Financial Management Online MCQ Set 18

QN01. Debt to Total Assets Ratio can be improved by:

1. Borrowing More
2. Issue of Debentures
3. Issue of Equity Shares
4. Redemption of Debt

Answer

(D)Redemption of Debt

QN02. Gross Profit Ratio for a firm remains same but the Net Profit Ratio is decreasing. The reason for such behavior could be:

1. Increase in Costs of Goods Sold
2. If Increase in Expense
3. Increase in Dividend
4. Decrease in Sales

Answer

(B)If Increase in Expense

QN03. Financial planning starts with the preparation of:

1. Master Budget
2. Cash Budget
3. Balance Sheet
4. None of the above

Answer

(D)None of the above

QN04. Which of the following is not a capital budgeting decision?

1. Expansion Programme
2. Merger
3. Replacement of an Asset
4. Inventory Level

Answer

(D)Inventory Level

QN05. Which of the following is not true with reference capital budgeting?

1. Capital budgeting is related to asset replacement decisions
2. Cost of capital is equal to minimum required return
3. Existing investment in a project is not treated as sunk cost
4. Timing of cash flows is relevant

Answer

(C)Existing investment in a project is not treated as sunk cost

QN06. Which of the following is not included in incremental A flows?

1. Opportunity Costs
2. Sunk Costs
3. Change in Working Capital
4. Inflation effect

Answer

(B)Sunk Costs

QN07. In case of the indivisible projects, which of the following may not give the optimum result?

1. Internal Rate of Return
2. Profitability Index
3. Feasibility Set Approach
4. All of the above

Answer

(C)Feasibility Set Approach

QN08. Two mutually exclusive projects with different economic lives can be compared on the basis of

1. Internal Rate of Return
2. Profitability Index
3. Net Present Value
4. Equivalent Annuity Value

Answer

(D)Equivalent Annuity Value

QN09. In Risk-Adjusted Discount Rate method, which one is adjusted?

1. Cash flows
2. Life of the proposal
3. Rate of discount
4. Salvage value

Answer

(C)Rate of discount

QN10. Cost of Capital for Government securities is also known as:

1. Risk-free Rate of Interest
2. Maximum Rate of Return
3. Rate of Interest on Fixed Deposits
4. None of the above

Answer

(A)Risk-free Rate of Interest

QN11. In case of partially debt-financed firm, k0 is less

1. Kd
2. Ke
3. Both (a) and (b)
4. None of the above

Answer

(B)Ke

QN12. Cost of capital may be defined as:

1. Weighted Average cost of all debts
2. Rate of Return expected by Equity Shareholders
3. Average IRR of the Projects of the firm
4. Minimum Rate of Return that the firm should earn

Answer

(D)Minimum Rate of Return that the firm should earn

QN13. Tax-rate is relevant and important for calculation of specific cost of capital of:

1. Equity Share Capital
2. Preference Share Capital
3. Debentures
4. (a) and (b) above

Answer

(C)Debentures

QN14. Which of the following is studied with the help of financial leverage?

1. Marketing Risk
2. Interest Rate Risk
3. Foreign Exchange Risk
4. Financing risk

Answer

(D)Financing risk

QN15. Financial Leverage is calculated as:

1. EBIT÷ Contribution
2. EBIT÷ PBT
3. EBIT÷ Sales
4. EBIT ÷ Variable Cost

Answer

(B)EBIT÷ PBT

QN16. If the fixed cost of production is zero, which one of the following is correct?

1. OL is zero
2. FL is zero
3. CL is zero
4. None of the above

Answer

(D)None of the above

QN17. In order to calculate EPS, Profit after Tax and Preference Dividend is divided by:

1. MP of Equity Shares
2. Number of Equity Shares
3. Face Value of Equity Shares
4. None of the above

Answer

(B)Number of Equity Shares

QN18. There is deterioration in the management of working capital of XYZ Ltd. What does it refer to?

1. That the Capital Employed has reduced
2. That the Profitability has gone up
3. That debtors collection period has increased
4. That Sales has decreased

Answer

(C)That debtors collection period has increased

QN19. Financial Planning deals with:

1. Preparation of Financial Statements
2. Planning for a Capital Issue
3. Preparing Budgets
4. All of the above

Answer

(C)Preparing Budgets

QN20. Which of the following is not a relevant cost in Capital Budgeting?

