MCQs on Financial Management: Below are the list of Commerce MCQs and Answers as per the new syllabus. Ace up your preparation with the Objective Questions available on Financial Management Objective Questions.
MCQs on Financial Management :
1. All business need to have which fundamental essential element
A. human resources
B. balance sheet
C. labour team
D. stategy
Answer: D.stategy
2. Which of the following variable is not known in IRR?
A. discount rate
B. terminal inflows
C. life of the project
D. intitial cash flows
Answer: A.discount rate
3. Acccording to the traditional approach what is the effect of increase in degree of leverage on the valuation of the firm
A. remains unaffected
B. increase first and then decreases
C. decreases
D. increases
Answer: B.increase first and then decreases
4. The maximum expenses that an equity scheme charge to an investor is ____________
A. 0.025
B. 0.0225
C. 0.0175
D. 0.02
Answer: A.0.025
5. The bonds with shorter maturity will have ______ duration
A. moderate
B. higher
C. lower
D. average
Answer: C.lower
6. Relaxed or libral credit implies -credit to customers
A. higher
B. both a and b
C. lower
D. neither a nor b
Answer: A.higher
7. Objectives of financial planning are
A. determining capital structure
B. framing loan policies
C. determining cash requirement
D. determining finance ratio
Answer: A.determining capital structure
8. PI of project is the ratio of present value of inflows to-
A. total outflows
B. initial cost
C. pv of outflows
D. total cash inflows
Answer: C.pv of outflows
9. Bird in hand – argument is given by
A. residuals theory
B. walter model
C. mm model
D. gordon\s model
Answer: D.gordon\s model
10. When the required rate of return is less than the coupon rate the premium on the bond-
A. remains same
B. variable
C. declines
D. increases
Answer: C.declines
11. Evaluation of firms credit policy can be done by computing expected ___________ from it
A. net benefit
B. net loss
C. net profit
D. net cost
Answer: A.net benefit
12. All listed and traded securities are valued at _______
A. book value
B. cost
C. cost+ profit
D. closing market price
Answer: D.closing market price
13. Financial manager would not supervise on the following area
A. cost analyst
B. working capital advisor
C. financial accounting and auditing
D. cash flow advisor
Answer: C.financial accounting and auditing
14. In case of risky projects the required rate of return would generally be-
A. neutral
B. lower
C. moderate
D. higher
Answer: D.higher
15. Residuals theory argues that dividend is as –
A. passive decision
B. irrelevant decision
C. active decision
D. relevant decision
Answer: A.passive decision
16. Investors subscriptions are accounted as _____________
A. cash
B. deposits
C. liabilities
D. unit capital
Answer: D.unit capital
17. Face value is the value stated on the face of the bond and is known as-
A. redemption value
B. per value
C. intrinsic value
D. market value
Answer: B.per value
18. _________Policy refers to the procedure follow to collect accounts receivable after the expiry of the credit period
A. risk
B. collection
C. profit
D. manangment
Answer: B.collection
19. Financial mananger would play the role of __________ in area of finance
A. budget analyst
B. cash analyst
C. cash flow examiners
D. persoanl financial advisors
Answer: A.budget analyst
20. Accountng rate of return is based on _____________
A. life of the project
B. average expected profit
C. average cash profit
D. average past profit
Answer: B.average expected profit
21. MM model of dividend irrelevance uses arbitrage between-
A. dividend and capital issue
B. dividend and bonus
C. profit and investment
D. none of the above
Answer: A.dividend and capital issue
22. __________ Can be traded thourgh out the trading day at market prices
A. mmmf
B. debt fund
C. etf
D. equity fund
Answer: C.etf
23. Intrinsic value of a bond is ______________ vlaue of the all future cash flows
A. past
B. present
C. estimated
D. future
Answer: B.present
24. ______ Means the basic criteria for the extension of credit to customers
A. credit standards
B. finnacial position
C. cash standards
D. living standards
Answer: A.credit standards
25. The Presence of Taxes in capital budgeting analysis will cause ___________
A. the arr to remain same
B. the npv to increase
C. the irr to decrease
D. all of the above
Answer: C.the irr to decrease
26. _____________ refers to the price at which an asset can be traded in the market
A. past value
B. face value
C. market value
D. future value
Answer: C.market value
27. __________ is a blending of two or more exisiting undertaking into one undertaking
A. partnership
B. joint stock company
C. joint venture
D. amalgamation
Answer: D.amalgamation
28. _____________ Means the action of an organisation or government selling or liquidating an asset or subsidiary
A. sale out
B. disinvestment
C. lock out
D. wind up
Answer: B.disinvestment
29. _________The lessee and the owner of the equipment are two different entities
A. direct lease
B. financial lease
C. operating lease
D. net lease
Answer: A.direct lease
30. ___________ is the primary institutional source of working capital finance in India
A. debtors
B. loan from friend
C. bank credit
D. creditors
Answer: C.bank credit
31. __________ means reputation of a firm which is in existance for a number of year in market
A. goodwill
B. bad debts
C. copy rights
D. royalties
Answer: A.goodwill
32. ___________ involves mergers and acquisition of firm belonging to differernt countries of the world.
A. credit merger
B. group merger
C. cross bordor merger
D. synergy merger
Answer: C.cross bordor merger
33. _______________Is a entity formed by two or more companies to undertake financial activity together.
A. parntership firm
B. acquisition
C. joint venture
D. merger
Answer: C.joint venture
34. In a __________ transaction the goods are let on hire the purchase price is to be paid in installment and hirer is allowed an option to purchase the goods by paying all the installment
A. hire purchase
B. credit purchase
C. lease purchase
D. installment purchase
Answer: A.hire purchase
35. The arrengement in which entire amount of borrowing is credited to the current account of the borrower or realised in cash is called as_________
A. letter of credit
B. bank overdraft
C. loan
D. bill discounting
Answer: C.loan
36. Book value ( Net assets )= Total Assets – _______________
A. total liability
B. current asset
C. long term debt
D. current liability
Answer: C.long term debt
37. ____________ synergy refers to increase in the value of the firm that occurs to the combined firm from financial factors.
A. group
B. vertical
C. financial
D. operating
Answer: C.financial
38. The kind of takeover which is done through negotiations between two groups is called_________
A. horizontal merger
B. hostile take over
C. friendly take over
D. vertical synergy
Answer: C.friendly take over
39. From the point of view lessee, a lease is a_________
A. financing decision
B. buy or make decision
C. working capital decision
D. investment decision
Answer: A.financing decision
40. ____________ indirect form of working capital financing and bank assume only the risk the credit being provided by the supplier himself
A. mortgage loan
B. letter of credit
C. bank overdraft
D. cash credit
Answer: B.letter of credit
41. EVA= ___________ – (Equity capital x % of cost of equity capital
A. earning after tax
B. net operating profit after tax
C. npat
D. npbt
Answer: B.net operating profit after tax
42. ___________ is the ratio of the number of shares of the aquiring firm and the selling firm’s share
A. dividennd pay out ratio
B. debt- equity ratio
C. exchange ratio
D. current ratio
Answer: C.exchange ratio
43. Which of the follwing is not a usual method of calculation of share swap ratio?
A. sales turnover
B. economic value added
C. dividend after tax
D. tax benefit
Answer: B.economic value added
44. Sale and lease back and ____________ are types of finance lease
A. operating lease
B. finance lease
C. leverage lease
D. net lease
Answer: C.leverage lease
45. ________ are taken as an additional security for working capital credit by banks
A. hypothecations
B. pledge
C. mortgage
D. cash credit
Answer: C.mortgage
46. ___________ value is used when an investor wants true or real value on basis of analysis of fundamentals without considering the prevailing price in the market
A. intrinsic
B. social
C. current
D. average
Answer: A.intrinsic
47. EPS = ___________ / Total number of shares
A. profit after tax
B. net profit after interest and tax
C. npbt
D. ebt
Answer: B.net profit after interest and tax
48. _________ classifies merger as vertical and horizontal
A. as14
B. as20
C. as 9
D. as 12
Answer: A.as14
49. Treatment of _______ in AS 19 is almost same as required by tax laws in India
A. operating lease
B. net lease
C. financial lease
D. hire purchase
Answer: A.operating lease
50. _____________ has suggested three methods of working out of the maximum amount that unit may expect from the bank (MPBF)
A. tondon committee
B. chore committee
C. walters committee
D. gordon\s committee
Answer: A.tondon committee
51. The appropriate objective of an enterprise is;
A. Maximisation of sale
B. Maximisation of owners wealth.
C. Maximisation of profits.
D. None of these.
Answer: B.Maximisation of owners wealth.
52. The job of a finance manager is confined to
A. Raising funds
B. Management of cash
C. Raising of funds and their effective utilization.
D. None of these.
Answer: C.Raising of funds and their effective utilization.
53. Financial decision involve;
A. Investment ,financing and dividend decision
B. Investment ,financing and sales decision
C. Financing , dividend and cash decision
D. None of these.
Answer: A.Investment ,financing and dividend decision
54. Net Profit Ratio Signifies:
A. Operational Profitability
B. Liquidity Position
C. Solvency
D. Profit
Answer: A.Operational Profitability
55. Working Capital Turnover measures the relationship of Working Capital with:
A. Fixed Assets
B. Sales
C. Purchases
D. Stock.
Answer: A.Fixed Assets
56. Dividend Payout Ratio is:
A. PAT Capital
B. DPS ÷ EPS
C. Pref. Dividend ÷ PAT
D. Pref. Dividend ÷ Equity Dividend
Answer: B.DPS ÷ EPS
57. Inventory Turnover measures the relationship of inventory with:
A. Average Sales
B. Cost of Goods Sold
C. Total Purchases
D. Total Assets
Answer: B.Cost of Goods Sold
58. The term ‘EVA’ is used for:
A. Extra Value Analysis
B. Economic Value Added
C. Expected Value Analysis
D. Engineering Value Analysis
Answer: B.Economic Value Added
59. Return on Investment may be improved by:
A. Increasing Turnover
B. Reducing Expenses
C. Increasing Capital Utilization
D. All of the above
Answer: D.All of the above
60. In Current Ratio, Current Assets are compared with:
A. Current Profit
B. Current Liabilities
C. Fixed Assets
D. Equity Share Capital
Answer: B.Current Liabilities
61. There is deterioration in the management of working capital of XYZ Ltd. What does itrefer to?
A. That the Capital Employed has reduced,
B. That the Profitability has gone up,
C. That debtors collection period has increased,
D. That Sales has decreased.
Answer: C.That debtors collection period has increased,
62. Debt to Total Assets Ratio can be improved by:
A. Borrowing More
B. Issue of Debentures
C. Issue of Equity Shares
D. Redemption of Debt.
Answer: D.Redemption of Debt.
63. Ratio of Net Income to Number of Equity Shares known as:
A. Price Earnings Ratio
B. Net Profit Ratio,
C. Earnings per Share
D. Dividend per Share.
Answer: C.Earnings per Share
64. A Current Ratio of Less than One means:
A. Current Liabilities < Current Assets B. Fixed Assets > Current Assets
C. Current Assets < Current Liabilities D. Share Capital > Current Assets
Answer: C.Current Assets < Current Liabilities
65. A firm has Capital of 10,00,000; Sales of 5,00,000; Gross Profit of . 2,00,000 andExpenses of . 1,00,000. What is the Net Profit Ratio?
A. 20%
B. 50%
C. 10%
D. 40%
Answer: A.20%
66. Suppliers and Creditors of a firm are interested in
A. Profitability Position
B. Liquidity Position
C. Market Share Position
D. Debt Position
Answer: B.Liquidity Position
67. Which of the following is a measure of Debt Service capacity of a firm?
A. Current Ratio
B. Acid Test Ratio
C. Interest Coverage Ratio
D. Debtors Turnover
Answer: C.Interest Coverage Ratio
68. Gross Profit Ratio for a firm remains same but the Net Profit Ratio is decreasing. Thereason for such behavior could be:
A. Increase in Costs of Goods Sold
B. If Increase in Expense
C. Increase in Dividend
D. Decrease in Sales.
Answer: B.If Increase in Expense
69. Which of the following statements is correct?
A. A Higher Receivable Turnover is not desirable,
B. Interest Coverage Ratio depends upon Tax Rate,
C. Increase in Net Profit Ratio means increase in Sales,
D. Lower Debt-Equity Ratio means lower Financial Risk.
Answer: D.Lower Debt-Equity Ratio means lower Financial Risk.
70. Debt to Total Assets of a firm is .2. The Debt to Equity boo would be:
A. 0.80
B. 0.25
C. 1.00
D. 0.75
Answer: B.0.25
71. Which of the following helps analysing return to equity Shareholders?
A. Return on Assets
B. Earnings Per Share
C. Net Profit Ratio
D. Return on Investment.
Answer: B.Earnings Per Share
72. In Inventory Turnover calculation, what is taken in the numerator?
A. Sales
B. Cost of Goods Sold,
C. Opening Stock
D. Closing Stock.
Answer: B.Cost of Goods Sold,
73. Financial Planning deals with:
A. Preparation of Financial Statements
B. Planning for a Capital Issue
C. Preparing Budgets
D. All of the above
Answer: C.Preparing Budgets
74. Financial planning starts with the preparation of:
A. Master Budget
B. Cash Budget
C. Balance Sheet
D. None of the above.
Answer: D.None of the above.
75. Process of Financial Planning ends with:
A. Preparation of Projected Statements
B. Preparation of Actual Statements
C. Comparison of Actual with Projected
D. Ordering the employees that projected figures m come true.
Answer: C.Comparison of Actual with Projected
76. Capital Budgeting is a part of:
A. Investment Decision
B. Working Capital Management
C. Marketing Management
D. Capital Structure
Answer: A.Investment Decision
77. Capital Budgeting deals with:
A. Long-term Decisions
B. Short-term Decisions
C. Both (a) and (b)
D. Neither (a) nor (b)
Answer: A.Long-term Decisions
78. Which of the following is not used in Capital Budgeting?
A. Time Value of Money
B. Sensitivity Analysis
C. Net Assets Method
D. Cash Flows.
Answer: C.Net Assets Method
79. Capital Budgeting Decisions are:
A. Reversible
B. Irreversible
C. Unimportant
D. All of the above
Answer: B.Irreversible
80. Which of the following is not incorporated in Capital Budgeting?
A. Tax-Effect
B. Time Value of Money
C. Required Rate of Return
D. Rate of Cash Discount
Answer: D.Rate of Cash Discount
81. Which of the following is not a capital budgeting decision?
A. Expansion Programme
B. Merger
C. Replacement of an Asset
D. Inventory Level
Answer: D.Inventory Level
82. A sound Capital Budgeting technique is based on:
A. Cash Flows
B. Accounting Profit
C. Interest Rate on Borrowings
D. Last Dividend Paid
Answer: B.Accounting Profit
83. Which of the following is not a relevant cost in Capital Budgeting?
A. Sunk Cost
B. Opportunity Cost
C. Allocated Overheads
D. Both (a) and (c) above.
Answer: D.Both (a) and (c) above.
84. Capital Budgeting Decisions are based on:
A. Incremental Profit
B. Incremental Cash Flows
C. Incremental Assets
D. Incremental Capital
Answer: B.Incremental Cash Flows
85. Which of the following does not effect cash flows proposal?
A. Salvage Value
B. Depreciation Amount
C. Tax Rate Change
D. Method of Project Financing
Answer: D.Method of Project Financing
86. Cash Inflows from a project include:
A. Tax Shield of Depreciation
B. After-tax Operating Profits
C. Raising of Funds
D. Both (a) and (b)
Answer: D.Both (a) and (b)
