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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