Financial Management - 19

LIST OF ATTEMPTED QUESTIONS AND ANSWERS

True/False
Question The assumptions of capital structure theories is that Corporate Income Tax does not exist
Correct Answer True
Your Answer True

Multiple Choice Single Answer
Question The technique which tries to find out the present value of Re 1 if received or spent after n years, provided that the interest rate of I can be earned on investment is termed as
Correct Answer Discounting
Your Answer Discounting

Multiple Choice Multiple Answer
Question Limitations of Average collection period
Correct Answer Average Collection period assumes that the credit sales are evenly spread throughout the year. In practical circumstances, credit sales are not evenly spread throughout the year , The amount of credit sales made by company or the normal credit period offered by the company are not available in the published financial statements
Your Answer Average Collection period assumes that the credit sales are evenly spread throughout the year. In practical circumstances, credit sales are not evenly spread throughout the year , The amount of credit sales made by company or the normal credit period offered by the company are not available in the published financial statements

True/False
Question Debtors turnover ratio is normally supported by the calculations of average collection period
Correct Answer True
Your Answer True

Multiple Choice Single Answer
Question The main function of finance under the traditional approach comprises of
Correct Answer Procurement of funds
Your Answer Procurement of funds

Multiple Choice Single Answer
Question An increase in current asset
Correct Answer increases working capital
Your Answer increases working capital

True/False
Question Financial statements do not provide information about sources of raising funds as well as the applications of these funds
Correct Answer True
Your Answer False

Multiple Choice Multiple Answer
Question The disadvantages of a Partnership firm are
Correct Answer Unlimited liability , Capacity to raise funds to meet complex business operations is limited
Your Answer Unlimited liability , Capacity to raise funds to meet complex business operations is limited

Multiple Choice Single Answer
Question The traditional approach to financial management refers only to the procurement of funds by
Correct Answer Corporate entity
Your Answer Corporate entity

Multiple Choice Multiple Answer
Question Factoring can be classified as
Correct Answer Without Recourses factoring , With Recourse factoring
Your Answer Without Recourses factoring , With Recourse factoring

Multiple Choice Multiple Answer
Question Advantages of Debentures from Investor's point of view
Correct Answer They earn a stable rate of return , They are protected by the various provisions of the debenture Trust Deed , They generally have a fixed maturity period
Your Answer They earn a stable rate of return , They are protected by the various provisions of the debenture Trust Deed , They generally have a fixed maturity period

Multiple Choice Single Answer
Question Financing consists of the raising, providing, managing of all the money, capital or funds of any kind to be used in connection with the business' is defined by
Correct Answer Bonneville and Dewey
Your Answer Bonneville and Dewey

Multiple Choice Single Answer
Question Interest and Dividend are categorised under
Correct Answer Non-operating expenses
Your Answer Non-operating expenses

True/False
Question Retained earnings involves cost in terms of dividend foregone by or withheld from the equity shareholders
Correct Answer True
Your Answer True

Multiple Choice Single Answer
Question A project requires an outlay of Rs. 4,00,000 and earns, an annual cash inflow of Rs. 1,00,000 for 8 years. Calculate pay back period
Correct Answer 4 years
Your Answer 4 years

Multiple Choice Single Answer
Question The rate of return which computes the average annual yield on the net investment in the project is known as
Correct Answer Accounting rate of return
Your Answer Accounting rate of return

Multiple Choice Single Answer
Question The Pay Bank period is calculated as
Correct Answer Cash outlay / Annual cash inflow
Your Answer Cash outlay / Annual cash inflow

Multiple Choice Multiple Answer
Question Disadvantages of Internal rate of return is
Correct Answer It is difficult to use and understand , It presupposes that the cash inflows can be reinvested immediately to yield the return equivalent to Internal rate of return which is not very realistic
Your Answer It is difficult to use and understand , It presupposes that the cash inflows can be reinvested immediately to yield the return equivalent to Internal rate of return which is not very realistic

True/False
Question The lessor is the nominal owner of the asset as the possession and economic use of the asset rests with the lessee
Correct Answer True
Your Answer True

Select The Blank
Question The projects having maximum positive Net present value will be ranked ________
Correct Answer highest
Your Answer highest

Select The Blank
Question The current ratio of ________ is considered to be standard
Correct Answer 2 : 1
Your Answer 2 : 1

Multiple Choice Single Answer
Question The cost which varies in direct proportion to the sales revenue is termed as
Correct Answer Variable cost
Your Answer Variable cost

Multiple Choice Single Answer
Question Current assets are also referred to as
Correct Answer Working Capital
Your Answer Working Capital

Multiple Choice Multiple Answer
Question Situation of capital rationing may involve problems in the form of
Correct Answer Mutually dependent project , Multi period projects , Project Indivisibility
Your Answer Project Indivisibility , Mutually dependent project , Multi period projects

True/False
Question Financial leverage is calculated as ( Sales - Variable cost ) / ( Earnings before Interest and tax - Interest )
Correct Answer False
Your Answer False

