CUET UG Categorised PYQ Business Studies Unit 9 -

📚

CUET UG Categorised PYQ Business Studies Unit 9

Business studies

⏱️ 30 Minutes

❓ 31 Questions

📅 2022, 2023, 2024 & 2025

✍️ Long Answers

📌 Answers are locked once submitted — results and explanations appear at the end.

CUET UG Categorised PYQ Business Studies Unit 9

1 / 31

QUESTION 1 OF 31

The cost in the process of raising fund through equity is known as: (PYQ 2022)

Answer Review

1 The cost in the process of raising fund through equity is known as: (PYQ 2022)

A Financial risk

B Cost of debt

C Floatation cost

D Cost of capital

💡 Short Explanation

It is the cost of issuing securities. It includes commission, brokerage, and printing cost. It is incurred while raising funds from the market.

✅ Correct Answer Explanation

(Detailed) → Floatation cost refers to the cost incurred by a company while raising funds through the issue of securities. → These costs may include underwriting commission, brokerage, advertisement cost, legal expenses, and printing charges. → When funds are raised through equity shares, such issue-related expenses are called floatation costs. → The question asks about the cost in the process of raising funds through equity. → Hence, Floatation cost is the correct answer.

❓ Why Other Options Are Incorrect

A) Financial risk → It refers to the risk of not being able to meet fixed financial obligations.
B) Cost of debt → It refers to the interest cost paid on borrowed funds.
D) Cost of capital → It is the overall return expected by investors, not the specific issue-related cost.

🎯 Strategy

Used

Option A → Risk-related, not cost of issue.
Option B → Debt-related, not equity issue cost.
Option C → Directly refers to fund-raising process cost.
Option D → Broad finance concept, not specific cost.

Final Answer → "Cost in the process of raising fund" indicates floatation cost.

🧠 Memory Trick

📚 → Class 12, Business Studies, Chapter 9: Financial Management

2 A trading organisation comparatively needs ______ investment in fixed assets as compared to a manufacturing organisation. (PYQ 2022)

A Lesser

B larger

C Moderate

D Negligible

💡 Short Explanation

Trading concern buys and sells goods. It does not require heavy machinery. Manufacturing concern needs more fixed assets.

✅ Correct Answer Explanation

(Detailed) → A trading organisation deals mainly with buying and selling finished goods. → It does not require large investment in plant, machinery, or production equipment. → A manufacturing organisation needs factories, machines, tools, and other fixed assets for production. → Therefore, compared to manufacturing organisations, trading organisations need lesser investment in fixed assets. → Hence, Lesser is the correct answer.

❓ Why Other Options Are Incorrect

B) larger → Manufacturing organisations usually require larger fixed asset investment, not trading organisations.
C) Moderate → This is not the correct comparative term in relation to manufacturing organisations.
D) Negligible → Trading organisations still need some fixed assets such as shop, furniture, storage, and vehicles.

🎯 Strategy

Used

Option A → Matches trading business requirement.
Option B → Matches manufacturing, not trading.
Option C → Not the direct comparison.
Option D → Too extreme because trading also needs some fixed assets.

Final Answer → Trading requires lesser fixed capital than manufacturing.

🧠 Memory Trick

📚 → Class 12, Business Studies, Chapter 9: Financial Management

3 Rajat is planning the break up of his finance to know the amount of capital that he will utilize to purchase fixed assets and current assets. Identify the financial decision taken by Rajat. (PYQ 2022)

A Investment decision

B Financial decision

C Dividend decision

D Capital structure

💡 Short Explanation

It deals with use of funds. Fixed assets and current assets are investment areas. Deciding where to invest money is an investment decision.

✅ Correct Answer Explanation

(Detailed) → Investment decision is concerned with how funds are invested in different assets. → It includes investment in fixed assets as well as current assets. → Fixed asset decisions are long-term investment decisions, while current asset decisions are short-term investment decisions. → Rajat is deciding the amount of capital to be used for purchasing fixed and current assets. → Hence, Investment decision is the correct answer.

❓ Why Other Options Are Incorrect

B) Financial decision → It is concerned with raising funds from different sources, not using funds to buy assets.
C) Dividend decision → It deals with distribution of profits among shareholders.
D) Capital structure → It refers to the mix of debt and equity in the total capital.

🎯 Strategy

Used

Option A → Use of funds for assets.
Option B → Source of funds.
Option C → Distribution of profit.
Option D → Debt-equity mix.

Final Answer → Purchase of fixed and current assets indicates investment decision.

🧠 Memory Trick

📚 → Class 12, Business Studies, Chapter 9: Financial Management

4 Debt normally does not cause: (PYQ 2022)

A a dilution of control

B a dilution of flexibility

C a dilution of cost

D a dilution of equity

💡 Short Explanation

Debt holders do not get voting rights. Control remains with equity shareholders. Debt does not dilute management control.

✅ Correct Answer Explanation

(Detailed) → Debt refers to borrowed funds such as loans or debentures. → Debt holders are creditors of the company, not owners. → They do not have voting rights and cannot participate in management decisions. → Therefore, raising funds through debt does not dilute the control of existing shareholders. → Hence, a dilution of control is the correct answer.

❓ Why Other Options Are Incorrect

B) a dilution of flexibility → Debt can reduce flexibility because fixed interest and repayment obligations must be met.
C) a dilution of cost → This is not the main concept tested here; debt is generally considered cheaper due to tax deductibility of interest.
D) a dilution of equity → Debt affects the capital structure, but it does not dilute control like issue of equity shares does.

🎯 Strategy

Used

Option A → Debt holders have no voting rights.
Option B → Debt may reduce flexibility.
Option C → Not the standard concept here.
Option D → Related to capital structure, not voting control.

Final Answer → Debt does not dilute control.

🧠 Memory Trick

📚 → Class 12, Business Studies, Chapter 9: Financial Management

5 Identify the statements that can be an objective of financial planning. (PYQ 2022)
Statements:
(A) To ensure availability of funds whenever required.
(B) See all the items of profit and loss
(C) To see the size and composition of fixed assets of the business
(D) Break up of long term financing into debt and equity
(E) To see the firm does not raise resources unnecessarily
Choose the correct answer from the options given below:

A (A) and (B) only

B (C) and (E) only

C (B) and (D) only

D (A) and (E) only

💡 Short Explanation

Financial planning ensures availability of funds. It prevents unnecessary raising of funds. It avoids shortage as well as surplus of funds.

