Download Question:What will be the price of a 5 year

FINANCIAL MANAGEMENT
UNIT1
Question: The distant cash flows are discounted at:
a higher discount rate
A lower discount rate
The coupon rate
The Market rate
Question: What does finance management aim at ?
Procurement of funds at least cost.
Overall functions of the management
Effective deployment of funds
Both A and C
Question: Wealth maximization is based on __________
Profits earned
Cash flows
Assets procured
Intangible assets the company holds
Question:The cardinal rule of efficient financial management is to aim at:
Profit maximization
Shareholder's value maximization
Creating real assets
Both A and B
Question: Time value factor takes into consideration both risk free rate and _______________
Coupon rate
Dividend rate
Risk premium
Residual rate
FINANCIAL MANAGEMENT
Question: ___________ involve adding of new products, entering new markets, adopting new technology,
restructing etc
Financing decision
Investment decision
Dividend decision
Liquidity decision
Question: The time value of money uses the ___________ to translate the cash flows occurring at different
periods into a comparable value at zero period.
required rate of return
Coupon rate
Treasury bill rate
Bank rate
Question:__________ fails to consider the fluctuations in the profits earned. The fluctuations in the profits
arise due to business risk
Business plan
Demand
Wealth maximization
Profit maximization
Question: The maximization of shareholder's wealth is achieved through selecting _____________
Positive Net Present Value projects
Positive Pay Back Period projects
Positive Accounting Rate of Return projects
Popular projects
Question: ____________ process involve decisions to expand, diversify, invest in buildings, machinery etc and
execution of it.
Investment decisions
FINANCIAL MANAGEMENT
Capital Budgeting decisions
Financing decisions
Liquidity decisions
UNIT2
Question:Which among the following is excluded in the guidelines for financial planning?
Fixed asset requirements are to be met from long term sources
Make maximum use of spontaneous source of finance to achieve highest
Employ historical cost principle
Exercise through control over overheads
Question: What the operating capital? It is the ratio of :
Capital employed to sales generated
Capital employed to net profit generated
Equity capital to net profit generated
Equity capital to sales generated
Question: What is financial planning? It is the process by which
all managerial activities are planned
the funds required for each course of action is decided.
the funds required for long term investments areplanned
the funds required for short term purposes are planned
Question: Operating capital refers to the ratio of :
Capital employed to reserves and surplus
Capital employed to sales generated
Capital employed to inventory
Capital employed to net profit
Question: Capitalization refers to the composition of _________ funds
Short term
Long term
FINANCIAL MANAGEMENT
Mid term
None
Question: Long term investments should be normally created out of
Short term funds
Medium term funds
Long term funds
None
Question: How is the surplus cash effectively deployed? The surplus cash is:
Investment in assets
Held as cash reserve
Investment in fixed deposits
Investment in treasury management
Question: What source of finance should be used to the maximise productivity of resources?
Long term
Medium term
Spontaneous
All of the above
Question: What is excluded is long-range plan?
Fund requirement to execute the planned course of action
Fulfillment of legal and regulatory requirement.
Procurement of funds from long term source
Procurement of funds for working capital management
Question: What is considered as the core of value creation process?
FINANCIAL MANAGEMENT
Financial plan
Expansions & diversification
Mergers & Acquisition
Management development program
UNIT 3
Question: Compute the present value of Rs 2,000 cash inflow one year from now using a discount rate of 13
percent
2000
1769.91
1566.29
2772.20
Question:Compute the present value of Rs. 4,000 cash outflow three years from now using a discount rate of 13
percent
2000
1769.91
1566.29
2772.20
Question: Compute the future value of Rs. 4000 cash inflow at the end of each of the next five years using a
discount rate of 13 percent
4839.66
2171.04
7369.74
2772.20
Question:
FINANCIAL MANAGEMENT
Ans - a
Question:Time value of money is the value of:
Money received one year from now
A unit of money at different time internals
Asset including cash at different time internals
Real money (inflation adjusted)
Question: Sriram invested in a project which would give him a cash flow of Rs. 10,000, Rs. 15,000 & Rs.
8,000 respectively at the end of each of 3 years. He intends to know the present value of the cash flows, if the
discount rate is 12%.
26581
25680
39276
36276
Question:Sriram is 30 years now. He plans to open a PPF account and deposit Rs.15,000 every year for the
next 30 years. If the interest rate is 8% , what will be the accumulated savings in his PPF account ?
14,16,915
16,99,245
20,44,620
15,85,962
Question:Sriram takes a car loan of the Rs.5,00,000 to be repaid in 5 equal annual installments. If the loan
carries a rate of 12% p.a. What is the amount of each installment?
146690.24
152608.21
138696.26
FINANCIAL MANAGEMENT
148390.26
Question:Sriram plans to invest in a project which would give him cash flows of Rs. 3,000 at the end of each
year for next 4 years and Rs 7,000 in the fifth year and Rs. 1,000 in the sixth year, Since this project risky he
intends to keep the hurdle / discount rate at 14%. Determine the present value of all the future cash flows.
