Correct : C. Is a process used for marketing a public offer of equity shares of a company
2. When an option is allowed to be exercised only on maturity date is called --------------
Correct : B. European option
3. Commercial paper effective from ---------------------
Correct : B. 1-1-1990
4. In India commercial paper is regulated by -------------------
Correct : A. RBI
5. The interest rate on commercial paper is determined by -------------
Correct : D. Market Force
6. Factoring is a ----------------
Correct : D. New financial service
7. Factoring involves ----------------
Correct : D. All of these
8. 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?
Correct : B. Certainty equivalent approach
9. ------------- rate at which discounts the cash flows to zero
Correct : C. Cash flow
10. The net present value is expressed in financial value, where as internal rate of return(IRR) is expressed in ---------------
Correct : B. One thousand
11. Return on assets is a ratio which measures ----------------
Correct : C. Profitability
12. Return on equity measures the profitability of ------------------- invested in the firm
Correct : B. Equity funds
13. Which ratio reveals how profitability of the owner’s funds have been utilized by the firm?
Correct : A. Return on equity
14. Capital employed is ----------
Correct : B. Shareholders funds + Long funds
15. Financial leverage is ----------------
Correct : B. EBIT/EBT
16. Shareholder value analysis is an approach to Financial Management Development in ------------------
Correct : B. 1980
17. The term financial engineering is used to ----------------
Correct : B. Risk management
18. The packing order theory is based on -----------
Correct : D. None of these
19. SGR is stands for --------------
Correct : A. Sustainable Growth rate
20. A company may raise funds by issue of shares or -------------
Correct : A. By borrowings
21. Borrowings carry -----------
Correct : A. Fixed rate of interest
22. Which helps in deciding whether funds should be raised by internal equity or by borrowings>
Correct : D. Trading on equity
23. Which are the determinants of capital structure?
Correct : D. Govt. policy
24. Which is the instrument of finance
Correct : D. All of these
25. Which is the part of restrictive covenants
Correct : D. All of these
26. LIBOR is a term of -------------
Correct : D. International Financial Market
27. Foreign bonds are -------------------
Correct : B. Foreign currency bonds
28. 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 -------------------
Correct : A. Foreigner’s fund
29. Euro bond is a ------------
Correct : A. Debt instrument
30. Eurobonds are debt instruments denominated in a currency issued -----
Correct : A. Outside the country
31. Bills discounting is a -----------------------
Correct : C. Short term source of finance
32. The cost of capital is the rate of return of a company must earn on investment to maintain ----------------
Correct : A. The value of the company
33. The cost of capital is --------------
Correct : B. The minimum rate of return
34. The debt capital can be raised from issue of -----
Correct : A. Bonds
35. The cost of debt capital is the ratio of interest payable on ---------
Correct : A. Debenture
36. Dividends are the ---------- of a company distributed amongst members in proportion to their shares
Correct : A. Divisible profits
37. A sound dividend policy contains the ------------- features
Correct : D. All of these
38. This item can be treated as an item of current liability or as an item of appropriation
Correct : A. Dividend
39. "Shareholder wealth" in a firm is represented by:
Correct : D. the market price per share of the firm's common stock.
40. The long-run objective of financial management is to:
Correct : B. maximize the value of the firm's common stock.
41. 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?
Correct : C. Rs. 0.50
42. A(n) would be an example of a principal, while a(n) would be an example of an agent.
Correct : A. shareholder; manager
43. The market price of a share of common stock is determined by:
Correct : D. individuals buying and selling the stock.
44. The focal point of financial management in a firm is:
Correct : C. the creation of value for shareholders.
45. ___________________ of a firm refers to the composition of its long-term funds and its capital structure.
Correct : A. Capitalisation
46. In the _______________, the future value of all cash inflow at the end of time horizon at
a particular rate of interest is calculated.
Correct : C. Discounting technique
47. ______________ is the price at which the bond is traded in the stock exchange.
Correct : C. Market value
48. _____________ enhance the market value of shares and therefore equity capital is not
free of cost.
Correct : B. Dividends
49. In _______________ approach, the capital structure decision is relevant to the valuation of the firm.
Correct : A. Net income
50. When __________ is greater than zero the project should be accepted.
Correct : C. Net present value
51. ____________ is defined as the length of time required to recover the initial cash out-lay.
Correct : A. Payback-period
52. _______________ refers to the amount invested in various components of current assets.
Correct : C. Gross working capital
53. ____________ is the length of time between the firm’s actual cash expenditure and its
own cash receipt.
Correct : A. Net operating cycle
54. _______________ refers to a firm holding some cash to meet its routine expenses that are
incurred in the ordinary course of business.