✅ Correct Answer Explanation

(Detailed) → Financial planning means estimating the financial requirements of a business and deciding the sources of funds. → One objective is to ensure that funds are available whenever required. → Another objective is to ensure that the firm does not raise resources unnecessarily. → Raising excess funds may lead to idle resources and unnecessary cost. → Therefore, statements (A) and (E) correctly represent the objectives of financial planning. → Hence, (A) and (E) only is the correct answer.

❓ Why Other Options Are Incorrect

A) (A) and (B) only → Statement (B) is incorrect because seeing all items of profit and loss is related to accounting, not the objective of financial planning.
B) (C) and (E) only → Statement (C) is incorrect because deciding the size and composition of fixed assets is related to investment decision.
C) (B) and (D) only → Statement (B) is related to accounting and statement (D) is related to capital structure or financing decision, not the direct objectives of financial planning.

🎯 Strategy

Used

Statement (A) → Correct because financial planning ensures fund availability.
Statement (B) → Incorrect because it relates to profit and loss accounting.
Statement (C) → Incorrect because it relates to investment decision.
Statement (D) → Incorrect because it relates to capital structure decision.
Statement (E) → Correct because financial planning avoids unnecessary fund raising.
Final Answer → Financial planning avoids both shortage and surplus of funds.

🧠 Memory Trick

📚 → Class 12, Business Studies, Chapter 9: Financial Management

6 XY Ltd. wanted to launch a new product line. For this, they invested huge amounts of money on research and development programme. Identify type of financial decision highlighted above. (PYQ 2023)

A Financing decision

B Working Capital decision

C Capital budgeting decision

D Dividend decision

💡 Short Explanation

It involves huge investment. It is related to a new product line. Long-term investment decisions are capital budgeting decisions.

✅ Correct Answer Explanation

(Detailed) → Capital budgeting decision is a long-term investment decision. → It involves investment of large funds in fixed assets, projects, expansion or new product lines. → Such decisions affect the long-term profitability and growth of the business. → In the given case, XY Ltd. invested huge amounts in research and development for launching a new product line. → This is a long-term investment decision. → Hence, Capital budgeting decision is the correct answer.

❓ Why Other Options Are Incorrect

A) Financing decision → This refers to deciding the source of funds, such as debt or equity.
B) Working Capital decision → This relates to short-term finance for day-to-day operations.
D) Dividend decision → This relates to distribution of profit among shareholders.

🎯 Strategy

Used

Option A → Source of finance.
Option B → Short-term operational finance.
Option C → Long-term investment of huge funds.
Option D → Profit distribution decision.

Final Answer → Huge R&D investment for new product line indicates Capital budgeting decision.

🧠 Memory Trick

📚 → Class 12, Business Studies, Chapter 9: Financial Management

📄 Passage

Aryan is a CEO of RS Infotech Ltd., which is a company working in the technology sector for the last 55 years. The company is doing very well in this sector and now has a growth plan of entering into cosmetics market. Keeping in view the changing tastes and preferences of customers, it is planning to enter organic products market. The company targets to achieve 20% of market share in the first 2 years of its entry.
For financial issues, Aryan consulted his chief finance officer, Raj and found that it requires 50 crores of additional capital for setting up a separate cosmetics division. The Company plans to arrange this money by issuing equity shares in the market but it lacks sufficient cash to bear the floatation cost and hence planned to approach the financial market for the same.

State the financial decision involved when the company needs additional capital for growth in different assets of the business. (PYQ 2023)

A Investment decision

B Working capital decision

C Capital structure

D Dividend decision

💡 Short Explanation

Investment decision deals with use of funds. It involves investment in business assets. Setting up a cosmetics division needs investment in assets.

✅ Correct Answer Explanation

(Detailed) → Investment Decision refers to deciding how funds should be invested in different assets of the business. → It may include long-term investment decisions such as expansion, new projects and purchase of fixed assets. → In the case, RS Infotech needs additional capital for setting up a separate cosmetics division. → This means funds will be invested in new assets for business growth. → Hence, Investment decision is the correct answer.

❓ Why Other Options Are Incorrect

B) Working capital decision → This relates to short-term assets and liabilities used in day-to-day operations.
C) Capital structure → This refers to the mix of debt and equity used for financing.
D) Dividend decision → This refers to how much profit should be distributed to shareholders.

🎯 Strategy

Used

Option A → Use of funds in assets.
Option B → Day-to-day short-term finance.
Option C → Debt-equity mix.
Option D → Profit distribution.

Final Answer → Growth in assets indicates Investment decision.

🧠 Memory Trick

📚 → Class 12, Business Studies, Chapter 9: Financial Management

📄 Passage

Aryan is a CEO of RS Infotech Ltd., which is a company working in the technology sector for the last 55 years. The company is doing very well in this sector and now has a growth plan of entering into cosmetics market. Keeping in view the changing tastes and preferences of customers, it is planning to enter organic products market. The company targets to achieve 20% of market share in the first 2 years of its entry.

For financial issues, Aryan consulted his chief finance officer, Raj and found that it requires 50 crores of additional capital for setting up a separate cosmetics division. The Company plans to arrange this money by issuing equity shares in the market but it lacks sufficient cash to bear the floatation cost and hence planned to approach the financial market for the same.

Name the financial decision which the company is going to make while arranging the source for required funds.(PYQ 2023)

A Investment decision

B Financing decision

C Capital structure

D Dividend decision

💡 Short Explanation

Financing decision is about raising funds. It involves choosing the source of finance. Issuing equity shares is a financing decision.

✅ Correct Answer Explanation

(Detailed) → Financing Decision means deciding the source from which required funds will be raised. → It includes deciding whether funds will be raised through equity shares, debt, preference shares or retained earnings. → In the case, RS Infotech plans to arrange money by issuing equity shares in the market. → Since the company is deciding the source of funds, it is making a Financing decision. → Hence, Financing decision is the correct answer.

❓ Why Other Options Are Incorrect

A) Investment decision → This deals with how funds are invested in assets, not how they are raised.
C) Capital structure → This refers to the proportion or mix of debt and equity, but the broader decision of raising funds is financing decision.
D) Dividend decision → This deals with distribution of profits among shareholders.