12,822
12,812
12,831
12,842
Question:Sriram found that the end of third year, he has Rs. 1158 in his bank account. The interest rate paid by
the bank is 5% compounded annually. What is the amount deposited?
Rs. 1600
Rs. 1000
Rs. 1050
Rs. 1500
Question:Sriram seeks your assistance in providing him some illustrations for a one day workshop on time
value of money. You select the following questions and verify their arithmetical accuracy. Assume 9 % as the
hurdle rate. (i) A client wants to know what is the future value of Rs.15,000 invested now for a period of four
years. (ii) A client wants to buy a house after 3 years, when it is expected to cost Rs.40,00,000. How much
should he save annually if his savings earn a compound interest of 8% ? (iii) A chit fund company advertises
that it will pay a lumpsum of Rs. 8,000 at the end of 6 years to the investors who deposit annually Rs.1000 for
six years. You as an alert investor is curious to find the implied interest rate offered by the chit fund company?
(iv) Sriram deposits his VRS amount of Rs. 9,00,000 in a bank account which pays him 8% interest. How much
can he withdraw annually for a period of 15 years?
Rs. 20,000, Rs.1,22,329 , 12% appox , Rs.1,00,152
Rs. 21,180 , Rs.1,23,229 , 12% appox , Rs.1,05,152
Rs. 21,180 , Rs.1,22,222 , 11% appox , Rs.1,05,125
Rs. 20,080 , Rs.1,23.229 , 11% appox , Rs.1,00, 552
FINANCIAL MANAGEMENT
Question: You have Rs. 6,000 to invest. How much would it take you to double your money if the interest rate
is (a) 6%, (b) 10%, (c) 20%, and (d) 30%? Assume annual compounding.
11.90yrs, 7.27 yrs, 3.80yrs, 2.44yrs
11.90yrs, 7.25 yrs, 3.80yrs, 2.64yrs
11.90yrs, 7.27 yrs, 3.80yrs, 2.64yrs
11.92yrs, 7.27 yrs, 3.80yrs, 2.62yrs
UNIT4
Question: ___________ is the rate earned by an investor when he purchases a bond and holds it till its maturity
Coupon rate
Yield to maturity (IRR)
NPV
ARR
Question: Valuation is the process of linking risk with results to determine the worth of
An asset
A liability
The network
The capital
Question:Current Yield =
Coupon interest
Coupon interest / Face value of the bond
Coupon interest / Current market price
Instristic value of the bond
Question: The maturity period of a perpetual bond is
Short
Medium
Long
FINANCIAL MANAGEMENT
Infinite
Question:A security is defined as the :
Future value of the present cash stream
Present value of the future cash stream
Present value of the future cash outflows
Book value of the assets
Question:The difference between the book value of assets and liabilities is equal to.
Capital (Equity + Preference)
Net worth (capital + Reserve)
Replacement value
Market value
Question:IDBI issued deep discount bonds in 1996. that had a face value of Rs. 2,00,000 with maturity period
of 25 years the bond was issued at Rs. 5,300. What is the effective interest rate earned by an investor from this
bond.
15%
15.36%
15.63%
16.53%
Question:Amrutha is considering Rs. 1,000 par value bond carrying a coupon rate of 9% and maturing after 8
years. The bond is currently selling at Rs. 800. What is the value of the bond? Should she purchase the bond
Rs.959
FINANCIAL MANAGEMENT
Rs.895
Rs.851
Rs.755
Question: Consider a eight-year , 12% coupon bond with a per value of Rs. 1,000on. Which interest is payable
semi-annually. Find the value of the bond if the required rate on this bond is 14%.
955.82
905.82
855.82
900.55
Question:The Bright ways Company has a perpetual bond that pay Rs. 140 interest annually. The current yield
on this type of bond is 13 per cent. (a) At what price will it sell? (b) If the required yield rises to 15 per cent,
what will be the new price?
1076.92 , 922.33
1076.92 , 911.33
1076.92 , 933.33
1076.92 , 900.33
Question: An investor is looking for a four-year investment. The share of Skylark Company is selling for Rs.
75. They have plans to pay a divided of Rs. 7.50 per share each at the end of first and second years and Rs. 9
and Rs. 15 respectively at the end of third and fourth years. If the investor's capitalization rate is 12 percent and
the share's price at the end of fourth year is Rs. 70, what is the value of the share? world it be a desirable
investment?
72.15
73.15
74.15
73.55
FINANCIAL MANAGEMENT
Question: The share of Premier Limited will pay a dividend of Rs. 3 per share after a year. It is currently
selling at Rs. 50, and it is estimated that after a year the price will be Rs. 53. What is the present value of the
share if the required rate of return is 10 percent?
51.91
50.94
54.91
50.91
Question:ABC Limited has a ten-year debenture that pays Rs. 140 annual interest Rs. 1,000 will be paid on
maturity. What will be the value of the debenture if the required rate of interest is (a) 12% , (b) 14 per cent and
(c ) 16 per cent?
