Reference no: EM131250988
1. What will be impact on the operating leverage of a firm, if it proceeds for additional borrowings?
Answer Choices
It will increase
It will decrease
It will remain unchanged
It will increase or decrease depends in the cost of borrowings.
2. Incremental cash flows in relation to capital budgeting decisions refer to the
Answer Choices
Cash flows which are increasing over a period of time.
Incremental change in cash flows if the project is extended one year beyond its life period.
Cash flows which are directly attributable to the investment
Difference between cash inflow streams and the initial outflow.
3. Which of the following is not a leverage ratios?
Answer Choices
Debt-asset ratio
Debt-equity Ratio
Fixed charge coverage ratio
Bank finance to working capital gap ratio
4. Which of the following is a technique for monitoring the status of the receivables?
Answer Choices
Ageing schedule
Outstanding creditors
selection matrix
Fund flow analysis
5. Process of capital budgeting involves
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Identifying potential investments
Analyzing the set of investment opportunities, and identifying those that will create shareholder value
Implementing and monitoring the selected investment projects
All of the above
6. Given the maturity, an increase in bond''s yield causes a price decrease that is ___________ the price increase caused by an equal size decrease in yield.
Answer Choices
Higher than
Smaller than
Equal to
Greater than or equal to
7. Yield to maturity of a perpetual bond is equal to
Answer Choices
Interest/face value
Interest/Market price
Interest/Average of face value and market price
(Interest + Annual redemption) / Average Investment
8. Which of the following is not true if the credit terms are liberalized by increasing the discount?
Answer Choices
It may increase sales.
It may increase the bad debts losses.
It may reduce the average collection period.
It may increase the cost of discount.
9. Undertrading means
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Having low amount of working capital
High turnover of working capital
Sales are less compared to sales generated.
Assets are less compared to sales generated.
10. Ignoring the time value of money, how much does a firm lose on a rs. 1000 sale that has a 25% profit margin if the 20% probability of default occures?
Answer Choices
Rs. 150
Rs. 600
Rs. 650
Rs. 750
11. The credit term "2/45 net 90" indicates
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There is no cost of funds up to 90 days.
There is no cost of funds up to 45 days.
The cost of funds up to 45 days is 2%
The cost of funds up to 90 days is 2%
12. The constant growth model of equity valuation assumes that
Answer Choices
The dividends paid by the company remain constant
The dividends paid by the company grow at a constant rate of growth
The cost of equity may be less than or equal to the growth rate.
The growth rate is greater than the cost of equity
13. At operating break even point, which of the following is true?
Answer Choices
Sales revenue just covers the fixed cost.
Sales revenue is just equal to the variable cost.
Fixed cost is same as that of the variable costs.
EBIT is zero.
14. A change in YTM affects those bonds with higher YTM ________ it affects bonds with a lower YTM.
Answer Choices
More than
Less than
Same as
Either (b) or (c) above
15. When compounding of interests is done at intervals which are less than a year
Answer Choices
16. The effective rate of interest will be same as the nomial rate of intereat
The effective rate of interest will be lesser than the nomial rate.
The nomial rate of interest will be lesser than the effective rate.
There is no difference between the effective and nominal rates in the first year.
17. Current assets are characterized by
Answer Choices
long life span
Quick transformation into other forms of assets
A greater significance of time value of money
None of the above
18. Given two suppliers A & B with the terms of sale 2/10 net 60; 2/15 net 30 respectively, which of the following is/are true?
Answer Choices
The company would be better off if it choose supplier A, because it has a longer credit period.
The cost of trade credit is higher for supplier B than that of supplier A.
If the opportunity cost of cash is equal to cost of trade credit of supplier B, it is better to choose supplier A and avail casd discount.
If the credit period nof supplier A is reduced to 30 then the company is indifferent in choosing the supplier with respect to cost of trade credit.
19. Which of the following is false with respect to the IRR?
Answer Choices
It considers the cash flow stream throughout the life of the project.
It is uniquely defined for every type of project.
It considers the time value of the money.
It is appealing to the businessman who prefer to think in terms of the rate of return from the project.
20. Which of the following statements is correct for a project with a positive NPV?
Answer Choices
IRR exceeds the cost of capital
Accepting the project has an indeterminate effect on shareholders
The discount rate exceeds the IRR
The profitability index equals one.
21. The Degree of Financial Leverage
measures financial risk of the firm
is zero at financial break even point
Increases as EBIT increases
Is undefined below financial break even point level
22. Which of the following approaches advocates that the costs of equity capital and debt capital remain unaltered when the degree of leverage varies?