🎯 Strategy

Used

Option A → Use of funds.
Option B → Source of funds.
Option C → Debt-equity composition.
Option D → Profit distribution.

Final Answer → Arranging source of funds indicates Financing decision.

🧠 Memory Trick

📚 → Class 12, Business Studies, Chapter 9: Financial Management

📄 Passage

State the type of fixed capital requirement by RS Infotech. (PYQ 2023)

A Low

B Very low

C Moderate

D High

💡 Short Explanation

RS Infotech is setting up a separate cosmetics division. Expansion requires investment in fixed assets. Manufacturing and diversification need high fixed capital.

✅ Correct Answer Explanation

(Detailed) → Fixed capital requirement refers to the funds needed for long-term assets such as land, building, plant and machinery. → RS Infotech is planning to enter the cosmetics market and set up a separate cosmetics division. → The company requires ₹50 crores of additional capital for this expansion. → Since setting up a new division involves heavy investment in fixed assets, the fixed capital requirement will be high. → Hence, High is the correct answer.

❓ Why Other Options Are Incorrect

A) Low → Low fixed capital requirement applies to businesses needing fewer fixed assets.
B) Very low → Very low fixed capital requirement is not suitable for setting up a separate division.
C) Moderate → Moderate is not suitable because the case clearly mentions ₹50 crores additional capital and expansion into a new division.

🎯 Strategy

Used

Option A → Small fixed asset need.
Option B → Very small fixed asset need.
Option C → Medium fixed asset need.
Option D → Large investment in new division.

Final Answer → ₹50 crores and separate cosmetics division indicate High fixed capital requirement.

🧠 Memory Trick

📚 → Class 12, Business Studies, Chapter 9: Financial Management

10 Match List-I with List-II. (PYQ 2023)

List-I Factors affecting	List-II Factors
(A) Fixed capital	(I) Shareholder's preference
(B) Working capital	(II) Interest coverage ratio
(C) Dividend Decision	(III) Collaboration level
(D) Capital structure	(IV) Seasonal factor

Choose the correct answer from the options given below:

A (A)-(III), (B)-(IV), (C)-(I), (D)-(II)

B (A)-(III), (B)-(I), (C)-(IV), (D)-(II)

C (A)-(III), (B)-(I), (C)-(II), (D)-(IV)

D (A)-(III), (B)-(II), (C)-(I), (D)-(IV)

💡 Short Explanation

Fixed capital is affected by collaboration level. Working capital is affected by seasonal factors. Dividend decision is affected by shareholders' preference. Capital structure is affected by interest coverage ratio.

✅ Correct Answer Explanation

(Detailed) → (A) Fixed capital matches with (III) Collaboration level because collaboration may reduce or affect the need for investment in fixed assets. → (B) Working capital matches with (IV) Seasonal factor because working capital needs change according to seasonal demand. → (C) Dividend Decision matches with (I) Shareholder's preference because dividend policy considers shareholders' expectations. → (D) Capital structure matches with (II) Interest coverage ratio because it helps determine the ability of the company to use debt. → Hence, (A)-(III), (B)-(IV), (C)-(I), (D)-(II) is the correct answer.

❓ Why Other Options Are Incorrect

B) (A)-(III), (B)-(I), (C)-(IV), (D)-(II) → This wrongly matches Working capital with shareholder's preference and Dividend Decision with seasonal factor.
C) (A)-(III), (B)-(I), (C)-(II), (D)-(IV) → This wrongly matches Working capital with shareholder's preference and Capital structure with seasonal factor.
D) (A)-(III), (B)-(II), (C)-(I), (D)-(IV) → This wrongly matches Working capital with interest coverage ratio and Capital structure with seasonal factor.

🎯 Strategy

Used

(A) Fixed capital → Collaboration level.
(B) Working capital → Seasonal factor.
(C) Dividend Decision → Shareholder's preference.
(D) Capital structure → Interest coverage ratio.
Final Answer → Correct mapping is (A)-(III), (B)-(IV), (C)-(I), (D)-(II).

🧠 Memory Trick

📚 → Class 12, Business Studies, Chapter 9: Financial Management

11 If a company's ROI is 7.8% and total investment is 30 lakhs, then what will be EBIT? (PYQ 2023)

A ₹2,38,000

B ₹2,40,000

C ₹2,34,000

D ₹4,00,000

💡 Short Explanation

ROI = EBIT ÷ Investment × 100. EBIT = ROI × Investment. 7.8% of ₹30,00,000 = ₹2,34,000.

✅ Correct Answer Explanation

(Detailed) → ROI means Return on Investment. → Formula: ROI = EBIT ÷ Investment × 100. → Therefore, EBIT = ROI × Investment. → ROI = 7.8% = 7.8 ÷ 100 = 0.078. → Total investment = ₹30,00,000. → EBIT = 0.078 × ₹30,00,000 = ₹2,34,000. → Hence, ₹2,34,000 is the correct answer.

❓ Why Other Options Are Incorrect

A) ₹2,38,000 → This is incorrect due to wrong calculation.
B) ₹2,40,000 → This is incorrect due to wrong percentage calculation or rounding.
D) ₹4,00,000 → This is unrelated to the given ROI and investment values.

🎯 Strategy

Used

Option A → Wrong multiplication.
Option B → Wrong approximation.
Option C → Correct calculation.
Option D → Incorrect unrelated value.

Final Answer → 7.8% of ₹30,00,000 = ₹2,34,000.

🧠 Memory Trick

📚 → Class 12, Business Studies, Chapter 9: Financial Management

12 Identify the concept that refer to the difference between current assets and current liabilities. (PYQ 2023)

A Gross working capital

B Working capital

C Net working capital

D Fixed capital

💡 Short Explanation

Net working capital = Current assets − Current liabilities. It shows short-term financial position. It measures liquidity of business.

✅ Correct Answer Explanation

(Detailed) → Net working capital refers to the difference between current assets and current liabilities. → Current assets include cash, stock, debtors and bills receivable. → Current liabilities include creditors, bills payable and short-term obligations. → Formula: Net Working Capital = Current Assets − Current Liabilities. → Since the question asks about the difference between current assets and current liabilities, Net working capital is the correct answer.

❓ Why Other Options Are Incorrect

A) Gross working capital → This refers to total current assets only.
B) Working capital → This is a general term and may refer broadly to funds for day-to-day operations.
D) Fixed capital → This refers to funds invested in fixed assets for long-term use.