87. Which of the following is not true with reference capital budgeting?
A. Capital budgeting is related to asset replacement decisions,
B. Cost of capital is equal to minimum required return,
C. Existing investment in a project is not treated as sunk cost,
D. Timing of cash flows is relevant.
Answer: C.Existing investment in a project is not treated as sunk cost,
88. Which of the following is not followed in capital budgeting?
A. Cash flows Principle
B. Interest Exclusion Principle
C. Accrual Principle
D. Post-tax Principle
Answer: C.Accrual Principle
89. Depreciation is incorporated in cash flows because it:
A. Is unavoidable cost
B. Is a cash flow
C. Reduces Tax liability
D. Involves an outflow
Answer: C.Reduces Tax liability
90. Which of the following is not true for capital budgeting?
A. Sunk costs are ignored,
B. Opportunity costs are excluded,
C. Incremental cash flows are considered,
D. Relevant cash flows are considered
Answer: B.Opportunity costs are excluded,
91. Which of the following is not applied in capital budgeting?
A. Cash flows be calculated in incremental terms
B. All costs and benefits are measured on cash basis,
C. All accrued costs and revenues be incorporated,
D. All benefits are measured on after-tax basis.
Answer: C.All accrued costs and revenues be incorporated,
92. Evaluation of Capital Budgeting Proposals is based on Cash Flows because:
A. Cash Flows are easy to calculate
B. Cash Flows are suggested by SEBI
C. Cash is more important than profit
D. None of the above
Answer: C.Cash is more important than profit
93. Which of the following is not included in incremental A flows?
A. Opportunity Costs
B. Sunk Costs
C. Change in Working Capital
D. Inflation effect
Answer: B.Sunk Costs
94. A proposal is not a Capital Budgeting proposal if it:
A. is related to Fixed Assets
B. brings long-term benefits
C. brings short-term benefits only
D. has very large investment.
Answer: C.brings short-term benefits only
95. In Capital Budgeting, Sunk cost is excluded because it is:
A. of small amount
B. not incremental
C. not reversible
D. All of the above
Answer: B.not incremental
96. Savings in respect of a cost is treated in capital budgeting as:
A. An Inflow
B. An Outflow
C. Nil
D. None of the above.
Answer: A.An Inflow
97. In capital budgeting, the term Capital Rationing implies:
A. That no retained earnings available
B. That limited funds are available for investment
C. That no external funds can be raised,
D. That no fresh investment is required in current year
Answer: B.That limited funds are available for investment
98. Feasibility Set Approach to Capital Rationing can be applied in:
A. Accept-Reject Situations
B. Divisible Projects
C. Mutually Exclusive Projects
D. None of the above
Answer: A.Accept-Reject Situations
99. In case of divisible projects, which of the following can be used to attain maximumNPV?
A. Feasibility Set Approach
B. Internal Rate of Return
C. Profitability Index Approach
D. Any of the above
Answer: C.Profitability Index Approach
100. In case of the indivisible projects, which of the following may not give the optimumresult?
A. Internal Rate of Return
B. Profitability Index
C. Feasibility Set Approach
D. All of the above
Answer: C.Feasibility Set Approach
101. Profitability Index, when applied to Divisible Projects, impliedly assumes that:
A. Project cannot be taken in parts
B. NPV is linearly proportionate to part of the project taken up
C. NPV is additive in nature
D. Both (b) and (c)
Answer: D.Both (b) and (c)
102. If there is no inflation during a period, then the Money Cashflow would be equal to:
A. Present Value
B. Real Cash flow
C. Real Cash flow + Present Value
D. Real Cash flow – Present Value
Answer: B.Real Cash flow
103. The Real Cashflows must be discounted to get the present value at a rate equal to:
A. Money Discount Rate
B. Inflation Rate
C. Real Discount Rate
D. Risk free rate of interest
Answer: C.Real Discount Rate
104. Real rate of return is equal to:
A. Nominal Rate × Inflation Rate
B. Nominal Rate ÷ Inflation Rate
C. Nominal Rate – Inflation Rate
D. Nominal Rate + Inflation Rate
Answer: B.Nominal Rate ÷ Inflation Rate
105. If the Real rate of return is 10% and Inflation s Money Discount Rate is:
A. 14.4%
B. 2.5%
C. 25%
D. 14%
Answer: A.14.4%
106. If the Money Discount Rate is 19% and Inflation Rate is 12%, then the Real DiscountRate is:
A. 7%
B. 5%
C. 5.70%
D. 6.25%
Answer: D.6.25%
107. Money Discount Rate if equal to:
A. (1 + Inflation Rate) (1 + Real Rate)-1
B. (1 + Inflation Rate) 4- (1 + Real Rate)-1
C. (1 + Real Rate) 4- (1 + Inflation Rate)-1
D. (1 + Real Rate) + (1 + Inflation Rate)-1
Answer: A.(1 + Inflation Rate) (1 + Real Rate)-1
108. Real Discount Rate is equal to:
A. (1 + Inf. Rate) (1 + Money D Rate)-1
B. (1 + Money D Rate) + (1 + Inf. Rate)-1
C. (1 + Money D Rate) 4- (1 + Inf. Rate)-1
D. (1 + Money D Rate) – (1 + Inf. Rate)-1
Answer: C.(1 + Money D Rate) 4- (1 + Inf. Rate)-1
109. Two mutually exclusive projects with different economic lives can be compared on thebasis of
A. Internal Rate of Return
B. Profitability Index
C. Net Present Value
D. Equivalent Annuity Value
Answer: D.Equivalent Annuity Value
110. Risk in Capital budgeting implies that the decision-maker knows___________of thecash flows.
A. Variability
B. Probability
C. Certainty
D. None of the above
Answer: B.Probability
111. In Certainty-equivalent approach, adjusted cash flows are discounted at:
A. Accounting Rate of Return
B. Internal Rate of Return
C. Hurdle Rate
D. Risk-free Rate
Answer: D.Risk-free Rate
112. Risk in Capital budgeting is same as:
A. Uncertainty of Cash flows
B. Probability of Cash flows
C. Certainty of Cash flows
D. Variability of Cash flows
Answer: D.Variability of Cash flows
113. Which of the following is a risk factor in capital budgeting?
A. Industry specific risk factors
B. Competition risk factors
C. Project specific risk factors
D. All of the above
Answer: D.All of the above
114. In Risk-Adjusted Discount Rate method, the normal rate of discount is:
A. Increased
B. Decreased
C. Unchanged
D. None of the above
Answer: A.Increased
115. In Risk-Adjusted Discount Rate method, which one is adjusted?
A. Cash flows
B. Life of the proposal
C. Rate of discount
D. Salvage value
Answer: C.Rate of discount
116. NPV of a proposal, as calculated by RADR real CE Approach will be:
A. Same
B. Unequal
C. Both (a) and (b)
D. None of (a) and (b)
Answer: B.Unequal
117. Risk of a Capital budgeting can be incorporated
A. Adjusting the Cash flows
B. Adjusting the Discount Rate
C. Adjusting the life
D. All of the above
Answer: D.All of the above
118. Which element of the basic NPV equation is adjusted by the RADR?
A. Denominator
B. Numerator
C. Both
D. None
Answer: A.Denominator
119. Cost of Capital refers to:
A. Flotation Cost
B. Dividend
C. Required Rate of Return
D. None of the above.
Answer: B.Dividend
120. Which of the following sources of funds has an Implicit Cost of Capital?
A. Equity Share Capital
B. Preference Share Capital
C. Debentures
D. Retained earnings
Answer: D.Retained earnings
121. Which of the following has the highest cost of capital?
A. Equity shares
B. Loans
C. Bonds
D. Preference shares
Answer: A.Equity shares
122. Cost of Capital for Government securities is also known as:
A. Risk-free Rate of Interest
B. Maximum Rate of Return
C. Rate of Interest on Fixed Deposits
D. None of the above
Answer: A.Risk-free Rate of Interest
123. Cost of Capital for Bonds and Debentures is calculated on:
A. Before Tax basis
B. After Tax basis
C. Risk-free Rate of Interest basis
D. None of the above.
Answer: B.After Tax basis
124. Weighted Average Cost of Capital is generally denoted by:
A. kA
B. kw
C. k0
D. kc
Answer: C.k0
125. Which of the following cost of capital require tax adjustment?
A. Cost of Equity Shares
B. Cost of Preference Shares
C. Cost of Debentures
D. Cost of Retained Earnings.
Answer: C.Cost of Debentures
126. Which is the most expensive source of funds?
A. New Equity Shares
B. New Preference Shares
C. New Debts
D. Retained Earnings
Answer: A.New Equity Shares
127. Marginal cost of capital is the cost of:
A. Additional Sales
B. Additional Funds
C. Additional Interests
D. None of the above.
Answer: B.Additional Funds
128. In case the firm is all-equity financed, WACC would be equal to
A. Cost of Debt
B. Cost of Equity
C. Neither (a) nor (b)
D. Both (a) and (b)
Answer: B.Cost of Equity
129. In case of partially debt-financed firm, k0 is less
A. Kd
B. Ke
C. Both (a) and (b)
D. None of the above
Answer: B.Ke
130. In order to calculate Weighted Average Cost of weights may be based on:
A. Market Values
B. Target Values
C. Book Values
D. All of the above
Answer: D.All of the above
131. Firm’s Cost of Capital is the average cost of:
A. All sources
B. All borrowings
C. Share capital
D. Share Bonds & Debentures
Answer: A.All sources
132. An implicit cost of increasing proportion of debt is:
A. Tax should would not be available on new debt
B. P.E. Ratio would increase
C. Equity shareholders would demand higher return
D. Rate of Return of the company would decrease
Answer: C.Equity shareholders would demand higher return
133. Cost of Redeemable Preference Share Capital is:
A. Rate of Dividend
B. After Tax Rate of Dividend
C. Discount Rate that equates PV of inflows and out-flows relating to capital
D. None of the above
Answer: C.Discount Rate that equates PV of inflows and out-flows relating to capital
134. Which of the following is true?
A. Retained earnings are cost free
B. External Equity is cheaper than Internal Equity
C. Retained Earnings are cheaper than External Equity
D. Retained Earnings are costlier than External Equity
Answer: C.Retained Earnings are cheaper than External Equity
135. Cost of capital may be defined as:
A. Weighted Average cost of all debts
B. Rate of Return expected by Equity Shareholders
C. Average IRR of the Projects of the firm
D. Minimum Rate of Return that the firm should earn
Answer: D.Minimum Rate of Return that the firm should earn
136. Minimum Rate of Return that a firm must earn in order to satisfy its investors, is alsoknown as:
A. Average Return on Investment
B. Weighted Average Cost of Capital
C. Net Profit Ratio
D. Average Cost of borrowing
Answer: B.Weighted Average Cost of Capital
137. Cost Capital for Equity Share Capital does not imply that:
A. Market Price is equal to Book Value of share,
B. Shareholders are ready to subscribe to right issue,
C. .Market Price is more than Issue Price,
D. AC of the three above.
Answer: D.AC of the three above.
138. In order to calculate the proportion of equity financing used by the company, thefollowing should be used:
A. Authorised Share Capital,
B. Equity Share Capital plus Reserves and Surplus,
C. Equity Share Capital plus Preference Share Capital,
D. Equity Share Capital plus Long-term Debt.
Answer: B.Equity Share Capital plus Reserves and Surplus,
139. The term capital structure denotes:
A. Total of Liability side of Balance Sheet,
B. Equity Funds, Preference Capital and Long term Debt
C. Total Shareholders Equity,
D. Types of Capital Issued by a Company.
Answer: B.Equity Funds, Preference Capital and Long term Debt
140. Debt Financing is a cheaper source of finance because of:
A. Time Value of Money
B. Rate of Interest,
C. Tax-deductibility of Interest
D. Dividends not Payable to lenders.
Answer: C.Tax-deductibility of Interest
141. In order to find out cost of equity capital under CAPM, which of the following is notrequired:
A. Beta Factor
B. Market Rate of Return,
C. Market Price of Equity Share
D. Risk-free Rate of Interest.
Answer: C.Market Price of Equity Share
142. Tax-rate is relevant and important for calculation of specific cost of capital of:
A. Equity Share Capital
B. Preference Share Capital
C. Debentures
D. (a) and (b) above.
Answer: C.Debentures
143. Advantage of Debt financing is
A. Interest is tax-deductible
B. It reduces WACC
C. Does not dilute owners control
D. All of the above.
Answer: D.All of the above.
144. Cost of issuing new shares to the public is known as:
A. Cost of Equity
B. Cost of Capital
C. Flotation Cost
D. Marginal Cost of Capital.
Answer: C.Flotation Cost
145. Cost of Equity Share Capital is more than cost of debt because:
A. Face value of debentures is more than face value of shares,
B. Equity shares have higher risk than debt,
C. Equity shares are easily saleable
D. All of the three above.
Answer: B.Equity shares have higher risk than debt,
146. Which of the following is not a generally accepted approach for Calculation of Cost ofEquity?
A. CAPM
B. Dividend Discount Model
C. Rate of Pref. Dividend Plus Risk
D. Price-Earnings Ratio
Answer: C.Rate of Pref. Dividend Plus Risk
147. Operating leverage helps in analysis of:
A. Business Risk
B. Financing Risk
C. Production Risk
D. Credit Risk
Answer: A.Business Risk
148. Which of the following is studied with the help of financial leverage?
A. Marketing Risk
B. Interest Rate Risk
C. Foreign Exchange Risk
D. Financing risk
Answer: D.Financing risk
149. Combined Leverage is obtained from OL and FL by their:
A. Addition
B. Subtraction
C. Multiplication
D. Any of these
Answer: C.Multiplication
150. High degree of financial leverage means:
A. High debt proportion
B. Lower debt proportion
C. Equal debt and equity
D. No debt
Answer: A.High debt proportion
151. Operating leverage arises because of:
A. Fixed Cost of Production
B. Fixed Interest Cost
C. Variable Cost
D. None of the above
Answer: A.Fixed Cost of Production
152. Financial Leverage arises because of:
A. Fixed cost of production
B. Variable Cost
C. Interest Cost
D. None of the above
Answer: C.Interest Cost
153. Operating Leverage is calculated as:
A. Contribution ÷ EBIT
B. EBIT÷PBT
C. EBIT ÷Interest
D. EBIT ÷Tax
Answer: A.Contribution ÷ EBIT
154. Financial Leverage is calculated as:
A. EBIT÷ Contribution
B. EBIT÷ PBT
C. EBIT÷ Sales
D. EBIT ÷ Variable Cost
Answer: B.EBIT÷ PBT
155. Which combination is generally good for firms
A. High OL, High FL
B. Low OL, Low FL
C. High OL, Low FL
D. None of these
Answer: C.High OL, Low FL
156. Combined leverage can be used to measure the relationship between:
A. EBIT and EPS
B. PAT and EPS,
C. Sales and EPS,
D. Sales and EBIT
Answer: C.Sales and EPS,
157. FL is zero if:
A. EBIT = Interest
B. EBIT = Zero,
C. EBIT = Fixed Cost,
D. EBIT = Pref. Dividend
Answer: B.EBIT = Zero,
158. Business risk can be measured by:
A. Financial leverage
B. Operating leverage
C. Combined leverage
D. None of the above
Answer: B.Operating leverage
159. Financial Leverage measures relationship between
A. EBIT and PBT
B. EBIT and EPS
C. Sales and PBT
D. Sales and EPS
Answer: B.EBIT and EPS
160. Use of Preference Share Capital in Capital structure
A. Increases OL
B. Increases FL
C. Decreases OL
D. Decreases FL
Answer: B.Increases FL
161. Relationship between change in sales and change m is measured by:
A. Financial leverage
B. Combined leverage
C. Operating leverage
D. None of the above
Answer: B.Combined leverage
162. Operating leverage works when:
A. Sales Increases
B. Sales Decreases
C. Both (a) and (b)
D. None of (a) and (b)
Answer: C.Both (a) and (b)
163. Which of the following is correct?
A. CL= OL + FL
B. CL=OL-FL
C. OL= OL × FL
D. OL=OL÷FL
Answer: C.OL= OL × FL
164. If the fixed cost of production is zero, which one of the following is correct?
A. OL is zero
B. FL is zero
C. CL is zero
D. None of the above
Answer: D.None of the above
165. If a firm has no debt, which one is correct?
A. OL is one
B. FL is one
C. OL is zero
D. FL is zero
Answer: B.FL is one
166. If a company issues new share capital to redeem debentures, then:
A. OL will increase
B. FL will increase
C. OL will decrease
D. FL will decrease
Answer: D.FL will decrease
167. If a firm has a DOL of 2.8, it means:
A. If sales increase by 2.8%, the EBIT will increase by 1%,
B. If EBIT increase by 2.896, the EPS will increase by 1 %,
C. If sales rise by 1%, EBIT will rise by 2.8%,
D. None of the above
Answer: C.If sales rise by 1%, EBIT will rise by 2.8%,
168. Higher OL is related to the use of higher:
A. Debt
B. Equity
C. Fixed Cost
D. Variable Cost
Answer: C.Fixed Cost
169. Higher FL is related the use of:
A. Higher Equity
B. Higher Debt
C. Lower Debt
D. None of the above
Answer: B.Higher Debt
170. In order to calculate EPS, Profit after Tax and Preference Dividend is divided by:
A. MP of Equity Shares
B. Number of Equity Shares
C. Face Value of Equity Shares
D. None of the above.
Answer: B.Number of Equity Shares
171. Trading on Equity is
A. Always beneficial
B. May be beneficial
C. Never beneficial
D. None of the above.
Answer: B.May be beneficial
172. Benefit of ‘Trading on Equity’ is available only if:
A. Rate of Interest < Rate of Return B. Rate of Interest > Rate of Return
C. Both (a) and (b) (d) None of
D. and (b)
Answer: A.Rate of Interest < Rate of Return
173. Indifference Level of EBIT is one at which:
A. EPS is zero
B. EPS is Minimum
C. EPS is highest
D. None of these
Answer: D.None of these
174. Financial Break-even level of EBIT is one at which:
A. EPS is one
B. EPS is zero
C. EPS is Infinite
D. EPS is Negative
Answer: B.EPS is zero
175. Relationship between change in Sales and d Operating Profit is known as:
A. Financial Leverage
B. Operating Leverage
C. Net Profit Ratio
D. Gross Profit Ratio
Answer: B.Operating Leverage
176. If a firm has no Preference share capital, Financial Break even level is defined asequal to –
A. EBIT
B. Interest liability
C. Equity Dividend
D. Tax Liability
Answer: B.Interest liability
177. At Indifference level of EBIT, different capital have
A. Same EBIT
B. Same EPS
C. Same PAT
D. Same PBT
Answer: B.Same EPS
178. Which of the following is not a relevant factor m EPS Analysis of capital structure?
A. Rate of Interest on Debt
B. Tax Rate
C. Amount of Preference Share Capital
D. Dividend paid last year
Answer: D.Dividend paid last year
179. For a constant EBIT, if the debt level is further increased then
A. EPS will always increase
B. EPS may increase
C. EPS will never increase
D. None of the above
Answer: B.EPS may increase
180. Between two capital plans, if expected EBIT is more than indifference level of EBIT,then
A. Both plans be rejected
B. Both plans are good
C. One is better than other
D. None of the above
Answer: C.One is better than other
181. Financial break-even level of EBIT is:
A. Intercept at Y-axis,
B. Intercept at X-axis
C. Slope of EBIT-EPS line
D. None of the above.
Answer: B.Intercept at X-axis
182. In case of Net Income Approach, the Cost of equity is:
A. Constant
B. Increasing
C. Decreasing
D. None of the above
Answer: A.Constant
183. In case of Net Income Approach, when the debt proportion is increased, the cost of debt:
A. Increases
B. Decreases
C. Constant
D. None of the above
Answer: C.Constant
184. Which of the following is true of Net Income Approach?
A. VF = VE+VD
B. VE = VF+VD
C. VD = VF+VE
D. VF = VE-VE
Answer: A.VF = VE+VD
185. Net Operating Income Approach, which one of the lowing is constant?
A. Cost of Equity
B. Cost of Debt
C. WACC & kd
D. Ke and Kd
Answer: C.WACC & kd
186. NOI Approach advocates that the degree of debt financing is:
A. Relevant
B. May be relevant
C. Irrelevant
D. May be irrelevant
Answer: C.Irrelevant
187. ‘Judicious use of leverage’ is suggested by:
A. Net Income Approach
B. Net Operating Income Approach
C. Traditional Approach
D. All of the above
Answer: C.Traditional Approach
188. Which one is true for Net Operating Income Approach?
A. VD = VF – VE
B. VE = VF + VD
C. VE = VF – VD
D. VD = VF + VE
Answer: C.VE = VF – VD
189. In the Traditional Approach, which one of the following remains constant?
A. Cost of Equity
B. Cost of Debt
C. WACC
D. None of the above
Answer: D.None of the above
190. In MM-Model, irrelevance of capital structure is based on:
A. Cost of Debt and Equity
B. Arbitrage Process
C. Decreasing k0
D. All of the above
Answer: B.Arbitrage Process
191. ‘That there is no corporate tax’ is assumed by:
A. Net Income Approach
B. Net Operating Income Approach,
C. Traditional Approach
D. All of these
Answer: D.All of these
192. ‘That personal leverage can replace corporate leverage’ is assumed by:
A. Traditional Approach
B. MM Model
C. Net Income Approach
D. Net Operating Income Approach.
Answer: B.MM Model
193. Which of the following argues that the value of levered firm is higher than that of theunlevered firm?
A. Net Income Approach
B. Net Operating Income Approach
C. MM Model with taxes
D. Both (a) and (c)
Answer: D.Both (a) and (c)
194. In Traditional Approach, which one is correct?
A. ke rises constantly
B. kd decreases constantly
C. k0 decreases constantly
D. None of the above
Answer: D.None of the above
195. Which of the following assumes constant kd and ke?
A. Net Income Approach
B. Net Operating Income Approach
C. Traditional Approach
D. MM Model.
Answer: A.Net Income Approach
196. Which of the following is true?
A. Under Traditional Approach, overall cost of capital remains same,
B. Under NI Approach, overall cost of capital remains same,
C. Under NOI Approach, overall cost of capital remains same,
D. None of the above.
Answer: C.Under NOI Approach, overall cost of capital remains same,
197. The Traditional Approach to Value of the firm m that:
A. There is no optimal capital structure,
B. Value can be increased by judicious use of leverage
C. Cost of Capital and Capital structure are m dent,
D. Risk of the firm is independent of capital structure
Answer: B.Value can be increased by judicious use of leverage
198. A firm has EBIT of . 50,000. Market value of debt is . 80,000 and overallcapitalization rate is 20%. Market value of firm under NOI Approach is:
A. 2,50,000
B. 1,70,000
C. 30,000
D. 1,30,000.
Answer: B.1,70,000
199. Which of the following is incorrect for NOI?
A. k0 is constant
B. kd is constant
C. ke is constant
D. kd & k0 are constant
Answer: C.ke is constant
200. Which of the following is incorrect for value of the firm?
A. In the initial preposition, MM Model argues that value is independent of the financing mix.
B. Total value of levered and unlevered firms is otherwise arbitrage will take place.
C. Total value incorporates borrowings by firm but excludes personal borrowing.
D. Total value does not change because underlying does not change with financing mix.
Answer: D.Total value does not change because underlying does not change with financing mix.
