Financial Management - 27

LIST OF ATTEMPTED QUESTIONS AND ANSWERS

Multiple Choice Single Answer
Question Gross Working Capital means
Correct Answer Current assets
Your Answer Current assets

Select The Blank
Question ________ approach is the mean between two extreme approaches of
net income approach and net operating income approach
Correct Answer Traditional
Your Answer Traditional

True/False
Question Secured Premium notes did not carry any interest during the
first three years
Correct Answer True
Your Answer True

Multiple Choice Multiple Answer
Question Objective of perpetual inventory system are
Correct Answer Maintenance of Bin Cards and Stores ledger in order to
know about the stock in quantity and value at any given point of time ,
Continuous verification of physical stock to ensure that the physical
balance and the book balance tallies
Your Answer Maintenance of Bin Cards and Stores ledger in order to know
about the stock in quantity and value at any given point of time ,
Continuous verification of physical stock to ensure that the physical
balance and the book balance tallies

True/False
Question Reorder level is calculated as Maximum Lead Time * Minimum
Usage
Correct Answer False
Your Answer False

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 Multiple Answer
Question Advantages of Preference shares from shareholders point of view

Correct Answer For a corporate investor, preference dividend income , It
earns a stable dividend rate
Your Answer For a corporate investor, preference dividend income , It
earns a stable dividend rate

Multiple Choice Single Answer
Question A decrease in current liabilities
Correct Answer increases working capital
Your Answer increases working capital

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

Select The Blank
Question Retained earnings is a source of ________ finance
Correct Answer Internal
Your Answer Internal

Multiple Choice Single Answer
Question An increase in current liabilities
Correct Answer decreases working capital
Your Answer decreases working capital

Multiple Choice Single Answer
Question Own capital of the company includes
Correct Answer Shares
Your Answer Shares

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

Select The Blank
Question For accounting and tax purposes of hire purchase agreement,
________ is treated as revenue expenditure and is considered to be a tax
deductible expenditure
Correct Answer Only interest
Your Answer Only interest

Multiple Choice Single Answer
Question For the calculation of Operating Profit / Loss , Preliminary
expenses written off should be
Correct Answer added to the Net Profit as per Profit and loss account
Your Answer added to the Net Profit as per Profit and loss account

Select The Blank
Question For the selection of the period for which capital expenditure
budget should be prepared , ________ a period may not be useful
Correct Answer Too long
Your Answer Too long

Multiple Choice Multiple Answer
Question The advantages of leasing for the lessee are
Correct Answer The payment of lease rents is the tax deductible
expenditure , It is the quickest method of financing the requirements of
long term capital , Avoids risk of ownership
Your Answer The payment of lease rents is the tax deductible expenditure
, It is the quickest method of financing the requirements of long term
capital , Avoids risk of ownership

Select The Blank
Question ________ can be issued for the maturity period of 15 days to
one year
Correct Answer Commercial Paper
Your Answer Commercial Paper

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

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 Return on investment

True/False
Question Debt Service Coverage Ratio is one of the most important ratios
calculated by the bankers of financial institutions giving long term finance
to the organisation
Correct Answer True
Your Answer True

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 The Investment decisions are mainly concerned with
Correct Answer Application of funds
Your Answer Application of funds

Multiple Choice Single Answer
Question The Capital Structure decision mainly refers to the decision of

Correct Answer Financing
Your Answer Financing

Multiple Choice Single Answer
Question Fixed Working Capital is
Correct Answer the minimum working capital required to be maintained in
the business on permanent or uninterrupted basis
Your Answer the minimum working capital required to be maintained in the
business on permanent or uninterrupted basis

Select The Blank
Question Suggestions made by the Tandon committee regarding the
information system were accepted by Reserve Bank of India and were made
applicable to all the borrowers having the overall banking limits of more
than Rs.________
Correct Answer 1 crore
Your Answer 1 crore

Multiple Choice Single Answer
Question Cash Budget is
Correct Answer the statement showing the various estimated sources of
cash receipts on one hand and the various applications of cash on another
hand
Your Answer the statement showing the various estimated sources of cash
receipts on one hand and the various applications of cash on another hand

Match The Following
Question Correct Answer Your Answer

Nayak committee to recognize the contribution made by the SSI sector to the
economy to recognize the contribution made by the SSI sector to the economy

Dahejia committee to examine the extent to which credit needs of industry
and trade are likely to be inflated and how such trends could be checked to
examine the extent to which credit needs of industry and trade are likely to
be inflated and how such trends could be checked

