Chapter financial-management: Financial Management Assertion-Reason Questions | business studies Class 12 CBSE

Assertion-Reason

Easy difficulty • Check the statement and reason

Easy

Question 1

Logic Check

Assertion (A): The primary objective of financial management is to maximise shareholders' wealth. Reason (R): Shareholders' wealth is reflected in the market price of equity shares, which increases when financial decisions add value.

Reasoning Options

ByteNotes

Assertion-Reason

Easy difficulty • Check the statement and reason

Easy

Question 2

Logic Check

Assertion (A): Debt is considered the cheapest source of long-term finance. Reason (R): Interest paid on debt is a tax-deductible expense, which reduces the effective cost of debt.

Reasoning Options

ByteNotes

Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 3

Logic Check

Assertion (A): A capital budgeting decision, once taken, is easily reversible without significant cost. Reason (R): Capital budgeting involves large investment in fixed assets with long-term implications.

Reasoning Options

ByteNotes

Assertion-Reason

Hard difficulty • Check the statement and reason

Hard

Question 4

Logic Check

Assertion (A): Trading on Equity is always beneficial for equity shareholders. Reason (R): Trading on Equity increases EPS only when the firm's RoI exceeds the cost of debt.

Reasoning Options

ByteNotes

Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 5

Logic Check

Assertion (A): Financial planning is a substitute for financial management. Reason (R): Financial planning aims at smooth operations by forecasting fund requirements, while financial management aims at increasing shareholders' wealth.

Reasoning Options

ByteNotes

Assertion-Reason

Easy difficulty • Check the statement and reason

Easy

Question 6

Logic Check

Assertion (A): A service industry typically requires less working capital than a manufacturing industry. Reason (R): Service industries do not maintain inventory of goods and often receive payment quickly.

Reasoning Options

ByteNotes

Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 7

Logic Check

Assertion (A): Fixed assets should be financed through short-term sources to maintain liquidity. Reason (R): Fixed assets are long-term in nature and are matched with long-term sources of finance.

Reasoning Options

ByteNotes

Assertion-Reason

Easy difficulty • Check the statement and reason

Easy

Question 8

Logic Check

Assertion (A): During a boom phase of the business cycle, a firm's working capital requirement increases. Reason (R): Higher sales and production during boom phase require more inventory and result in higher debtors.

Reasoning Options

ByteNotes

Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 9

Logic Check

Assertion (A): A company fearing a takeover bid will prefer to raise funds through equity shares. Reason (R): Issue of more equity shares may lead to dilution of the existing management's control over the company.

Reasoning Options

ByteNotes

Assertion-Reason

Easy difficulty • Check the statement and reason

Easy

Question 10

Logic Check

Assertion (A): Financial planning helps a firm avoid business shocks and surprises. Reason (R): Financial planning prepares the firm for multiple future scenarios by forecasting likely fund requirements and availability.

Reasoning Options

ByteNotes

Assertion-Reason

Easy difficulty • Check the statement and reason

Easy

Question 11

Logic Check

Assertion (A): Availability of leasing facilities reduces the fixed capital requirement of a firm. Reason (R): When an asset is leased, the firm pays rentals periodically instead of making a large upfront purchase payment.

Reasoning Options

ByteNotes

Assertion-Reason

Hard difficulty • Check the statement and reason

Hard

Question 12

Logic Check

Assertion (A): A company with a low Interest Coverage Ratio (ICR) has a high capacity to use more debt in its capital structure. Reason (R): A low ICR means the company barely covers its interest obligations from EBIT, indicating limited ability to service additional debt.

Reasoning Options

ByteNotes

Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 13

Logic Check

Assertion (A): Growth companies tend to pay lower dividends than non-growth companies. Reason (R): Growth companies retain more earnings to finance future investments and expansion.

Reasoning Options

ByteNotes

Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 14

Logic Check

Assertion (A): A higher rate of inflation reduces the working capital requirement of a business. Reason (R): With rising prices, more money is needed to maintain the same volume of production and sales.

Reasoning Options

ByteNotes

Assertion-Reason

Easy difficulty • Check the statement and reason

Easy

Question 15

Logic Check

Assertion (A): Both shareholders' funds and borrowed funds are used to form the capital structure of a company. Reason (R): Capital structure refers to the mix between owners' funds (equity) and borrowed funds (debt).

Reasoning Options

ByteNotes

Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 16

Logic Check

Assertion (A): Excess funds available to a firm are always beneficial. Reason (R): Excess funding adds to cost and may encourage wasteful expenditure.

