EXAM QUESTIONS --- FINE005
1. This ratio measures the overall profitability and operational efficiency of a firm.
Answer: Earnings per share
2. Hostile takeover includes
Answer: All of these
3. A partnership is often motivated by the desire to join and leverage complementary
Answer: Skills and resource
4. This method is used to arrive at the market price of the equity share:
Answer: Price earnings ratio
5. Twelve months average of the stock exchange prices are used in which method of
valuation?
Answer: Market Value approach
6. A budget is a combination of __ and ___ expressed in financial terms
Answer: Forecasts and plans
7. Buy back of shares are shown under
Answer: Financing activities
8. Group means two/more enterprises which directly/indirectly are in a position to
Answer: All of these
9. Which term refers to the accuracies, consistencies and authenticity of reported
information?
Answer: Quality of financial reporting
10. Return on asset may not provide correct result when the firms have different:
Answer: Capital Structure
EXAM QUESTIONS --- FINE005
CASE STUDY:
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Total Assets: 0.6
Debt-Equity Ratio: 0.66
Stock Turnover: 2.5
Fixed Asset Turnover: 3
NORMAL QUESTIONS:
1.
This ratio measures the overall profitability and operational efficiency of a firm.
Answer: Earnings per share
2.
Hostile takeover includes
a. street sweep
b. bear hug
c. brand power
d. All of these
3.
A partnership is often motivated by the desire to join and leverage complementary
Answer: Skills and resource
4.
This method is used to arrive at the market price of the equity share:
Answer: Price earnings ratio
5.
Twelve months average of the stock exchange prices are used in which method of
valuation?
Answer: Market Value approach
6.
A budget is a combination of __ and ___ expressed in financial terms
Answer: Forecasts and plans
7.
Buy back of shares are shown under
Answer: Financing activities
8.
Group means two/more enterprises which directly/indirectly are in a position to
a. exercise at least 26% of the voting rights
b. appoint more than 51% of the board of directors
c. control the management/ affairs of other enterprise
d. All of these
9.
Which term refers to the accuracies, consistencies and authenticity of reported
information?
Answer: Quality of financial reporting
10. Return on asset may not provide correct result when the firms have different:
Answer: Capital Structure
11. Level of interaction between firms in strategic alliance is very high in:
Answer: Joint Venture
12. Alliances are:
Answer: Conventional organizations with fully internalized activities & well-specified
transaction…
13. On which budget that all the other budget are based?
Answer: Sales budget
14. Market Value of the firm’s equity minus equity capital investment is used to compute
Answer: Market Value added
15. Revenue and expenses are recorded in profit and loss account use the:
Answer: Accrual basis
16. Alliance portfolio often results from a “Sedimentary” accumulation process. That is,
companies engage in multiple alliances over time and all these partnerships accumulate .
Answer: Haphazardly
17. The type of financing in which an initial payment (to shareholders of an acquired firm) is
followed by additional payment in future years based on the target firm’s increase in earnings is
known as
Answer: Deferred payment plan
18. The free cash flow (fcf) is the legitimate cash flow for the purpose of business valuation in
that it reflects the cash flows generated by a company’s operation for
Answer: All the capital Providers
19. The following agencies are not responsible for ensuring proper financial reporting quality:
Answer: Customers
20. Buyouts may be:
Answer: Management or Leveraged buyout
21. Assuming ROA 19.50% and retention ratio as 2/3 what is the expected internal growth
rate:
Answer: 0.1494
22.
is calculated by deducting interest from the EBIT.
Answer: Profit before tax
23. Financial planning may be
Answer: Short & Long term financial planning
24. Which of the following ratio is the used to examine the sustainable growth for a single
product firm:
Answer: Debt-Equity ratio
25. Main drawback of the financial statement is that they do not cover the changes in:
Answer: Asset, liabilities and owners liquidity
26. Deducting total external liabilities from total assets will give:
Answer: Net assets
27. Decrease in creditor’s
Answer: Decrease
cash.