Rs.1113 , Rs.1000 ,Rs.904
Rs.1103 , Rs.1,000 ,Rs.914
Rs.1003 ,Rs. 1,000 ,Rs.941
Rs.1113 ,Rs.1,080 , Rs.940
UNIT5
Question:Capital structure is the mix of
Long term source of funds and retained earnings
Short term source of funds and retained earnings
Medium term source of fund and retained earnings
Short medium long term source of funds retained earnings
Question: The CAPM is based on certain assumption. select the odd assumption
Investors are risk-averse
Investors make their investment decisions on a multi period horizon
period horizon & not on multi period horizon
Transaction costs are low
All investors agree on the nature of return and risk associated with each investment
Question:The company is not legally bound to pay dividends and hence equity capital is free of cost . Comment
on the validity of the statement
True
False
FINANCIAL MANAGEMENT
May be true
True , sometimes
Question: While designing an ideal capital structure what factors are irrelevant?
Return ,Risk
Risk , Flexibility
Capacity , Control
Demand and supply factors
Question:
a.
Question:
d
a.
b.
c
FINANCIAL MANAGEMENT
Question: A bond with a six year left to maturity has a coupon rate of 9% and a par value of Rs.1000. How
much is an investor willing to pay for the bond if he requires an annual rate of return of (a) 7% (b) 10% (c) 12%
?
1094.94 , 876.99 ,955.95
1094.94 , 955.95 , 876.99
876.99 , 959.99 , 1049.94
876.99 , 955.95 , 1099.99
Question:Select the order of risk-return relationship (1) Equity share (2) Debt (3) Preference shares (4) Risk
force security (5) Govt bonds.
5,4,2,3,1
4,5,3,2,1
4,5,2,3,1
1,3,2,5,4
Question:
a.
FINANCIAL MANAGEMENT
b.
c.
d.
Question:What will be the price of a 5 year discount bond that pays Rs.1000 at maturity if the interest rate (a) is
11% (b) is 9% ?
593.45 , 549.93
593.45 , 649.93
539.45 , 549.93
539.45 , 694.93
Question: Current price of an equity is Rs. 110 , expected dividend Rs. 5 per share with the growth rate of 10%
p.a Find the the cost of equity
14.45%
14.40%
14.54%
14%
Question:Par value of debenture Rs. 100, interest rate 15% p.a , redemption after 8 years at 8% premium .
Corporate tax 50 % , new issue is priced at 3% discount , the cost of debenture is:
4.8%
5.1%
5.2%
8.65%
Question:A loan of Rs 10 lakhs at 9% is proposed to be availed . Find the cost of loan if the corporate tax rate
is 40 %
4.5%
4%
4.8%
5.4%
Question: The face value of preference share is Rs.100 , dividend rate 12%, and the redemption takes place
after 8 years at Rs. 5 per share premium . If the company hopes to realize Rs. 98 per share now,What is the
costof preference share?
FINANCIAL MANAGEMENT
12.74%
12.68%
12.43%
12.88%
UNIT6
Question:
c
Question:What are the benefits of operating leverage?
Measures the business risk
Measures the future cash flows
Production planning
Measures the business risk & help in production planning
Question:____________ refers to the mix of debt and equity in the capital structure of the firm. It is also referred as
trading on equity.
Operating leverage
Financial Leverage
Combined leverage
Derivative leverage
Question:Which type of leverage measures the effect of EBIT on EPS of the company?
Operating leverage
FINANCIAL MANAGEMENT
Financial Leverage 1
Combined leverage
Correlated leverage
Question:Which type of leverage is associated with the asset purchase activity?
Financial leverage
Operating leverage
Derivative
Combined stand alone leverage
Question: Which type of leverage enables the firm to use fixed operating costs to increase the effect of changes in sales
on its EBIT?
Operating leverage
Financial leverage
Combined leverage
Correlation leverage
Question:Leverage is the influence of an independent financial variable on a dependent variable. It generally refers to :
Equity share
Preference Share
Borrowed funds
Reserves
Question:
a
Question:EBIT is calculated as
FINANCIAL MANAGEMENT
Q -(S-V)-F
Q (S-V) / F
Q (S-V) - F
None
Question:Which type of cost vary in direct proportion to output and sale?
Semi variable cost
Variable cost
Fixed cost
Sunk cost
Question:Select the source of fund which do not carry any fixed charge.
Debentures
Bonds
Equity shares
Preference share
Question: A company needs Rs.5,00,000 for the construction of a new plant. The following three financial plans are
feasible. (i) The company may issue 50,000 ordinary shares at Rs.10 per share. (ii) The company may issue 25,000
ordinary shares at Rs.10 and 2,500 debentures of Rs.100 bearing 8% interest. (iii) The company may issue 25000 ordinary
shares at Rs.10 per share and 2,500 preference shares of Rs.10 per share bearing 8 % dividend rate. If the company's EBIT
are Rs.10000, Rs.20000, Rs.40000, Rs.60,000 and Rs.100000, what are the EPS under each of these financial plans?
Which alternative would you recommend and why?
All the three financial plans are recommended
Second alternative is recommended
Third alternative is recommended
Second and third alternatives are recommended
Question:If sales is 1000 units, Selling Price is Rs.300 , Variable cost is Rs. 200, fixed expenses is Rs. 20000. find DOL
and give the interpretation.