201. Which of the following appearing in the balance! generates tax advantage and henceaffects the c, structure decision ?
A. Reserves and Surplus
B. Long-term debt
C. Preference Share Capital
D. Equity Share Capital
Answer: B.Long-term debt
202. In MM Model with taxes, where ‘r’ is the interest rate, ‘D’ is the total debt and ‘t’ is taxrate, then present valued shields would be:
A. r×D×t
B. r×D
C. D×t
D. (D× r)/(l-t).
Answer: C.D×t
203. ‘Bird in hand’ argument is given by
A. Walker’s Model
B. Gordon’s Model
C. MM Mode
D. Residuals Theory
Answer: B.Gordon’s Model
204. Residuals Theory argues that dividend is a
A. Relevant Decision
B. Active Decision
C. Passive Decision
D. Irrelevant Decision
Answer: C.Passive Decision
205. Dividend irrelevance argument of MM Model is based on:
A. Issue of Debentures
B. Issue of Bonus Share,
C. Arbitrage
D. Hedging
Answer: C.Arbitrage
206. Which of the following is not true for MM Model?
A. Share price goes up if dividend is paid
B. Share price goes down if dividend is not paid,
C. Market value is unaffected by Dividend policy,
D. All of the above
Answer: C.Market value is unaffected by Dividend policy,
207. Which of the following stresses on investor’s preference reorient dividend than higherfuture capital gains ?
A. Walter’s Model
B. Residuals Theory
C. Gordon’s Model
D. MM Model
Answer: C.Gordon’s Model
208. MM Model of Dividend irrelevance uses arbitrage between
A. Dividend and Bonus
B. Dividend and Capital Issue
C. Profit and Investment
D. None of the above
Answer: B.Dividend and Capital Issue
209. If ke = r, then under Walter’s Model, which of the following is irrelevant?
A. Earnings per share
B. Dividend per share
C. DP Ratio
D. None of the above
Answer: C.DP Ratio
210. MM Model argues that dividend is irrelevant as
A. the value of the firm depends upon earning power
B. the investors buy shares for capital gain,
C. dividend is payable after deciding the retained earnings,
D. dividend is a small amount
Answer: A.the value of the firm depends upon earning power
211. Which of the following represents passive dividend policy ?
A. that dividend is paid as a % of EPS,
B. that dividend is paid as a constant amount,
C. that dividend is paid after retaining profits for reinvestment,
D. all of the above
Answer: C.that dividend is paid after retaining profits for reinvestment,
212. In case of Gordon’s Model, the MP for zero payout is zero. It means that
A. Shares are not traded
B. Shares available free of cost
C. Investors are not ready to offer any price
D. None of the above
Answer: C.Investors are not ready to offer any price
213. Gordon’s Model of dividend relevance is same as
A. No-growth Model of equity valuation,
B. Constant growth Model of equity valuation,
C. Price-Earning Ratio
D. Inverse of Price Earnings Ratio
Answer: B.Constant growth Model of equity valuation,
214. If ‘r’ = ‘ke’, than MP by Walter’s Model and Gordon’s Model for different payout ratioswould be
A. Unequal
B. Zero
C. Equal
D. Negative
Answer: C.Equal
215. Dividend declared by a company must be paid in
A. 20 days
B. 30 days
C. 32 days
D. 42 days
Answer: B.30 days
216. Dividend Distribution Tax is payable by
A. Shareholders to Government
B. Shareholders to Company,
C. Company to Government,
D. Holding to Subsidiary Company
Answer: C.Company to Government,
217. Shares of face value of 10 are 80% paid up. The company declares a dividend of50%. Amount of dividend per share is
A. 5
B. 4
C. 80
D. 50
Answer: B.4
218. Which of the following generally not result in increase in total dividend liability ?
A. Share-split
B. Right Issue
C. Bonus Issue
D. All of the above
Answer: A.Share-split
219. Dividends are paid out of
A. Accumulated Profits
B. Gross Profit
C. Profit after Tax
D. General Reserve
Answer: C.Profit after Tax
220. In India, Dividend Distribution tax is paid on
A. Equity Share
B. Preference Share
C. Debenture
D. Both (a) and (b)
Answer: D.Both (a) and (b)
221. Every company should follow
A. High Dividend Payment
B. Low Dividend Payment
C. Stable Dividend Payment
D. Fixed Dividend Payment
Answer: C.Stable Dividend Payment
222. ‘Constant Dividend Per Share’ Policy is considered as:
A. Increasing Dividend Policy
B. Decreasing Dividend Policy
C. Stable Dividend Policy
D. None of the above
Answer: C.Stable Dividend Policy
223. Which of the following is not a type of dividend payment?
A. Bonus Issue
B. Right Issue
C. Share Split
D. Both (b) and (c)
Answer: C.Share Split
224. If the following is an element of dividend policy?
A. Production capacity,
B. Change in Management,
C. Informational content,
D. Debt service capacity
Answer: C.Informational content,
225. Stock split is a form of
A. Dividend Payment,
B. Bonus Issue,
C. Financial restructuring,
D. Dividend in kind
Answer: C.Financial restructuring,
226. In stock dividend:
A. Authorized capital always increases
B. Paid up capital always increases
C. Face value per share decreases
D. Market price for share decreases
Answer: D.Market price for share decreases
227. Which of the following is not considered in Lintner’s Model ?
A. Dividend payout ratio,
B. Current EPS,
C. Speed of Adjustment,
D. Preceding year EPS
Answer: D.Preceding year EPS
228. Which of the following is not relevant for dividend payment for a year ?
A. Cash flow position
B. Profit position,
C. Paid up capital,
D. Retained Earnings
Answer: D.Retained Earnings
229. Cash Budget does not include
A. Dividend Payable
B. Postal Expenditure,
C. Issue of Capital,
D. Total Sales Figure.
Answer: D.Total Sales Figure.
230. Which of the following is not a motive to hold cash?
A. Transactionary Motive,
B. Pre-scautionary Motive,
C. Captal Investment,
D. None of the above.
Answer: C.Captal Investment,
231. Cheques deposited in bank may not be available for immediate use due to
A. Payment Float
B. Recceipt Float
C. Net Float,
D. Playing the Float.
Answer: B.Recceipt Float
232. Difference between between the bank balance as per Cash Book and Pass Book maybe due to:
A. Overdraft,
B. Float,
C. Factoring,
D. None of the above.
Answer: B.Float,
233. Concentration Banking helps in
A. Reducing Idle Bank Balance
B. Increasing Collection,
C. Increasing Creditors,
D. Reducing Bank Transactions.
Answer: B.Increasing Collection,
234. The Transaction Motive for holding cash is for
A. Safety Cushion
B. Daily Operations,
C. Purchase of Assets
D. Payment of Dividends.
Answer: B.Daily Operations,
235. Miller-Orr Model deals with
A. Optimum Cash Balance,
B. Optimum Finished goods,
C. Optimum Receivables,
D. All of the above.
Answer: A.Optimum Cash Balance,
236. Float management is related to
A. Cash Management,
B. Inventory Management,
C. Receivables Management,
D. Raw Materials Management
Answer: A.Cash Management,
237. Which of the following is not an objective of cash management ?
A. Maximization of cash balance
B. Minimization of cash balance
C. Optimization of cash balance
D. Zero cash balance.
Answer: C.Optimization of cash balance
238. Which of the following is not true of cash budget ?
A. Cash budget indicates timings of short-term borrowing,
B. Cash budget is based on accrual concept
C. Cash budget is based on cash flow concept
D. Repayment of principal amount of law is shown in cash budget.
Answer: B.Cash budget is based on accrual concept
239. Baumol’s Model of Cash Management attempts to:
A. Minimise the holding cost,
B. Minimization of transaction cost,
C. Minimization of total cost,
D. Minimization of cash balance
Answer: C.Minimization of total cost,
240. Which of the following is not considered by Miller-Orr Model?
A. Variability in cash requirement
B. Cost of transaction,
C. Holding cost,
D. Total annual requirement of cash.
Answer: D.Total annual requirement of cash.
241. Marketable securities are primarily
A. Equity shares,’
B. Preference shares,
C. Fixed deposits with companies
D. Short-term debt investments.
Answer: D.Short-term debt investments.
242. 5Cs of the credit does not include
A. Collateral
B. Character,
C. Conditions,
D. None of the above
Answer: D.None of the above
243. Which of the following is not an element of credit policy?
A. Credit Terms
B. Collection Policy
C. Cash Discount Terms,
D. Sales Price
Answer: D.Sales Price
244. Ageing schedule incorporates the relationship between
A. Creditors and Days Outstanding
B. Debtors and Days Outstanding
C. Average Age of Directors,
D. Average Age of All Employees.
Answer: B.Debtors and Days Outstanding
245. Bad debt cost is not borne by factor in case of
A. Pure Factoring
B. Without Recourse Factoring,
C. With Recourse Factoring
D. None of the above
Answer: C.With Recourse Factoring
246. Which of the following is not a technique of receivables Management?
A. Funds Flow Analysis
B. Ageing Schedule,
C. Days sales outstanding
D. Collection Matrix.
Answer: A.Funds Flow Analysis
247. Which of the following is not a part of credit policy?
A. Collection Effort
B. Cash Discount,
C. Credit Standard
D. Paying Practices of debtors.
Answer: D.Paying Practices of debtors.
248. Which is not a service of a factor?
A. Administrating Sales Ledger
B. Advancing against Credit Sales,
C. Assuming bad debt losses,
D. None of the above.
Answer: D.None of the above.
249. Credit Policy of a firm should involve a trade-off between increased
A. Sales and Increased Profit
B. Profit and Increased Costs of Receivables,
C. Sales and Cost of goods sold,
D. None of the above.
Answer: B.Profit and Increased Costs of Receivables,
250. Out of the following, what is not true in respect of factoring?
A. Continuous Arrangement between Factor and Seller,
B. Sale of Receivables to the factor,
C. Factor provides cost free finance to seller
D. None of the above.
Answer: C.Factor provides cost free finance to seller
251. Payment to creditors is a manifestation of cash held for:
A. Transactionery Motive,
B. Precautionary Motive,
C. Speculative Motive,
D. All of the above.
Answer: A.Transactionery Motive,
252. If the closing balance of receivables is less than the opening balance for a month thenwhich one is true out of
A. Collections>Current Purchases,
B. Collections>Current Sales,
C. Collections
D. Collections < Current Sales.
Answer: B.Collections>Current Sales,
253. If the average balance of debtors has increased, which of the following might notshow a change in general?
A. Total Sales,
B. Average Payables
C. Current Ratio
D. Bad Debt loss
Answer: B.Average Payables
254. Securitization is related to conversion of
A. Receivables,
B. Stock,
C. Investments,
D. Creditors.
Answer: A.Receivables,
255. 80% of sales of 10,00,000 of a firm are on credit. It has a Receivable Turnover of 8.What is the Average collection period (360 days a year) and Average Debtors of the firm?
A. 45 days and 1,00,000
B. 360 days and 1,00,000,
C. 45 days and 8,00,000
D. 360 days and 1,25,000
Answer: A.45 days and 1,00,000
256. In response to market expectations, the credit pence r j been increased from 45 days to60 days. This would result in
A. Decrease in Sales,
B. Decrease in Debtors,
C. Increase in Bad Debts,
D. Increase in Average Collection Period.
Answer: D.Increase in Average Collection Period.
257. If a company sells its receivable to another party to raise funds, it is known as
A. Securitization
B. Factoring,
C. Pledging
D. None of the above.
Answer: B.Factoring,
258. Cash Discount term 3/15, net 40 means
A. 3% Discount if payment in 15 days, otherwise full payment in 40 days,
B. 15% Discount if payment in 3 days, otherwise full payment 40 days,
C. 3% Interest if payment made in 40 days and 15%,interest thereafter,
D. None of the above.
Answer: A.3% Discount if payment in 15 days, otherwise full payment in 40 days,
259. If the sales of the firm are . 60,00,000 and the average debtors are . 15,00,000 thenthe receivables turnover is
A. 4 times
B. 25%
C. 400%
D. 0.25 times
Answer: A.4 times
260. If cash discount is offered to customers, then which of the following would increase?
A. Sales
B. Debtors
C. Debt collection period
D. All of the above
Answer: A.Sales
261. Receivables Management deals with
A. Receipts of raw materials
B. Debtors collection,
C. Creditors Management
D. Inventory Management
Answer: B.Debtors collection,
262. Which of the following is related to Receivables Management?
A. Cash Budget
B. Economic Order Quantity,
C. Ageing schedule
D. All of the above.
Answer: C.Ageing schedule
263. EOQ is the quantity that minimizes
A. Total Ordering Cost
B. Total Inventory Cost,
C. Total Interest Cost
D. Safety Stock Level
Answer: A.Total Ordering Cost
264. ABC Analysis is used in
A. Inventory Management
B. Receivables Management
C. Accounting Policies,
D. Corporate Governance.
Answer: A.Inventory Management
265. If no information is available, the General Rule for valuation of stock for balancesheet is
A. Replacement Cost
B. Realizable Value,
C. Historical Cost
D. Standard Cost
Answer: C.Historical Cost
266. In ABC inventory management system, class A items may require
A. Higher Safety Stock
B. Frequent Deliveries
C. Periodic Inventory system
D. Updating of inventory records.
Answer: A.Higher Safety Stock
267. Inventory holding cost may include
A. Material Purchase Cost
B. Penalty charge for default,
C. Interest on loan,
D. None of the above
Answer: D.None of the above
268. Use of safety stock by a firm would
A. Increase Inventory Cost
B. Decrease Inventory Cost,
C. No effect on cost
D. None of the above
Answer: A.Increase Inventory Cost
269. Which of the following is true for a company which uses continuous review inventorysystem
A. Order Interval is fixed
B. Order Interval varies,
C. Order Quantity is fixed
D. Both (a) and (c)
Answer: C.Order Quantity is fixed
270. ABC Analysis is useful for analyzing the inventories:
A. Based on their Quality
B. Based on their Usage and value
C. Based on Physical Volume
D. All of the above
Answer: B.Based on their Usage and value
271. If A = Annual Requirement, O = Order Cost and C = Carrying Cost per unit perannum, then EOQ
A. (2AO/C) 2
B. 2AO/C
C. 2A÷OC
D. 2AOC
Answer: B.2AO/C
272. Inventory is generally valued as lower of
A. Market Price and Replacement Cost
B. Cost and Net Realizable Value
C. Cost and Sales Value
D. Sales Value and Profit.
Answer: B.Cost and Net Realizable Value
273. Which of the following is not included in cost of inventory?
A. Purchase cost
B. Transport in Cost,
C. Import Duty,
D. Selling Costs.
Answer: D.Selling Costs.
274. Cost of not carrying sufficient inventory is known as
A. Carrying Cost
B. Holding Cost
C. Total Cost
D. Stock-out Cost
Answer: D.Stock-out Cost
275. Which of the following is not a benefit of carrying inventories
A. Reduction in ordering cost,
B. Avoiding lost sales,
C. Reducing carrying cost,
D. Avoiding Production Shortages.
Answer: C.Reducing carrying cost,
276. Which of the following is not a standard method of inventory valuation?
A. First in First out
B. Standard Cost
C. Average Pricing
D. Realizable Value
Answer: C.Average Pricing
277. System of procuring goods when required, is known as,
A. Free on Board (FOB) (b)always Butter Control
B. ,
C. Jest in Time (JIT)
D. Economic Order Quantity.
Answer: C.Jest in Time (JIT)
278. A firm has inventory turnover of 6 and cost of goods sold is 7,50,000. With betterinventory management, the inventory turnover is increased to 10. This would result in:
A. Increase in inventory by 50,000,
B. Decrease in inventory by . 50,000,
C. Decrease in cost of goods sold,
D. Increase in cost of goods sold.
Answer: B.Decrease in inventory by . 50,000,
279. What is Economic Order Quantity?
A. Cost of an Order
B. Cost of Stock
C. Reorder level
D. Optimum order size.
Answer: D.Optimum order size.
280. The type of collateral (security) used for short-term loan is
A. Real estate,
B. Plant & Machinery,
C. Stock of good
D. Equity share capital
Answer: C.Stock of good
281. Which of the following is a liability of a bank?
A. Treasury Bills,
B. Commercial papers,
C. Certificate of Deposits,
D. Junk Bonds.
Answer: C.Certificate of Deposits,
282. Commercial paper is a type of
A. Fixed coupon Bond
B. Unsecured short-term debt
C. Equity share capital,
D. Government Bond
Answer: B.Unsecured short-term debt
283. Which of the following is not a spontaneous source of short-term funds ?
A. Trade credit,
B. Accrued expenses,
C. Provision for dividend,
D. All of the above.
Answer: C.Provision for dividend,
284. Concept of Maximum Permissible Bank finance was introduced by
A. Kannan Committee
B. Chore Committee,
C. Nayak Committee,
D. Tandon Committee.
Answer: D.Tandon Committee.
285. In India, Commercial Papers are issued as per the guidelines issued by
A. Securities and Exchange Board of India,
B. Reserve Bank of India,
C. Forward Market Commission,
D. None of the above.
Answer: B.Reserve Bank of India,
286. Commercial paper are generally issued at a pries
A. Equal to face value,
B. More than face value,
C. Less than face value,
D. Equal to redemption value
Answer: C.Less than face value,
287. Which of the following is not applicable to commercial paper
A. Face Value
B. Issue Price
C. Coupon Rate
D. None of the above.
Answer: D.None of the above.
288. The basic objective of Tandon Committee recommendations is that the dependence ofindustry on bank should gradually
A. Increase,
B. Remain Stable
C. Decrease
D. None of the above
Answer: C.Decrease
289. Cash discount terms offered by trade creditors never be accepted because
A. Benefit in very small
B. Cost is very high
C. No sense to pay earlier
D. None of the above.
Answer: D.None of the above.
