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Read the… (Class 12 Business Studies SQP 2024-25, Q20)

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Business StudiesCBSE Class 12 · Sample paper, session 2024-25 · 1 mark · MCQ

CBSE Class 12 Business Studies sample paper 2024-25: question 20

From the official CBSE sample question paper for 2024-25, section A, question 20, for 1 mark. Try it first; the hints and our step-by-step solution are below.

Q20 · 1 mark · MCQFinancial Management

Read the following statements carefully:
Statement I: Cost of debt is lower than cost of equity for a company.
Statement II: The objective of financial management is to increase shareholder's wealth.
In the light of given statements, choose the correct alternative from the following:

  1. (A)Both the statements are true.
  2. (B)Both the statements are false.
  3. (C)Statement I is true, Statement II is false.
  4. (D)Statement II is true, Statement I is false.

Source: official sample paper from cbseacademic.nic.in (PDF). See it in the full Sample paper 2024-25.

Hints

Open one hint at a time and try again before the next.

Hint 1

Is interest tax deductible?

Hint 2

Whose wealth is maximised?

Step-by-step solution

Each step shows the marks it earns, as an examiner would award them. Checked by an independent re-solve from the question paper.

  1. Statement I is true: interest on debt is a tax-deductible expense and debt carries less risk for lenders, so it is cheaper than equity.

  2. Statement II is true: the primary objective of financial management is to maximise shareholders' wealth. Option (A).

    1 mark

Answer: (A) Both the statements are true.

Where the marks are

  • Debt cheaper; wealth maximisation (1 mark)

Revise the chapter

Practise this chapterBoard-style questions from Financial Management, one at a time, marked against the answer key and marking points.Back to the full paperSample paper 2024-25: every question, by section.

The question is transcribed from the official paper; figures are described in words. The solution, hints and chapter tag are ours. Spotted an error? Write tosupport@questionbuddy.in.