Q1: A capital budgeting method that takes into consideration the time value of money is the
1. Annual rate of return method
2. Return on shareholders’ equity method
3. Cash payback technique
4. Internal rate of return method
Answer
Answer: 4. Internal rate of return method
Q2: Access to the capital market means the firm’s ability to raise funds from the capital market.
1. True
2. False
Answer
Answer: 1. True
Q3: In order to diversify project risk and thereby reduce the firm’s overall risk, the projects that are best combined or added to the existing portfolio of projects are those that have a ——- correlation with existing projects.
1. Positive
2. Perfect positive
3. Negative
4. Zero
Answer
Answer: 3. Negative
Q4: The beta factor of the market as a whole is ——-
1. 1
2. 0.1
3. 0.5
4. -1
Answer
Answer: 1. 1
Q5: There is no explicit benefit of keeping inventory, hence no stock be maintained.
1. True
2. False
Answer
Answer: 2. False
Q6: Business firms should not opt for relaxation of credit standards as they cause an increase in collection costs, the amount of bad debts, and financial costs.
1. True
2. False
Answer
Answer: 1. True
Q7: Sensitivity analysis and ——- can be used to assess the general level of risk associated with a single asset.
1. Probability distribution
2. Mean
3. Correlation
4. None of the above
Answer
Answer: 1. Probability distribution
Q8: The average of various specific costs of the different components of equity, preference shares, debentures, retained earnings of capital structure at a given time is:
1. Overall cost
2. Marginal cost
3. Specific cost
4. Spot cost
Answer
Answer: 1. Overall cost
Q9: By which Process, a firm can obtain the use of certain fixed assets for which it must pay a series of contractual, periodic payments.
1. Hire purchase
2. Venture Capital
3. Factoring
4. Leasing
Answer
Answer: 4. Leasing
Q10: Receivables constitute a significant potential current asset.
1. True
2. False
Answer
Answer: 1. True
Q11: Capital Budgeting deals with:
1. Long-term Decisions
2. Short-term Decisions
3. Both (a) and (b)
4. Neither (a) nor (b)
Answer
Answer: 1. Long-term Decisions
Q12: If a firm has a line of credit with a bank, the bank is obligated to provide credit when the firm demands.
1. True
2. False
Answer
Answer: 1. True
Q13: Conversion cost is the cost of converting securities into cash.
1. True
2. False
Answer
Answer: 2. False
Q14: Which of the following statements is most correct
1. If a firm can get its customers to permit it to pay by wire transfers rather than having to write checks, this will increase its net float and thus reduce its required cash balances
2. A firm that has such an efficient cash management system that it has positive net float can have a negative checkbook balance at most times and still not have its checks bounce
3. If a firm begins to use a well-designed lockbox system, this will reduce its customers’ net float
4. A good cash management system would minimize disbursement float and maximize collections float
Answer
Answer: 1. If a firm can get its customers to permit it to pay by wire transfers rather than having to write checks, this will increase its net float and thus reduce its required cash balances
Q15: There is a negative relation between dividend policy of a firm and the value of the firm that is payment of dividend affects the value of the firm.
1. True
2. False
Answer
Answer: 1. True
Q16: Receivables management involves a trade-off between the costs and benefits of receivables.
1. True
2. False
Answer
Answer: 1. True
Q17: Optimum credit policy occurs where there is a trade-off between liquidity and profitability.
1. True
2. False
Answer
Answer: 1. True
Q18: The maximum amount of debt (and other fixed-charge financing) that a firm can adequately service is referred to as the
1. Debt capacity
2. Debt-service burden
3. Adequacy capacity
4. Fixed charge burden
Answer
Answer: 1. Debt capacity
Q19: Cost of not carrying sufficient inventory is known as
1. Carrying Cost
2. Holding Cost
3. Total Cost
4. Stock-out Cost
Answer
Answer: 4. Stock-out Cost
Q20: Capital budgeting is a responsibility of the Treasurer.