Answer Choices
Net Income Approach
Net operating Income approach
Traditional Approach
Modigliani-Miller Approach
23. Which of the following assumes paramount importance for investing surplus cash by a firm?
Answer Choices
Yield
Liquidity
tax Shelter
security
24. A DOL of +2 would mean
Answer Choices
If there is an increase of 10% in quantity EBIT will increase by 20%
If there is an increase of 10% in fixed costs the EBIT will increase by 20%
The business risk of the firm is -2%.
The effect on EBIT will be very great for a given % change in quantity.
25. Which of the following is not a function of a finance manager?
Answer Choices
Mobilization of funds
Deployment of funds
Mainupulation of share price of a company
Maintain balance between risk and return
26. Which of the following factors does not influence the composition of working capital?
Answer Choices
Nature of business
Nature of raw material used.
Nature of finished goods.
Financial leverage o the firm
27. In the ever changing scenerio of interest rates in the bond market, if discount bonds and premium bonds are sold at the same price, it indicates that
Answer Choices
The bonds have approached maturity
The YTM = Coupon rate
The bond are having the same coupon rate, same maturity value and same face value.
The investor cost of funds are approximately equal.
28. While calculating weighted average cost of capital
Answer Choices
Retained earnings are excluded
Bank borrowings for working capital are included
Cost of issues are included
Weights are based on market value or on book value.
29. The value of EBIT at which EPS is equal to zero is known as
Answer Choices
Break Even Point
Financial Break Even Point
Operating Break Even Point
Overall Break Even Point
30. Kelley Industries has 100 million shares of common stock outstanding with a current market price of Rs. 50. The firm is contemplating to take an investment project which requires an initial cash outflow of Rs. 10crores. The IRR of the project is equal to the firm's cost of capital. What will be the firm's stock price if capital markets fully reflect the value of undertaking the project?
Answer Choices
Rs. 50
Rs. 49
Rs. 51
Can't tell from the given information.
31. When the required rate of return is equal to the coupon rate, value of the redeemable bond is equal to its
Answer Choices
Market value
Face value
Present value of the stream of interest inflows
Average of par value and matyrity value.
32. The return on investement of a firm is 14% and cost of equity capital is 12%. In order to maximize the value of a firm according to Walter Model, the firm should,
Answer Choices
Adopt 100% dividend pay-out policy.
Not pay dividends at all.
Be indifferent as to the dividend policy.
Plough back 50% of profits and pay the rest as dividend.
33. If net present value of a project is negative, then
Answer Choices
IRR = Cost of Capital
IRR > Cost of Capital
IRR < Cost of Capital
BCR > 1
34. The nominal rate of interest is equal to
Answer Choices
Real Rate + Risk Premium - Inflation
Real Rate + Risk Premium + Inflation
Real Rate - Risk Premium + Inflation
Real Rate - Risk Premium - Inflation
35. Which of the following can be considered as the limitations of using average rate of return for investment appraisal?
Answer Choices
It is simple to calculate
It considers benefits over the entire life of the project.
It is some what akin to the break-even point
It is based upon accounting profit, and not cash flows.
36. If the degree of the financial leverage of a firm is zero, then which of the following statements is true?
Answer Choices
The firm has no interest expense.
No preference dividend is payable by the firm.
The EBIT of the firm is zero.
No tax is payable by the firm.
37. If the net working capital is negative then it indicates that
Answer Choices
Long-term funds have been used for financing short-term assets.
Long-term funds have been used for financing long-term assets.
short-term funds have been used for financing long-term assets.
short-term funds have been used for financing short-term assets.
38. Which of the following is not considered for cost-benefit analysis of capital investment decisions?
Answer Choices
Opportunity costs
Incremental costs
Sunk Cost
Variable cost
39. The coupon rate on a bond is set equal to
Answer Choices
A percentage of its par value
A percentage of its maturity value
A percentage of its market price
A percentageof its issue price.
40. Which of the following is not an assumption under CAPM?
Answer Choices
The investor is not limited by his wealth and price of the asset.
Investors make their investment decisions ona single period horizon.
If the perceived risk is high, a risk-averse investor expects higher return.
Assets can be bought at the going market price.
41. Which of the following investments has/have no default risk?
Answer Choices
Inter-corporate Deposits
Treasury Bills
Commercial Papers
Money market Mutual Funds
42. Flaws of the accounting rate of return method include:
Answer Choices
The choice of accounting g hurdle return rate is essentially arbitrary
Depreciation method has a large impact on the accounting rate of return
This method makes no adjustment for project risk or for the time value of money
All of the above
43. Operating cycle can be shortened by increasing
Answer Choices
Manufacturing time
Duration of credit availed
Credit period to the customer
Stock held in stores
44. Which of the following is not a feature of an optimal capital structure?
Answer Choices
Profitability
Liquidity
Flexibility
Solvency
45. Which of the following is not a merit of using book values as weights for calculating the weighted average cost of capital?
Answer Choices
The book value weights are not affected by fluctuations in market prices.