Multiple Choice Single Answer
Question The Irrelevance approach is based on the assumption of
Correct Answer Capital markets are perfect, Investors are rational, transactions are instaneous and costless. Securities are divisible and no investor can influence the market price
Your Answer Retained earnings are the only source of finance available to the company

Multiple Choice Multiple Answer
Question The normal process which may be followed under the capital rationing situations may be
Correct Answer Rank the projects according to some measure of profitability , Select projects in the descending order of profitability till the available funds are exhausted
Your Answer Rank the projects according to some measure of profitability , Select projects in the descending order of profitability till the available funds are exhausted

Match The Following
Question Correct Answer Your Answer

Advantage of Net present value considers cash inflows from the project throughout its life considers cash inflows from the project throughout its life

Disadvantage of Accounting rate of return uses profits after depreciation and taxes and not the cash inflows for evaluating the projects uses profits after depreciation and taxes and not the cash inflows for evaluating the projects

Disadvantage of Pay back period ignores time value of money ignores time value of money

Advantage of Discounted Pay back period considers time value of money considers time value of money


Match The Following
Question Correct Answer Your Answer

Mortgage Mode of security pertains to immovable properties like land and building Mode of security pertains to immovable properties like land and building

Hypothecation Neither the property not the possession of the goods is transferred to the bank Neither the property not the possession of the goods is transferred to the bank

Pledge Possession of the goods is with the bank Possession of the goods is with the bank

Lien Bank has a right to retain the goods belonging to the company until the debt due to the bank is paid Bank has a right to retain the goods belonging to the company until the debt due to the bank is paid


Multiple Choice Multiple Answer
Question Utility of cash flow analysis
Correct Answer Helps in efficient cash management , helps in internal financial management , Discloses the movements of cash
Your Answer Helps in efficient cash management , helps in internal financial management , Discloses the movements of cash

True/False
Question Inadequate provision for depreciation may be the cause of overcapitalisation
Correct Answer True
Your Answer True

Multiple Choice Single Answer
Question Price Earnings ratio is calculated as
Correct Answer Market Price per share / Earnings per share
Your Answer Market Price per share / Earnings per share

Select The Blank
Question If the size of the issue is more than Rs. 100 crores, the issue is required to be rated by at least ________ credit rating agencies
Correct Answer two
Your Answer two

Multiple Choice Multiple Answer
Question Advantages of ABC Analysis are
Correct Answer A close and strict control is facilitated on the most important items , Helps in maintaining a high inventory turnover ratio , Optimum utilisation of the available funds can be assured
Your Answer A close and strict control is facilitated on the most important items , Helps in maintaining a high inventory turnover ratio , Optimum utilisation of the available funds can be assured

Select The Blank
Question Modigliani - Miller approach closely resembles ________ approach
Correct Answer Net operating income
Your Answer Net operating income

Select The Blank
Question The amount of shares bought back by the company should not be more than ________ of total paid-up capital of the company and its free reserves
Correct Answer 0.25
Your Answer 0.25

Multiple Choice Single Answer
Question The most easiest form of organisation to form and operate is
Correct Answer Proprietary concern
Your Answer Proprietary concern

Multiple Choice Single Answer
Question The period that within which the cost of the project will be completely recovered is known as
Correct Answer Pay Back period
Your Answer Pay Back period

True/False
Question Credit rating is obligatory only in case of the debt instruments
Correct Answer True
Your Answer True

Select The Blank
Question In the case of Overcapitalisation ________ is the worst affected class
Correct Answer Shareholders
Your Answer Shareholders

Select The Blank
Question From the following data, the Earning per share is ________ : Net Profit before tax Rs. 2,00,000/-, Taxation at 50% of Net Profit, 10% Preference Share Capital (Rs. 10 each) Rs. 1,00,000/-, Equity Share Capital (Rs. 10 each) Rs. 1,00,000/-
Correct Answer 9
Your Answer 9

Multiple Choice Multiple Answer
Question Overall profitability ratio includes
Correct Answer Return on Asset , Return on Shareholders Funds
Your Answer Return on Asset , Return on Shareholders Funds

True/False
Question Earnings per share is of great significance to an operator on the stock exchange buying and selling the shares
Correct Answer False
Your Answer False

Multiple Choice Multiple Answer
Question The recommendations of the Chhore committee included
Correct Answer increasing role of short term loans and bill finance and curbing the role of cash credit limits , the bank should appraise and fix separate limits for normal non-peak levels and also peak levels
Your Answer increasing role of short term loans and bill finance and curbing the role of cash credit limits , the bank should appraise and fix separate limits for normal non-peak levels and also peak levels

Multiple Choice Single Answer
Question Inventory turnover ratio is a measure to discover
Correct Answer The possible trouble in the form of overstocking or overvaluation
Your Answer The possible trouble in the form of overstocking or overvaluation

Select The Blank
Question The comparison of the ratios of one organisation with that of the other organisation is termed as ________ comparison
Correct Answer Inter-firm
Your Answer Inter-firm

Select The Blank
Question Net Present value considers ________ from the project throughout its life
Correct Answer cash inflow
Your Answer cash inflow