1.52
101.25
1.25
102.5
FINANCIAL MANAGEMENT
Question: A firm sells a product for Rs. 10 per unit, variable cost Rs. 5 per unit and fixed expenses Rs. 5000 p.a, find the
EBIT sale is 1000 units
8000
10000
5000
Zero
Question:
b
FINANCIAL MANAGEMENT
UNIT7
Question:
b
Question:The ideal capital structure has 4 features. Choose the odd feature:
Profitability
Flexibility
Regulatory restrictions
Control
Question: What is trading on equity?
Equity capital is raised by issue of shares
Equity capital is used as a basis for raising debt
Debt capital is used as a basis for raising equity capital
Debt and preference capital are used as a basis for capital structure decisions
Question:What approach refers to a situation where change in the financial leverage will have a corresponding change in
the overall cost of capital ?
Net income approach
Net operating income approach
Miller & Modigliani approach
Traditional approach
FINANCIAL MANAGEMENT
Question:What is optimum capital structure?
It is the optimal mix of debt and equity to maximise the shareholder value of the firm
It is the optimal level at which equity is raised to maximise return on investment
It is the level at which a firm can raise equity capital
It is the level at which a firm can raise debt capital
Question:According to which approach any change in leverage will not lead to change in the total value of the firm,
market price of share & overall cost of capital?
Net income approach
Net operating income approach
Traditional approach
M M approach
Question:The market value of the firm is equal to the total market value of equity and total market value of debt and is
independent of the degree of leverage. This relates to :
Proposition I
Proposition II
Proposition III
None
Question:What is the meant by arbitrage?
It is the process of buying a security at a lower price in one market and selling it in another market at a
higher price.
It is the market mechanism to prevent hoarding and price variation
It is the switching process of goods, bullion, currency in order to gain entry into different markets
None of the above
Question:The assumption that investment and financing decisions are independent refers to__________.
Proposition I
Proposition II
Proposition III
None of the above
FINANCIAL MANAGEMENT
Question:In which approach Ke raises gradually until a certain degree of leverage and thereafter raises very sharply?
Miller and Modigliani Approach
Walter's Approach
Traditional Approach
Gordon Approach
Question:EBIT is Rs. 10000, ko is 18%, the total market value is Rs.
55000
55500
55555
55565
Question:EBIT is Rs. 10000, interest on debt is Rs. 1000, market value of equity is Rs.46464, the equity capitalization
rate is.
19.33%
19.36%
16.93%
16.36%
Question:MM Proposition I : There are two firms- Firm U an unlevered firm and Firm L, a levered firm having identical
assets and expected Net operating income of Rs.10000. The cost of equity for Firm U ( all equity) is 10 percent. Firm L
has a debt of Rs.50000 the cost of debt being 6 percent. Find the market value of both the firms.
Firm U =Rs.100000, Firm L =Rs.100000
Firm U = Rs.100000, Firm L = Rs.110000
Firm U = Rs.110000, Firm L = 110000
Firm U = Rs.110000, Firm L = 100000
Question:MM Proposition II : Technocomp Ltd is an all equity firm having 10000 shares. The market value of these
shares is Rs.120000. The expected operating income is Rs.18000 and the EPS is Rs.1.80. The firm is considering to
borrow Rs.60000 at 6% and buy back 5000 shares at the market value of Rs.60000. What is the expected EPS. Will the
borrowing affect the cost of equity?
FINANCIAL MANAGEMENT
EPS = Rs.1.80 and Ke = 24%
EPS = Rs.2.88 and Ke = 24%
EPS = Rs.2.88 and Ke = 15%
EPS = Rs.2.88 and Ke = 14%
UNIT8
Question: Capital budgeting decisions involve investment of current funds in anticipation of cash flows
occurring over a series of years in future : This decision are:
Dynamic in nature
Strategic in nature
Tactical in nature
Routine in nature
Question:The pit fall of capital budgeting decisions are: Choose the odd answer.
Excess capacity
Change in demand, consumer preference
Change in risk profile which may not go well with the management
It involve three strategic elements such as cost quality & timing
Question:Capital budgeting decision commit a firm to invest its current fund to generate
Future capital appreciation
A series of cash flows in future
A series of cash flows immediately after the launch of the project
Current income & assets
Question:What is capital budgeting? It is the process of evaluating and selecting
long term investments that lead to wealth maximization.
all investments that lead to wealth maximization.
short term & long term that lead to profit maximation
Budgets for fixed cost and variable cost
Question:___________ decision involve evaluation of specific investment decisions.
FINANCIAL MANAGEMENT
Capital structure
Capital budgeting
Working capital
Operating
Question:Capital budgeting decision involve evaluation of specific
Operating decision
Investment decision
Working capital decision
Operating & Investment decision
Question: Discounted cash flow method does not includes
NPV
IRR
PI
ARR
Question:Capital budgeting decisions involve certain phases. These phases has been jumbled. Identify the
correct phase. 1. Identificaiton of investment opportunities. 2. Evaluation of each investment proposal. 3.