Reasoning Options

ByteNotes

Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 17

Logic Check

Assertion (A): A capital-intensive organisation has a lower fixed capital requirement than a labour-intensive organisation. Reason (R): Capital-intensive organisations rely more on machines and invest more in plant and machinery.

Reasoning Options

ByteNotes

Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 18

Logic Check

Assertion (A): The financing decision affects the cost of capital and the financial risk of an enterprise. Reason (R): The proportion of debt and equity determines both the overall cost of financing and the level of financial risk.

Reasoning Options

ByteNotes

Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 19

Logic Check

Assertion (A): A company having stable earnings is likely to pay a smaller dividend. Reason (R): Stable earnings provide confidence to declare higher and consistent dividends.

Reasoning Options

ByteNotes

Assertion-Reason

Hard difficulty • Check the statement and reason

Hard

Question 20

Logic Check

Assertion (A): A firm with high business risk should use more debt in its capital structure. Reason (R): A company with high business risk already faces significant operating risk, and adding financial risk through excessive debt would increase the total risk to an unacceptable level.

Reasoning Options

ByteNotes

Chapter sections

Chapter financial-management: Financial Management | Assertion-Reason

Assertion (A): The primary objective of financial management is to maximise shareholders' wealth. Reason (R): Shareholders' wealth is reflected in the market price of equity shares, which increases when financial decisions add value.

Assertion (A): Debt is considered the cheapest source of long-term finance. Reason (R): Interest paid on debt is a tax-deductible expense, which reduces the effective cost of debt.

Assertion (A): A capital budgeting decision, once taken, is easily reversible without significant cost. Reason (R): Capital budgeting involves large investment in fixed assets with long-term implications.

Assertion (A): Trading on Equity is always beneficial for equity shareholders. Reason (R): Trading on Equity increases EPS only when the firm's RoI exceeds the cost of debt.

Assertion (A): Financial planning is a substitute for financial management. Reason (R): Financial planning aims at smooth operations by forecasting fund requirements, while financial management aims at increasing shareholders' wealth.

Assertion (A): A service industry typically requires less working capital than a manufacturing industry. Reason (R): Service industries do not maintain inventory of goods and often receive payment quickly.

Assertion (A): Fixed assets should be financed through short-term sources to maintain liquidity. Reason (R): Fixed assets are long-term in nature and are matched with long-term sources of finance.

Assertion (A): During a boom phase of the business cycle, a firm's working capital requirement increases. Reason (R): Higher sales and production during boom phase require more inventory and result in higher debtors.

Assertion (A): A company fearing a takeover bid will prefer to raise funds through equity shares. Reason (R): Issue of more equity shares may lead to dilution of the existing management's control over the company.

Assertion (A): Financial planning helps a firm avoid business shocks and surprises. Reason (R): Financial planning prepares the firm for multiple future scenarios by forecasting likely fund requirements and availability.

Assertion (A): Availability of leasing facilities reduces the fixed capital requirement of a firm. Reason (R): When an asset is leased, the firm pays rentals periodically instead of making a large upfront purchase payment.

Assertion (A): A company with a low Interest Coverage Ratio (ICR) has a high capacity to use more debt in its capital structure. Reason (R): A low ICR means the company barely covers its interest obligations from EBIT, indicating limited ability to service additional debt.

Assertion (A): Growth companies tend to pay lower dividends than non-growth companies. Reason (R): Growth companies retain more earnings to finance future investments and expansion.

Assertion (A): A higher rate of inflation reduces the working capital requirement of a business. Reason (R): With rising prices, more money is needed to maintain the same volume of production and sales.

Assertion (A): Both shareholders' funds and borrowed funds are used to form the capital structure of a company. Reason (R): Capital structure refers to the mix between owners' funds (equity) and borrowed funds (debt).

Assertion (A): Excess funds available to a firm are always beneficial. Reason (R): Excess funding adds to cost and may encourage wasteful expenditure.

Assertion (A): A capital-intensive organisation has a lower fixed capital requirement than a labour-intensive organisation. Reason (R): Capital-intensive organisations rely more on machines and invest more in plant and machinery.

Assertion (A): The financing decision affects the cost of capital and the financial risk of an enterprise. Reason (R): The proportion of debt and equity determines both the overall cost of financing and the level of financial risk.

Assertion (A): A company having stable earnings is likely to pay a smaller dividend. Reason (R): Stable earnings provide confidence to declare higher and consistent dividends.

Assertion (A): A firm with high business risk should use more debt in its capital structure. Reason (R): A company with high business risk already faces significant operating risk, and adding financial risk through excessive debt would increase the total risk to an unacceptable level.

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