Financial Management Online MCQ Set 17

QN01. In capital budgeting, the term Capital Rationing implies:

  1. That no retained earnings available
  2. That limited funds are available for investment
  3. That no external funds can be raised
  4. That no fresh investment is required in current year
Answer

(B)That limited funds are available for investment

QN02. If there is no inflation during a period, then the Money Cashflow would be equal to:

  1. Present Value
  2. Real Cash flow
  3. Real Cash flow + Present Value
  4. Real Cash flow - Present Value
Answer

(B)Real Cash flow

QN03. Money Discount Rate if equal to:

  1. (1 + Inflation Rate) (1 + Real Rate)-1
  2. (1 + Inflation Rate) 4- (1 + Real Rate)-1
  3. (1 + Real Rate) 4- (1 + Inflation Rate)-1
  4. (1 + Real Rate) + (1 + Inflation Rate)-1
Answer

(A)(1 + Inflation Rate) (1 + Real Rate)-1

QN04. Which of the following is a risk factor in capital budgeting?

  1. Industry specific risk factors
  2. Competition risk factors
  3. Project specific risk factors
  4. All of the above
Answer

(D)All of the above

QN05. Which of the following sources of funds has an Implicit Cost of Capital?

  1. Equity Share Capital
  2. Preference Share Capital
  3. Debentures
  4. Retained earnings
Answer

(D)Retained earnings

QN06. Marginal cost of capital is the cost of:

  1. Additional Sales
  2. Additional Funds
  3. Additional Interests
  4. None of the above
Answer

(B)Additional Funds

QN07. Cost of Redeemable Preference Share Capital is:

  1. Rate of Dividend
  2. After Tax Rate of Dividend
  3. Discount Rate that equates PV of inflows and out-flows relating to capital
  4. None of the above
Answer

(C)Discount Rate that equates PV of inflows and out-flows relating to capital

QN08. Debt Financing is a cheaper source of finance because of:

  1. Time Value of Money
  2. Rate of Interest
  3. Tax-deductibility of Interest
  4. Dividends not Payable to lenders
Answer

(C)Tax-deductibility of Interest

QN09. Cost of Equity Share Capital is more than cost of debt because:

  1. Face value of debentures is more than face value of shares
  2. Equity shares have higher risk than debt
  3. Equity shares are easily saleable
  4. All of the three above
Answer

(B)Equity shares have higher risk than debt

QN10. Financial Leverage arises because of:

  1. Fixed cost of production
  2. Variable Cost
  3. Interest Cost
  4. None of the above
Answer

(C)Interest Cost

QN11. FL is zero if:

  1. EBIT = Interest
  2. EBIT = Zero
  3. EBIT = Fixed Cost
  4. EBIT = Pref. Dividend
Answer

(B)EBIT = Zero

QN12. Operating leverage works when:

  1. Sales Increases
  2. Sales Decreases
  3. Both (a) and (b)
  4. None of (a) and (b)
Answer

(C)Both (a) and (b)

QN13. Higher OL is related to the use of higher:

  1. Debt
  2. Equity
  3. Fixed Cost
  4. Variable Cost
Answer

(C)Fixed Cost

QN14. Indifference Level of EBIT is one at which:

  1. EPS is zero
  2. EPS is Minimum
  3. EPS is highest
  4. None of these
Answer

(D)None of these

QN15. Which of the following is not a relevant factor m EPS Analysis of capital structure?

  1. Rate of Interest on Debt
  2. Tax Rate
  3. Amount of Preference Share Capital
  4. Dividend paid last year
Answer

(D)Dividend paid last year

QN16. In case of Net Income Approach, when the debt proportion is increased, the cost of debt:

  1. Increases
  2. Decreases
  3. Constant
  4. None of the above
Answer

(C)Constant

QN17. 'Judicious use of leverage' is suggested by:

  1. Net Income Approach
  2. Net Operating Income Approach
  3. Traditional Approach
  4. All of the above
Answer

(C)Traditional Approach

QN18. Which of the following argues that the value of levered firm is higher than that of the unlevered firm?

  1. Net Income Approach
  2. Net Operating Income Approach
  3. MM Model with taxes
  4. Both (a) and (c)
Answer

(D)Both (a) and (c)

QN19. A firm has EBIT of. 50,000. Market value of debt is. 80,000 and overall capitalization rate is 20%. Market value of firm under NOI Approach is:

  1. 2,50,000
  2. 1,70,000
  3. 30,000
  4. 1,30,000
Answer

(B)1,70,000

QN20. Walter’s Model suggests for 100% DP Ratio when

  1. ke = r
  2. ke < r
  3. ke > r
  4. ke = 0
Answer

(C)ke > r

QN21. Which of the following is not true for MM Model?