Examination of investment required for each investment proposal. 4. Estimation and comparison of net present
values of investment. 5. Preparation of the statement of costs and benefits. 6. Examination of the government
policies and regulatory guidelines. 7. Implementation. 8. Budgeting for capital expenditure for approval by the
management. 9. Post-completion audit.
1,2,3,4,5,6,7,8,9
1,2,3,5,4,6,8,7,9
1,3,2,5,4,6,7,8,9
1,2,3,4,5,7,6,9,8
Question: Capital budgeting process excludes
Financial appraisal
Performance appraisal
Technical appraisal
Economic appraisal
FINANCIAL MANAGEMENT
Question: Capital budgeting decisions make or mar a business organization. Some of these exclude:
Decision to replace the equipments, machineries etc
Decision on expenditure for increasing the present operating levels
Decision on penetrating int a new geographical area
Decision on mergers & acquisitions
Question:Why are capital budgeting decisions strategic in nature?
They evaluate the profitability of the project & hence the profile of the organization.
They evaluate the profitability of the products & services
They evaluating the budgeting of fixed cost.
They create wealth for the management employees.
Question:
b
FINANCIAL MANAGEMENT
Question: Pentagon Ltd., is evaluating a project that has the following cash flow stream associated with it. The
cash flow for year 0,1,2,3,4,5,6 are -120, -80,20,60,80,100 & 120. The cost of capital is 15% find MIRR.
15.2%
16.2%
12.5%
14.5%
Question: Cash outflow Rs. 4,00,000 ,cash inflows for 4 years Rs. 2,00,000, Rs. 1,75,000, Rs. 25,000 and Rs.
2,00,000, the pay back period is;
3 years
2 years
1 year
4 Years
Question:Assume that Project X costs Rs.2500 now and is expected to generate year-end cash inflows of
Rs.900, Rs.800, Rs.700, Rs.600 and Rs.500 in years 1 through 5. The opportunity cost of capital may be
assumed to be 10 percent. Find the NPV of the project.
Rs.750
Rs.500
Rs.225
Rs.250
UNIT 9
Question: What is Portfolio risk?
It is a risk which measure the volatility of the market
It measures the project risk of the firm
It measure the risk profile of the firm when new project is added to the existing ones.
It measures the the variability of the expected return of the project in isolation
Question:which type of risk measures the variability of expected return of the project in isolation ?
market risk
FINANCIAL MANAGEMENT
Portfolio risk
International risk
Stand-alone risk
Question: What are the limitations of DCF technique?
Future cash flows are under estimated
Future cash flows are aggregated
Estimating the future cash flows with certain degree of certainty is difficult
It ignores time value of money
Question:Which type of risk is affected by factors such as inflation and charges in interest rate ?
Project - specific risk
Competition risk
Market risk
Industry -specific risk
Question:Expected return and risk are
Directly proportional
Inversely proportional
Not related to each other
Mutually exclusive
Question:The variation of actual cash flow from the expected cash flows is termed as
risk
return
reward
Discounted cash flow
Question: Which conventional technique of capital budgeting emphasis on the liquidity of the firm through
recovery of the capital?
NPV
IRR
ARR
PBP
FINANCIAL MANAGEMENT
Question:Risk adjusted discount rate =
Risk free rate + Coupon rate
Risk free rate + Risk premium
IRR - Risk free rate
Interest rate
Question:Which type of risk is association with managerial deficiencies, error in estimation of cash flow etc?
Portfolio risk
Competition risk
Project specific risk
Market risk
Question:What is the type of risk does not involve firm to diversify the risk in the normal course of business?
Market risk
Industry - specific risk
Competition risk
International risk
Question: Change in import export policy of the government of India have led to the closure of some firms.
This risk relates to:
Project - specific risk
Competition risk
Industry - specific risk
Internati
Question: Kejriwal company is considering two mutually exclusive investments A and B. Investment A
requires an outlay of Rs. 10,000 and generates a net cash flow of Rs. 3,000 for six years. Investment B requires
an outlay of Rs. 30,000 and generates a net cash flow of Rs. 11,000 for five years. The required rates of return
on these investments are 12 percent (for A) and 14 percent ( for B). Which of the two should the firm choose?
FINANCIAL MANAGEMENT
B is the best choice
A is the best choice
Both A & B can be considered
Neither A nor B considered
Question:Vajra Hydraulic Ltd, is considering an investment proposal involving an outlay of Rs. 4,500,000. The
expected cash flow are : 1,000,000 ; Rs. 1,500,000, Rs. 2,000,000 and Rs. 2,500,000 for year 1, 2, 3, 4. The
certainty equivalent coefficient are 0.90, 0.85, 0.82 and 0.78 respectively. The risk free rate is 5% calculate the
NPV of the proposal.
Rs. 5,43,570
Rs. 5,34,570
Rs. 5,34,750
Rs. 5,43,750
Question:
b
FINANCIAL MANAGEMENT
UNIT 10
Question: What factors affect.
All profitable project
All investment projects
All prospective projects
None
Question:Under capital rationing , investment proposal are ranked on __________
Subjective judgment
Urgency
Profitability
Management whims & fancies
Question: Imperfections in capital market due to deficiencies in market information & rigid policies relate to.