290. In lease system, interest is calculated on
A. Cash down payment
B. Cash price outstanding
C. Hire purchase price
D. None of the above
Answer: B.Cash price outstanding
291. A short-term lease which is often cancellable is known as
A. Finance Lease
B. Net Lease,
C. Operating Lease
D. Leverage Lease
Answer: C.Operating Lease
292. Which of the following is not a usual type of lease arrangement?
A. Sale & leaseback,
B. Goods on Approval,
C. Leverage Lease,
D. Direct Lease
Answer: B.Goods on Approval,
293. Under income-tax provisions, depreciation on lease asset is allowed to
A. Lessor
B. Lessee
C. Any of the two
D. None of the two
Answer: A.Lessor
294. Under the provisions of AS-19 ‘Leases’, a leased asset is shown is the balance sheet of
A. Manufacturer
B. Lessor
C. Lessee
D. Financing bank
Answer: C.Lessee
295. A lease which is generally not cancellable and covers full economic life of the asset isknown as
A. Sale and leaseback,
B. Operating Lease
C. Finance Lease,
D. Economic Lease
Answer: C.Finance Lease,
296. Lease which includes a third party (a lender) is known as
A. Sale and leaseback
B. Direct Lease,
C. Inverse Lease,
D. Leveraged Lease
Answer: D.Leveraged Lease
297. One difference between Operating and Financial lease is:
A. There is often an option to buy in operating lease
B. There is often a call option in financial lease.
C. An operating lease is generally cancelable by lease
D. A financial lease in generally cancelable by lease.
Answer: C.An operating lease is generally cancelable by lease
298. From the point of view of the lessee, a lease is a:
A. Working capital decision,
B. Financing decision,
C. Buy or make decision,
D. Investment decision
Answer: B.Financing decision,
299. For a lesser, a lease is a
A. Investment decision,
B. Financing decision,
C. Dividend decision
D. None of the above.
Answer: A.Investment decision,
300. Which of the following is not true for a “Lease decision for the lessee?
A. Helps in project selection
B. Helps in project financing
C. Helps in project location
D. All of the above.
Answer: B.Helps in project financing
301. Risk-Return trade off implies
A. Minimization of Risk,
B. Maximization of Risk,
C. Ignorance of Risk
D. Optimization of Risk
Answer: D.Optimization of Risk
302. Basic objective of diversification is
A. Increasing Return,
B. Maximising Return,
C. Decreasing Risk,
D. Maximizing Risk.
Answer: C.Decreasing Risk,
303. Risk-aversion of an investor can be measured by
A. Market Rate of Return
B. Risk-free Rate of Return,
C. Portfolio Return,
D. None of the above.
Answer: D.None of the above.
304. If the intrinsic value of a share is less than the market price, which of the mostreasonable?
A. That shares have lesser degree of risk
B. That market is over valuing the shares
C. That the company is high dividend paying,
D. That market is undervaluing the share
Answer: B.That market is over valuing the shares
305. According to traditional approach, the average cost of capital
A. Remains constant up to a degree of leverage and rises sharply thereafter with every increase in leverage.
B. Rises constantly with increase in leverage.
C. Deceases up to a certain point, remains unchanged for moderate increase in leverage and rises beyond a certain point.
D. Decreases at an increasing rate with increase in leverage.
Answer: C.Deceases up to a certain point, remains unchanged for moderate increase in leverage and rises beyond a certain point.
306. Equity shares of phonex Ltd are quoted in the market at Rs17. The dividend expected ayear hence is Rs1.50. The expected rate of dividend growth is 8%. The cost of equity capital to the company is
A. 11.08%
B. 13.88%
C. 15.46%
D. 16.82%
Answer: D.16.82%
307. Which of the following is not a feature of an optimal capital structure?
A. Profitability
B. Safety
C. Flexibility
D. Control
Answer: B.Safety
308. The cost of debt capital if interest rate is 15% and tax rate is 40% is
A. 6%
B. 8.5%
C. 9%
D. 10.5%
Answer: C.9%
309. Which of the following is not a feature of an optimal capital structure?
A. The company should make maximum use of leverage at a minimum cost
B. The capital structure should be flexible to be able to meet the changing condition
C. The company should aim at not using excessive debt in its capital structure
D. The company should make minimum use of leverage at a minimum cost.
Answer: D.The company should make minimum use of leverage at a minimum cost.
310. Which of the following is not an assumption of Miller and Modigliani approach?
A. There are no corporate or personal income tax
B. Investors are assumed to be rational and behave accordingly
C. There is no corporate tax though there are personal income tax
D. Capital markets are perfect
Answer: C.There is no corporate tax though there are personal income tax
311. The bond yield plus risk premium approach is a method of finding out the cost of
A. Preference capital
B. Equity capital
C. Debenture capital
D. Term loans
Answer: B.Equity capital
312. According to net operating income approach
A. The equity capitalization rate remains constant with any increase or decrease in the degree of leverage
B. The overall capitalization rate of the firm remains constant
C. The cost of debt remains constant
D. Both b and c
Answer: D.Both b and c
313. While calculating the weighted average cost of capital, market value weights are preferredbecause
A. Book value weights are historical in nature
B. It is vary difficult to estimate book value weights at the time of calculating the weighted average cost
C. This is in conformity with the definition of cost of capital as the investor’s minimum required rate of return
D. Book value weights fluctuate violently.
Answer: C.This is in conformity with the definition of cost of capital as the investor’s minimum required rate of return
314. Which profit is considered for calculating Average Rate of Return?
A. Earnings before interest, depreciation and tax
B. Average profit after tax and depreciation
C. Average profit after depreciation but before tax
D. Average profit after depreciation but before tax
Answer: B.Average profit after tax and depreciation
315. A project costs Rs50,000 and will yield annual cash inflows of Rs20,000 for 5years.Calculate its payback period.
A. 2 years
B. 5 years
C. 2.5 years
D. 3 years
Answer: C.2.5 years
316. Capital structure decisions should always aim at having debt component in order to
A. Gain tax savings
B. Gain control over the company
C. Balance the capital structure
D. Increase the earnings available for shareholders.
Answer: D.Increase the earnings available for shareholders.
317. —— refers to a situation where a firm is not in a position to invest in all profitableprojects due to the constraints on availability of funds
A. Capital budgeting
B. Over capitalization
C. Capital expenditure control
D. Capital rationing
Answer: D.Capital rationing
318. —— refers to the minimum return expected by its suppliers
A. Trading on equity
B. Time value of money
C. Cost of capital
D. Capital gearing
Answer: C.Cost of capital
319. The ratio which is obtained by dividing the present value of future cash inflows by thepresent value of cash out flows is called
A. Net Present Value
B. IRR
C. Profitability Index
D. Average rate of return
Answer: C.Profitability Index
320. Capital structure is the proportion of
A. Long term funds and short term funds
B. Debt and equity
C. Current assets and fixed assets
D. Equity and retained earnings
Answer: B.Debt and equity
321. A company has earnings before interest and taxes of Rs1,00,000. It expects a return oninvestment at a rate of 12.5%. What is the total value of the firm according to MM Theory?
A. Rs6,00,000
B. Rs7,00,000
C. Rs8,00,000
D. Rs9,00,000
Answer: C.Rs8,00,000
322. Optimum capital structure is obtained when
A. Firm earns maximum profits
B. Firm declares reasonable dividend
C. Market value per equity share is the maximum
D. The debt increases
Answer: C.Market value per equity share is the maximum
323. Axis Ltd is issuing 15% debentures ( face value Rs60). The net amount realized perdebenture is Rs54 and they are redeemable at par after 6 years. At a corporate tax rate of 40%, what is the cost of debt?
A. 16.54%
B. 17.54%
C. 10%
D. 14.74%
Answer: C.10%
324. Which of the following statement is true according to traditional approach of capitalstructure?
A. Cost of capital increases with the use of debt after a certain amount of debt and later falls
B. Cost of equity and debt more or less remains constant with the use of debt up to a certain amount of debt
C. Cost of declines and cost of debt remains constant with increase in debt.
D. Cost of equity declines and cost of debt increases with increase in debt
Answer: B.Cost of equity and debt more or less remains constant with the use of debt up to a certain amount of debt
325. Which of the following is true regarding the measurement of cash inflows and out flows ofa project?
A. Depreciation amount should be added to PBT
B. Depreciation amount should be added to PAT
C. Depreciation should neither be added nor be subtracted from PAT
D. Both a and b above
Answer: B.Depreciation amount should be added to PAT
326. According to rate or return is the ratio of average values of
A. Profit before tax to book value o the investment
B. Profit after tax to salvage value of the investment
C. Profit before tax to present value of the investment
D. Profit after tax to the book value of the investment
Answer: D.Profit after tax to the book value of the investment
327. Which of the following is/ are the drawbacks of Accounting Rate of Return criterion
A. It gives equal weightage to near flows and distant flows
B. It is calculated using the accounting income and not cash flows
C. The cut off of ARR is arbitrarily fixed
D. All of the above
Answer: D.All of the above
328. Which of the following is true about NPV?
A. It considers all the cash flows
B. It gives more weightage to distant flows than to near term flows
C. It considers time value of money
D. Both a and c above
Answer: D.Both a and c above
329. In IRR , the cash inflows are assumed to be reinvested in the project at
A. Internal rate of return
B. Cost of capital
C. Risk free rate
D. Risk adjusted rate
Answer: A.Internal rate of return
330. For a project, benefit cost ratio is equal to one, then
A. IRR will be greater than one
B. IRR will be greater than discount rate
C. IRR will be less than discount rate
D. IRR will be equal to discount rate
Answer: D.IRR will be equal to discount rate
331. Which of the following is a non discounting technique for appraising a project?
A. Net present value
B. Pay back period
C. Internal rate of return
D. Cost benefit ratio
Answer: B.Pay back period
332. If the present value of cash in flows from a project is Rs4.50 crore, initial outlay is Rs3.75crore then the net benefit cost ratio is
A. 0.17
B. 0.20
C. 0.75
D. 0.83
Answer: B.0.20
333. Which of the following is not considered for cost benefit analysis of capital decisions
A. Opportunity cost
B. Incremental cost
C. Sunk cost
D. All of these
Answer: C.Sunk cost
334. If NPV for a project is negative, then
A. IRR = Cost of capital
B. IRR > Cost of capital
C. BCR = 1
D. IRR < Cost of capital
Answer: D.IRR < Cost of capital
335. The net cash flows of the project and their present values are as followsYear 1 2 3 4 Net cash flow (Rs) 5100 5100 5100 7100 PVIF @12% 0.893 0.797 0.712 0.636 Present Value (Rs) 4554 4065 3631 4516 The initial investment in the project is Rs12500, What is the NPV of the project?
A. 4066
B. 4166
C. 4266
D. 4566
Answer: C.4266
336. Higher the risk involved in a firm, ——- is the cost of capital
A. High
B. Low
C. Medium
D. None of these
Answer: A.High
337. The composition of a company’s capitalization is called
A. Capital Structure
B. Financial structure
C. Long term source
D. Short term source
Answer: A.Capital Structure
338. The entire items on the liability side of a balance sheet is called
A. Capital structure
B. Financial structure
C. Long term source
D. Short term source
Answer: B.Financial structure
339. Net operating income approach was suggested by
A. Modigliani and Miller
B. Durand
C. Walter
D. None of these
Answer: B.Durand
340. Overall cost of capital, according to —— approach, decreases up to a certain point, remainsunchanged for moderate increase in debt thereafter, and increase beyond a certain point
A. Net income
B. Net operating income
C. Traditional
D. MM approach
Answer: C.Traditional
341. According to MM approach, two identical firms in all respects except their capital structurecan not have different market values or cost of capital because of—–
A. Leverage
B. Trading on equity
C. Arbitrage process
D. None of these
Answer: C.Arbitrage process
342. If funds are required for productive purpose ——- finance is suitable
A. Debt
B. Equity
C. Retained earnings
D. None of these
Answer: A.Debt
343. If funds are required for unproductive purpose or general development on permanent basis ——- finance is suitable
A. Debt
B. Equity
C. Bank overdraft
D. None of these
Answer: B.Equity
344. According to —— method it is assumed that each of the future cash flows isimmediately reinvested in another project at a certain rate of return until the termination of the project
A. NPV
B. IRR
C. Pay back method
D. Terminal value method
Answer: D.Terminal value method
345. When the cost of the project differ significantly which method of capital budgeting is used
A. NPV
B. IRR
C. Pay back method
D. Profitability index
Answer: D.Profitability index
346. To judge the comparative risk of projects having same cost and different NPV whichmethod is used
A. Certainty equivalent method
B. Sensitivity technique
C. Standard deviation method
D. Coefficient of variation method
Answer: D.Coefficient of variation method
347. Under —– method more than one forecast of the future cash inflows ie. Optimistic, pessimistic and most likely are made
A. Certainty equivalent method
B. Sensitivity technique
C. Standard deviation method
D. Coefficient of variation method
Answer: B.Sensitivity technique
348. ——- is a graphical representation of the relationship between a present decision and futureevents, future decisions and their consequences.
A. Certainty equivalent method
B. Sensitivity technique
C. Standard deviation method
D. Decision tree analysis
Answer: D.Decision tree analysis
349. The return after the pay off period is not considered in case of
A. Pay back method
B. NPV
C. Present value index
D. IRR
Answer: A.Pay back method
350. The cash inflows on account of operations are presumed to have been reinvested at the cutoff rate in case of
A. Pay back method
B. NPV
C. Accounting rate of return
D. IRR
Answer: B.NPV
351. The cost of each component of capital is known as
A. Specific cost
B. Combined cost
C. Average cost
D. Implicit cost
Answer: A.Specific cost
352. —— refers to that EBIT level at which EPS remains the same irrespective of the debt- equity mix.
A. Profit point
B. Cut off point
C. Point of indifference
D. None of these
Answer: C.Point of indifference
353. The use of long term fixed interest bearing debt and preference share capital along with equity shares is called
A. Operating leverage
B. Financial leverage
C. Trading on equity
D. Both b and c
Answer: D.Both b and c
354. Which of the following factors are considered when a capital structure decision is taken?
A. Cost of capital
B. Dilution of control
C. Floatation cost
D. All of the above
Answer: D.All of the above
355. The combination of debt and equity that leads to the maximum value of the firm is called
A. Financial structure
B. Capital structure
C. Optimal capital structure
D. None of these
Answer: C.Optimal capital structure
356. In optimal capital structure the company’s cost of capital will be
A. Minimum
B. Maximum
C. Medium
D. None of these
Answer: A.Minimum
357. The value of a firm on the basis of net operating income approach can be determined bydividing the earnings before interest and taxes by
A. Cost of equity
B. Cost of debt
C. Overall cost of capital
D. None of the above
Answer: C.Overall cost of capital
358. A company should follow the policy of —– gear during deflation or depression period
A. High gear
B. Low gear
C. Medium gear
D. Any of the above
Answer: B.Low gear
359. Which of the following is not a disadvantage of rate of return method of capital budgeting?
A. It ignores the time value of money
B. It uses the earnings of a project up to the payback period only
C. It does not take into consideration cash flows
D. This method can not be applied to a situation where investment in a project is to be made in parts.
Answer: B.It uses the earnings of a project up to the payback period only
360. A project having a profitability index of —— is accepted
A. PI<1 B. PI>1
C. PI=1
D. None of these
Answer: B.PI>1
361. The type of debt whose rate of interest changes according to the changes in the rate of interest payable on gilt edged securities or the prime lending rate of the bank is called
A. Floating rate debt
B. Variable rate debt
C. Fixed rate debt
D. Both a or b
Answer: D.Both a or b
362. .Earnings yield method is applied when the dividend pay out ratio is
A. Zero per cent
B. 100 per cent
C. 50 per cent
D. 20 percent
Answer: B.100 per cent
363. —– is the rate of return that the company must earn on the net funds raised, in order to satisfy the equity shareholders’ demand for return
A. Cost of retained earnings
B. Cost of external equity
C. Weighted average cost of capital
D. Marginal cost of capital
Answer: B.Cost of external equity
364. A project requires an investment of Rs500000and has scrape value of Rs.20000 after five years. It is expected to yield profits after depreciation and taxes during the five years amounting to Rs.40000,Rs60000, Rs.50000,Rs70000 and Rs20000.What is the average rate of return on the investment?
A. 10%
B. 11%
C. 12%
D. 13%
Answer: A.10%
365. Which of the following quantitative aspect of financial planning?
A. Capitalization
B. Capital structure
C. Organization structure
D. None of these
Answer: A.Capitalization
366. Which of the following qualitative aspect of financial planning?
A. Capitalization
B. Capital structure
C. Organization structure
D. None of these
Answer: B.Capital structure
367. Which of the following is/ are the assumptions of net income approach?
A. The cost of debt is less than the cost of equity
B. There are no taxes
C. The risk perception of investors is not changes by the use of the debt.
D. All of these
Answer: D.All of these
368. The overall cost of capital, according to which theory, decreases up to a certain point,remains more or less unchanged for moderate increase in debt thereafter and increases a certain point
A. Net income approach
B. Net operating income approach
C. Traditional theory
D. MM approach
Answer: C.Traditional theory
369. According to which theory two identical firms in all respect except their capital structure can not have different market value or cost of capital because of arbitrage process
A. Net income approach
B. Net operating income approach
C. Traditional theory
D. MM approach
Answer: D.MM approach
370. XLtd has taken a term loan of Rs12 lakhs at an interest rate of 15% p.a. If the tax rate applicable to the company is 40%, the cost of term loan is
A. 4.8%
B. 6%
C. 7.2%
D. 9%
Answer: D.9%
371. Agency cost arises due to
A. Cost over run in implementing new projects
B. Failure of budget cost
C. Restrictions imposed by the supplier of debt capital
D. Rise in the cost of production
Answer: C.Restrictions imposed by the supplier of debt capital
372. What do you mean by NPV?
A. Excess of cash inflows over cash outflows
B. Excess of cash outflows over cash inflows
C. Excess of the present value of cash out flows over the present value of cash inflows
D. Excess of the present value of cash inflows over the present value of cash outflows
Answer: D.Excess of the present value of cash inflows over the present value of cash outflows
373. Under NPV method, cash flows are assured to be reinvested at
A. Risk free rate of return
B. Cost of debt
C. IRR
D. Discount rate at which NPV is computed
Answer: D.Discount rate at which NPV is computed
374. The pay back period shows
A. Recovery period of original investment outlay
B. The time value of money
C. The cash inflows
D. None of the above
Answer: A.Recovery period of original investment outlay
375. Capital rationing is applied in a situation where
A. It is difficult to bring in required amount of capital
B. Financial institutions are doubtful or not sure of the validity of the project
C. A large number of investment proposals compete for limited funds
D. The dividend is converted into capital for completion of a new project
Answer: C.A large number of investment proposals compete for limited funds
376. If risk free rate of return is 8%, Return on market portfolio is 12%, beta = 1.5, then theexpected rate of return according to CAPM is equal to
A. 10%
B. 14%
C. 18%
D. 24%
Answer: B.14%
377. Net salvage value of a fixed asset is
A. Excess of salvage value over book value
B. Excess of book value over salvage value
C. Scrape value
D. Salvage value of fixed assets less any income tax payable on the excess of salvage value over book value
Answer: D.Salvage value of fixed assets less any income tax payable on the excess of salvage value over book value
378. The discount rate which equates the present value of cash inflows with the present value of cash out flows is called ——-
A. Opportunity cost
B. Sunk cost
C. explicit cost
D. Direct cost
Answer: C.explicit cost
379. A company can increase its value and reduce the overall cost of capital by increasing theproportion of debt in its capital structure according to —– approach
A. Net income approach
B. Net operating income approach
C. Traditional approach
D. None of these
Answer: A.Net income approach
380. Net income approach was suggested by
A. Modigliani and Miller
B. Durand
C. Walter
D. None of these
Answer: B.Durand
381. To judge the comparative risk of projects having same cost and same NPV which method is used
A. Certainty equivalent method
B. Sensitivity technique
C. Standard deviation method
D. Coefficient of variation method
Answer: C.Standard deviation method
382. While evaluating capital investment proposals, the time value of money is considered in case of
A. Pay back method
B. NPV
C. Accounting rate of return
D. None of these
Answer: B.NPV
383. Depreciation is included in cost in case of
A. Pay back method
B. NPV
C. Accounting rate of return
D. Present value index
Answer: C.Accounting rate of return
384. Which of the following is/ are the assumptions of net income approach?
A. The cost of debt is less than the cost of equity
B. There are no taxes
C. The risk perception of investors is not changed by the use of debt
D. All of the above
Answer: D.All of the above
385. Capital gearing refers to the relationship between equity capital and—–
A. Long term debt
B. Short term debt
C. Preference capital
D. None of these
Answer: A.Long term debt
386. A company should follow the policy of —– gear during inflation or boom period
A. High gear
B. Low gear
C. Medium gear
D. Any of the above
Answer: A.High gear
387. Which of the following factors is/ are considered when a capital structure decision is taken?
A. Cost of capital
B. Dilution control
C. Floatation cost
D. All of the above
Answer: D.All of the above
388. Which of the following is not a source of long term finance?
A. Equity capital
B. Preference capital
C. Commercial paper
D. Debenture capital
Answer: C.Commercial paper
389. A cumulative preference share is one
A. In which all the unpaid dividends are carried forward and payable.
B. Which can be converted into equity shares
C. Which can be redeemed
D. Which entitle the preference shareholders to participate in surplus profits and assets.
Answer: A.In which all the unpaid dividends are carried forward and payable.