1. True
2. False
Answer
Answer: 1. True
Q21: Classification of inventory, order quantity, and order point are the three problems of inventory management.
Options: True False
Answer
Answer: True
Q22: Net working capital equals current assets minus current liabilities.
Options: True False
Answer
Answer: True
Q23: Current liabilities are ideal for raising funds for meeting the seasonal needs of the firm.
Options: True False
Answer
Answer: True
Q24: Cost of capital is a ——-
1: Rate of return
2: Investment
3: Cost
4: Incremental value
Answer
Answer: Option 3: Cost
Q25: Which of the following is/are the components of the cost of capital?
1: The risk less cost of the particular type of financing
2: Business risk premium
3: Financial risk premium
4: All of the above
Answer
Answer: Option 4: All of the above
Q26: Funds raised by any form of financing have implicit capital costs once they are invested.
1: Cost of carry
2: Implicit Cost
3: Explicit Cost
4: Opportunity
Answer
Answer: Option 2: Implicit Cost
Q27: The factor(s) that can affect optimal capital structure include(s)
1: Tax benefit of Debt
2: Industry Leverage Ratios
3: Seasonal Variations
4: Company Characteristics
5: All of the above
Answer
Answer: Option 5: All of the above
Q28: ABC analysis helps to ascertain the minimum level of stock of raw material.
Options: True False
Answer
Answer: False
Q29: In which situation a company has purchased and is using the equipment, which they then sell to a leasing company, who in turn charges rent for the usage?
1: Sale and lease back
2: Leveraged lease
3: Direct lease
4: NPV method
Answer
Answer: Option 1: Sale and leaseback
Q30: The right term used for the consideration for the lease is:
1: Instalment
2: Payment
3: Rent
4: Loan
Answer
Answer: Option 3: Rent
Q31: There is no time gap between cash inflows and outflows.
Options: True False
Answer
Answer: False
Q32: Which of the following is not a benefit of carrying inventories
1: Reduction in ordering cost
2: Avoiding lost sales
3: Reducing carrying cost
4: Avoiding Production Shortages
Answer
Answer: Option 4: Avoiding Production Shortages
Q33: The specific cost includes:
1: Cost of equity
2: Cost of preference share
3: Cost of debt
4: All of the above
5: Only Cost of equity and Cost of preference share
Answer
Answer: Option 4: All of the above
Q34: If a company moves from a “conservative” working capital policy to an “aggressive” policy, it should expect __________.
1: liquidity to decrease, whereas expected profitability would increase
2: expected profitability to increase, whereas risk would decrease
3: liquidity would increase, whereas risk would also increase
4: risk and profitability to decrease
Answer
Answer: Option 2: expected profitability to increase, whereas risk would decrease
Q35: The objective of a credit policy is to curtail the credit period allowed to customers.
Options: True False
Answer
Answer: False
Q36: Services of a factor are always beneficial.
Options: True False
Answer
Answer: False
Q37: Credit period is one of the terms of credit.
Options: True False
Answer
Answer: True
Q38: Company A issues 10 per cent preference shares of Rs. 100 each, in the beginning of the financial year. The company needs to pay Rs. 10 as dividend but due to loss it was not able to pay.
1: If there are any profits in the next year, the company has to pay last year’s dividend and the current year’s dividend.
2: In this case, the Rs. 10 is carried to the next year.
3: If there are any profits in the next year, the company has to pay only the current year’s dividend.
4: Both 1 and 2 are correct
Answer
Answer: Option 4: Both 1 and 2 are correct
Q39: Higher operating leverage is related to the use of additional
1: Fixed cost
2: Variable cost
3: Debt financing
4: Common equity financing
Answer
Answer: Option 1: Fixed cost
Q40: An aggressive working capital policy would have low liquidity, higher risk, and higher profitability potential.
Options: True False
Answer
Answer: True
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