1. Sunk Cost
2. Opportunity Cost
3. Allocated Overheads
4. Both (a) and (c) above

Answer

(D)Both (a) and (c) above

QN21. Depreciation is incorporated in cash flows because it:

1. Is unavoidable cost
2. Is a cash flow
3. Reduces Tax liability
4. Involves an outflow

Answer

(C)Reduces Tax liability

QN22. In case of divisible projects, which of the following can be used to attain maximum NPV?

1. Feasibility Set Approach
2. Internal Rate of Return
3. Profitability Index Approach
4. Any of the above

Answer

(C)Profitability Index Approach

QN23. If the Real rate of return is 10% and Inflation s Money Discount Rate is:

1. 14.4%
2. 2.5%
3. 25%
4. 14%

Answer

(A)14.4%

QN24. Risk of a Capital budgeting can be incorporated

1. Adjusting the Cash flows
2. Adjusting the Discount Rate
3. Adjusting the life
4. All of the above

Answer

(D)All of the above

QN25. Which of the following cost of capital require tax adjustment?

1. Cost of Equity Shares
2. Cost of Preference Shares
3. Cost of Debentures
4. Cost of Retained Earnings

Answer

(C)Cost of Debentures

QN26. Firm's Cost of Capital is the average cost of:

1. All sources
2. All borrowings
3. Share capital
4. Share Bonds & Debentures

Answer

(A)All sources

QN27. In order to calculate the proportion of equity financing used by the company, the following should be used:

1. Authorised Share Capital
2. Equity Share Capital plus Reserves and Surplus
3. Equity Share Capital plus Preference Share Capital
4. Equity Share Capital plus Long-term Debt

Answer

(B)Equity Share Capital plus Reserves and Surplus

QN28. Operating leverage helps in analysis of:

1. Business Risk
2. Financing Risk
3. Production Risk
4. Credit Risk

Answer

(A)Business Risk

QN29. Combined leverage can be used to measure the relationship between:

1. EBIT and EPS
2. PAT and EPS
3. Sales and EPS
4. Sales and EBIT

Answer

(C)Sales and EPS

QN30. Use of Preference Share Capital in Capital structure

1. Increases OL
2. Increases FL
3. Decreases OL
4. Decreases FL

Answer

(B)Increases FL

QN31. If a company issues new share capital to redeem debentures, then:

1. OL will increase
2. FL will increase
3. OL will decrease
4. FL will decrease

Answer

(D)FL will decrease

QN32. Relationship between change in Sales and d Operating Profit is known as:

1. Financial Leverage
2. Operating Leverage
3. Net Profit Ratio
4. Gross Profit Ratio

Answer

(B)Operating Leverage

QN33. Financial break-even level of EBIT is:

1. Intercept at Y-axis
2. Intercept at X-axis
3. Slope of EBIT-EPS line
4. None of the above

Answer

(B)Intercept at X-axis

QN34. Net Operating Income Approach, which one of the lowing is constant?

1. Cost of Equity
2. Cost of Debt
3. WACC & kd
4. Ke and Kd

Answer

(C)WACC & kd

QN35. 'That there is no corporate tax' is assumed by:

1. Net Income Approach
2. Net Operating Income Approach
3. Traditional Approach
4. All of these

Answer

(D)All of these

QN36. Which of the following is true?

1. Under Traditional Approach, overall cost of capital remains same
2. Under NI Approach, overall cost of capital remains same
3. Under NOI Approach, overall cost of capital remains same
4. None of the above

Answer

(C)Under NOI Approach, overall cost of capital remains same

QN37. Which of the following appearing in the balance! generates tax advantage and hence affects the c, structure decision ?

1. Reserves and Surplus
2. Long-term debt
3. Preference Share Capital
4. Equity Share Capital

Answer

(B)Long-term debt

QN38. 'Bird in hand' argument is given by

1. Walker's Model
2. Gordon's Model
3. MM Mode
4. Residuals Theory

Answer

(B)Gordon's Model

QN39. If ke = r, then under Walter's Model, which of the following is irrelevant?

1. Earnings per share
2. Dividend per share
3. DP Ratio
4. None of the above

Answer

(C)DP Ratio

QN40. If 'r' = 'ke', than MP by Walter's Model and Gordon's Model for different payout ratios would be

1. Unequal
2. Zero
3. Equal
4. Negative

Answer

(C)Equal