Internal capital rationing
External capital rationing
Profitability index
Programming techniques
Question:Projects are to be ___________ under capital rationing
Ranked
Listed
Selected
Prioritized
Question:Profitability index =
PV cash outflow - PV cash inflow
PV of cash inflow / PV of cash outflow
PV of cash outflow / PV of cash inflow
Gross present value
Question:Ranking is done under capital rationing on basic of
Profitability
Certainty equivalent
IRR
NPV
FINANCIAL MANAGEMENT
Question:When project are not divisible _________can be employed to avoid the change of accepting fraction of a project.
Linear programming
Integers
Integer programming
Capital budgeting
Question:What factors are irrelevant to the external capital rationing?
Investors confidence is low
High volatile market
Inability of the firm to satisfy regulatory norms
Low issue cost for securities
Question:Which approach to capital rationing tries to achieve maximum NPV subject to many constraints.
Profitability index
Linear programming
Integer programming
Capital budgeting
Question:When a firm imposes constraints on the total size of its capital budget, it is know as ___________.
Capital planning
Capital rationing
Capital budgeting
Capital expenditure
Question: A company is considering an investment proposal to install new milling controls at a cost of Rs. 50,000. The facility has a
life expectancy of 5 years. The cash flow after tax is Rs. 10,000 , 10,450, 11,800, 12,250, Rs. 16750. Find the profitability index at
10% discount rate.
.10
.907
.807
.997
Question:Based on NPV, project A has 16,320, B = 10,800, C = 9,820 the ranking of project is:
FINANCIAL MANAGEMENT
ABC
ACB
CBA
BAC
Question:Profitability index of project A is 1.1637 ; B is 1.216 and C is 1.1964. The ranking are:
A, B, C
B, A, C
B, C, A
A, C, B
UNIT 11
Question: Working capital management is concerned with managing the different components of
Current liabilities
Current asset
Both Current liabilities & Current asset
Both fixed & current component of assets & liabilities
Question:__________ is the minimum amount of investment required to be made in current assets.
Permanent working capital
Temporary working capital
Non- core current asset
Net working capital
Question: ____________ is the excess of current asset over current liabilities
Permanent working capital
Temporary working capital
Net working capital
Gross working capital
Question: What role does internet play in the field of working capital management for an organization?
Firms can link manufactures with their suppliers and dealers using internet.
Firms can procure additional working capital through internet
Firms can outsource various functions of W.C management
FINANCIAL MANAGEMENT
Firms can take decision on financing working capital requirement.
Question:Advances for purchase of raw materials, components and consumable stores, prepaid expenses are the components of .
Current liabilities
Current asset
Miscellaneous asset
Outstanding expenses
Question:What is working capital?
It is a portion of asset that is used for future operations
It is a portion of asset that is used for current operations
it is a portion of asset that is uses for both future and current operations
It is the fund required to raise capital
Question:What is the role played by finance manager in filling the time gap? Finance manager is require to.
Take are of investment opportunities during this time gap
Finance the operations during this time gap
Finance the projects during this time gap
Finance the subsidiaries working capital requirement during this time gap
Question:Permanent working capital is also known as ____________ working capital
Variable
Fixed 1
Semi-fixed
Semi-variable
Question: Cash conversion cycle is :
CCC = ICP - RCP - PDP
CCC = ICP + RCP + PDP
CCC = ICP + RCP - PDP
CCC = ICP - RCP + PDP
Question:In operating cycle which appear first & what follows?
FINANCIAL MANAGEMENT
Cash out flows occur before the occurrence of cash flows
Cash inflows occur before the occurrence of cash outflow
Both cash inflow & outflow appear simultaneously
Because of the time gap, cash outflows are staggered.
Question:Operating cycle of a firm has the following phases . Choose the right phase in operating cycle. 1. Acquisition of resources
from suppliers. 2. Making payments to suppliers. 3. Conversion of raw materials into finished goods. 4. Sale of finished products to
customers. 5. Collection of cash from customers.
Step 1, 3, 4, 5
Step 1, 2, 3, 5
Step 1, 2, 3, 4, 5
Step 1, 2, 3, 4
Question: What is the impact of holding large current assets on the firm?
It will instigate its competitor to hold large current asset
It will adversely affect the market demand
It will adversely affect the firm's return on its investment
It will reduce cost of capital
Question:___________ requirement vary depending on seasonal and cyclic changes
Permanent working capital
Temporary working capital
Net working capital
Current liabilities
Question:
FINANCIAL MANAGEMENT
b
Question:
b
Question:
FINANCIAL MANAGEMENT
c
Question: If the average inventory is Rs. 10,500, Annual cost of goods sold is Rs. 56,000 find the inventory conversion period?
Assume 365 days in a year.
67.5 days
65.17 days
88.4 days
76.6 days
UNIT 12
Question: The difference between collector float and payment float is known as.
Gross float
Net float
Cash float
Credit float
Question:Which type of motive necessaries a firm to hold cash to meet some exigencies.