28. The term real goodwill is the excess of rate of return on invested funds than:
Answer: Similar firms
29. Key business venture of the firms which are not growing and yielding high return are
known as:
Answer: Cash Cows
30. Cash flow from operating ratio is calculated with the help of which equation?
Answer: Cash flow from operations/Current liabilities
31. If P/E ratio is 8 times and market price per share is 134, what is the EPS:
Answer: 16.75
32. Difficulty in comparison may relate to:
Answer: Difference is the basis of inventory valuation and Different depreciation methods
33. The common accounting warning signs/red flags do not include:
Answer: Reducing economic life of fixed assets
34. Coverage ratio measure the firm’s ability to pay
Answer: Fixed charges
35. The term valuation implies the task of estimating the worth of an:
Answer: Assets
36. The master budget does not include,
Answer: Earlier Period balance sheet
37. Treat to financial stability and profitability factor giving rise to fraud comes under:
Answer: Incentive or pressure
38. Which of the following is not the component of financial planning model?
Answer: Value
39. This represents the budget prepared for next financial period:
Answer: Forecast estimates
40. Unpaid dividends on preference shares are reckoned of the firm in asset-based valuation.
Answer: Liability
41.
Return on resources on shareholder’s equity is computed divided by EAT by:
Answer: Shareholder’s fund
42. Internal growth rate is maximum rate at which a firm can grow without
Answer: External financing
43. The statement of changes in financial position (SCFP) shows:
Answer: How the funds were generated and used during the period
44. The present value of the incremental cash inflows discounted at some specific rate is:
Answer: Intrinsic value
45. The amount at which the asset is shown in the balance sheet is:
Answer: Book value
46. It is a ratio between net credit purchase and the average amount of creditors outstanding:
Answer: Creditors turnover ratio
47. Four-times stocks turnover ratio implies
Answer: 3
months inventory holding period
48. Which of the following condition is not present when fraud occurs?
Answer: Higher market price of share
49. From the economic point of view, the profit for a firm would be
Answer: Increase in value of the shareholder’s wealth
50. Activities related with the expansion/contraction of a firm’s operations:
Answer: Corporate restructuring
51.
Some of the limitations which characterize ratio analysis are:
a. Difficulty in comparison
b. Impact of inflation
c. Conceptual diversity
d. All of these
52. Mergers can be provide tax benefit in the case of
Answer: Set off & Carry forward
of losses
53. Debt to total capital ratio expresses the relationship between:
Answer: Long term debt and owner capital
54. The cost of acquiring a new asset of equity utility and usefulness refer to:
Answer: Replacement Value
55. When the firms dealing in different unrelated activities merge together is the example of:
Answer: Conglomerate merger
56. The term strategic alliance is currently used to describe a variety of inter-firm corporation
agreements which includes:
Answer: Formal joint venture & Minority equity participation
57.
Which of the following items is not included in profit and loss appropriation account?
a. General reserves
b. Interim Dividend
c. Corporate dividend tax
d. None of these
58. Threat to financial stability and profitability factor giving to fraud come under:
Answer: Incentive or pressure
59. Suppliers evaluate short term liquidity where as long term funds providers evaluate
Answer: Long term solvency
60. The reciprocal of price earning P/E ratio is the indicative of:
Answer: Capitalisation factor
61.
refers to approach of the firm to utilize the resources, core competence and strengths
of the firms in the available opportunities and risk presented by the environment.
Answer: Strategy
62. Issue of 12% preference shares will
Answer: Decrease
debt-equity ratio of a corporate enterprise.
63. An analyst applied the dupont system to the following data of a company (a) equity
turnover 4.2, (b) net profit margin 5.5%, (c) total assets turnover 2.0 and (d) dividend payout
ratio 30%, the company’s rate of return on equity
Answer: 0.231 or 23.1 %
64. An alliance opportunity that promises to create value from a perspective may not
necessarily from an
Answer: Stand-alone, Alliance portfolio perspective
65. Strategy of a firm involves,
Answer: Matching’s of strengths and competencies of the firm with market opportunities
66. Which of the following techniques used to construct projected financial statement by use
of specified relationships between parameters?