Correct : B. Transaction motive
55. _______________ refers to the length of time allowed by a firm for its customers to
make payment for their purchases.
Correct : D. Credit period
56. Amounts due from customers when goods are sold on credit are called _____________.
Correct : B. Trade debits
57. ____________________ and __________________________ are the two versions of goals of the financial management of the firm.
Correct : A. Profit maximisation, Wealth maximization
58. 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:
Correct : B. 1-False, 2-True
59. 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:
Correct : D. 1-True, 2-False
60. ____________ and____________ carry a fixed rate of interest and are to be paid off
irrespective of the firm’s revenues.
Correct : B. Debentures, Bonds
61. 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:
Correct : D. 1-True, 2-False
62. Credit policy of every company is largely influenced by _____________ and
_____________.
Correct : B. Liquidity, profitability
63. 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.
Correct : C. Liquidity decision
64. 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?
Correct : D. Rs. 25088
65. How are earnings per share calculated?
Correct : B. Use the income statement to determine earnings after taxes (net income) and divide by the number of common shares outstanding.
66. Which of the following would NOT improve the current ratio?
Correct : A. Borrow short term to finance additional fixed assets.
67. The gross profit margin is unchanged, but the net profit margin declined over the same
period. This could have happened if
Correct : C. Govt. increased the tax rate.
68. Palo Alto Industries has a debt-to-equity ratio of 1.6 compared with the industry average
of 1.4. This means that the company
Correct : D. has greater than average financial risk when compared to other firms in its industry.
69. 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.)
Correct : B. Rs. 23.7 million
70. A company can improve (lower) its debt-to-total assets ratio by doing which of the following?
Correct : D. Sell common stock.
71. Which of the following statements (in general) is correct?
Correct : B. The lower the total debt-to-equity ratio, the lower the financial risk for a firm.
72. Debt-to-total assets (D/TA) ratio is .4. What is its debt-to-equity (D/E) ratio?
Correct : C. .667
73. A firm's operating cycle is equal to its inventory turnover in days (ITD)
Correct : A. plus its receivable turnover in days (RTD).
74. 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:
Correct : D. Rs. 12,012 decrease in notes payable.
75. Uses of funds include a (an):
Correct : C. increase in fixed assets.
76. Which of the following would be included in a cash estimation/ budget?
Correct : B. dividends.
77. Which of the following is NOT a cash outflow for the firm?
Correct : A. depreciation.
78. Which of the following would be considered a application of funds?
Correct : D. an increase in cash.
79. All of the following influence capital budgeting cash flows EXCEPT:
Correct : D. method of project financing used.
80. The estimated benefits from a project are expressed as cash flows instead of income
flows because:
Correct : B. it is cash, not accounting income, that is central to the firm's capital budgeting decision.
81. A capital investment is one that
Correct : A. has the prospect of long-term benefits.
82. A profitability index of .85 for a project means that:
Correct : C. the project returns 85 cents in present value for each current dollar invest
83. Which of the following statements is correct?
Correct : C. If the PI of a project is less than 1, its NPV should be less than 0.
84. A project's profitability index is equal to the ratio of the of a project's future cash
flows to the project's .
Correct : A. present value; initial cash outlay
85. The discount rate at which two projects have identical is referred to as Fisher's rate of intersection.
Correct : B. net present values
86. 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.
Correct : C. may
87. Preferred shareholders' claims on assets and income of a firm come those of creditors those of common shareholders.
Correct : B. after; but before
88. 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
Correct : A. Project A dominates project B.
89. To increase a given present value, the discount rate should be adjusted
Correct : B. downward.
90. In finance, "working capital" means the same thing as
Correct : C. current assets.
91. Which of the following would be consistent with a more aggressive approach to financing working capital?
Correct : D. Financing some long-term needs with short-term funds.
92. Which asset-liability combination would most likely result in the firm's having the greatest risk of technical insolvency?
Correct : C. Reducing current assets, increasing current liabilities, and reducing long-term debt.
93. Which of the following illustrates the use of a hedging (or matching) approach to financing?
Correct : B. Permanent working capital financed with long-term liabilities.
94. In deciding the appropriate level of current assets for the firm, management is confronted with
Correct : A. a trade-off between profitability and risk.
95. varies inversely with profitability.
Correct : A. Liquidity.
96. Spontaneous financing includes
Correct : B. accounts payable.
97. Permanent working capital
Correct : C. is the amount of current assets required to meet a firm's long-term minimum needs.
98. Financing a long-lived asset with short-term financing would be
Correct : C. an example of "high risk -- high (potential) profitability" asset financing.
99. Net working capital refers to
Correct : B. current assets minus current liabilities.