390. Which of the following g is a determinant of working capital of a firm?
A. Depreciation policy
B. Taxes payable by the company
C. Production policy
D. All of the above
Answer: D.All of the above
391. Under trading means
A. Having low amount of working capital
B. High turnover of working capital
C. Sales are less compared to assets employed
D. Assets are less compared to sales generated
Answer: C.Sales are less compared to assets employed
392. which of the following was set up based on the recommendations of Vaghul Committee?
A. National Stock Exchange
B. Stock Holding Corporation of India Ltd
C. Discount and Finance House of India Ltd
D. National Securities Depository Ltd
Answer: C.Discount and Finance House of India Ltd
393. Shelf stock refers to
A. Perishable goods
B. Items that are to be packaged and sold
C. Stocks which is to be stored in the shelf
D. Items that are stored by the firm and sold with little or no modification
Answer: D.Items that are stored by the firm and sold with little or no modification
394. Which of the following is not an assumption of EOQ model?
A. Cost of carrying is a fixed proportion of the average value of inventory
B. The demand is even throughout the year
C. The usage for one year can be anticipated
D. Cost per order is proportional to the size of the order
Answer: D.Cost per order is proportional to the size of the order
395. Which of the following costs is not associated with inventories?
A. Material cost
B. Ordering cost
C. Carrying cost
D. Cost of long term debt locked in inventories
Answer: D.Cost of long term debt locked in inventories
396. When a company liberalizes its cash discount policy
A. It increases the cost of discount
B. It leads to an increase in the average collection period
C. The discount period may be lengthened
D. All of the above
Answer: D.All of the above
397. Which of the following is not associated with cash management of a firm?
A. Stretching accounts payable without affecting the credit of the firm
B. Speedy collection of receivables
C. Investing surplus funds in long term securities
D. Maintaining liquidity
Answer: C.Investing surplus funds in long term securities
398. Which of the following is not a motive for holding cash?
A. Transaction purpose
B. Precaution against unexpected expenses
C. Extending loans to group companies
D. Speculation purpose
Answer: C.Extending loans to group companies
399. Cash management does not call for
A. Lengthening creditor’s period
B. Lengthening debtor’s period
C. Investing surplus funds
D. Nullifying idle funds
Answer: B.Lengthening debtor’s period
400. Which of the following is not a function of a finance manager?
A. Mobilization of funds
B. Manipulate share price of the company
C. Deployment of funds
D. Control over use of funds
Answer: B.Manipulate share price of the company
401. Which of the following is not a part of the money market?
A. Call money market
B. Treasury bill market
C. Commercial paper market
D. Stock market
Answer: D.Stock market
402. The objective of financial management is to
A. Maximize the revenue
B. Minimize the expenses
C. Maximize the return on investment
D. Maximize the wealth of the owners by increasing the value of the firm
Answer: D.Maximize the wealth of the owners by increasing the value of the firm
403. Which of the following is the main objective of financial management?
A. Revenue Maximisation
B. Profit Maximisation
C. Wealth Maximisation
D. Cost Minimisation
Answer: C.Wealth Maximisation
404. Which one of the following activities is outside the purview of financing decision infinancial management?
A. Identification of the source of funds
B. Measurement of the cost of funds
C. Deciding on the time of raising the funds
D. Deciding on the utilization of the funds
Answer: D.Deciding on the utilization of the funds
405. A firm has a capital of Rs. 10 lakhs, sales of Rs. 5 lakhs, gross profit of Rs. 2 lakhs andexpenses of Rs. 1 lakh. The Net Profit Ratio is:
A. 50%
B. 40%
C. 20%
D. 10%
Answer: C.20%
406. Which of the following forms of equity financing is especially designed for fundingHigh Risk & High Reward projects?
A. ADR
B. GDR
C. FCCB
D. Venture Capital
Answer: D.Venture Capital
407. A process through which loans and other receivables are underwritten and sold in aform of asset is known as:
A. Factoring
B. Forfeiting
C. Securitisation
D. Bill Discounting
Answer: C.Securitisation
408. In Net Profit Ratio, the denominator is:
A. Credit Sales
B. Net Sales
C. Cost of Sales
D. Cost of Goods Sold
Answer: B.Net Sales
409. Current Assets Rs. 20,00,000; Current Liabilities Rs. 10,00,000 and Stock Rs. 2,00,000,then what is liquid ratio?
A. 2 times
B. 1.8 times
C. 1.4 times
D. None of these
Answer: B.1.8 times
410. Annual credit sales Rs. 4,00,000; Average collection period 45 days (assume 360 days in a year). What is Average debtors?
A. Rs. 60,000
B. Rs. 74,000
C. Rs. 50,000
D. Rs. 4,00,000
Answer: C.Rs. 50,000
411. Investment in a project is Rs. 200 lakhs and Net Present Value is Rs. 50 lakhs. Then theamount of inflows is :
A. Rs. 150 lakhs
B. Rs. 200 lakhs
C. Rs. 100 lakhs
D. Rs. 250 lakhs
Answer: D.Rs. 250 lakhs
412. PAT of a company Rs. 100 lakhs and number of equity shares of Rs. 10 each with acapital of Rs. 50 lakhs, then EPS is:
A. Rs. 2
B. Rs. 1
C. Rs. 10
D. None of these
Answer: D.None of these
413. Degree of operating leverage is:
A. EBIT / EBT
B. Contribution / EBT
C. Contribution / EBIT
D. None of these
Answer: C.Contribution / EBIT
414. Cost of goods sold is Rs. 8000 and gross margin is Rs. 5000 then revenue will be
A. Rs. 3,000
B. Rs. 5,000
C. Rs. 8,000
D. Rs. 13,000
Answer: D.Rs. 13,000
415. Present value of inflows Rs. 10 lakhs from a project and initial investment is Rs. 7.5lakhs. The NPV is:
A. Rs. 17.5 lakhs
B. Rs. 7.5 lakhs
C. Rs. 10 Lakhs
D. Rs. 2.5 lakhs
Answer: D.Rs. 2.5 lakhs
416. Cash & Bank Rs. 20,000; Debtors Rs. 2,00,000; Stock Rs. 2,80,000 and Current Liabilities:Creditors Rs. 1,00,000; Bills Payable Rs. 50,000. Then the working capital is:
A. Rs. 4,00,000
B. Rs. 3,80,000
C. Rs. 3,50,000
D. Rs. 70,000
Answer: C.Rs. 3,50,000
417. 1,00,000; 10% Debentures of Rs. 100 each of company, the interest payable forquarter is:
A. Rs. 10,00,000
B. Rs. 2,50,000
C. Rs. 5,00,000
D. None of these
Answer: B.Rs. 2,50,000
418. Gross margin is added to cost of sold goods for calculating
A. revenues
B. selling price
C. unit price
D. bundle price
Answer: A.revenues
419. Cash Flow Statement is also known as
A. Statement of Changes in Financial Position on Cash basis
B. Statement accounting for variation in cash
C. Both a and b
D. None of the above
Answer: C.Both a and b
420. Degree of financial leverage of business indicates.
A. Total risk
B. Operating risk
C. Financial risk
D. None of these
Answer: C.Financial risk
421. Which of the following is not a characteristic of GDR?
A. Is a negotiable instrument
B. Carry voting rights
C. Freely tradable in International Market
D. Denominated in US Dollars
Answer: B.Carry voting rights
422. Which of the following is a feature of Factoring?
A. Tool of short term borrowing
B. Purchase of export bill only
C. Used in Export business only
D. Done without recourse to the client
Answer: A.Tool of short term borrowing
423. Which of the following is a Profitability Ratio?
A. Proprietary Ratio
B. Debt –equity Ratio
C. Price Earnings Ratio
D. Fixed Asset Ratio
Answer: C.Price Earnings Ratio
424. GP Margin=20%, GP= Rs. 54000, Sales=
A. Rs. 300000
B. Rs. 270000
C. Rs. 280000
D. Rs. 290000
Answer: B.Rs. 270000
425. EBIT= Rs. 1120000, PBT= Rs. 320000, Fixed Costs= Rs. 700000, Operating Leverage =
A. 1.625
B. 2.625
C. 6.625
D. 3.625
Answer: A.1.625
426. Which of the following is not a Source of Fund?
A. Issue of Capital
B. Issue of Debenture
C. Decrease in working capital
D. Increase in working capital
Answer: D.Increase in working capital
427. Determinants of credit policy relates to:
A. Credit standards
B. Credit terms
C. Collection Procedures
D. All of the above
Answer: D.All of the above
428. The following is not a Discounted Cash Flow Technique:
A. NPV
B. PI
C. Accounting of Average rate of return
D. IRR
Answer: C.Accounting of Average rate of return
429. β (Beta) of a security measures its:
A. Diversifiable risk
B. Financial risk
C. Market risk
D. None of above
Answer: C.Market risk
430. Following method is also known as ‘Benefit Cost Ratio.’
A. NPV
B. IRR
C. ARR
D. PI
Answer: D.PI
431. ROI (Return on Investment) can be decomposed into the following ratios:
A. Overall Turnover Ratio and Current Ratio
B. Net Profit Ratio and Fixed Assets Turnover
C. Working Capital Turnover Ratio and Net Profit Ratio
D. Net Profit Ratio and Overall Turnover Ratio
Answer: D.Net Profit Ratio and Overall Turnover Ratio
432. Which one of the following activities is outside the purview of dividend decision infinancial management?
A. Identification of the profit after taxes
B. Measurement of the cost of funds
C. Deciding on the pay-out ratio
D. Considering issue of bonus shares to equity shareholders
Answer: B.Measurement of the cost of funds
433. Which of the following does not help to increase Current Ratio?
A. Issue of Debentures to buy Stock
B. Issue of Debentures to pay Creditors
C. Sale of Investment to pay Creditors
D. Avail Bank Overdraft to buy Machine
Answer: D.Avail Bank Overdraft to buy Machine
434. Which of the following statements is correct?
A. A higher Receivable Turnover is not desirable.
B. Interest Coverage Ratio depends upon Tax Rate.
C. Increase in Net Profit Ratio means increase in Sales
D. Lower Debt Equity Ratio means lower Financial Risk
Answer: D.Lower Debt Equity Ratio means lower Financial Risk
435. “Shareholders Wealth” in a firm is reflected by:
A. the number of people employed in the firm
B. the book value of the firm’s assets less the book value of its liabilities
C. the amount of salary paid to its employees
D. the market price per share of the firm
Answer: D.the market price per share of the firm
436. The excess of Current Assets over Current Liabilities is called:
A. Net Current Assets
B. Net Working Capital
C. Working Capital
D. All of the above
Answer: D.All of the above
437. Profit Maximization is the main objective of business because:
A. Profit acts as a measure of efficiency and
B. It serves as a protection against risk
C. Both
D. none
Answer: C.Both
438. Stock holder’s wealth = ____________
A. No. of shares owned x Current stock price per share
B. No. of shares owned x Current stock price per share
C. No. of shares owned x Current stock price per share
D. none
Answer: A.No. of shares owned x Current stock price per share
439. Working Capital Management refers to a Trade-off between _____________andProfitability.
A. Liquidity
B. Risk
C. Both of the above
D. None of the above
Answer: C.Both of the above
440. Which one of the following is a medium term source?
A. Public Deposits
B. Lease Financing
C. Euro Debt Issue
D. All of the above
Answer: D.All of the above
441. The lease period in such a contract is less than the useful life of asset. Here we aretalking about _______.
A. Operating or Service Lease
B. Service Lease
C. Financial Lease
D. None of the above
Answer: A.Operating or Service Lease
442. Which one is the Benefit(s) of Factoring?
A. Better Cash Flows
B. Better Assets Management
C. Better Working Capital Management
D. All of the above
Answer: D.All of the above
443. Find the present value of Rs. 1,000 receivable 6 years hence if the rate of discount is10 percent.
A. 564.5
B. 554.5
C. 574.5
D. 600
Answer: A.564.5
444. The term _______means manipulation of accounts in a way so as to conceal vital facts and present the financial statements in a way to show a better position than what it actually is.
A. window dressing
B. creative accounting
C. window accounting
D. modified accounting
Answer: A.window dressing
445. Collateralized borrowing and lending obligation (CBLO) is a discounted instrumentavailable in electronic book entry for the maturity period ranging from __________.
A. 1 day to 19 days
B. 1 day to 15 days
C. 1 day to 30 days
D. None of the above
Answer: A.1 day to 19 days
446. IPO refers to ____________; the first time a company comes to public to raise money.
A. Immediate Public Offer
B. Immediate Public Offering
C. Initial Public Offer
D. Initial Public Offering
Answer: D.Initial Public Offering
447. SPO refers to ________, the second and subsequent time a company raises moneyfrom the public directly.
A. Second Public Offering
B. Subsequent Public Offering
C. Subsequent Public Offer
D. Seasonal Public Offering
Answer: B.Subsequent Public Offering
448. Liquid Liability = Current Liability – Bank Overdraft – ___________
A. Cash Credit
B. Trade Credit
C. Both of the above
D. None of the above
Answer: A.Cash Credit
449. Ratio analysis is the process of determining and interpreting numerical relationshipsbased on _______.
A. Financial values
B. Financial statements
C. Financial numerical information
D. All of the above
Answer: D.All of the above
450. Ratio analysis is based on __________ measure.
A. relative
B. absolute
C. Both of the above
D. None of the above
Answer: A.relative
451. The persons interested in the analysis of financial statements can be grouped as_________.
A. Owners or investors
B. Creditors
C. Financial executives
D. All of the above
Answer: D.All of the above
452. The term “Operating Profit” means profit before __________________.
A. interest
B. tax
C. interest and tax
D. interest or tax
Answer: C.interest and tax
453. Debt- equity Ratio is an example of ________________.
A. Short term solvency Ratio
B. Long term solvency Ratio
C. Profitability Ratio
D. None of the above
Answer: B.Long term solvency Ratio
454. In Cash Flow Statement, Cash includes________________.
A. cash on hand
B. demand deposits with banks
C. cash on hand and demand deposits with banks
D. cash on hand or demand deposits with banks
Answer: C.cash on hand and demand deposits with banks
455. The treatment of interest and dividends received and paid depends upon the natureof the enterprise. For this purpose, the enterprises are classified as ____________.
A. (i) Financial enterprises, and (ii) Operating enterprises
B. (i) Financial enterprises, and (ii) Other enterprises
C. (i) Financial enterprises, and (ii) Non-Financial enterprises
D. (i) Trading enterprises, and (ii) Non – Trading enterprises
Answer: B.(i) Financial enterprises, and (ii) Other enterprises
456. Cash Flow Statement is _____________ for Income Statement or Funds Flow Statement.
A. not a substitute
B. a substitute
C. depends on situation
D. None of the above
Answer: A.not a substitute
457. Funds Flow Statement reveals the change in _______________ between two BalanceSheet dates.
A. Working capital
B. Internal capital
C. Share capital
D. Both (A) & (C)
Answer: A.Working capital
458. A firm following an aggressive working capital strategy would:
A. Hold substantial amount of fixed assets
B. Minimize the amount of short term borrowing
C. Finance fluctuating assets with long term financing
D. Minimize the amount of fund in very liquid assets
Answer: D.Minimize the amount of fund in very liquid assets
459. Which of the following would be consistent with a conservative approach to financingworking capital?
A. Financing short-term needs with short-term funds
B. Financing short-term needs with long-term debt
C. Financing seasonal needs with short-term funds
D. Financing some long-term needs with short-term fund
Answer: B.Financing short-term needs with long-term debt
460. To financial analysts, “net working capital” means the same thing as __________.
A. total assets
B. fixed assets
C. current assets
D. current assets minus current liabilities
Answer: D.current assets minus current liabilities
461. Baumol’s Model of Cash Management attempts to:
A. Minimise the holding cost
B. Minimization of transaction cost
C. Minimization of total cost
D. Minimization of cash balance
Answer: C.Minimization of total cost
462. Which of the following is not considered by Miller-Orr Model?
A. Variability in cash requirement
B. Cost of transaction
C. Holding cost
D. Total annual requirement of cash
Answer: D.Total annual requirement of cash
463. A firm is said to be financially unlevered firm if the firm has ……….
A. only external equity in its capital structure
B. only owner‘s equity in its capital structure
C. both external equity and owner‘s equity in its capital structure
D. only equity share capital in its capital structure
Answer: B.only owner‘s equity in its capital structure
464. The term optimal capital structure‘ implies that combination of external equity andinternal equity at which ………
A. the overall cost of capital is minimised
B. the overall cost of capital is maximised
C. the market value of the firm is minimised
D. the market value of firm is greater than the overall cost of capital
Answer: A.the overall cost of capital is minimised
465. Net Income Approach to capital structure decision was proposed by …….
A. J. E. Walter
B. M.H. Miller and D.Orr
C. E. Solomon
D. D. Durand
Answer: D.D. Durand
466. There is a reciprocal relationship between ……………….
A. DOL and DFL
B. DOL and margin of safety ratio
C. DFL and margin of safety ratio
D. DOL and break-even-point
Answer: B.DOL and margin of safety ratio
467. The genesis of financial risk lies in …………….
A. capital budgeting decision
B. capital structure decision
C. dividend decision
D. liquidity decision
Answer: B.capital structure decision
468. Financial break-even point is that level of EBIT at which ………….
A. EPS > 0
B. EPS < 0 C. EPS = 0 D. EPS > 1
Answer: C.EPS = 0
469. In mutually exclusive projects, projects which are selected for comparison must have
A. positive net present value
B. negative net present value
C. zero net present value
D. none of the above
Answer: A.positive net present value
470. In a single projects situation, results of internal rate of return and net present valuelead to
A. cash flow decision
B. cost decision
C. same decisions
D. different decisions
Answer: C.same decisions
471. The discount rate which forces net present values to become zero is classified as
A. positive rate of return
B. negative rate of return
C. external rate of return
D. internal rate of return
Answer: D.internal rate of return
472. A point where profile of net present value crosses horizontal axis at plotted graphindicates project
A. costs
B. cash flows
C. internal rate of return
D. external rate of return
Answer: C.internal rate of return
473. Payback period in which an expected cash flows are discounted with the help ofproject cost of capital is classified as