Answer: Financial modelling
67. Companies are generally remarkably when they go about forming strategic partnerships.
Answer: Myopic
68. Internal Growth rate is the
of any kind.
Answer: Maximum
rate at which the firm can grow without external financing
69. Evaluation of firm investment options, requirement of funds and sources of funds refers as:
Answer: Financial Planning
70. Which is the best method among these for valuation of a firm where not much data about
its net profit is available and its shares are not actively traded?
Answer: Net-asset-based approach
71. Methods in which the reported earnings equality of a firm can be lowered include
Answer: Recognising revenues too soon & recording fictitious
72. High P/E ratios reflects
Answer: Optimism
73. Reasons that collaborative venture inevitable present some significant management
challenges include
a. Strategic and environmental disparities among these
b. Lack of a common experience and perception
c. Difficulties in inter-firm communications
d. All of these
74. Decrease in inventory (decrease/Increase) Cash:
Answer: Increases
75.
In case of poor financing reporting quality, the following statements may be falsified:
a. The balance sheet
b. The profit and loss account statement
c. Fund Flow Statement
d. All of these
76. Dividends paid to shareholders are classified as
Answer: Financing activities
77. The key to successful alliance building lies in defining a
is adequate to get the job done
Answer: simple and focused
scope for the partnership as
78. If dividend pay-out ratio is 60%, what amount is the retention ratio?
Answer: 0.4
79. Return on investment is a
Answer: Combined ratio
80. When the control in the another firm is acquired through bidding is called
Answer: Tender offer
81. The value determined after the explicit forecast period is referred to a:
Answer: Continuing value
82. Determine the market price per share of a firm having equity capital of ₹100,000 (face
value of ₹50 per share); the profit after taxes is ₹12,000 & P/E ratio is 5.
Answer: 30
83.
The term fund can be defined as financial resources generated by
Answer: Both current and non-current items
84.
Which of the following is the part of victims of fraud?
a. Shareholders see huge amount of drop in share prices
b. Employees face non-payment of salaries
c. Client of firm showed lack of trust by cancellation of contracts
d. All of these
85. The financial planning ends with
Answer: comparison of actual parameters with projected
86. Incremental budgeting approach is applied in the preparation of:
Answer: Master budget
87. The 2011 joint venture between China's Lenovo and Japan's NEC is the example of:
Answer: Global competition
88. Ratio of net profit before interest and tax to sales is
Answer: Operating profit ratio
89. Recorded facts, accounting conventions and personal judgments best defines the:
Answer: Meaning of financial statements
90.
____ are cash flows associated with purchase/sale of both fixed assets and business interest
a. Operating cash flows
b. Financing cash flows
c. Extraordinary items
d. None of these
91. Ratio used for comparing the firm with those of the other firms in the same line of
business
Answer: Inter firm ratio
92. The method of valuation is affected by the financial fundamentals and speculative factors:
Answer: Market based approach
93. Method used to arrive at market price of an equity share:
Answer: Price earnings ratio
94. The acquisition/takeover bids fall under the purview of the
Answer: SEBI
95. When the operating expenses and depreciation are deducted from gross profit, the result
would be
Answer: PBIT
96.
Types of mergers are
a. Horizontal
b. Vertical
c. Conglomerate
d. All of these
97.
The main steps involved in financial planning include
a. analysis of firm's earlier periods' performance
b. understanding the firm's operating characteristics
c. deciding the financial sources
d. All of these
98.
of
The process of preparing projected financial statement generally begins with the projection
Answer: Sales
99.
The long term solvency of a firm can be examined by using which ratio?
