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Advanced Financial Management MCQs for CA Final
Chapter-wise Advanced Financial Management MCQs with answers and explanations. Try the sample questions below, then practise a set of 10 with instant right/wrong.
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Q1 · Advanced Capital Budgeting Decisions
A company uses the Modified Internal Rate of Return (MIRR) to evaluate a project. Which assumption about reinvestment of intermediate cash flows distinguishes MIRR from the traditional IRR?
- (a) Intermediate cash flows are reinvested at the cost of capital
- (b) Intermediate cash flows are reinvested at the project's IRR
- (c) Intermediate cash flows are not reinvested at all
- (d) Intermediate cash flows are reinvested at the risk-free rate of government securities
Show answer ↓
Answer: (a) Intermediate cash flows are reinvested at the cost of capital
(a) is correct: MIRR assumes positive intermediate cash flows are reinvested at the cost of capital, unlike IRR which implicitly assumes reinvestment at the project's own IRR, making (b) wrong.
Q2 · Security Valuation
In the Gordon growth model, if the dividend per share expected next year is Rs. 5, the required return is 12% and the growth rate is 6%, what is the intrinsic value of the share?
- (a) Rs. 41.67
- (b) Rs. 83.33
- (c) Rs. 50.00
- (d) Rs. 27.78
Show answer ↓
Answer: (b) Rs. 83.33
(b) is correct: value = D1/(ke - g) = 5/(0.12 - 0.06) = Rs. 83.33; the other options result from using wrong denominators or dividends.
Q3 · Business Valuation
Which of the following is NOT a method used in valuing a business under the ICAI study material?
- (a) Net asset value method
- (b) Earnings capitalisation method
- (c) Discounted cash flow method
- (d) Market price of raw materials method
Show answer ↓
Answer: (d) Market price of raw materials method
(d) is correct as the one that is not a business valuation method; net asset, earnings capitalisation and DCF are standard valuation approaches covered in the study material.
Q4 · Chapter 6: Portfolio Management
A portfolio has a beta of 1.2. The risk-free rate is 6% and the expected market return is 14%. Using CAPM, what is the required return of the portfolio?
- (a) 15.6%
- (b) 16.8%
- (c) 22.8%
- (d) 9.6%
Show answer ↓
Answer: (a) 15.6%
(a) is correct: Required return = 6% + 1.2 × (14% − 6%) = 6% + 9.6% = 15.6%. Option (b) wrongly multiplies the full market return by beta (1.2 × 14% = 16.8%) instead of only the market risk premium.
Q5 · Chapter 9: Derivatives Analysis and Valuation
The spot price of a share is Rs. 200. The risk-free rate is 10% p.a. with continuous compounding, and the share pays no dividend. What is the theoretical 3-month futures price? (e^0.025 = 1.0253)
- (a) Rs. 205.00
- (b) Rs. 220.00
- (c) Rs. 205.06
- (d) Rs. 195.06
Show answer ↓
Answer: (c) Rs. 205.06
(c) is correct: F = S × e^(rt) = 200 × e^(0.10 × 0.25) = 200 × 1.0253 = Rs. 205.06. Option (a) uses simple interest instead of continuous compounding as the question requires.
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