🎯 Strategy

Used

Option A → Total current assets.
Option B → General working capital term.
Option C → Current assets minus current liabilities.
Option D → Long-term fixed assets.

Final Answer → Difference between current assets and current liabilities means Net working capital.

🧠 Memory Trick

📚 → Class 12, Business Studies, Chapter 9: Financial Management

13 Choose the factors affecting capital structure. (PYQ 2023)
Statements:
(A) Risk Consideration
(B) Nature of business
(C) Cost of debt
(D) Growth prospects
(E) Flexibility
Choose the correct answer from the options given below:

A (A), (B), (C) and (D) Only

B (A), (C) and (E) Only

C (A) and (C) Only

D (A), (B) and (C) Only

💡 Short Explanation

Risk consideration affects capital structure. Cost of debt influences debt-equity choice. Flexibility is also an important capital structure factor.

✅ Correct Answer Explanation

(Detailed) → Capital structure refers to the mix of debt and equity used by a company for financing. → Statement (A) Risk Consideration affects capital structure because high debt increases financial risk. → Statement (C) Cost of debt affects capital structure because cheaper debt may be preferred if risk is manageable. → Statement (E) Flexibility is also a factor because the company should be able to adjust its capital structure when needed. → Statement (B) Nature of business and Statement (D) Growth prospects are not the correct combination here according to the given options. → Therefore, the correct answer is (A), (C) and (E) Only. → Hence, (A), (C) and (E) Only is the correct answer.

❓ Why Other Options Are Incorrect

A) (A), (B), (C) and (D) Only → This excludes (E) Flexibility, which is an important factor affecting capital structure.
C) (A) and (C) Only → This is incomplete because (E) Flexibility is also a relevant factor.
D) (A), (B) and (C) Only → This is incomplete and excludes (E) Flexibility.

🎯 Strategy

Used

Statement (A) → Factor affecting capital structure.
Statement (B) → Not the best option combination here.
Statement (C) → Factor affecting capital structure.
Statement (D) → Not the best option combination here.
Statement (E) → Factor affecting capital structure.
Final Answer → Risk consideration, Cost of debt and Flexibility affect capital structure.

🧠 Memory Trick

📚 → Class 12, Business Studies, Chapter 9: Financial Management

14 Which of the following are factors affecting choice of capital structure: (PYQ 2025)
Statements:
(A) Availability of Raw Material
(B) Technology upgradation
(C) Cost of Equity
(D) Level of Collaboration
(E) Return on Investment
Choose the correct answer from the options given below:

A (A) and (E) only

B (A), (B) and (D) only

C (C) and (E) only

D (B), (D) and (E) only

💡 Short Explanation

Capital structure is affected by financial factors. Cost of Equity affects the choice between debt and equity. Return on Investment also affects financing decisions.

✅ Correct Answer Explanation

(Detailed) → Capital structure refers to the mix of debt and equity used by a company. → Statement (C) Cost of Equity affects capital structure because if equity is costly, the company may consider debt financing. → Statement (E) Return on Investment affects capital structure because if ROI is higher than cost of debt, debt may be preferred. → Statement (A) Availability of Raw Material is mainly related to working capital or operations, not capital structure. → Statement (B) Technology upgradation is related to fixed capital or investment decisions. → Statement (D) Level of Collaboration affects fixed capital requirement, not the choice of capital structure directly. → Hence, (C) and (E) only is the correct answer.

❓ Why Other Options Are Incorrect

A) (A) and (E) only → This is incorrect because Availability of Raw Material is not a factor affecting capital structure.
B) (A), (B) and (D) only → This is incorrect because all three are not direct capital structure factors.
D) (B), (D) and (E) only → This is incorrect because Technology upgradation and Level of Collaboration are not capital structure factors.

🎯 Strategy

Used

Statement (A) → Operational factor.
Statement (B) → Investment/technology-related factor.
Statement (C) → Capital structure factor.
Statement (D) → Fixed capital-related factor.
Statement (E) → Capital structure factor.
Final Answer → Cost of Equity and Return on Investment affect capital structure.

🧠 Memory Trick

📚 → Class 12, Business Studies, Chapter 9: Financial Management

15 Match List-I with List-II. (PYQ 2024)

List-I	List-II
A. More debt can be used if debt can be raised at a lower rate	I. Cost of debt
B. Since interest is a deductible expense, cost of debt is affected by the tax rate	III. Tax Rate
C. If a firm's business risk is lower, its capacity to use debt is higher and vice-versa	II. Risk Consideration
D. A public issue of equity may reduce the managements' holding in the company	IV. Control

A (A)-(I), (B)-(II), (C)-(III), (D)-(IV)

B (A)-(I), (B)-(III), (C)-(II), (D)-(IV)

C (A)-(I), (B)-(II), (C)-(IV), (D)-(III)

D (A)-(III), (B)-(IV), (C)-(I), (D)-(II)

💡 Short Explanation

Debt cost affects debt usage. Tax affects cost of debt. Risk affects borrowing capacity. Equity issue may affect control.

✅ Correct Answer Explanation

(Detailed) → (A) More debt can be used if debt can be raised at a lower rate matches with (I) Cost of debt. → If debt is available at a lower rate, the company may prefer using more debt. → (B) Since interest is a deductible expense, cost of debt is affected by the tax rate matches with (III) Tax Rate. → Interest reduces taxable income, so tax rate affects the effective cost of debt. → (C) If a firm's business risk is lower, its capacity to use debt is higher and vice-versa matches with (II) Risk Consideration. → A firm with lower risk can use more debt safely. → (D) A public issue of equity may reduce the managements' holding in the company matches with (IV) Control. → Therefore, the correct matching is (A)-(I), (B)-(III), (C)-(II), (D)-(IV). → Hence, (A)-(I), (B)-(III), (C)-(II), (D)-(IV) is the correct answer.

❓ Why Other Options Are Incorrect

A) (A)-(I), (B)-(II), (C)-(III), (D)-(IV) → This incorrectly matches tax and risk.
C) (A)-(I), (B)-(II), (C)-(IV), (D)-(III) → This misplaces tax, risk and control.
D) (A)-(III), (B)-(IV), (C)-(I), (D)-(II) → This is completely mismatched.