Answer: Leverage ratios
100. The benefits that a new alliance can create on the alliance portfolio level mainly stem from
ways in which the new alliance and existing ones can enhance each other. The types of synergy
include
Answer: Sharing or recombining know-how & Reinforcing existing coalitions
101. Firms ability to make contractual interest payment is measured by:
Answer: Internal coverage ratio
102. Firm A acquires Firm B, MPS of B is ₹20 and EPS is ₹5. For an exchange rate of 1.5:1,
what is the P/E ratio used in acquiring B?
Answer: 6
103. Which of the following statement is provided in the annual report of the firm?
a. Balance Sheet
b. P&L A/C
c. Cash Flow statement
d. All of these
104. The funds flow statement
a. show changes in the working capital of firms during a financial period
b. helps the firm to plan its future working capital requirements
c. can be represented in vertical and horizontal form
d. All of the above
105. The common accounting warning signs/red flags that a stakeholder, analyst and other user
of FS must be aware of include:
a. aggressive revenue recognition
b. abnormal sales growth
c. abnormal inventory growth
d. All of the above
106. The following information is given about a company: (a) current assets = Rs. 900 lakh and
current liabilities = Rs 450 lakh in current yr (b) current assets =₹1,100 lakh and current
liabilities = ₹530 lkh in prev yr the approximate percentage decrease in current ratio is
Answer: 4% or 0.04
107. Dividend per share is computed by dividing - dividend paid to ordinary shareholders by
Answer: Number of new share capital issues
108. Cash payments to suppliers for goods & services are shown under:
Answer: operating activities
109. Operating budgets pertain to various activities and operations of the firm. This includes?
a. Sales
b. Purchases
c. Productions
d. All of these
110. In the context of fraud, main objectives of the auditor include the following:
a. To identify and assess the risk of material miss-statement is FS
b. Obtain sufficient audit evidence about assessed risks
c. Respond appropriately to identified and suspected fraud
d. All of these
111. The funds flow statement helps the firm to plan its
Answer: Working capital requirement
112. Financial statements of a firm include the following:
a. Balance Sheet
b. Profit & Loss account
c. Cash Flow Statement
d. All of these
113. Return on investment include:
a. Return on current assets
b. Return on capital employed
c. Return on shareholders' equity
d. All of these
114. Key motivations that are driving the formation of strategic alliances include
a. technology exchange
b. industry convergence
c. economies of scale
d. All of these
115. Academic research has also shown that managers frequently behave and use alliance
formation as ways to improve freedom of action.
Answer: opportunistically, their own
116. In case of poor financial reporting quality, the following statements can be falsified
a. The Balance Sheet
b. The Profit & Loss account
c. Fund Flow statement
d. All of these
117. Reasons that collaborative venture inevitable present some significant management
challenges include
a. strategic and environmental disparities among the partners
b. lack of a common experience and perception base
c. difficulties in inter-firm communication
d. All of these
118. The fund flow statement:
a. Shows changes in the working capital firms during
b. Helps the firm to plan its future working capital
c. Can be Presented in vertical & horizontal form
d. All of these
119. The Earning power of a firm has the following elements:
Answer: Profitability on sales & Profitability of assets
120. The overall ability of a firm to service outside liabilities is reflected in the:
Answer: Total Cash flow ratio
121. If the future cash earnings are well predictable then the most suitable approach of
valuation of business is:
Answer: Discounted cash flow approach
122. Price Earnings ratio can be calculated by
Answer: Market price of share/EPS
123. Concept of profit does not include
Answer: Future expected profit
124. We add back depreciation in Cash Flow Statement due to
Answer: non-cash flow expense
125. The sustainable growth rate is the maximum rate at which the company can grow by using:
Answer: retained earnings and additional external debt
126. Predicting and estimating future outcomes based on past trends and current actions is
called
Answer: Financial forecasting
127. Takeovers can be
a. negotiated/friendly
b. open markets/ hostile
c. bail out
d. All of these
128. Mergers can provide tax benefits in the case of____ of losses
Answer: Set off and carry forward
129. Value determined by dividing net worth by the no. of equity shares outstanding is known
as
Answer: book value
130. The type of financing in which the purchaser approaches the shareholders directly instead
of the mgmt to acquire interest in acquired firm is known as
Answer: tender offer
131. Erosion of profits could be caused by
a. the actions of competitors
b. the bargaining power of customers and suppliers
c. the bargaining power of govts
d. all of the above
132. The MVA approach _____ be used for all types of firms
Answer: cannot
133. The following firm is not involved in accounting scandal:
Answer: L&T
134. Cash planning is done through
Answer: Cash budgets
135. Forecasting is best achieved with the
Answer: financial models
136. Forecasts are based on past performance of the firm which
Answer: may not be necessarily repeated in future
137. Key business venture of the firm which are growing and yielding high profit margins are
Answer: star
138. Which of the following is/are a more rigorous test of the solvency position of a business
firm?
