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In each of the cases given below, one out of four answers is correct. Indicate the correct answer and give workings/reasons briefly in support of your answer :

Q1: What is the opportunity cost of not taking a discount, when the credit terms are 2/20 net 45? Assume 1 year = 360 days

(A) 24.9%

(B) 29.4% [Ans]

(C) 22.9%

(D) 29.2%

View Answer

(B) 29.4% [Ans]

Q2: E Limited has earnings before interest and taxes (EBIT) of Rs.10 million at a cost of 7%., Cost of equity is 12.5%. Ignore taxes. What is the overall cost of capital?

(A) 11.26%  [Ans]

(B) 11.62%

(C) 16.12%

(D) 12.61%

View Answer

(A) 11.26%  [Ans]

Q3: S Limited earns Rs.6 per share, has capitalisation rate of 10% and has a return on investment at the rate of 20%. According to Walter’s model, what should be the price per share at 30% dividend payout ratio?

(A) Rs.120

(B) Rs.102  [Ans]

(C) Rs.112

(D) Rs.106

View Answer

(B) Rs.102  [Ans]

Q5: On January 1, 2012, X Limited’s begining inventory was Rs.4,00,000. During 2012, Ltd. purchased Rs.19,00,000 of additional inventory. On December 31, 2012, X Ltd.’s ending inventory was Rs.5,00,000. What is X Ltd.’s operating cycle in 2012, if it is assumed that the average collection period is 42 days? (1 year =36 days).

(A) 123.3 days

(B) 132.3 days

(C) 126.3 days

(D) 133.3 days [Ans]

Q5: From the following, what is the amount of sales of A Ltd.? Financial Leverage — 3:1; Interest—Rs.200; Operating Leverage — 4 : 1; Variable Cost as a % of sales — 66.67%.

(A) Rs.3,600  [Ans]

(B) Rs.6,300

(C) Rs.6,030

(D) Rs.3,060

 

Q6: The dollar is currently trading at Rs.40. If rupee depreciates by 10%, what will be the spot rate?

(A) Rs.0.0525

(B) Rs.0.0552

(C) Rs.0.0225[Ans]

(D) Rs.0.0522

View Answer

(D) 133.3 days [Ans]

Q7: If the following rates are prevailing: Euro/$ : 1.1916/1.1925 and $/£ : 1.42/1.47 what will be the corss rate between Euro/Pound?

(A) 1.6921/1.750[Ans]

(B) 1.7530/1.6921

(C) 1.6921/1.1925

(D) 1.7530/1.1916

View Answer

(A) 1.6921/1.750[Ans]

State if each of the following sentences is T (= true) or F (= false) : 

Q1: Basic lease period refers to the period during which the lease is irrevocable.

View Answer

Answer: True

Q2: LIBOR for treasury bill rate is the example of basis swaps.

View Answer

Answer: True

Q3: Provision for taxation is an external source of financing.

View Answer

Answer: False

Q4: TRIPS are the international agreement on intellectual property rights.

View Answer

Answer: True

Q5: The ROE of an unlevered firm is higher than the ROE of a levered firm, when the ROI is lower than the cost of debt.

View Answer

Answer: True

Q6: If IRR is less than the firm’s cost of capital, the project should be rejected.

View Answer

Answer: True

Q7: There is no need for calculating separate cost for retained earnings, when cost of equity capital is calculated on the basis of the market value of equity shares.

View Answer

Answer: True

Q8: In CAPM, systematic risk is the risk that can not be eliminated by diversification, it being common to all firms.

View Answer

Answer: True

Q9: Interest rate swap is an exchange of interest payments between two parties.

View Answer

Answer: True

Match the descriptions to the ‘Four kinds of Float’ with reference to management of cash: Descriptions:

(i)         The time when a cheque is being processed by pst office, Messanger service or other means of delivery.

(ii)        The time required to sort, record and deposit the cheque after it has been received by the company.

(iii)       The time from the deposit of cheque to the crediting of funds in the seller’s account.

(iv)       The time between the sale and the mailing of the invoice.

Four kinds of Float—Management of cash:

(A) Billing Float

(B) Banking processing Float

(C) Cheque processing Float

(D) Mailing Float

Note: Your answer may be of the form: Description No….Capital letter of the alternative indicating kind of float.

Answer :

(i)         D= Mailing Float

(ii)        C = Cheque Processing Float

(iii)       B = Banking Processing Float

(iv)       A = Billing Float