Chhore committee to review mainly the system of cash credit management
policy by banks to review mainly the system of cash credit management policy
by banks

Marathe committee to review the credit authorization scheme to review the
credit authorization scheme


Select The Blank
Question The projects having Profitability index of more than ________
will be accepted
Correct Answer one
Your Answer one

True/False
Question According to Net Operating Income Approach there exists a
direct relationship between the capital structure and valuation of the firm
and the cost of capital
Correct Answer False
Your Answer False

Multiple Choice Multiple Answer
Question Indicate which of these are Profitability ratios
Correct Answer Operating ratio , Gross Profit ratio
Your Answer Operating ratio , Gross Profit ratio

True/False
Question Semi-variable cost is the cost which varies in direct
proportion to the sales revenue
Correct Answer False
Your Answer True

Multiple Choice Single Answer
Question The Current assets and current liabilities of a company were
Rs. 10 lakhs and Rs. 5 Lakhs respectively. What will be the current ratio if
the company purchases fixed assets for Rs. 4 lakhs on a Medium term loan
from bank with 15% margin
Correct Answer 1.88 : 1.00
Your Answer 1.88 : 1.00

True/False
Question Internal rate of return can be computed even in the absence of
the knowledge about the firm's cost of capital
Correct Answer True
Your Answer False

Select The Blank
Question ________ financing is more preferred route for venture capital
funding
Correct Answer Equity
Your Answer Equity

True/False
Question In funds flow statement, net decrease in working capital is
shown on sources side
Correct Answer True
Your Answer True

Multiple Choice Single Answer
Question The company granting credit may insist on giving the names of
those who are currently dealing with the company. This is termed as
Correct Answer Trade Reference
Your Answer Trade Reference

Multiple Choice Multiple Answer
Question Limitations of financial leverage is
Correct Answer It ignores implicit cost of debt , It assumes that cost
of debt remains constant regardless of degree of leverage which is not true

Your Answer It ignores implicit cost of debt , It assumes that cost of
debt remains constant regardless of degree of leverage which is not true

Multiple Choice Multiple Answer
Question Limitations of credit rating are
Correct Answer Credit rating is based upon the evaluation made by the
agencies which may vary depending upon the experience, knowledge and
individual opinion of the rators which may be biased in some cases , Credit
rating is primarily based upon the past performance whereas the future
prospects should be given more importance while deciding the credit rating ,
Multiplicity of the rating agencies can be considered to be the limitation
of the credit rating
Your Answer Credit rating is based upon the evaluation made by the
agencies which may vary depending upon the experience, knowledge and
individual opinion of the rators which may be biased in some cases , Credit
rating is primarily based upon the past performance whereas the future
prospects should be given more importance while deciding the credit rating ,
Multiplicity of the rating agencies can be considered to be the limitation
of the credit rating

Multiple Choice Multiple Answer
Question Earnings / Price Approach to compute cost of equity shares is
objected on the following grounds
Correct Answer It wrongly assumes that earnings per share will remain
constant in future , All the earnings may not be distributed among the
shareholders by way of dividend
Your Answer It wrongly assumes that earnings per share will remain
constant in future , All the earnings may not be distributed among the
shareholders by way of dividend

Multiple Choice Single Answer
Question Composite cost is calculated as
Correct Answer Total weighted cost / Total weights
Your Answer Total weighted cost / Total weights

Multiple Choice Multiple Answer
Question The causes of undercapitalisation are
Correct Answer Company following too conservative policy for paying the
dividends , Future earnings may be underestimated
Your Answer Company following too conservative policy for paying the
dividends , Future earnings may be underestimated

Multiple Choice Single Answer
Question The lending Bank does not commit any physical outflow of funds
in a
Correct Answer Non-Fund based lending
Your Answer Non-Fund based lending

Select The Blank
Question As per the Tandon committee, variations between the projected
figures and actuals may be permitted to the extent of ________
Correct Answer 0.1
Your Answer 0.1

Select The Blank
Question Till the sales revenue reaches the break even point, the
company ________
Correct Answer incurs the losses
Your Answer incurs the losses

Match The Following
Question Correct Answer Your Answer

The ratio which indicates the efficiency of the organisation with which the
capital employed is being utilised Capital turnover ratio Capital turnover
ratio

Ratio which measures the profitability of the investments in a firm Return
on Asset Return on Asset

The relation of Net Sales and Working Capital Working Capital turnover ratio
Working Capital turnover ratio

The ratio which indicates the speed at which the Sundry debtors are
converted in the form of cash Debtors turnover ratio Debtors turnover ratio