Answer: Debt-service coverage ratio
139. Purchase of T-bills will _____ acid-test ratio
Answer: not affect
140. Current ratio and acid-test ratio of a business firm are virtually the same. This implies that
the
Answer: Firm has low investment in inventory
141. The Balance Sheet
Answer: gives a snapshot of financial health of the firm
142. This method of valuation is affected by the financial fundamentals and speculative factors:
Answer: Market Based Approach
143. All those assets which are converted into cash in the normal course of business within one
year are known as:
Answer: Current Assets
144. Sustainable growth refers to growth in sales which can be achieved without:
Answer: Fresh equity
145. Sarbanes-oxley act of 2002-sox aims at restoring investor confidence in security market in
Answer: U.S
146. Cash Flow statement (base on as- 3) indicates change in
Answer: Cash and cash equivalent
147. Preparation of cash flow statement is mandatory for all the listed companies as well as for
all enterprises which have turnover of more than
Answer: 50 crores
148. MRTP stands for
Answer: Monopolies and Restrictive practices
149. Vertical merger is the merger of two firms which are involved:
Answer: In different stages of distribution and production in the same business activity
150. If dividend pay-out ratio is 60% what amount is the retention ratio:
Answer: 0.4
FINANCIAL ANALYSIS & BUSINESS VALUATION
1. Is that acquisition of an enterprise by a person or merger
Ans. Combination
2. Information that goes into can be used to help prepare
Ans. cash budget forecast financial statements
3. involves predicting and estimating future outcomes based on past trends and current actions
Ans. financial forecasting
4. capital invested is a measure of
Ans. economic value added
5. Which Is not the category of return on investment
Ans. return on turnover
6. which of the following is an example of cash flow from financial activity
Ans. Dividend received
7. which is not that tax concessions to amalgamated company
Ans. Free of capital gain tax
8. In a merger the
Ans. stockholders of the target farm have little if any say as to whether or not the merger occurs
9. Is that acquisition of entertainers or person or merger
Ans. Combinations
10. information that goes into can use to help prepare
Ans. forecast income statement a cash budget
11. which of the following is an example of horizontal merger
Ans. All of these
12. Involves predicting an estimated future outcome based on past trends and current actions
Ans. Financial Forecasting
13. NOPAT (Capital Invested xWACC) is measures of
Ans. Economic value added
14. it is not applications of fund
Ans. long term borrowing
15. Which represents the budget prepared for the next financial period
Ans. Budget estimates
16. In indirect method of calculating operation cash flow which of the following will be added to the
net profit
Ans. Gain on sale of asset
17. Which is not the tax concessions to amalgamated company
Ans. free of capital gains tax
18. A snapshot of the financial condition of the farm at a particular time
Ans. balance sheet
19. In a merger the
Ans. Acquiring farm returns its name and legal status
20. The firm which was involved in accounting scandal
Ans. Satyam
21. Quick assets is
Ans. Current assets - inventory - prepaid expense
22. The positive incremental net gain associated with the combination of two farms through a
merger or acquisition is called
Ans. Synergy
23. Which of the following is not a cash outflow for the firm
Ans. Depreciation
24. A public offer by one form to directly buy the shares of another form is called
Ans. Merger
25. Which of the following is a measure of liquidity
Ans. Current ratio
26. Which of the following items can be found on an income statement
Ans. Sales
27. the uprising at which an asset can be sold in the firms is liquidated is
Ans. liquidation value
28. in a merger or acquisition a form should be acquired if it
Ans. it generates a positive net present value to the shareholder of an acquiring firm
29. Which statement is prepared in the process of funds flow analysis
Ans. fund flow statement
30. Unrealised gains and losses arising from foreign exchange rates are
Ans. not cash flows
31. A budget which includes activities relating to the capital expenditure during the positive period
Ans. Capital budgeting
32. Industries has an equity market capitalization of 5000 lakh in current year resume for that its