Speculative motive
Transactive motive
FINANCIAL MANAGEMENT
Precautionary motive
Compensating motive
Question: Customers are bound to maintain a minimum balance in their accounts in order to avail services such a transfer of funds,
purchase of DD, MT etc. Such balance are known as :
Speculative motive
Transactive motive
Precautionary motive
Compensating motive
Question:What type of motive of holding cash , enables a firm to meet its routine expenses which are incurred in the ordinary course
of business?
Sensitive motive
Transactive motive
Precautionary motive
Compensating motive
Question:Cash management excludes :
Management of cash inflows and outflows of the firm
Cash management with in the firm
Management of cash balances
Management of inventory
Question: When a firm deposits a cheque in a bank immediate credit is not given by the bank. Give reason .
Cheque is sent for authentication to the head office
Cheque is sent for clearance
Cheque is sent to payers bank for collection
Administrative delay
Question:
What is optimum cash balance?
Maintained of appropriate balance between cash & marketable securities.
Maintaining minimum cash but high marketable securities that leads to higher profile
Maintaining high cash balance to have storing liquidity position
FINANCIAL MANAGEMENT
Minimum cost that is required to convert securities into cash
Question:Which model take care of fluctuators in cash flow and the cash needs for expansive modernization etc?
Miller-orr model
Modigliani & Miller model
Baumol model
Gordon model
Question:Which model helps in determining the minimum cost that is required to convert securities into cash?
Miller-orr model
M M model
Baumol model
Gordon model
Question:The Boumol model has the following assumption. Choose the incorrect assumption .
The firm is able to forecast its cash requirement in an accurate way
The firm's pay-out are not uniform over a period of time.
The firm's payout are uniform over a period of time
The opportunity cost of holding cash is known and does not change with time
Question:
d
Question:
FINANCIAL MANAGEMENT
a
Question:
c
UNIT 13
Question:Direct inventories excludes :
Raw materials
Work in progress
Lubricants, grease
Finished goods
FINANCIAL MANAGEMENT
Question:Which among the following is carrying cost?
Requisitioning
Purchase ordering or set-up
Receiving inspecting and receiving at the warehouse
Insurance premium
Question:Raw materials policies in inventory management are decided by
Production department & finance department
Purchase department & production department
Purchase department & marketing department
Production department & marketing department
Question:Which type of firm will have to maintain very high level of finished goods investor alone?
A manufacturing unit
A retail firm
A service firm
All of the above
Question:The major objectives of inventory management excludes:
Maximizing customer satisfaction
Minimum investment inventory
Achieving low cost plant operation
Minimum investment in receivables
Question:Inventories constitute an important component of.
Fixed asset
Working capital
Total assets
Receivable
Question: Identify the correct answer with reference to EOQ: assertion (a): EOQ refers to the optional order size. reasoning( r) : EOQ
results in the lowest ordering & carrying cost for an item of inventory.
(a) is true ( r) is false
FINANCIAL MANAGEMENT
(a) is true (r) is true
(a) is false (r) is true
(a) is false (r) is false
Question:Cost incurred for maintaining the inventory the inventory in warehouse are called _______
Ordering cost
Carrying cost
Shortage/ stock to cost
Material cost
Question:____________ is defined as the order quantity that minimizes the total cost associated with inventory management.
Carrying cost
Storage cost
Economic order quantity
ABC system
Question:Which among the following is the ordering cost ?
Receiving, Inspecting & Receiving at the warehouse
Insurance
Taxes
Obsolescence
Question:The purpose of holding inventory is to achieve ______________ through cost reduction and increased sales volume.
Shortage of stock or longer waiting period affect _____________. Firms may order large quantity to avail _____________. Due to
uncertainty in supply and longer lead time firms should maintain ____________levels of inventory.
1. Proficiency 2. Inventory level 3. Commission 4. Lower
1. Talent 2. Purchase 3. Free gifts 4. Medium
1. Efficiency 2. Sales 3. Discounts 4. High
1. Smartness 2. Working capital 3. Royalty 4. very low
Question: Match the Following
FINANCIAL MANAGEMENT
Match
Material costs include
Ordering cost include
Carrying cost
Shortage cost
User answer
Maintaining the inventory in warehouse.
Cost of goods & related costs
Requisition, Transportation, Receiving, Inspecting at the warehouse.
Extra cost associated with urgent replenishment purchase
Question:Identify the True (T) and False (F) statement. 1. Trains active motive of holding inventory is to facilitate smooth production
and sales. 2. Speculative motive of holding investor is to guard against the risk of unexpected change in demand and supply. 3.
Ordering cost include requisitioning , purchase ordering the finishing goods transportation & receiving inspecting at the ware house. 4.
One of the assumptions of EOQ is the per unit price of material does not change and is constant irrespective of the order size.
1T, 2T, 3T, 4T
1F, 2T, 3F, 4T
1T, 2F, 3T, 4T
1F, 2F, 3F, 4
UNIT 14
Question:What costs are involved in maintaining receivables?choose the odd answer
Capital cost
Sunk cost
Administration cost
Delinquency costs
Question:When a customer fails to pay the amount on the expiry of credit period the cost associated to the firm is known as:
Capital cost
Administrative cost
Delinquency cost
Opportunity cost
Question:The features of receivables arising out of trade credit excludes:
It involves an element of risk
It is based on economic value
It has an element of hedge against uncertain lead times
It has an element of futurity
Question:What is the implications of credit sales?
