllabus of CBSE guidelines. There are also NCERT solutions available for the students to give a better perspective about the subject.

Students need to attempt more objective questions from all the chapters if they want to excel in business studies. The important mcq questions for class 12 deal with every chapter in detail. It offers length-wise solutions to all the important questions of the chapters makes it reliable for exam preparation. Check your preparation level on MCQ Questions for Class 12 Business Studies with Answers. 

1. Business finance is needed to

(a) Establish a business
(b) Run a business
(c) Expand a business
(d) All of the above

2. Which of the following is not a tangible asset?

(a) Machinery
(b) Trademarks
(c) Factories
(d) Offices

3. Financial Management aims at

(a) Reducing the cost of funds procured
(b) Keeping the risk under control
(c) Achieving effective deployment of such funds
(d) All of the above

4. Primary aim of financial management is to

(a) Maximise shareholder’s wealth
(b) Wealth maximisation concept
(c) Maximisation of the market value of equity shares
(d) All of the above

5. This decision relates to how the firm’s funds are invested in different assets,

(a) Investment decision
(b) Financing decision
(c) Dividend decision
(d) None of the above

6. Purchasing a new machine to replace an existing one is an example of

(a) Financing decision
(b) Dividend decision
(c) Working capital decision
(d) Capital budgeting decision

7. Which one of the following is related to planning, organising, directing and controlling of financial activities?

(a) Financial decision
(b) Capital structure
(c) Investment decision
(d) Financial management

8. Wealth maximization depends on

(a) market price per share.
(b) market price of finished good.
(c) market price of inventory.
(d) market price of fixed assets.

9. Investment decision involves

(a) investment in fixed assets.
(b) investment in current assets.
(c) investment in fixed and current assets.
(d) investment in Government securities.

10. If dividend portion of total earnings is high, portion of retained earnings will be

(a) high.
(b) low.
(c) moderate.
(d) equal.

11. Financial procedures are determined by

(a) financial planning.
(b) financial leverage.
(c) financial decisions.
(d) capital structure.

12. Capital structure shows

(a) Debtor-creditor ratio.
(b) Fixed assets-current assets ratio.
(c) Debt-equity ratio.
(d) Interest coverage ratio.

13. Which of the following affects the Dividend Decision of a company?

(i) Taxation Policy
(ii) Cash Flow Position
(iii) Earnings
(iv) All of the above

14. Companies with a higher growth potential are likely to

(i) Pay lower dividends
(ii) Pay higher Dividends
(iii) Dividends are not affected
(iv) None of the above

15. A decision to acquire a new and modern plant to upgrade an old one is a:

(i) financing decision
(ii) working capital decision
(iii) investment decision
(iv) None of the above

16. If dividend portion of total earnings is high, portion of retained earnings will be

(i) high.
(ii) low.
(iii) moderate.
(iv) equal.

17. Primary aim of financial management is to

(i) Maximise shareholder’s wealth
(ii) Wealth maximisation concept
(iii) Maximisation of the market value of equity shares
(iv) All of the above

18. Higher working capital usually results in:

(i) Higher equity, lower risk, and lower profits
(ii) Lower current ratio, higher risk, and profits
(iii) Lower equity, lower risk, and higher profits
(iv) Higher current ratio, higher risk, and higher profits

19. Other things remaining the same, an increase in the tax rate on corporate profit will

(a) Make the debt relatively cheaper
(b) Make the debt relatively the dearer
(c) Have no impact on the cost of debt
(d) We can’t say 

20. Current assets of a business firm should be financed through:

(a) Current liability only
(b) Long term liability only
(c) Fixed liabilities only
(d) Both types (i.e., long- and short-term liabilities) 

21. Companies with a higher growth potential are likely to

(a) Pay lower dividends
(b) Pay higher Dividends
(c) Dividends are not affected 
(d) None of the above 

22. Higher debt – equity ratio results in:

(a) Lower financial risk
(b) Higher degree of operating risk
(c) Higher degree of financial risk
(d) Higher EPS. 

23. Higher Working capital usually results in:

(a) Higher current ratio, higher risk and higher profits
(b) Lower current ratio, higher risk and profits
(c) Higher equity, lower risk and lower profits
(d) Lower equity, lower risk and higher profits. 

24. The Cheapest source of finance is :

(a) Debenture
(b) Equity share capital
(c) Preference share
(d) Retained earnings 

25. Current assets are those assets which get converted into cash:

(a) Within six months
(b) Within one year 
(c) Between one year and three years
(d) Between three and five years.

Answer:

1. Answer (d) All of the above

2. Answer (b) Trademarks

3. Answer (d) All of the above

4. Answer (d) All of the above

5. Answer (a) Investment decision

6. Answer (d) Capital budgeting decision

7. Answer (d) Financial management

8. Answer (a) market price per share.

9. Answer (c) investment in fixed and current assets.

10. Answer (b) low.

11. Answer (a) financial planning.

12. Answer (c) Debt-equity ratio.

13. Answer (iv) All of the above

14. Answer (i) Pay lower dividends

15. Answer (ii) working capital decision

16. Answer (ii) low.

17. Answer (iv) All of the above

18. Answer (iv) Higher current ratio, higher risk, and higher profits

19. Answer (a) Make the debt relatively cheaper

20. Answer (a) Current liability only

21. Answer (a) Pay lower dividends

22. Answer (c) Higher degree of financial risk

23. Answer (a) Higher current ratio, higher risk and higher profits

24. Answer (d) Retained earnings 

25. Answer (b) Within one year 

Short and long-term interest rates affect the demand for the product and services. For example, in case of construction companies and automobile manufacturers, low longer term rates are beneficial because they result in increased spending by consumers for buying homes and cars on borrowed money.

Financial planning is the process of estimating the fund requirements, specifying the sources of funds and utilising them in an optimum manner. Financial planning is basically concerned with preparation of financial blueprint of an organisation's future operations.

Importance of financial planning is as follows:

(a) It helps the company to prepare for the future.

(b) It helps in avoiding business shocks and surprises.

(c) It helps in co-ordinating various business functions.

(d) It helps in reducing waste, duplication of efforts, gaps in planning and confusion.

(e) It links the present with the future.

(f) It provides a link between investment and financing decisions.

(g) It serves as a control technique.

Financial planning is important because:

(a) It helps the company to prepare for the future.

(b) It helps in avoiding business shocks and surprises.

(c) It helps in co-ordinating various business functions.

(d) It helps in reducing waste, duplication of efforts, gaps in planning and confusion.

(e) It links the present with the future.

(f) It provides a link between investment and financing decisions.

(g) It serves as a control technique.

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