equity share capital is 1500 lakh and its retained earnings is 900 lakhs
Ans. 2600
33. operating profit is
Ans. Gross profit - operating expense - depreciation
34. Which of the following denotes the firm with high market growth rates and high market share
Ans. Star
35. Merger of firms engaged at a different stage of production but in the same industry is called
Ans. vertical mergers
36. Which ratio is the best-known measure of financial strength
Ans. Current ratio
37. Which analysis helps in assessing the effect of changes in input of parameters of the financial
parameters contained in projected financial statement
Ans. sensitivity analysis
38. Ordinary equity is also called
Ans. net worth of the firm
39. Which of the following is not a cash outflow for the firm
Ans. Depreciation
40. The statements helps in analysing the changes in the working capital position of the firm is
Ans. Fund flow statement
41. The process of developing strategy for a business by researching the businesses and the
environment in which its function is called
Ans. strategic analysis
42. The ideal quick ratio is
Ans. 01:01
43. Principal revenue generating activities often enterprises are called as
Ans. operating activity
44. What remains after we subtract operating cost and capital expenditures necessary to at least
sustain cash flows from total firm revenues
Ans. free cash flow
45. Which is not the tax concessions to amalgamated company
Ans. bad debts
46. Which is not bad vantage of merger
Ans. Simplification
47. Cash cows are businesses with
Ans. high market share and low market growth
48. the value at which assets are shown in balance sheet is
Ans. book value
49. Going private transactions in which a large percentage of the money used to buy the outstanding
stock is borrowed is called
Ans. tender offer
50. so
1)
a)
b)
c)
d)
The method of valuation is affected by the financial fundamental and speculative factors
Price earning ratio
Market based approach
Discounted Cash Flow
Market to book value
2) The acquisition takeover bids fall under the purview of the
a) RBI
b) IRDA
c) EXIM
d) SEBI
3) Which of the following is/are more rigorous test of the solvency position of a business firm?
a)Interest Coverage Ratio
b)Debt Service Coverage Ratio
c) Both are Rigorous
d)None of these
4) From the economic point of view the profit for a firm would mean
a) Increase in value of the shareholders wealth
b) Profit worked out by accounting professional while preparing the financial statements
c) All of these
d) None of these
5) Cash Flow statement (base on as- 3) indicates change in
a) Bank and cash equalent
b) Cash and cash equalent
c) Both
d) None of these
6) A budget is a combination of ______________________ and__________________
expressed in financial term
a) Forecast & asset
b) Plans& asset
c) Forecast& Plans
d) None of these
7)
a)
b)
c)
d)
Return on resources on shareholders equity is computed divided EAT by
Share Capital
Total asset
Shareholders Fund
None of these
8) Preparation of cash flow statement is mandatory for all the listed companies as well as for
all enterprises which have turnover of more than
a) 40 Crores
b) 50 Crores
c) 10 Crores
d) 1 Crores
9) All those liabilities which are payable in cash in the normal course of business with in a
period of one year is called
a) Long term liability
b) Overdraft
c) Short term loan
d) Current liability
10) Cash Payments to Suppliers for goods and services are shown under
a)
b)
c)
d)
Operating activities
Financing activities
Investing activities
None of these
11) The term real goodwill is the excess of rate of return on invested funds than:a)Similar Firms
b)All firm in industry
c)Discount rate
d)Profitability index
12) In case of poor financial reporting quality, the following statement may be falsified:a)The balance sheet
b) The profit and loss account statement
c)Fund flow statement
d)All of these
13) The key to successful alliance building lies in defining a_____________________ scope for
the partnership as is adequate to get the job done
a) Simple and focused
b) All encompassing corporate partnership
c) All encompassing equity partnership
d) None of these
14) Activities related with the expansion/contraction of a firm operations
a) Corporate Parenting
b) Corporate restructuring
c) Corporate management
d) Corporate governance
15) On which budget that all the other budget are based?