Affect the cash sales
Blocking of funds in accounts receivables
FINANCIAL MANAGEMENT
Increase in current liabilities
Increase in inventories
Question:The main objective of selling goods on credit is to promote ______
brand
share price
sales
production
Question:The two types of administration costs are:
(1)Credit investigation &supervision cost (2) Sunk cost
(1)Credit investigation & supervision cost (2) Collection cost
(1) Collection cost (2) Default cost
(1) Collection cost (2) Capital cost
Question:If a firm allows to its customers 20 days of credit with no inducement for early payment it is stated as :
'net 30'
'net 20'
'net 2/10'
'Gross 20'
Question:The bases for setting credit standards are:
Credit rating
References
Average payment period
All of the above
Question:The collection programme excludes;
Monitoring the receivables
Reminding customer about due date of payment
Online interaction through electronic media abound the payment due around the due date.
Offering cash discounts
Question:The credit policy variables excludes _______
FINANCIAL MANAGEMENT
Credit standards
Credit period
Credit policy
Cash discounts
Question: A relaxation credit policy is considered which would result in the sales increase by Rs 1,50,00,000. Contribution margin is
20%. The incremental contribution is Rs_________.
20,00,000
15,00,000
10,00,000
30,00,000
Question:Relaxation of credit policy yield an increase in sales by Rs.1,50,00,000 the anticipated bad debts would be 10%. The bad
debts on new sales is Rs ________.
51,00,000
15,00,000
15,60,000
10,00,000
Question:A period of "net 30" means that it allows to its customers 30 days of credit with __________ for early payments
Inducements
No inducements
Derailment
None
Question: Investment in sales is Rs.1,50,00,000. Average collection period is 40 days, marginal contribution 20%, assume 360-day
year, the incremental investment in Receivables is Rs _______
13,33,333
31,33,333
33,33,311
33,33,331
Question:Anticipated sales Rs.110,000,000, variable cost 0.8, anticipated relaxation in discount 2/10, net 30, the discount cost is Rs
________.
16,00,000
FINANCIAL MANAGEMENT
12,60,000
10,20,000
10,60,000
UNIT 15
Question: What is the relationship between dividend payout and retained earnings?
Higher the dividend payout, higher the retained earnings
Higher the dividend payout, lower the retained earnings
Lower the dividend payout , higher the retained earnings
Lower the dividend payout, lower the retained earnings
Question:Dividends are that portion of a firm's __________ paid to the shareholders
Capital reserves
Resources & surplus
Net earnings
Net worth
Question:What are the components of shareholder's return?
Interest on investment, capital appreciation
Dividends on equities & preference capital
Capital gains or capital loss
Dividends and capital gains
Question:Under Walter's approach , if the firm's rate of return r is greater than its cost of capital k, the firm's has
The obligation to pay higher dividend
The option to retain the earnings for better & profitable investment opportunities
Right to retain all the earnings
Right to distribute all the earnings as dividend
Question:
FINANCIAL MANAGEMENT
b
Question: Which approach of dividend policy emphasis the relationship between the dividends and the stock market.
Walter model
Gordon model
Graham & Dodd model
Miller & Modigliani model
Question: What is the rational behind holding higher retained earnings?
To maintain large cash balance
To fund growth opportunities
To meet exigencies
To maximize profit
Question:Under traditional approach the stock value responds positively to high dividends and negatively to low dividends. The
market price p is represented by .
= [ m (D + E)/3)]
= [ m (D + E/3)]
= [ m +(D + E/3)]
= [ m - (D + E/3)]
Question:In MM theory formula 'ke' refers to ________
Cost of debt
Cost of preference
Cost of equity
FINANCIAL MANAGEMENT
Cost of capital
Question:The assumptions of Miller and Modigliani model does not include:
Existences of perfect capital mar
There are no taxes
The investment policy of the company does not change
There exist risk & uncertainty about future investment
Question: Gordon's dividend capitalization model has the following assumption. Choose the irrelevant assumption:
The firm is an all equity firm with no debt
The capital structure of the firm is equally divided into equity capital and debt capital
The life of the firm a indefinite
The cost of capital is greater than growth rate (br)
Question: ROI is 15%, ke is 11% , EPS Rs. 10, DP ratio 100%, DP is Rs.
99.09
90.91
91.90
90.00
Question: ROI is 15%, ke is 11%, EPS Rs. 10, DP ratio is 25%, the DP is Rs.
115.37
151.73
115.73
117.53
Question: ROI is 8%,ke is 11%, EPS Rs. 10, DP is zero, DP is Rs.
117.88
118.78
178.18
187.78
Question: ROI is 15% , ke is 11%, EPS Rs. 10, DP ratio zero, the DP is Rs.
FINANCIAL MANAGEMENT
132.97
123.79
123.97
129.37