🎯 Strategy

Used

(A) → Lower debt rate means Cost of debt.
(B) → Interest deduction means Tax Rate.
(C) → Business risk and debt capacity means Risk Consideration.
(D) → Equity issue and management holding means Control.
Final Answer → Debt–Cost, Tax–Interest, Risk–Borrow, Equity–Control.

🧠 Memory Trick

📚 → Class 12, Business Studies, Chapter 9: Financial Management

📄 Passage

A finance manager in an outlet raised 3.5 crore through a mix of debt and equity in a ratio of 4:3 to open a new outlet, but the actual amount required was 3 crore. The aim of the finance manager is to maximize the shareholder's wealth. Keeping this in mind, he reinvested the excess amount of 50 lakh in a fixed deposit carrying 6% interest p.a. while the cost of capital is 10% p.a.

'To open a new outlet' indicates which financial decision? (PYQ 2024)

A Short-term investment decision

B Long-term investment decision

C Financing decision

D Dividend decision

💡 Short Explanation

Opening outlet creates fixed assets. Fixed asset decisions are long-term. Long-term investments involve capital budgeting.

✅ Correct Answer Explanation

(Detailed) → Opening a new outlet requires heavy capital expenditure. → It involves acquisition or creation of long-term assets. → Such decisions affect the earning capacity and growth of the business for many years. → Therefore, opening a new outlet is a long-term investment decision. → Long-term investment decisions are also known as capital budgeting decisions. → Hence, Long-term investment decision is the correct answer.

❓ Why Other Options Are Incorrect

A) Short-term investment decision → This deals with working capital and current assets used in daily operations.
C) Financing decision → This concerns raising funds, not using funds to open the outlet.
D) Dividend decision → This is related to distribution of profit among shareholders.

🎯 Strategy

Used

Option A → Temporary or current asset investment.
Option B → Fixed asset expansion and long-term use.
Option C → Raising capital aspect.
Option D → Profit distribution.

Final Answer → Outlet opening is long-term investment.

🧠 Memory Trick

📚 → Class 12, Business Studies, Chapter 9: Financial Management

📄 Passage

When ROI of the company is higher, it can choose to use ______ to ______ its EPS. (PYQ 2024)

A Equity, increase

B Earning, increase

C Equity, decrease

D Debt, increase

💡 Short Explanation

Higher ROI favours debt financing. Debt creates financial leverage. EPS increases through leverage effect when ROI is higher than cost of debt.

✅ Correct Answer Explanation

(Detailed) → When return on investment is higher than the cost of debt, debt financing can be beneficial. → This is because the company earns more from the borrowed funds than the interest paid on them. → The benefit goes to equity shareholders in the form of higher earnings per share. → This is known as trading on equity or favourable financial leverage. → Therefore, when ROI of the company is higher, it can choose to use debt to increase its EPS. → Hence, Debt, increase is the correct answer.

❓ Why Other Options Are Incorrect

A) Equity, increase → Equity may dilute EPS because profits are shared among more shareholders.
B) Earning, increase → Earnings are not a source of finance in this context.
C) Equity, decrease → This does not explain the leverage benefit.

🎯 Strategy

Used

Option A → Equity may reduce leverage benefit.
Option B → Conceptually incorrect because earning is not the financing source here.
Option C → Does not maximize EPS through leverage.
Option D → Debt increases EPS when ROI is higher than cost of debt.

Final Answer → Higher ROI → Use Debt → Increase EPS.

🧠 Memory Trick

📚 → Class 12, Business Studies, Chapter 9: Financial Management

📄 Passage

"The aim of the finance manager is to maximize the shareholder wealth". It is reflected as an aim of: (PYQ 2024)

A Financial Management

B Marketing Management

C Financial Leverage

D Capital Structure

💡 Short Explanation

Wealth maximization is the objective of finance. Financial management focuses on shareholder value. Long-term profitability improves shareholders' wealth.

✅ Correct Answer Explanation

(Detailed) → The primary objective of financial management is shareholder wealth maximization. → Financial management involves efficient planning, raising and use of funds. → Finance managers take investment, financing and dividend decisions to maximize the market value of shares. → When the passage says that the finance manager aims to maximize shareholders' wealth, it directly refers to financial management. → Hence, Financial Management is the correct answer.

❓ Why Other Options Are Incorrect

B) Marketing Management → This focuses on customer satisfaction, sales and market-related activities.
C) Financial Leverage → This is a technique of using debt to increase returns to equity shareholders.
D) Capital Structure → This refers only to the mix of debt and equity in long-term funds.

🎯 Strategy

Used

Option A → Direct finance objective.
Option B → Concerned with marketing activities.
Option C → Financing tool only.
Option D → Debt-equity mix only.

Final Answer → Wealth maximization is financial management aim.

🧠 Memory Trick

📚 → Class 12, Business Studies, Chapter 9: Financial Management

📄 Passage

To open an outlet, funds required was amounting to 3 crore, but the actual fund raised from the market was ₹3.5 crore. This situation is (PYQ 2024)

A Ideal Finance

B Idle Finance

C Debt Financing

D Equity Financing

💡 Short Explanation

Excess funds remained unused. Unused funds are idle finance. Idle finance increases cost burden.

✅ Correct Answer Explanation

(Detailed) → The company required ₹3 crore to open the outlet. → However, it raised ₹3.5 crore from the market. → This means ₹50 lakh was raised unnecessarily. → The excess amount was not used in the main purpose and had to be reinvested in a fixed deposit. → Such unnecessary excess financing is called idle finance. → Idle finance may increase the cost burden because the company may pay a higher cost of capital than the return earned on idle funds. → Hence, Idle Finance is the correct answer.

❓ Why Other Options Are Incorrect

A) Ideal Finance → Ideal finance means proper or optimum fund utilisation, not excess unused funds.
C) Debt Financing → This refers only to funds raised through borrowed capital.
D) Equity Financing → This refers only to funds raised through owners' funds.

🎯 Strategy

Used

Option A → No excess idle funds in ideal finance.
Option B → Excess unused money exists.
Option C → Only financing method.
Option D → Only financing method.

Final Answer → Excess fund indicates idle finance.

🧠 Memory Trick

📚 → Class 12, Business Studies, Chapter 9: Financial Management

📄 Passage

Finance manager raised ______ through owner's fund and ______ through borrowed fund. (PYQ 2024)

A 15,00,000, 20,00,000

B 20,00,000, 15,00,000

C 1,50,00,000, 2,00,00,000

D 2,00,00,000, 1,50,00,000

💡 Short Explanation

Total fund = ₹3.5 crore. Debt : Equity = 4 : 3. Equity = ₹1.5 crore, Debt = ₹2 crore.