a)Capital budgets
b)Sales budget
c)Financial budget
d)Cash budget
16)Major advantages of a merger are
a)Tax benefit
b)Synergy
c)Economic of scale
d)All of these
17)An annalyst applied the dupont system to the following data of a company. A) equity turnover 4.2
b)net profit margin 5.5%c) total assets turnover 2.0 and d) dividend payout ratio 30% the company
rate of return on equity
a)0.11
b)0.231
c)0.22
d)0.13
18) Twelve months average of the stock exchange prices are used in which method of valuation
a)Market value approach
b)Book Value approach
c)Balance sheet approach
d)RI approach
19) Alliances are
(a) conventional organizations with fully internalized activities
(b) well-specified transaction relationships through which externalized activities may be linked by
market-based contracts.
(c) combine elements of both (a) and (b)
(d) none of the above
20) Return on investment include
a)
Return on current assets
b)Return on capital employed
c)Return on shareholders equity
d)All of these
21)The free cash flow (fcf) is the legitimate cash flow for the purpose of business valuation in that it
reflects the cash flows generated by companies operation for
a)Debt provider
b)Equity capital provider
c)All the capital provider
d) None of these
22) The master budget does not include
a)Operating budget
b)Capital expenditure budget
c)projected balance sheet
d)Earlier period balance sheet
23) Key business venture of the firm which are growing and yielding high profit margins are known
as
a)Star performer
b)Question marks
c)Cash cows
d)All of these
24) The common accounting warning signified flags do not include
a)Aggressive revenue recognition
b)Year end surprise
c)Reducing economic of fixed asset
d)All of these
25)The fund flow statement
a)Shows changes in working capital of the firm during a financial period
b)Helps the firm to plan future working capital requirement
c)can be presented vertical
d) all of these
26)Value determined by dividing networth by the number of equity share outstanding is known as
a) Book value
b)Appraisal value
c)Market Value
d)None of these
27) Decrease in creditors cash
a) increases
b)No change in cash
c)Decrease
d)None of these
28)Which of the following condition is not present when fraud occurs
a)Opportunities for fraud
b)Higher market price of share
c)Attitude and
d) incentives of pressure
29)Cash flow from operating ratio is calculated with help of which equation?
a)Current asset/Cash flow from operation
b)Cash flow from operation/current asset
c)Cash flow from operation/current liability
d)Current liabilities /cash flow from operation
30)The amount at which the asset is shown in the balance sheet is:a)Fair value
b)Economic value
c)Book Value
d)Market Value
31) If inventory turnover ratio 6 times per year What is inventory holding period(months)
a)1
b)25
c)2
d)15
32) Sustainable growth refers to growth in sales which can be achieved without
a)Fresh planning
b)Strategy
c)Modeling
d)Fresh equity
33)Some of the limitation which characterized ratio analysis are
a)Difficulty in comparison
b)impact of inflation
c)Concepual diversity
d)All of these
34)Ratio of net profit before interest and tax to sales is
a)Solvency ratio
b)Capital garing
c)Turnover raio
d) operating profit ratio
35)Suppliers evaluate short term liquidity where as long term funds providers evaluate
a)Long term solvency
b) Mid term liquidity
c)Long term liability
d)Long term fixed expenses
36) The balance sheet
a)is a statement of revenues and expenses
b)Gives a snapshot of financial health of the firm
c) is a statement of change in the financial performance of a firm
d) None of these
37)Determine the market price per share of a firm having equity capital of Rs 100000(face value of
Rs 50 per share) the profit after taxes is Rs 12000 & P/E ratio is 5
a) Rs 30
b)Rs 60
c)Rs 50
d) Rs 20
38)Concept of profit does not include
a)Operating profit
b)profit before tax
c)profit after tax
d)Future expected profit
39) The long term solvency of a firm can be examined by using which ratio?