  1. Share price goes up if dividend is paid
  2. Share price goes down if dividend is not paid
  3. Market value is unaffected by Dividend policy
  4. All of the above
Answer

(C)Market value is unaffected by Dividend policy

QN22. Which of the following represents passive dividend policy?

  1. that dividend is paid as a % of EPS
  2. that dividend is paid as a constant amount
  3. that dividend is paid after retaining profits for reinvestment
  4. all of the above
Answer

(C)that dividend is paid after retaining profits for reinvestment

QN23. Dividend Distribution Tax is payable by

  1. Shareholders to Government
  2. Shareholders to Company
  3. Company to Government
  4. Holding to Subsidiary Company
Answer

(C)Company to Government

QN24. 'Constant Dividend Per Share' Policy is considered as:

  1. Increasing Dividend Policy
  2. Decreasing Dividend Policy
  3. Stable Dividend Policy
  4. None of the above
Answer

(C)Stable Dividend Policy

QN25. Which of the following is not relevant for dividend payment for a year ?

  1. Cash flow position
  2. Profit position
  3. Paid up capital
  4. Retained Earnings
Answer

(D)Retained Earnings

QN26. Concentration Banking helps in

  1. Reducing Idle Bank Balance
  2. Increasing Collection
  3. Increasing Creditors
  4. Reducing Bank Transactions
Answer

(B)Increasing Collection

QN27. Baumol's Model of Cash Management attempts to:

  1. Minimise the holding cost
  2. Minimization of transaction cost
  3. Minimization of total cost
  4. Minimization of cash balance
Answer

(C)Minimization of total cost

QN28. Ageing schedule incorporates the relationship between

  1. Creditors and Days Outstanding
  2. Debtors and Days Outstanding
  3. Average Age of Directors
  4. Average Age of All Employees
Answer

(B)Debtors and Days Outstanding

QN29. Out of the following, what is not true in respect of factoring?

  1. Continuous Arrangement between Factor and Seller
  2. Sale of Receivables to the factor
  3. Factor provides cost free finance to seller
  4. None of the above
Answer

(C)Factor provides cost free finance to seller

QN30. In response to market expectations, the credit pence r j been increased from 45 days to 60 days. This would result in

  1. Decrease in Sales
  2. Decrease in Debtors
  3. Increase in Bad Debts
  4. Increase in Average Collection Period
Answer

(D)Increase in Average Collection Period

QN31. Which of the following is related to Receivables Management?

  1. Cash Budget
  2. Economic Order Quantity
  3. Ageing schedule
  4. All of the above
Answer

(C)Ageing schedule

QN32. In ABC inventory management system, class A items may require

  1. Higher Safety Stock
  2. Frequent Deliveries
  3. Periodic Inventory system
  4. Updating of inventory records
Answer

(A)Higher Safety Stock

QN33. If A = Annual Requirement, O = Order Cost and C = Carrying Cost per unit per annum, then EOQ

  1. (2AO/C) 2
  2. 2AO/C
  3. 2A÷OC
  4. 2AOC
Answer

(B)2AO/C

QN34. System of procuring goods when required, is known as,

  1. Free on Board (FOB)
  2. always Butter Control (ABC)
  3. Jest in Time (JIT)
  4. Economic Order Quantity
Answer

(C)Jest in Time (JIT)

QN35. Commercial paper is a type of

  1. Fixed coupon Bond
  2. Unsecured short-term debt
  3. Equity share capital
  4. Government Bond
Answer

(B)Unsecured short-term debt

QN36. Cash discount terms offered by trade creditors never be accepted because

  1. Benefit in very small
  2. Cost is very high
  3. No sense to pay earlier
  4. None of the above
Answer

(D)No sense to pay earlier

QN37. A lease which is generally not cancellable and covers full economic life of the asset is known as

  1. Sale and leaseback
  2. Operating Lease
  3. Finance Lease
  4. Economic Lease
Answer

(C)Finance Lease

QN38. Which of the following is not true for a “Lease decision for the lessee?

  1. Helps in project selection
  2. Helps in project financing
  3. Helps in project location
  4. All of the above
Answer

(B)Helps in project financing

QN39. If the intrinsic value of a share is less than the market price, which of the most reasonable?

  1. That shares have lesser degree of risk
  2. That market is over valuing the shares
  3. That the company is high dividend paying
  4. That market is undervaluing the share
Answer

(B)That market is over valuing the shares

QN40. Net Profit Ratio Signifies:

  1. Operational Profitability
  2. Liquidity Position
  3. Solvency
  4. Profit
Answer

(A)Operational Profitability

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