A. discounted payback period
B. discounted rate of return
C. discounted cash flows
D. discounted project cost
Answer: A.discounted payback period
474. Number of years forecasted to recover an original investment is classified as
A. payback period
B. forecasted period
C. original period
D. investment period
Answer: A.payback period
475. In proper capital budgeting analysis, we evaluate incremental
A. Accounting income
B. Cash flow
C. Earnings
D. Operating profit
Answer: B.Cash flow
476. The term mutually exclusive investments mean:
A. Choose only the best investments
B. Selection of one investment precludes the selection of an alternative
C. The elite investment opportunities will get chosen
D. There are no investment options available
Answer: B.Selection of one investment precludes the selection of an alternative
477. Which of the following is a Profitability Ratio?
A. Proprietary Ratio
B. Debt-Equity Ratio
C. Price-Earning Ratio
D. Fixed Asset Ratio
Answer: C.Price-Earning Ratio
478. The ‘Dividend-Payout Ratio’ is equal to
A. The Dividend yield plus the capital gains yield
B. Dividends per share divided by Earning per Equity Share
C. Dividends per share divided by par value per share
D. Dividends per share divided by current price per share
Answer: B.Dividends per share divided by Earning per Equity Share
479. If EBIT = Rs. 1,00,000, Fixed Assets = Rs. 2,00,000, Sales = Rs. 10,00,000 and VariableCost = Rs. 7,00,000. Then, the Operating Leverage will be
A. 2
B. 3
C. 6
D. 4
Answer: B.3
480. Which of the following is not considered while preparing cash budget?
A. Accrual Principal
B. Difference in Capital and Revenue items
C. Conservation Principle
D. All of the above
Answer: D.All of the above
481. At Indifference level of EBIT, different capitals have:
A. same EBIT
B. same EPS
C. same PAT
D. same PBT
Answer: B.same EPS
482. ABC Analysis is used in
A. Inventory Management
B. Receivables Management
C. Accounting Policies
D. Corporate Governance
Answer: A.Inventory Management
483. Which of the following is not incorporated in Capital Building?
A. Tax-Effect
B. Time Value of Money
C. Required Rate of Return
D. Rate of Cash Discount
Answer: D.Rate of Cash Discount
484. Objective of Financial Management is
A. Management of Liquidity
B. Maximization of Profit
C. Maximization of Shareholders’ Wealth
D. Management of Fixed Assets
Answer: C.Maximization of Shareholders’ Wealth
485. Which of the following variables is not known in Internal Rate of Return?
A. Initial Cash Flows
B. Discount Rate
C. Terminal Inflows
D. Life of the Project
Answer: B.Discount Rate
486. Cost of Capital refers to
A. Floatation Cost
B. Dividend
C. Required Rate of Return
D. None of the above
Answer: C.Required Rate of Return
487. Working Capital Management involves financing and management of
A. All Assets
B. All Current Assets
C. Cash and Bank Balance
D. Receivables and Payables
Answer: B.All Current Assets
488. All listed companies are required to prepare
A. Funds Flow statement
B. Cash Flow Statement
C. Statement of Affairs
D. All of the above
Answer: B.Cash Flow Statement
489. Ratio Analysis can be used to study liquidity, turnover, profitability etc., of a firm. What does Debt-Equity Ratio help to study?
A. Solvency
B. Liquidity
C. Profitability
D. Turnover
Answer: A.Solvency
490. A firm determines the shareholders’ wealth by taking
A. the number of people employed in the firm
B. the book value of the firm’s assets less the book value of its liabilities
C. the amount of salary paid to its employees
D. the market price per share of the firm
Answer: B.the book value of the firm’s assets less the book value of its liabilities
491. Capital Budgeting techniques which considers the time value of money is based on
A. Cash Flows of the organization
B. Accounting Profit of the organization
C. Interest Rate on Borrowings
D. Last Dividend Paid
Answer: A.Cash Flows of the organization
492. Debt Financing is a cheaper source of finance because of
A. Time Value of Money
B. Rate of Interest
C. Tax-deductibility of Interest
D. Dividends not Payable to lenders
Answer: C.Tax-deductibility of Interest
493. What should be the optimum Dividend payout ratio, when r=12% and Ke=10%?
A. Zero
B. 50%
C. 12%
D. 100%
Answer: A.Zero
494. The term Float is used in
A. Receivable Management
B. Cash Management
C. Marketable Management
D. Inventory Management
Answer: B.Cash Management
495. Financial planning is ———- function of a finance manager
A. Executive
B. Incidental
C. Auxiliary
D. None of these
Answer: A.Executive
496. Profit maximization may lead to better and efficient utilization of the recourses only when there is ———–
A. Monopoly
B. Oligopoly
C. Perfect competition
D. None of these
Answer: C.Perfect competition
497. During inflationary period the risk free interest rate will be …………………………….
A. Lower
B. Does not change
C. Higher
D. Cannot say
Answer: C.Higher
498. Implicit cost also called ………………………….
A. Marginal cost
B. Composite cost
C. Opportunity cost
D. Average cost
Answer: C.Opportunity cost
499. After tax cost of debt is equal to (1-t)x
A. Ko
B. WACC
C. Before tax cost of debt
D. KE
Answer: C.Before tax cost of debt
500. Cost of irredeemable preferences share capital is equal to kp=preference dividend divided by
A. Total liabilities
B. Face value Preference issue
C. Total capital
D. Net proceeds
Answer: D.Net proceeds
501. In India ,preference shares must be redeemed within a period
A. 3 year of issue
B. 6 years of issue
C. 10 years of issue
D. 20 years of issue
Answer: C.10 years of issue
502. Dividend yield method the cost of equality is ascertained as a percentage of
A. Expected dividend
B. IRR
C. WACC
D. Expected profits
Answer: A.Expected dividend
503. In the case of existing shares cost of equity is computed under dividend yield method by dividing dividend per share with
A. Face value
B. Market value
C. Net proceeds
D. None of these
Answer: B.Market value
504. The weighted average cost of new or additional capital is called
A. Opportunity cost
B. Composite cost
C. Marginal cost
D. Average cost
Answer: C.Marginal cost
505. The ratio between debt and equity in the total capitalization is called
A. Capital gearing
B. Capitalization
C. Capital structure
D. Financial structure
Answer: A.Capital gearing
506. Capital composition of a company including long term, medium term and short term finances
A. Capital gearing
B. Capitalization
C. Capital structure
D. Financial structure
Answer: D.Financial structure
507. According NO1 theory, increase in EBIT will
A. Increase the value of the firm
B. Decrees the value of firm
C. Not affect value
D. Increase when debt is increased
Answer: A.Increase the value of the firm
508. According NO1 theory ,value of firm is
A. Related to its capital structure
B. Not related to its capital structure
C. Related to debt
D. Related to overall cost of capital
Answer: B.Not related to its capital structure
509. ————— theory says that the value of a firm will be different stages of growth
A. Net income
B. NOI
C. M M theory
D. Traditional theory
Answer: D.Traditional theory
510. Redundant working capital means
A. Optimum working capital
B. Shortage of working capital
C. Idle working capital
D. None of these
Answer: C.Idle working capital
511. Floating capital means
A. Liquid capital
B. Permanent working capital
C. Redundant working capital
D. Gross working capital
Answer: A.Liquid capital
512. According to ————- approach, cash inflow from assets should match with the cash outflow required to acquire them.
A. Aggressive approach
B. Hedging approach
C. Conservative approach
D. Optimization
Answer: B.Hedging approach
513. The appropriate objective of an enterprise is :
A. Maximization of sales
B. Maximization of owners wealth
C. Maximization of profits
D. None of these
Answer: B.Maximization of owners wealth
514. The job of finance manager is confined to:
A. Raising of funds
B. Management of cash
C. Raising of funds and their effective utilization
D. None of the above
Answer: C.Raising of funds and their effective utilization
515. Financial decision involve
A. Investment, financing and dividend decisions
B. Investment, financing and sales decisions
C. Financing, dividend and cash decisions
D. None of the above
Answer: A.Investment, financing and dividend decisions
516. The possibility that a company will have lower than anticipated profits is called ———————
A. Financial risk
B. Operational risk
C. Business risk
D. Technological risk
Answer: C.Business risk
517. ——————– refers to the risk associated with the capital structure composition
A. Financial risk
B. Operational risk
C. Business risk
D. Technological risk
Answer: A.Financial risk
518. When contribution is dividend with EBIT we get
A. Operating leverage
B. Financial leverage.
C. P/V ratio
D. EPS
Answer: A.Operating leverage
519. According to —————— the degree of leverage is irrelevant in determining the value of a firm
A. MM theory
B. Walter’s model
C. Baumol’s model
D. None of these
Answer: A.MM theory
520. ————— leverage is obtained from the equation EBIT/EBT
A. Operating leverage
B. Financial leverage
C. Combined leverage
D. None of these
Answer: B.Financial leverage
521. Buying a security from low priced market and selling at high priced market is called ————-
A. Speculation
B. Arbitrage
C. Gangbling
D. Investment
Answer: B.Arbitrage
522. The traditional approach of capital structure was propounded by ——————-
A. David Durand
B. Solomon Ezra
C. Modigilani-Mille
D. None of these
Answer: B.Solomon Ezra
523. Net operating income(NOI) approach was propounded by ————
A. Solomon Ezra
B. David Durand
C. Modigilani-Miller
D. None of these
Answer: C.Modigilani-Miller
524. According to NOI theory, the value of the firm depends on ———–
A. Financial risk
B. Operational risk
C. Technological risk
D. Business risk
Answer: C.Technological risk
525. ————— theory is applicable only when the dividend pay out ratio is 100%
A. MM theory
B. NOI theory
C. Net income approach
D. None of these
Answer: A.MM theory
526. Which is the limitation of traditional approach of financial management
A. Ignores allocation of resources
B. One sided approach
C. More emphasis on long term problems
D. All of these
Answer: D.All of these
527. The finance function is/are ———————-
A. Determination of financial requirement of the firm
B. Obtaining necessary finance from the appropriate sources at minimum possible cost
C. The allocation of finance in different assets
D. All of these
Answer: D.All of these
528. Financial management is a part of ———————
A. Financial accounting
B. Business management
C. Accounting
D. Tax law
Answer: B.Business management
529. The financial management is responsible for the
A. Controlling of the Organization
B. Organizing trading programs
C. Recording the transaction
D. Finance function of the firm
Answer: D.Finance function of the firm
530. Financial management includes ——————-
A. Measurement of performance
B. Finance function
C. Financial resources
D. All of these
Answer: A.Measurement of performance
531. Profit maximization includes ———————
A. It is indicator of economic efficiency
B. Source of incentive
C. Maximization of social benefit
D. Measurement of success of business decisions
Answer: D.Measurement of success of business decisions
532. Function of finance officers includes ———————–
A. Continuous credit
B. Co-ordination in fund
C. Preparation of cost account
D. Adequate liquidity
Answer: D.Adequate liquidity
533. The term value implies the ————
A. Task of estimating the worth of an asset
B. Task of estimating the worth of a security
C. Task of estimating the value of a business
D. All of these
Answer: D.All of these
534. Which is a type of value
A. Book value
B. Retailer or wholesaler value
C. Plant value
D. Domestic value
Answer: A.Book value
535. Which is the approach of valuation
A. Asset based approach to valuation
B. Earnings based approach to valuation
C. Market value based approach to valuation
D. All f these
Answer: A.Asset based approach to valuation
536. Total assets – Total external liabilities equal to ———————
A. Net asset
B. Net liabilities
C. Net cost
D. Net depreciation
Answer: A.Net asset
537. The arrangement of working capital and current assets can be done only by ——————-
A. Short term sources
B. Long term sources
C. Cost of capital
D. Financial plan
Answer: D.Financial plan
538. Which is the source of short term
A. Trade credit
B. Short term bank finance
C. Public deposits
D. All of these
Answer: D.All of these
539. Which is the type of trade credit
A. Open account
B. Bills of exchange
C. Promissory note
D. All of these
Answer: D.All of these
540. Which is the form of credit
A. Overdraft
B. Cash credit
C. Discounting of trade bills
D. Loans and advances
Answer: A.Overdraft
541. Which is the characteristics of share capital
A. Getting permanent capital
B. Payment of dividend is not compulsory
C. No mortgage of property
D. Limited liability
Answer: A.Getting permanent capital
542. The ownership capital of Joint Stock Companies is dividend in its ————–
A. Equity shares
B. Debentures
C. Bonds
D. Debentures and preference shares
Answer: D.Debentures and preference shares
543. The payment of dividend is not compulsory on ——————
A. Equity share capital and preference share capital
B. Bonds
C. Debentures
D. Share capital
Answer: D.Share capital
544. The capital raised through equity share is ———- for the company
A. Floating capital
B. Variable capital
C. Temporary capital
D. Permanent or fixed capital
Answer: D.Permanent or fixed capital
545. The control and management of the company is in the hands of —-
A. Debenture holders
B. Bondholders
C. Equity shareholders
D. Employees
Answer: C.Equity shareholders
546. Who have the last right on the company assets
A. Bondholders
B. Equity shareholders
C. Debenture holders
D. Preference shareholders
Answer: B.Equity shareholders
547. The equity shareholders are owners of ———————
A. Residual income of the company
B. Cost of asset
C. Limited liability
D. Cost of capital
Answer: A.Residual income of the company
548. Which is the advantage of the share capital
A. Permanent capital by sharing risk
B. No fixed burden of dividend by all of these
C. All of these
D. None of these
Answer: D.None of these
549. When the expansion of business and income is there, then the market value increases which result in ——————
A. Capital gain by capital loss
B. Capital expense
C. Reserves
D. None of these
Answer: A.Capital gain by capital loss
550. If the company announces dividend then it is necessary to pay if
A. Within a certain time
B. Within five years
C. Within six years
D. Within seven years
Answer: A.Within a certain time
551. Which ratio explains that how much portion of earning is distributed in the form of dividend
A. Dividend per Share Ratio
B. Pay Out Ratio
C. Earning yield Ratio
D. Equity Capital Ratio
Answer: B.Pay Out Ratio
552. Preference shares are those shares whose holders have ————-
A. Certain common rights
B. Certain preferential Rights
C. Return on capital ownership on shares
D. Return on capital
Answer: B.Certain preferential Rights
553. When preference shareholders have a right to convert their preference shares in to equity shares after a pre-decided dare such shares are called ——– shares.
A. Participating
B. Convertible
C. Redeemable
D. Irredeemable
Answer: A.Participating
554. Which is the element of cumulative convertible preference shares?
A. The rate of dividend will be 10%
B. The rate of dividend is 20%
C. No risk
D. No return
Answer: A.The rate of dividend will be 10%
555. ———– have veto power to protect their preferential rights
A. Preference shareholder
B. Debenture holders
C. Common preference share
D. Right shares
Answer: C.Common preference share
556. The company can reduce its capital by ————-
A. Convertible share
B. Payment of loan
C. Redemption of redeemable preference shares
D. Payment of interest
Answer: A.Convertible share
557. Which is the type of dividend?
A. Cash dividend
B. Interest
C. Profit cum reserve
D. Flexible capital
Answer: A.Cash dividend
558. The dividend on equity shares is only paid when dividend on ———- has already been paid
A. Equity shares
B. Preference shares
C. Bond
D. Debenture
Answer: B.Preference shares
559. Which shares are not redeemed during lifetime of the company?
A. Equity shares
B. Preference shares
C. Redeemable pre-shares
D. All of these
Answer: A.Equity shares
560. “ A debenture is a document which either creates a debt or acknowledge it” . who said?
A. Justice Chitty
B. Tophan’s Company law
C. J. Betty
D. Hoston D
Answer: A.Justice Chitty
561. Which is the current liability?
A. Bills payable
B. Bank overdraft
C. Creditors and proposed dividend
D. All of these
Answer: D.All of these
562. Reserve is an —————
A. Additional part of profit
B. Additional loss
C. Liability
D. Cost
Answer: A.Additional part of profit
563. If there is over capitalization in the company, the redemption of debenture can lead to—————
A. Cost of capital
B. Balanced capital structure
C. Equity
D. Dividend
Answer: B.Balanced capital structure
564. The interest on debenture may be —————
A. Fixed liability
B. Flexible liability
C. More cost
D. Less cost
Answer: A.Fixed liability
565. The issue of debenture is done only by the ————–
A. New company
B. New firm
C. New partnership
D. Established and reputed companies
Answer: D.Established and reputed companies
566. The debentures are used only by those companies whose ————
A. Goodwill is more
B. Goodwill is less
C. Worth is less
D. All of these
Answer: A.Goodwill is more
567. The debentures are issued on the security of —————-
A. Fixed assets
B. Fixed capital
C. Current Assets
D. Current liabilities
Answer: A.Fixed assets
568. Every debenture holders is a —————-
A. Owner of the company
B. Creditor of the company
C. Supplier of the company
D. Customer of the company
Answer: B.Creditor of the company
569. A company should arrange the capital structure in such a way that there is maximum flexibility in the capital and cost of capital is
A. Maximum
B. Minimum
C. Expensive
D. All of the above
Answer: B.Minimum
570. Term loans are those loans which are payable after one or more ______________
A. years
B. Time
C. Costly
D. All of these
Answer: A.years
571. The redemption means
A. The payment of amount
B. The depreciation of the amount
C. The allocation of cost
D. All of these
Answer: A.The payment of amount
572. Refunding means
A. Issue of new debenture
B. Issue of capital
C. Disposable cost
D. Issue new debentures in place of old debentures
Answer: D.Issue new debentures in place of old debentures
573. Conversion means
A. Debentures are converted in to equity shares
B. Registration of cost
C. Accounting the transaction
D. Debenture holders are allotted equity shares
Answer: D.Debenture holders are allotted equity shares
574. Stock is ——————–
A. Current asset
B. Fixed asset
C. Fixed capital
D. All of these
Answer: A.Current asset
575. Earnings means ———————–
A. Profit
B. Loss
C. Capital
D. Reserve
Answer: A.Profit
576. Face value per debenture less issue expenses equal to —————
A. Net proceeds per debentures
B. Cost of capital
C. Loss
D. Profit
Answer: A.Net proceeds per debentures
577. Capital budgeting means —————————-
A. Planning for capital asset
B. Planning for sales
C. Planning for cash
D. Planning for profit
Answer: A.Planning for capital asset
578. Capital budgeting is the process of making investment decisions in the ———-
A. Sales
B. Sales planning
C. Cash
D. Capital expenditure
Answer: D.Capital expenditure
579. Capital budgeting is ————–
A. Actually the process of making investment decision in capital expenditure
B. A cost
C. A sales
D. A profit
Answer: A.Actually the process of making investment decision in capital expenditure
580. Capital budgeting is known as —————–
A. Cost of sales
B. Capital expenditure
C. Cost of product
D. Profit
Answer: B.Capital expenditure
581. Capital budgeting is ————————
A. Related to long time
B. Related to short time
C. A profit
D. A sales
Answer: A.Related to long time
582. Capital budgeting actually the process of making investment decisions in ———–
A. Production process and style
B. Sales planning
C. Fixed asset
D. Current asset
Answer: C.Fixed asset
583. Capital budgeting is also known as ——————–
A. Investment decision making
B. Capital expenditure decisions
C. Planning capital expenditure
D. All of these
Answer: D.All of these
584. “Capital budgeting is long term planning for making and financing proposed capital outlays”. Who said?