The book vale weights are suitable when the firm is not listed.
The book value weights are suitable when the securities of the firm are not actively traded.
The book values of various sources of finance bear very close relationship to their present economic values.
46. Core current assets
Answer Choices
refer to that portion of the current assets normally financed through long-term sources.
refer to the raw material component of current assets without which production cannot go on
refer to the current asset requirement of core sectore industries like steel or current industry.
refer to excess of current assets over current liabilities for a particular period.
47. Operating leverage measures the sensitivity of the ___________ to changes in quantity.
Answer Choices
Earning per share
Profit after tax
Earning before interest and taxes
Profit before interest
48. The market value of the firm is the result of
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Working capital decisions
Capital budgeting decisions
Trade-off between cost and risk
Trade-off between risk and return
49. Lead time refers to
Answer Choices
Work-in-progress time
The time gap between placing of the order and procuring the material
The period in which a whole lot of inventory is consumed.
The time finished goods lie as inventories.
50. Two most important issues in formulating working capital policy are
Answer Choices
Nature of business and operating cycle
trade credit and permissible bank finance
The ratios of current assets to sales and short-term financing to long-term financing
the level of current ratio and quick ratio
51. Should a firm invest in projects with NPV = $0?
Answer Choices
Yes
No
52. The firm is indifferent between accepting or rejecting projects with zero NPVs
The firm should look at the PI and IRR of the projects
If The coupon rate of bond X is greater than bond Y with the same YTM and maturity
Answer Choices
The bond X's price will change more than Y for a change in YTM
The market price of bond Y is more than that of X
The current yield of both th bonds would be same.
The bond Y's price would change more than that of X for a change in YTM
53. Letter of credit means
Answer Choices
Credit agreement between a bank and a company
Credit agreement between a company and its supplier
Bank undertaking responsibility on behalf of its customer, in case the customer fails to pay to his supplier
Agreement that facilitates a company to stretch the credit period extended by its supplier.
54. The average collection period is determined by
Answer Choices
Daily credit sales divided by average balance in receivable account
Balance in receivable account divided by average daily credit sales.
Total credit sales divided by average balance in receivable account
Balance in the receivables account divided by average total credit sales.
55. If maturity of bond lenghtens, what happens to the volatility of bond?
Answer Choices
Volatility increases
Volatility decreases
Volatility sometimes increases, sometimes decreases.
Volatility remains unchanged
56. Operating cycle can be delayed by
Answer Choices
Increase in WIP period
Decrease in raw materials storage period
Decrease in WIP period
All of the above
57. Question Reference
SamurSports sells 1500 cricket bats each year. The average cost of purchasing each bat is Rs. 250. The cost for Samur to place an order for bats is Rs. 50 and it incurr 5% of the average cost to carry them in inventory.
Question - 1/5
The total number of orders it should place each year is ____________________.
Answer Choices
11.55
12.8
14
15
SamurSports sells 1500 cricket bats each year. The average cost of purchasing each bat is Rs. 250. The cost for Samur to place an order for bats is Rs. 50 and it incurr 5% of the average cost to carry them in inventory.
Question - 2/5
The economic order quantity of cricket bats is ________________-
Answer Choices
110 Units
120 Units
131.5 Units
100 Units
SamurSports sells 1500 cricket bats each year. The average cost of purchasing each bat is Rs. 250. The cost for Samur to place an order for bats is Rs. 50 and it incurr 5% of the average cost to carry them in inventory.
Question - 3/5
The average inventory value of cricket bats is _______________.
Answer Choices
Rs. 12,500
Rs. 13,750
Rs. 11,000
Rs. 16,300
Evan Soft Ltd. has assets of Rs. 2,80,000 which have been financed with Rs. 64,000 of debts and Rs. 1,10,000 of equity and a general reserve of Rs. 18,000. The firm's total profits after interest and taxes for the year ended 31st March 2015 were Rs. 25,700. It pays 13% interest on borrowed funds and is in the 60% tax bracket. it has 1,000 equity shares of Rs. 100 each selling at a market price of Rs. 125 per share. The firm pays 60% of its earning as dividend.
Question - 4/5
The cost of debt capital is ________________.
Answer Choices
6.70%
5.20%
4.80%
5.50%
Evan Soft Ltd. has assets of Rs. 2,80,000 which have been financed with Rs. 64,000 of debts and Rs. 1,10,000 of equity and a general reserve of Rs. 18,000. The firm's total profits after interest and taxes for the year ended 31st March 2015 were Rs. 25,700. It pays 13% interest on borrowed funds and is in the 60% tax bracket. it has 1,000 equity shares of Rs. 100 each selling at a market price of Rs. 125 per share. The firm pays 60% of its earning as dividend.
Question - 5/5
The earning per share is Rs. ______________.
Answer Choices
31.2
22.44
12.78
25.7