✅ Correct Answer Explanation

(Detailed) → Total fund raised = ₹3.5 crore. → Debt : Equity = 4 : 3. → Total parts = 4 + 3 = 7. → Owner's fund means equity. → Equity = (3/7) × ₹3.5 crore = ₹1.5 crore. → Borrowed fund means debt. → Debt = (4/7) × ₹3.5 crore = ₹2 crore. → Therefore, owner's fund is ₹1,50,00,000 and borrowed fund is ₹2,00,00,000. → Hence, 1,50,00,000, 2,00,00,000 is the correct answer.

❓ Why Other Options Are Incorrect

A) 15,00,000, 20,00,000 → The total funds raised were ₹3.5 crore, whereas this option totals only ₹35,00,000.
B) 20,00,000, 15,00,000 → This option also totals only ₹35,00,000 and does not represent the correct amount raised.
D) 2,00,00,000, 1,50,00,000 → The amounts correctly total ₹3.5 crore, but the order is wrong because the question asks owner's fund first and borrowed fund second.

🎯 Strategy

Used

Option A → Amount mismatch.
Option B → Amount mismatch and wrong application.
Option C → Correct owner's fund and borrowed fund order.
Option D → Correct amounts but reversed order.

Final Answer → Equity ₹1.5 crore and Debt ₹2 crore.

🧠 Memory Trick

📚 → Class 12, Business Studies, Chapter 9: Financial Management

21 Which of the following factors does NOT affect choice of capital structure: (PYQ 2024)

A Interest Coverage Ratio

B Debt Service Coverage Ratio

C Return on Investment

D Current ratio

💡 Short Explanation

Interest Coverage Ratio affects capital structure. Debt Service Coverage Ratio also affects capital structure. Return on Investment affects the use of debt. Current ratio is mainly related to liquidity, not capital structure choice.

✅ Correct Answer Explanation

(Detailed) → Capital structure means the mix of debt and equity used by a company. → Interest Coverage Ratio affects capital structure because it shows the company's ability to pay interest. → Debt Service Coverage Ratio also affects capital structure because it shows the ability to meet debt obligations. → Return on Investment affects capital structure because if ROI is higher than the cost of debt, the company may prefer debt financing. → Current ratio is a liquidity ratio and is not a standard factor affecting choice of capital structure. → Hence, Current ratio is the correct answer.

❓ Why Other Options Are Incorrect

A) Interest Coverage Ratio → This affects capital structure because it indicates interest-paying capacity.
B) Debt Service Coverage Ratio → This affects capital structure because it shows debt repayment ability.
C) Return on Investment → This affects capital structure because it helps decide whether debt financing is beneficial.

🎯 Strategy

Used

Option A → Capital structure factor.
Option B → Capital structure factor.
Option C → Capital structure factor.
Option D → Liquidity ratio, not capital structure factor.

Final Answer → Current ratio does not directly affect choice of capital structure.

🧠 Memory Trick

📚 → Class 12, Business Studies, Chapter 9: Financial Management

22 During a bearish phase of stock market, a company may find raising of equity capital more: (PYQ 2024)

A Easy

B Difficult

C Moderate

D Impossible

💡 Short Explanation

Bearish market means falling share prices. Investor confidence is low. Raising equity capital becomes difficult.

✅ Correct Answer Explanation

(Detailed) → A bearish phase of stock market means that prices of securities are falling and investors are pessimistic. → In such a situation, investors are less willing to invest in equity shares. → Companies may find it difficult to raise funds through equity capital because demand for shares is weak. → Equity issue becomes easier during bullish market conditions when investor confidence is high. → Since the question mentions bearish phase, raising equity capital becomes difficult. → Hence, Difficult is the correct answer.

❓ Why Other Options Are Incorrect

A) Easy → This is incorrect because bearish market conditions reduce investor confidence.
C) Moderate → This does not accurately describe the difficulty of equity issue during a bearish phase.
D) Impossible → This is too extreme because raising equity may still be possible, but it becomes difficult.

🎯 Strategy

Used

Option A → Suitable for bullish condition, not bearish condition.
Option B → Correct bearish impact.
Option C → Too neutral.
Option D → Too extreme.

Final Answer → Bearish market makes equity raising difficult.

🧠 Memory Trick

📚 → Class 12, Business Studies, Chapter 9: Financial Management

23 Companies with a higher growth pattern are likely to: (PYQ 2024)

A Pay higher dividends

B Pay lower dividends

C Dividends are not affected by growth considerations

D Increase employees lay off

💡 Short Explanation

High-growth companies need funds for expansion. They retain more earnings. Therefore, they usually pay lower dividends.

✅ Correct Answer Explanation

(Detailed) → Dividend decision is affected by growth opportunities of a company. → Companies with higher growth prospects require more funds for expansion and investment. → Such companies prefer to retain profits instead of distributing them as dividends. → Retained earnings help the company finance future growth without depending too much on external sources. → Therefore, companies with a higher growth pattern are likely to pay lower dividends. → Hence, Pay lower dividends is the correct answer.

❓ Why Other Options Are Incorrect

A) Pay higher dividends → This is incorrect because high-growth companies usually retain profits for expansion.
C) Dividends are not affected by growth considerations → This is incorrect because growth opportunities directly affect dividend decisions.
D) Increase employees lay off → This is unrelated to dividend policy.

🎯 Strategy

Used

Option A → Opposite of retention logic.
Option B → Correct because growth needs retained earnings.
Option C → Incorrect because growth affects dividends.
Option D → Irrelevant.

Final Answer → High growth means lower dividend payout.

🧠 Memory Trick

📚 → Class 12, Business Studies, Chapter 9: Financial Management

24 Identify the factor which affects Capital structure of a company. (PYQ 2025)

A Current Ratio

B Quick Ratio

C Inflation

D Interest Coverage Ratio

💡 Short Explanation

Interest Coverage Ratio shows ability to pay interest. It affects the use of debt in capital structure. Higher interest coverage allows more debt.