A. Charles T. Horngreen
B. Philippatos
C. J Betty
D. Lynch
Answer: A.Charles T. Horngreen
585. Capital budgeting investment decision involves ———————–
A. Long term function
B. Long term asset
C. Capital expenditure
D. All of these
Answer: A.Long term function
586. Which is the element of capital budgeting decision
A. Long term effect
B. Long term investment
C. Capital expenditure
D. Large investment
Answer: D.Large investment
587. Capital budgeting process involves ——————–
A. Final approval
B. Performance review
C. Establishing priorities
D. All of these
Answer: D.All of these
588. Which is the step of capital budgeting process?
A. Project generation
B. Project evaluation
C. Project selection
D. Project execution
Answer: D.Project execution
589. Which is the traditional method of capital budgeting
A. Payback period
B. Pay out method
C. Accounting method
D. All of these
Answer: D.All of these
590. Which is the time adjusting method of capital budgeting
A. NPV method
B. IRR method
C. Profitability Index Method
D. All of these
Answer: D.All of these
591. If the annual cash inflows are constant, the payback period can be computed by dividing cash outlay by —————-
A. Annual cash inflow
B. Profit
C. Expenses
D. Annual sales flows
Answer: D.Annual sales flows
592. If a project requires Rs.20,000 as initial investment and it will generate an annual inflow of Rs.2,000 for the 20 years, the pay back period will be ——————
A. 10 years
B. 20 years
C. 9 years
D. 2 years
Answer: A.10 years
593. Projects which yields the highest earnings are ——————
A. Selected
B. Rejected
C. Budgeted
D. All of these
Answer: A.Selected
594. The present value of total cash inflows should be compared with present value of ———————-
A. Cash inflows
B. Cash outflows
C. Investment
D. Income
Answer: B.Cash outflows
595. The proposal is accepted if the profitability index is more than —–
A. One by zero
B. Three
C. Five
D. Ten
Answer: A.One by zero
596. The proposal is rejected in case the profitability index is ————
A. Less than one
B. Less than zero
C. Less than two
D. Less than five
Answer: A.Less than one
597. The present value of all inflows are cumulated in ——————-
A. Order of sales by order of cash
B. Order of time
C. Order of investment
D. All of these
Answer: C.Order of investment
598. The performance report supplement with date on non-financial performance measures includes ——————
A. Market performance measures
B. Quality measures
C. Delivery measures
D. All of these
Answer: D.All of these
599. The investment of long term funds is made after a careful assessment of the various projects through ——————-
A. Cost of capital
B. Fund flow
C. Capital budgeting by sales
D. Marketing planning
Answer: C.Capital budgeting by sales
600. Which is the objective of a firm’s finance management?
A. The maximization of firm’s profit
B. The maximization of firm’s value
C. The maximization of firm’s wealth
D. All of these
Answer: D.All of these
601. Book building ——————–
A. Is a plant
B. Is a profit cum expenses
C. Is a process used for marketing a public offer of equity shares of a company
D. Is a cost
Answer: C.Is a process used for marketing a public offer of equity shares of a company
602. When an option is allowed to be exercised only on maturity date is called ————–
A. Indian option
B. European option
C. American option
D. Option
Answer: B.European option
603. Commercial paper effective from ———————
A. 1-1-1980
B. 1-1-1990
C. 1-1-1975
D. 1-1-1995
Answer: B.1-1-1990
604. In India commercial paper is regulated by ——————-
A. RBI
B. SEBI
C. SBI
D. Indian companies act 1956
Answer: A.RBI
605. The interest rate on commercial paper is determined by ————-
A. RBI
B. SEBI and Market Force
C. SBI
D. Market Force
Answer: D.Market Force
606. Factoring is a —————-
A. Cost of sales
B. Production plan
C. Financial planning
D. New financial service
Answer: D.New financial service
607. Factoring involves —————-
A. Provision of specialized services relating to credit investigation
B. Sales ledger management
C. Purchase and collection of debts
D. All of these
Answer: D.All of these
608. Which of the following recognizes risk in capital budgeting analysis by adjusting estimated cash flows and employs risk free rate to discount the adjusted cash flows?
A. Pay back period
B. Certainty equivalent approach
C. Cash
D. Inventory
Answer: B.Certainty equivalent approach
609. ————- rate at which discounts the cash flows to zero
A. Payback period by economic order quantity
B. Internal rate of return
C. Cash flow
D. None of these
Answer: C.Cash flow
610. The net present value is expressed in financial value, where as internal rate of return(IRR) is expressed in —————
A. Hundred by percentage terms
B. One thousand
C. All of these
D. None of these
Answer: B.One thousand
611. Return on assets is a ratio which measures —————-
A. Cost of capital
B. Cost of production
C. Profitability
D. Cost of sales
Answer: C.Profitability
612. Return on equity measures the profitability of ——————- invested in the firm
A. Capital
B. Equity funds
C. Book debt
D. Debentures and book dept
Answer: B.Equity funds
613. Which ratio reveals how profitability of the owner’s funds have been utilized by the firm?
A. Return on equity
B. Current ratio
C. Fixed asset ratio
D. Debt equity ratio
Answer: A.Return on equity
614. Capital employed is ———-
A. Assets + cash
B. Shareholders funds + Long funds
C. Cash + bank
D. Bank
Answer: B.Shareholders funds + Long funds
615. Financial leverage is —————-
A. EBIT/100* sales
B. EBIT/EBT
C. Sales/fixed asset
D. Profit/sales*capital
Answer: B.EBIT/EBT
616. Shareholder value analysis is an approach to Financial Management Development in ——————
A. 1970
B. 1980
C. 1990
D. 1996
Answer: B.1980
617. The term financial engineering is used to —————-
A. Cost of production
B. Risk management
C. Capital
D. Sales planning
Answer: B.Risk management
618. The packing order theory is based on ———–
A. Stable dividend policy
B. A performance for internal
C. All of these
D. None of these
Answer: D.None of these
619. SGR is stands for ————–
A. Sustainable Growth rate
B. Sales Growth rate
C. Sales Goodwill rate
D. Super Goodwill ratio
Answer: A.Sustainable Growth rate
620. A company may raise funds by issue of shares or ————-
A. By borrowings
B. By sales of goods
C. By sale of assets
D. By sale of services
Answer: A.By borrowings
621. Borrowings carry ———–
A. Fixed rate of interest
B. A flexible rate of interest
C. A fixed dividend
D. A flexible dividend
Answer: A.Fixed rate of interest
622. Which helps in deciding whether funds should be raised by internal equity or by borrowings>
A. Capital structure
B. Loan
C. Cash
D. Trading on equity
Answer: D.Trading on equity
623. Which are the determinants of capital structure?
A. Requirement of investors
B. Control
C. Tax
D. Govt. policy
Answer: D.Govt. policy
624. Which is the instrument of finance
A. Zero coupon bonds
B. Debt securitization
C. Credit card
D. All of these
Answer: D.All of these
625. Which is the part of restrictive covenants
A. Asset related covenants
B. Liability related covenants
C. Cash flow related covenants
D. All of these
Answer: D.All of these
626. LIBOR is a term of ————-
A. Capital market
B. Accounting
C. Common market
D. International Financial Market
Answer: D.International Financial Market
627. Foreign bonds are ——————-
A. Domestic currency bonds
B. Foreign currency bonds
C. Product loan
D. Currency
Answer: B.Foreign currency bonds
628. Foreign bonds, are foreign currency bonds and sold at the country of that currency and are subject to the restrictions as placed by that country on the ——————-
A. Foreigner’s fund
B. Domestic holder’s fund
C. Firm’s fund
D. All of these
Answer: A.Foreigner’s fund
629. Euro bond is a ————
A. Debt instrument
B. Foreign currency bond
C. Paper
D. Bill
Answer: A.Debt instrument
630. Eurobonds are debt instruments denominated in a currency issued —–
A. Outside the country
B. In the country
C. In the firm
D. Outside the firm
Answer: A.Outside the country
631. Bills discounting is a ———————–
A. Product of company
B. Accounting paper
C. Short term source of finance
D. Capital
Answer: C.Short term source of finance
632. The cost of capital is the rate of return of a company must earn on investment to maintain —————-
A. The value of the company
B. The value of the product
C. Price
D. Product quality
Answer: A.The value of the company
633. The cost of capital is ————–
A. The maximum rate of return
B. The minimum rate of return
C. A profit
D. A product
Answer: B.The minimum rate of return
634. The debt capital can be raised from issue of —–
A. Bonds
B. Equity share capital
C. Right share
D. Preference share capital
Answer: A.Bonds
635. The cost of debt capital is the ratio of interest payable on ———
A. Debenture
B. Equity share capital
C. Preference share capital
D. Retained earning
Answer: A.Debenture
636. Dividends are the ———- of a company distributed amongst members in proportion to their shares
A. Divisible profits
B. Indivisible profits
C. Reserves
D. Assets with cash and bank
Answer: A.Divisible profits
637. A sound dividend policy contains the ————- features
A. Stability
B. Distribution of dividend in cash
C. Gradually rising dividend ratio
D. All of these
Answer: D.All of these
638. This item can be treated as an item of current liability or as an item of appropriation
A. Dividend
B. Debentures
C. Reserve
D. Debtors
Answer: A.Dividend
639. “Shareholder wealth” in a firm is represented by:
A. the number of people employed in the firm.
B. the book value of the firm’s assets less the book value of its liabilities
C. the amount of salary paid to its employees.
D. the market price per share of the firm’s common stock.
Answer: D.the market price per share of the firm’s common stock.
640. The long-run objective of financial management is to:
A. maximize earnings per share.
B. maximize the value of the firm’s common stock.
C. maximize return on investment.
D. maximize market share.
Answer: B.maximize the value of the firm’s common stock.
641. What are the earnings per share (EPS) for a company that earned Rs. 100,000 last year in after-tax profits, has 200,000 common shares outstanding and Rs. 1.2 million in retained earning at the year end?
A. Rs. 100,000
B. Rs. 6.00
C. Rs. 0.50
D. Rs. 6.50
Answer: C.Rs. 0.50
642. A(n) would be an example of a principal, while a(n) would be an example of an agent.
A. shareholder; manager
B. manager; owner
C. accountant; bondholder
D. shareholder; bondholder
Answer: A.shareholder; manager
643. The market price of a share of common stock is determined by:
A. the board of directors of the firm.
B. the stock exchange on which the stock is listed.
C. the president of the company.
D. individuals buying and selling the stock.
Answer: D.individuals buying and selling the stock.
644. The focal point of financial management in a firm is:
A. the number and types of products or services provided by the firm.
B. the minimization of the amount of taxes paid by the firm.
C. the creation of value for shareholders.
D. the dollars profits earned by the firm.
Answer: C.the creation of value for shareholders.
645. ___________________ of a firm refers to the composition of its long-term funds and its capital structure.
A. Capitalisation
B. Over-capitalisation
C. Under-capitalisation
D. Market capitalization
Answer: A.Capitalisation
646. In the _______________, the future value of all cash inflow at the end of time horizon ata particular rate of interest is calculated.
A. Risk-free rate
B. Compounding technique
C. Discounting technique
D. Risk Premium
Answer: C.Discounting technique
647. ______________ is the price at which the bond is traded in the stock exchange.
A. Redemption value
B. Face value
C. Market value
D. Maturity value
Answer: C.Market value
648. _____________ enhance the market value of shares and therefore equity capital is notfree of cost.
A. Face value
B. Dividends
C. Redemption value
D. Book value
Answer: B.Dividends
649. In _______________ approach, the capital structure decision is relevant to the valuation of the firm.
A. Net income
B. Net operating income
C. Traditional
D. Miller and Modigliani
Answer: A.Net income
650. When __________ is greater than zero the project should be accepted.
A. Internal rate of return
B. Profitability index
C. Net present value
D. Modified internal rate of return
Answer: C.Net present value
651. ____________ is defined as the length of time required to recover the initial cash out-lay.
A. Payback-period
B. Inventory conversion period
C. Discounted payback-period
D. Budget period
Answer: A.Payback-period
652. _______________ refers to the amount invested in various components of current assets.
A. Temporary working capital
B. Net working capital
C. Gross working capital
D. Permanent working capital
Answer: C.Gross working capital
653. ____________ is the length of time between the firm’s actual cash expenditure and itsown cash receipt.
A. Net operating cycle
B. Cash conversion cycle
C. Working capital cycle
D. Gross operating cycle
Answer: A.Net operating cycle
654. _______________ refers to a firm holding some cash to meet its routine expenses that areincurred in the ordinary course of business.
A. Speculative motive
B. Transaction motive
C. Precautionary motive
D. Compensating motive
Answer: B.Transaction motive
655. _______________ refers to the length of time allowed by a firm for its customers tomake payment for their purchases.
A. Holding period
B. Pay-back period
C. Average collection period
D. Credit period
Answer: D.Credit period
656. Amounts due from customers when goods are sold on credit are called _____________.
A. Trade balance
B. Trade debits
C. Trade discount
D. Trade off
Answer: B.Trade debits
657. ____________________ and __________________________ are the two versions of goals of the financial management of the firm.
A. Profit maximisation, Wealth maximization
B. Production maximisation, Sales maximisation
C. Sales maximisation, Profit maximization
D. Value maximisation, Wealth maximisation
Answer: A.Profit maximisation, Wealth maximization
658. Consider the below mentioned statements: 1. A company is considered to be overcapitalised when its actual capitalisation is lower than the proper capitalisation as warranted by the earning capacity 2. Both over-capitalisation and under-capitalisation are detrimental to the interests of the society. State True or False:
A. 1-True, 2-True
B. 1-False, 2-True
C. 1-False, 2-False
D. 1-True, 2-False
Answer: B.1-False, 2-True
659. Consider the below mentioned statements: 1. The dividends are not cumulative for equity shareholders, that is, they cannot be accumulated and distributed in the later years. 2. Dividends are taxable. State True or False:
A. 1-True, 2-True
B. 1-False, 2-True
C. 1-False, 2-False
D. 1-True, 2-False
Answer: D.1-True, 2-False
660. ____________ and____________ carry a fixed rate of interest and are to be paid offirrespective of the firm’s revenues.
A. Debentures, Dividends
B. Debentures, Bonds
C. Dividends, Bonds
D. Dividends, Treasury notes
Answer: B.Debentures, Bonds
661. Consider the below mentioned statements: 1. A debt-equity ratio of 2:1 indicates that for every 1 unit of equity, the company can raise 2 units of debt. 2. The cost of floating a debt is greater than the cost of floating an equity issue. State True or False:
A. 1-True, 2-True
B. 1-False, 2-True
C. 1-False, 2-False
D. 1-True, 2-False
Answer: D.1-True, 2-False
662. Credit policy of every company is largely influenced by _____________ and_____________.
A. Liquidity, accountability
B. Liquidity, profitability
C. Liability, profitability
D. Liability, liquidity
Answer: B.Liquidity, profitability
663. XYZ is an oil based business company, which does not have adequate working capital. It fails to meet its current obligation, which leads to bankruptcy. Identify the type of decision involved to prevent risk of bankruptcy.
A. Investment decision
B. Dividend decision
C. Liquidity decision
D. Finance decision
Answer: C.Liquidity decision
664. The rate of interest offered by the fixed deposit scheme of a bank for 365 days and above is 12%. What will be the status of Rs. 20000, after two years if it is invested at this point of time?
A. Rs. 28032
B. Rs. 24048
C. Rs. 22056
D. Rs. 25088
Answer: D.Rs. 25088
665. How are earnings per share calculated?
A. Use the income statement to determine earnings after taxes (net income) and divide by the previous period’s earnings after taxes. Then subtract 1 from the previously calculated value.
B. Use the income statement to determine earnings after taxes (net income) and divide by the number of common shares outstanding.
C. Use the income statement to determine earnings after taxes (net income) and divide by the number of common and preferred shares outstanding.
D. Use the income statement to determine earnings after taxes (net income) and divide by the forecasted period’s earnings after taxes. Then subtract 1 from the previously calculated value
Answer: B.Use the income statement to determine earnings after taxes (net income) and divide by the number of common shares outstanding.
666. Which of the following would NOT improve the current ratio?
A. Borrow short term to finance additional fixed assets.
B. Issue long-term debt to buy inventory.
C. Sell common stock to reduce current liabilities.
D. Sell fixed assets to reduce accounts payable.
Answer: A.Borrow short term to finance additional fixed assets.
667. The gross profit margin is unchanged, but the net profit margin declined over the sameperiod. This could have happened if
A. cost of goods sold increased relative to sales.
B. sales increased relative to expenses.
C. Govt. increased the tax rate.
D. dividends were decreased.
Answer: C.Govt. increased the tax rate.
668. Palo Alto Industries has a debt-to-equity ratio of 1.6 compared with the industry averageof 1.4. This means that the company
A. will not experience any difficulty with its creditors.
B. has less liquidity than other firms in the industry.
C. will be viewed as having high creditworthiness.
D. has greater than average financial risk when compared to other firms in its industry.
Answer: D.has greater than average financial risk when compared to other firms in its industry.
669. Kanji Company had sales last year of Rs. 265 million, including cash sales of Rs. 25 million. If its average collection period was 36 days, its ending accounts receivable balance is closest to . (Assume a 365-day year.)
A. Rs. 26.1 million
B. Rs. 23.7 million
C. Rs. 7.4 million
D. Rs. 18.7 million
Answer: B.Rs. 23.7 million
670. A company can improve (lower) its debt-to-total assets ratio by doing which of the following?
A. Borrow more.
B. Shift short-term to long-term debt.
C. Shift long-term to short-term debt.
D. Sell common stock.
Answer: D.Sell common stock.
671. Which of the following statements (in general) is correct?
A. A low receivables turnover is desirable.
B. The lower the total debt-to-equity ratio, the lower the financial risk for a firm.
C. An increase in net profit margin with no change in sales or assets means a poor ROI.
D. The higher the tax rate for a firm, the lower the interest coverage ratio.
Answer: B.The lower the total debt-to-equity ratio, the lower the financial risk for a firm.
672. Debt-to-total assets (D/TA) ratio is .4. What is its debt-to-equity (D/E) ratio?
A. .2
B. .6
C. .667
D. .333
Answer: C..667
673. A firm’s operating cycle is equal to its inventory turnover in days (ITD)
A. plus its receivable turnover in days (RTD).
B. minus its RTD.
C. plus its RTD minus its payable turnover in days (P
D. .
Answer: A.plus its receivable turnover in days (RTD).
674. If the following are balance sheet changes:
Rs. 5,005 decrease in accounts receivable
Rs. 7,000 decrease in cash
Rs. 12,012 decrease in notes payable
Rs. 10,001 increase in accounts payable
a “use” of funds would be the:
A. Rs. 7,000 decrease in cash.
B. Rs. 5,005 decrease in accounts receivable.
C. Rs. 10,001 increase in accounts payable.
D. Rs. 12,012 decrease in notes payable.
Answer: D.Rs. 12,012 decrease in notes payable.
675. Uses of funds include a (an):
A. decrease in cash.
B. increase in any liability.
C. increase in fixed assets.
D. tax refund.
Answer: C.increase in fixed assets.
676. Which of the following would be included in a cash estimation/ budget?
A. depreciation charges.
B. dividends.
C. goodwill.
D. patent amortization.
Answer: B.dividends.
677. Which of the following is NOT a cash outflow for the firm?
A. depreciation.
B. dividends.
C. interest payments.
D. taxes.
Answer: A.depreciation.
678. Which of the following would be considered a application of funds?
A. a decrease in accounts receivable.
B. a decrease in cash.
C. an increase in account payable.
D. an increase in cash.
Answer: D.an increase in cash.
679. All of the following influence capital budgeting cash flows EXCEPT:
A. accelerated depreciation.
B. salvage value.
C. tax rate changes.
D. method of project financing used.
Answer: D.method of project financing used.
680. The estimated benefits from a project are expressed as cash flows instead of incomeflows because:
A. it is simpler to calculate cash flows than income flows.
B. it is cash, not accounting income, that is central to the firm’s capital budgeting decision.
C. this is required by the Internal Revenue Service.
D. this is required by the Securities and Exchange Commission.
Answer: B.it is cash, not accounting income, that is central to the firm’s capital budgeting decision.
681. A capital investment is one that
A. has the prospect of long-term benefits.
B. has the prospect of short-term benefits.
C. is only undertaken by large corporations.
D. applies only to investment in fixed assets.
Answer: A.has the prospect of long-term benefits.
682. A profitability index of .85 for a project means that:
A. the present value of benefits is 85% greater than the project’s costs.
B. the project’s NPV is greater than zero.
C. the project returns 85 cents in present value for each current dollar invest
Answer: C.the project returns 85 cents in present value for each current dollar invest
683. Which of the following statements is correct?
A. If the NPV of a project is greater than 0, its PI will equal 0.
B. If the IRR of a project is 0%, its NPV, using a discount rate, k, greater than 0, will be 0.
C. If the PI of a project is less than 1, its NPV should be less than 0.
D. If the IRR of a project is greater than the discount rate, k, its PI will be less than 1 and its NPV will be greater than 0.
Answer: C.If the PI of a project is less than 1, its NPV should be less than 0.
684. A project’s profitability index is equal to the ratio of the of a project’s future cashflows to the project’s .
A. present value; initial cash outlay
B. net present value; initial cash outlay
C. present value; depreciable basis
D. net present value; depreciable basis
Answer: A.present value; initial cash outlay
685. The discount rate at which two projects have identical is referred to as Fisher’s rate of intersection.
A. present values
B. net present values
C. IRRs
D. profitability indexes
Answer: B.net present values
686. Two mutually exclusive investment proposals have “scale differences” (i.e., the cost of the projects differ). Ranking these projects on the basis of IRR, NPV, and PI methods give contradictory results.
A. will never
B. will always
C. may
D. will generally
Answer: C.may
687. Preferred shareholders’ claims on assets and income of a firm come those of creditors those of common shareholders.
A. before; and also before
B. after; but before
C. after; and also after
D. equal to; and equal to
Answer: B.after; but before
688. You are considering two mutually exclusive investment proposals, project A and project B. B’s expected value of net present value is $1,000 less than that for A and A has less dispersion. On the basis of risk and return, you would say that
A. Project A dominates project B.
B. Project B dominates project A.
C. Project A is more risky and should offer greater expected value.
D. Each project is high on one variable, so the two are basically equal.
Answer: A.Project A dominates project B.
689. To increase a given present value, the discount rate should be adjusted
A. upward.
B. downward.
C. No change.
D. constant
Answer: B.downward.
690. In finance, “working capital” means the same thing as
A. total assets.
B. fixed assets.
C. current assets.
D. current assets minus current liabilities.
Answer: C.current assets.
691. Which of the following would be consistent with a more aggressive approach to financing working capital?
A. Financing short-term needs with short-term funds.
B. Financing permanent inventory buildup with long-term debt.
C. Financing seasonal needs with short-term funds.
D. Financing some long-term needs with short-term funds.
Answer: D.Financing some long-term needs with short-term funds.
692. Which asset-liability combination would most likely result in the firm’s having the greatest risk of technical insolvency?
A. Increasing current assets while lowering current liabilities.
B. Increasing current assets while incurring more current liabilities.
C. Reducing current assets, increasing current liabilities, and reducing long-term debt.
D. Replacing short-term debt with equity.
Answer: C.Reducing current assets, increasing current liabilities, and reducing long-term debt.
693. Which of the following illustrates the use of a hedging (or matching) approach to financing?
A. Short-term assets financed with long-term liabilities.
B. Permanent working capital financed with long-term liabilities.
C. Short-term assets financed with equity.
D. All assets financed with 50 percent equity, 50 percent long-term debt mixture.
Answer: B.Permanent working capital financed with long-term liabilities.
694. In deciding the appropriate level of current assets for the firm, management is confronted with
A. a trade-off between profitability and risk.
B. a trade-off between liquidity and marketability.
C. a trade-off between equity and debt.
D. a trade-off between short-term versus long-term borrowing.
Answer: A.a trade-off between profitability and risk.
695. varies inversely with profitability.
A. Liquidity.
B. Risk.
C. Financing.
D. Liabilities.
Answer: A.Liquidity.
696. Spontaneous financing includes
A. accounts receivable.
B. accounts payable.
C. short-term loans.
D. a line of credit.
Answer: B.accounts payable.
697. Permanent working capital
A. varies with seasonal needs.
B. includes fixed assets.
C. is the amount of current assets required to meet a firm’s long-term minimum needs.
D. includes accounts payable
Answer: C.is the amount of current assets required to meet a firm’s long-term minimum needs.
698. Financing a long-lived asset with short-term financing would be
A. an example of “moderate risk — moderate (potential) profitability” asset financing.
B. an example of “low risk — low (potential) profitability” asset financing.
C. an example of “high risk — high (potential) profitability” asset financing.
D. an example of the “hedging approach” to financing.
Answer: C.an example of “high risk — high (potential) profitability” asset financing.
699. Net working capital refers to
A. total assets minus fixed assets.
B. current assets minus current liabilities.
C. current assets minus inventories.
D. current assets.
Answer: B.current assets minus current liabilities.
700. Marketable securities are primarily
A. short-term debt instruments.
B. short-term equity securities.
C. long-term debt instruments.
D. long-term equity securities.
Answer: A.short-term debt instruments.
701. Which would be an appropriate investment for temporarily idle corporate cash that willbe used to pay quarterly dividends three months from now?
A. A long-term AAA-rated corporate bond with a current annual yield of 9.4 percent.
B. A 30-year Treasury bond with a current annual yield of 8.7 percent.
C. Ninety-day commercial paper with a current annual yield of 6.2 percent.
D. Common stock that has been appreciating in price 8 percent annually, on average, and paying a quarterly dividend that is the equivalent of a 5 percent annual yield.
Answer: C.Ninety-day commercial paper with a current annual yield of 6.2 percent.
702. Which of the following marketable securities is the obligation of a commercial bank?
A. Commercial paper
B. Negotiable certificate of deposit
C. Repurchase agreement
D. T-bills
Answer: B.Negotiable certificate of deposit
703. The basic requirement for a firm’s marketable securities.
A. Safety
B. Yield
C. Marketability
D. All of the above.
Answer: D.All of the above.
704. Ninety-percent of X company’s total sales of $600,000 is on credit. If its year-end receivables turnover is 5, the average collection period (based on a 365-day year) and the year-end receivables are, respectively:
A. 365 days and $108,000.
B. 73 days and $120,000.
C. 73 days and $108,000.
D. 81 days and $108,000.
Answer: C.73 days and $108,000.
705. Costs of not carrying enough inventory include:
A. lost sales.
B. customer disappointment.
C. possible worker layoffs.
D. all of these.
Answer: D.all of these.
706. Which of the following relationships hold true for safety stock?
A. the greater the risk of running out of stock, the smaller the safety of stock.
B. the larger the opportunity cost of the funds invested in inventory, the larger the safety stock.
C. the greater the uncertainty associated with forecasted demand, the smaller the safety stock.
D. the higher the profit margin per unit, the higher the safety stock necessary.
Answer: D.the higher the profit margin per unit, the higher the safety stock necessary.
707. Increasing the credit period from 30 to 60 days, in response to a similar action taken by all of our competitors, would likely result in:
A. an increase in the average collection period.
B. a decrease in bad debt losses.
C. an increase in sales.
D. higher profits.
Answer: A.an increase in the average collection period.
708. The credit policy of Spurling Products is “1.5/10, net 35.” At present 30% of the customers take the discount, 62% pay within the net period, and the rest pay within 45 days of invoice. What would receivables be if all customers took the cash discount?
A. Lower than the present level.
B. No change from the present level.
C. Higher than the present level.
D. Unable to determine without more information.
Answer: A.Lower than the present level.
709. An increase in the firm’s receivable turnover ratio means that:
A. it is collecting credit sales more quickly than before.
B. cash sales have decreased.
C. it has initiated more liberal credit terms.
D. inventories have increased.
Answer: A.it is collecting credit sales more quickly than before.
710. A single, overall cost of capital is often used to evaluate projects because:
A. it avoids the problem of computing the required rate of return for each investment proposal.
B. it is the only way to measure a firm’s required return.
C. it acknowledges that most new investment projects have about the same degree of risk.
D. it acknowledges that most new investment projects offer about the same expected return.
Answer: A.it avoids the problem of computing the required rate of return for each investment proposal.
711. The cost of equity capital is all of the following EXCEPT:
A. the minimum rate that a firm should earn on the equity-financed part of an investment.
B. a return on the equity-financed portion of an investment that, at worst, leaves the market price of the stock unchanged.
C. by far the most difficult component cost to estimate.
D. generally lower than the before-tax cost of debt.
Answer: D.generally lower than the before-tax cost of debt.
712. In calculating the proportional amount of equity financing employed by a firm, we should use:
A. the common stock equity account on the firm’s balance sheet.
B. the sum of common stock and preferred stock on the balance sheet.
C. the book value of the firm.
D. the current market price per share of common stock times the number of shares outstanding.
Answer: D.the current market price per share of common stock times the number of shares outstanding.
713. In calculating the costs of the individual components of a firm’s financing, the corporate tax rate is important to which of the following component cost formulas?
A. common stock.
B. debt.
C. preferred stock.
D. none of the above.
Answer: B.debt.
714. The common stock of a company must provide a higher expected return than the debt of the same company because
A. there is less demand for stock than for bonds.
B. there is greater demand for stock than for bonds.
C. there is more systematic risk involved for the common stock.
D. there is a market premium required for bonds.
Answer: C.there is more systematic risk involved for the common stock.
715. A quick approximation of the typical firm’s cost of equity may be calculated by
A. adding a 5 percent risk premium to the firm’s before-tax cost of debt.
B. adding a 5 percent risk premium to the firm’s after-tax cost of debt.
C. subtracting a 5 percent risk discount from the firm’s before-tax cost of debt.
D. subtracting a 5 percent risk discount from the firm’s after-tax cost of debt.
Answer: A.adding a 5 percent risk premium to the firm’s before-tax cost of debt.
716. Market values are often used in computing the weighted average cost of capital because
A. this is the simplest way to do the calculation.
B. this is consistent with the goal of maximizing shareholder value.
C. this is required in the U.S. by the Securities and Exchange Commission.
D. this is a very common mistake.
Answer: B.this is consistent with the goal of maximizing shareholder value.
717. Rank in ascending order (i.e., 1 = lowest, while 3 = highest) the likely after-tax component costs of a Company’s long-term financing.
A. 1 = bonds; 2 = common stock; 3 = preferred stock.
B. 1 = bonds; 2 = preferred stock; 3 = common stock.
C. 1 = common stock; 2 = preferred stock; 3 = bonds.
D. 1 = preferred stock; 2 = common stock; 3 = bonds.
Answer: B.1 = bonds; 2 = preferred stock; 3 = common stock.
718. Lei-Feng, Inc.’s $100 par value preferred stock just paid its $10 per share annual dividend. The preferred stock has a current market price of $96 a share. The firm’s marginal tax rate (combined federal and state) is 40 percent, and the firm plans to maintain its current capital structure relationship into the future. The component cost of preferred stock to Lei-Feng, Inc. would be closest to .
A. 6 percent
B. 6.25 percent
C. 10 percent
D. 10.4 percent
Answer: D.10.4 percent
719. The term “capital structure” refers to:
A. long-term debt, preferred stock, and common stock equity.
B. current assets and current liabilities.
C. total assets minus liabilities.
D. shareholders’ equity.
Answer: A.long-term debt, preferred stock, and common stock equity.
720. A critical assumption of the net operating income (NOI) approach to valuation is:
A. that debt and equity levels remain unchanged.
B. that dividends increase at a constant rate.
C. that ko remains constant regardless of changes in leverage.
D. that interest expense and taxes are included in the calculation.
Answer: C.that ko remains constant regardless of changes in leverage.
721. The traditional approach towards the valuation of a company assumes:
A. that the overall capitalization rate holds constant with changes in financial leverage.
B. that there is an optimum capital structure.
C. that total risk is not altered by changes in the capital structure.
D. that markets are perfect.
Answer: B.that there is an optimum capital structure.
722. Two firms that are virtually identical except for their capital structure are selling in the market at different values. According to M&M
A. one will be at greater risk of bankruptcy.
B. the firm with greater financial leverage will have the higher value.
C. this proves that markets cannot be efficient.
D. this will not continue because arbitrage will eventually cause the firms to sell at the same value.
Answer: D.this will not continue because arbitrage will eventually cause the firms to sell at the same value.
723. What is the value of the tax shield if the value of the firm is $5 million, its value if unlevered would be $4.78 million, and the present value of bankruptcy and agency costs is $360,000?
A. $140,000
B. $220,000
C. $360,000
D. $580,000
Answer: D.$580,000
724. Reserves & Surplus are which form of financing?
A. Security Financing
B. Internal Financing
C. Loans Financing
D. International Financing
Answer: B.Internal Financing
725. What are the different options other than cash used for distributing profits to shareholders?
A. Bonus shares
B. Stock split
C. Stock purchase
D. All of these
Answer: D.All of these
726. In Walter model formula D stands for
A. Dividend per share
B. Direct Dividend
C. Dividend Earning
D. None of these
Answer: A.Dividend per share
727. In MM model MM stands for…
A. M.Khan and Modigiliani
B. Miller and M.Khan
C. Modigiliani and M.Khan
D. Miller and Modigliani
Answer: D.Miller and Modigliani
728. The addition of all current assets investment is known as…
A. Net Working Capital
B. Gross Working capital
C. Temporary Working Capital
D. All of these
Answer: B.Gross Working capital
729. When total current assets exceeds total current liabilities it refers to.
A. Gross Working Capital
B. Temporary Working Capital
C. Both a and b
D. Net Working Capital
Answer: D.Net Working Capital
730. If the weighting of equity in total capital is 1/3, that of debt is 2/3, the return on equity is 15% that of debt is 10% and the corporate tax rate is 32%, what is the Weighted Average Cost of Capital (WACC)?
A. 10.533%
B. 7.533%
C. 9.533%
D. 11.350%
Answer: C.9.533%
731. Which of the following would not be financed from working capital?
A. Cash float.
B. Accounts receivable.
C. Credit sales.
D. A new personal computer for the office.
Answer: D.A new personal computer for the office.
732. What is the difference between the current ratio and the quick ratio?
A. The current ratio includes inventories and the quick ratio does not.
B. The current ratio does not include inventories and the quick ratio does.
C. The current ratio includes physical capital and the quick ratio does not.
D. The current ratio does not include physical capital and the quick ratio does.
Answer: A.The current ratio includes inventories and the quick ratio does not.
733. Which of the following working capital strategies is the most aggressive?
A. Making greater use of short term finance and maximizing net short term asset.
B. Making greater use of long term finance and minimizing net short term asset.
C. Making greater use of short term finance and minimizing net short term asset.
D. Making greater use of long term finance and maximizing net short term asset.
Answer: C.Making greater use of short term finance and minimizing net short term asset.
734. Which of the following is not a metric to use for measuring the length of the cash cycle?
A. Acid test days.
B. Accounts receivable days.
C. Accounts payable days.
D. Inventory days.
Answer: A.Acid test days.
735. Which of the following is not the responsibility of financial management?
A. allocation of funds to current and capital assets
B. obtaining the best mix of financing alternatives
C. preparation of the firm’s accounting statements
D. development of an appropriate dividend policy
Answer: C.preparation of the firm’s accounting statements
736. Which of the following are not among the daily activities of financial management?
A. sale of shares and bonds
B. credit management
C. inventory control
D. the receipt and disbursement of funds
Answer: A.sale of shares and bonds
737. Debt Equity Ratio is 3:1,the amount of total assets Rs.20 lac,current ratio is 1.5:1 and owned funds Rs.3 lac.What is the amount of current asset?
A. Rs.5 lac
B. Rs.3 lac
C. Rs.12 lac
D. d) none of the above.
Answer: C.Rs.12 lac
738. Banks generally prefer Debt Equity Ratio at :
A. 1:1
B. 1:3
C. 2:1
D. 3:1
Answer: C.2:1
739. An asset is a
A. Source of fund
B. Use of fund
C. Inflow of funds
D. none of the above.
Answer: B.Use of fund
740. If a company issues bonus shares the debt equity ratio will
A. Remain unaffected
B. Will be affected
C. Will improve
D. none of the above.
Answer: C.Will improve
741. In the balance sheet amount of total assets is Rs.10 lac, current liabilities Rs.5 lac & capital & reserves are Rs.2 lac .What is the debt equity ratio?
A. a)1;1
B. 1.5:1
C. c)2:1
D. none of the above.
Answer: D.none of the above.
742. In last year the current ratio was 3:1 and quick ratio was 2:1.Presently current ratio is 3:1 but quick ratio is 1:1.This indicates comparably
A. high liquidity
B. higher stock
C. lower stock
D. low liquidity
Answer: B.higher stock
743. Authorised capital of a company is Rs.5 lac, 40% of it is paid up. Loss incurred during the year is Rs.50,000. Accumulated loss carried from last year is Rs.2 lac. The company has a Tangible Net Worth of
A. Nil
B. Rs.2.50 lac
C. (-)Rs.50,000
D. Rs.1 lac.
Answer: C.(-)Rs.50,000
744. Proprietary ratio is calculated by
A. Total assets/Total outside liability
B. Total outside liability/Total tangible assets
C. Fixed assets/Long term source of fund
D. Proprietors’’ Funds/Total
Answer: D.Proprietors’’ Funds/Total
745. Current ratio of a concern is 1,its net working capital will be
A. Positive
B. Negative
C. Nil
D. None of the above
Answer: C.Nil
746. Current ratio is 4:1.Net Working Capital is Rs.30,000.Find the amount of currentAssets.
A. Rs.10,000
B. Rs.40,000
C. Rs.24,000
D. Rs.6,000
Answer: B.Rs.40,000
747. Current ratio is 2:5.Current liability is Rs.30000.The Net working capital is
A. Rs.18,000
B. Rs.45,000
C. Rs.(-) 45,000
D. Rs.(-)18000
Answer: D.Rs.(-)18000
748. Quick assets do not include
A. Govt.bond
B. Book debts
C. Advance for supply of raw materials
D. Inventories.
Answer: D.Inventories.
749. The ideal quick ratio is
A. 2:1
B. 1:1
C. 5:1
D. None of the above
Answer: B.1:1