✅ Correct Answer Explanation

(Detailed) → Capital structure refers to the mix of debt and equity in the financial plan of a company. → Interest Coverage Ratio measures how many times the company's earnings cover interest obligations. → If the ratio is high, the company can safely use more debt. → If the ratio is low, using more debt becomes risky because the company may face difficulty in paying interest. → Therefore, Interest Coverage Ratio affects capital structure. → Hence, Interest Coverage Ratio is the correct answer.

❓ Why Other Options Are Incorrect

A) Current Ratio → This measures short-term liquidity, not direct capital structure decision.
B) Quick Ratio → This also measures short-term liquidity.
C) Inflation → Inflation may affect business generally, but it is not the specific capital structure factor asked here.

🎯 Strategy

Used

Option A → Liquidity ratio.
Option B → Liquidity ratio.
Option C → General economic factor.
Option D → Debt-paying ability.

Final Answer → Capital structure depends on interest-paying capacity.

🧠 Memory Trick

📚 → Class 12, Business Studies, Chapter 9: Financial Management

25 Match financial decisions. (PYQ 2025)

List-I	List-II
A. Investment decision	I. Distribution of profit
B. Financing decision	II. Management of day-to-day funds
C. Dividend decision	III. Investment in assets
D. Working capital decision	IV. Sources of funds

A (A)-(I), (B)-(II), (C)-(III), (D)-(IV)

B (A)-(II), (B)-(III), (C)-(IV), (D)-(I)

C (A)-(III), (B)-(IV), (C)-(I), (D)-(II)

D (A)-(IV), (B)-(I), (C)-(II), (D)-(III)

💡 Short Explanation

Investment decision relates to assets. Financing decision relates to sources of funds. Dividend decision relates to profit distribution. Working capital decision relates to daily operations.

✅ Correct Answer Explanation

(Detailed) → (A) Investment decision matches with (III) Investment in assets because funds are committed to assets. → (B) Financing decision matches with (IV) Sources of funds because it decides how funds will be raised. → (C) Dividend decision matches with (I) Distribution of profit because it decides how much profit is distributed to shareholders. → (D) Working capital decision matches with (II) Management of day-to-day funds because it deals with current assets and current liabilities. → Therefore, the correct matching is (A)-(III), (B)-(IV), (C)-(I), (D)-(II). → Hence, (A)-(III), (B)-(IV), (C)-(I), (D)-(II) is the correct answer.

❓ Why Other Options Are Incorrect

A) (A)-(I), (B)-(II), (C)-(III), (D)-(IV) → This wrongly matches all financial decisions with incorrect meanings.
B) (A)-(II), (B)-(III), (C)-(IV), (D)-(I) → This wrongly matches investment with day-to-day funds and dividend with sources of funds.
D) (A)-(IV), (B)-(I), (C)-(II), (D)-(III) → This wrongly matches investment with sources and working capital with assets.

🎯 Strategy

Used

(A) Investment → Assets.
(B) Financing → Sources.
(C) Dividend → Profit distribution.
(D) Working capital → Daily funds.
Final Answer → Correct mapping is (A)-(III), (B)-(IV), (C)-(I), (D)-(II).

🧠 Memory Trick

📚 → Class 12, Business Studies, Chapter 9: Financial Management

📄 Passage

Khanna Ltd. is a company engaged in production and trade of "Phulkari" work of Punjab. Its products are in great demand overseas. The company plans to open one more unit for manufacturing Phulkari products. For this purpose, it requires additional investment of Rs.10 crores. It involves committing the finance on a long-term basis. The Finance Manager of the company has suggested issue of debentures at an estimated cost of 8%. The EBIT of the company was Rs.6,00,000 and total capital invested was Rs.1,00,00,000. The company can also opt for issuing equity shares as an alternative to debt financing. A judicious mix of both sources - Debt and Equity would increase the EPS.

________ decision is exhibited in the above case. (PYQ 2025)

A Working Capital

B Dividend

C Investment

D Investment and Financing

💡 Short Explanation

Opening a new unit is an investment decision. Raising Rs.10 crores is a financing decision. Both investment and financing decisions are involved.

✅ Correct Answer Explanation

(Detailed) → Investment decision involves deciding where funds should be invested. → In the case, Khanna Ltd. plans to open one more manufacturing unit, which requires long-term investment. → Financing decision involves deciding the source from which funds should be raised. → The company is considering debentures and equity shares, which shows financing decision. → Therefore, the case includes both investment and financing decisions. → Hence, Investment and Financing is the correct answer.

❓ Why Other Options Are Incorrect

A) Working Capital → Working capital decision relates to short-term funds, not long-term expansion.
B) Dividend → Dividend decision relates to distribution of profit among shareholders.
C) Investment → This is only partially correct because the case also includes raising funds.

🎯 Strategy

Used

Option A → Short-term finance.
Option B → Profit distribution.
Option C → Incomplete answer.
Option D → Includes both expansion and fund source decision.

Final Answer → New unit + fund raising = Investment and Financing.

🧠 Memory Trick

📚 → Class 12, Business Studies, Chapter 9: Financial Management

📄 Passage

"A judicious mix of both sources - Debt and Equity would increase the EPS". ________ concept of Financial Management is conveyed by the above statement. (PYQ 2025)

A Risk consideration

B Return on Investment

C Cost of Equity

D Trading on Equity

💡 Short Explanation

Trading on Equity uses debt with equity. It aims to increase EPS of equity shareholders. The statement directly mentions debt-equity mix and EPS.

✅ Correct Answer Explanation

(Detailed) → Trading on Equity refers to the use of fixed cost sources of finance like debt to increase the return available to equity shareholders. → When a company uses debt wisely along with equity, EPS may increase. → This happens when the return earned on borrowed funds is higher than the cost of debt. → The statement says that a judicious mix of debt and equity would increase EPS. → This directly conveys the concept of Trading on Equity. → Hence, Trading on Equity is the correct answer.

❓ Why Other Options Are Incorrect

A) Risk consideration → Risk is involved in debt financing, but the focus here is on increasing EPS.
B) Return on Investment → ROI measures return on total investment, but the statement focuses on EPS.
C) Cost of Equity → Cost of equity is a financing factor, but not the concept described here.

🎯 Strategy

Used

Option A → Risk factor.
Option B → Return measure.
Option C → Financing cost.
Option D → Debt-equity mix increasing EPS.

Final Answer → EPS increase through debt-equity mix indicates Trading on Equity.

🧠 Memory Trick

📚 → Class 12, Business Studies, Chapter 9: Financial Management

📄 Passage

"The Finance Manager of the company has suggested issue of debentures at an estimated cost of 8%". The above statement conveys ________ type of financial decision. (PYQ 2025)

A Working capital decision

B Investment decision

C Financing decision

D Dividend decision

💡 Short Explanation

Debentures are a source of finance. Choosing source of funds is financing decision. The statement deals with raising funds.

✅ Correct Answer Explanation

(Detailed) → Financing decision is concerned with deciding the sources from which funds are to be raised. → A company may raise funds through equity shares, preference shares, debentures, loans or retained earnings. → In the case, the Finance Manager suggests issue of debentures. → Debentures are borrowed funds and represent a source of finance. → Since the statement deals with choosing a source of funds, it conveys financing decision. → Hence, Financing decision is the correct answer.

❓ Why Other Options Are Incorrect

A) Working capital decision → This relates to short-term finance for daily operations.
B) Investment decision → This relates to investment of funds in assets or projects.
D) Dividend decision → This relates to distribution of profits among shareholders.

🎯 Strategy

Used

Option A → Short-term funds.
Option B → Use of funds.
Option C → Source of funds.
Option D → Profit distribution.

Final Answer → Issue of debentures indicates Financing decision.

🧠 Memory Trick

📚 → Class 12, Business Studies, Chapter 9: Financial Management

📄 Passage

"It involves committing the finance on a long-term basis." ________ concept of Financial Management is indicated from the above statement. (PYQ 2025)

A Capital budgeting decision

B Financial leverage

C Capital structure decision

D Financial risk

💡 Short Explanation

Long-term commitment of funds relates to capital budgeting. Opening a new unit requires long-term investment. Capital budgeting decisions affect long-term profitability.

✅ Correct Answer Explanation

(Detailed) → Capital budgeting decision is related to long-term investment of funds in fixed assets or projects. → Such decisions involve committing finance for a long period. → In the case, Khanna Ltd. plans to open one more manufacturing unit, which requires long-term investment. → The statement "committing the finance on a long-term basis" directly indicates capital budgeting decision. → Capital budgeting decisions are important because they affect the future earning capacity of the business. → Hence, Capital budgeting decision is the correct answer.

❓ Why Other Options Are Incorrect

B) Financial leverage → This refers to use of debt in capital structure.
C) Capital structure decision → This refers to deciding the mix of debt and equity.
D) Financial risk → This refers to risk arising due to use of debt.

🎯 Strategy

Used

Option A → Long-term investment decision.
Option B → Debt usage concept.
Option C → Debt-equity mix.
Option D → Debt-related risk.

Final Answer → Long-term fund commitment indicates Capital budgeting decision.

🧠 Memory Trick

📚 → Class 12, Business Studies, Chapter 9: Financial Management

📄 Passage

The decision for opening one more manufacturing unit is related to ________ (PYQ 2025)

A Financing decision

B Investment decision

C Dividend decision

D General decision

💡 Short Explanation

Opening a new unit requires investment in assets. It is a long-term business expansion decision. Such decisions are investment decisions.

✅ Correct Answer Explanation

(Detailed) → Investment decision is concerned with how funds are invested in assets or projects. → Opening a new manufacturing unit involves investment in fixed assets, infrastructure and production capacity. → Since funds are being used for expansion, the decision is related to investment decision. → It is also a long-term investment decision because it involves committing finance for a long period. → Hence, Investment decision is the correct answer.

❓ Why Other Options Are Incorrect

A) Financing decision → Financing decision relates to raising funds, not using funds to open a unit.
C) Dividend decision → Dividend decision relates to distribution of profits.
D) General decision → This is vague and not a specific financial management decision.

🎯 Strategy

Used

Option A → Source of funds.
Option B → Use of funds in assets.
Option C → Profit distribution.
Option D → Vague option.

Final Answer → New manufacturing unit means Investment decision.

🧠 Memory Trick

📚 → Class 12, Business Studies, Chapter 9: Financial Management

31 Match List-I with List-II. (PYQ 2025)

List-I	List-II
A. Credit availed	I. Working capital
B. Diversification	II. Fixed capital
C. Control consideration	III. Capital structure
D. Legal constraint	IV. Dividend Decision

A (A)-(I), (B)-(II), (C)-(III), (D)-(IV)

B (A)-(III), (B)-(II), (C)-(IV), (D)-(I)

C (A)-(I), (B)-(III), (C)-(II), (D)-(IV)

D (A)-(IV), (B)-(I), (C)-(II), (D)-(III)

💡 Short Explanation

Credit availed affects working capital. Diversification affects fixed capital. Control consideration affects capital structure. Legal constraint affects dividend decision.

✅ Correct Answer Explanation

(Detailed) → (A) Credit availed matches with (I) Working capital because credit terms affect current assets and current liabilities. → If a business gets more credit from suppliers, its working capital requirement may reduce. → (B) Diversification matches with (II) Fixed capital because diversification usually requires investment in new fixed assets, plant, machinery or business units. → (C) Control consideration matches with (III) Capital structure because issue of equity may dilute control, while debt normally does not dilute control. → (D) Legal constraint matches with (IV) Dividend Decision because dividend distribution is subject to legal rules and restrictions. → Therefore, the correct matching is (A)-(I), (B)-(II), (C)-(III), (D)-(IV). → Hence, (A)-(I), (B)-(II), (C)-(III), (D)-(IV) is the correct answer.

❓ Why Other Options Are Incorrect

B) (A)-(III), (B)-(II), (C)-(IV), (D)-(I) → This wrongly matches credit availed with capital structure and legal constraint with working capital.
C) (A)-(I), (B)-(III), (C)-(II), (D)-(IV) → This wrongly matches diversification with capital structure and control consideration with fixed capital.
D) (A)-(IV), (B)-(I), (C)-(II), (D)-(III) → This wrongly matches credit availed with dividend decision and legal constraint with capital structure.

🎯 Strategy

Used

(A) Credit availed → Working capital.
(B) Diversification → Fixed capital.
(C) Control consideration → Capital structure.
(D) Legal constraint → Dividend decision.
Final Answer → Correct mapping is (A)-(I), (B)-(II), (C)-(III), (D)-(IV).

🧠 Memory Trick

📚 → Class 12, Business Studies, Chapter 9: Financial Management

CUET UG Categorised PYQ Business Studies Unit 9

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