a)Leverage ratio
b)Current ratio
c)Gearing ratio
d)Leverage & gearing ratio
40) Recorded facts, accounting convention and personal judgement best defines the
a)Nature of financial statement
b)Meaning of financial statement
c)significance of financial statement
d)None of these
41) Ratio used for comparing the firm with those of the other firm in the same line of business
a)inter firm ratio
b)intra firm ratio
c)Trend ratio
d)Current ratio
42) If the future cash earnings are well predictable then the most suitable approach of valuation of
business is
a)P/e ratio approach
b)Discounted cash flow approach
c)No one superior to other
d)None of these
43) The following firm is not involved in accounting scandal
a)Enron
b)Larsen and Turbo
c)Vorldcom
d) Satyam
44) ____________________________ are cash flow associated with purchase/sale of both fixes
asset and business interest.
a) Operating cash flow
b)Financing cash flow
c)Extraordinary item
d)None of these
45) The statement of change in financial position (SCFP) shows
a) How the funds were generated during the period
b) How funds were used during the period
c)How the funds were generated and used in the period
d)None of these
46) Revenue and expenses are recorded in profit and loss account use the
a) Amount of total credit sales basis
b)Accrual basis
c)Realisation basis
d)Cash receipt
47)In the context of fraud, main objectives of the auditors includes the following
All of these
48)When the control in the another firm is acquired through bidding is called
a)MBO
b)Auction of assets
c)Demerge
d)Tender offer
49)Merger can provide tax benefit in the case of ________________ of losses
a)Sacrified asset
b)Market value added
c)Rate of return on asset
d)Net value of equity
50) Market value of the firm’s equity minus equity capital investment is used to compute
a) Economic value added
b)Market value added
c)Rate of return on asset
d)Net value of equity
51)The present value of the incremental cash inflows discounted at some specific rate is
a)intrinsic value
b)Replacement value
c)Liquidation value
d)Book value
52)The term valuation implies the task of estimating the worth of an
a)scrap
b)Non fictious transaction
c)Net working capital
d)Assets
53)Companies are generally remarkably_______________ when they go about forming strategic
partnership
a)Non-myopic
b)Longsighted
c)Myophic
d)None of these
54)Financial statement of a firm include the following
a) Balance sheet
b)Profit & loss account
c)Cash flow statement
d)All of these
55)Preparation of cash flow statement is mandatory for all the listed companies as well as for all
enterprises which have turnover more than
a)Rs 40 cr
b)50 cr
c)10 cr
d)Rs 1 cr
56)__________________________refers to approach of the firm to utilise the resources,core
competencies and strengths of the firm in the available opportunities and risk presented by the
environment
a)Financial planning
b)Projection
c)Growth
d)Strategy
57)Internal growth rate is maximum rate at which a firm grow without
a)internal financing
b)increase in debtors
c)increase in current asset
d)External financing
58)Viewed on a stand alone basis alliances can help companies
a)Achieve economies of scale
b)obtain access to partner
c)increase competition in the market
d)Achieve economies of scale & obtain access to partner competency asse knowledge and skill
59)The earning power of a firm has the following elements
a)Profitability on sales
b)Profitability of asset
c)Profitability on sales & profitability of asset
d)None of these
60)incremental budgeting approach is applied in the preparation of
a)Master budget
b)Production budget
c)Raw material budget
d)Zero base budget
Case study
61)Calculate the fixed asset turnover ratio for xyz ltd
62)Calculate the debt equity ratio
63)calculate turnover ratio
64)calculate return on total assetfor xyz ltd
65)calculate stock turnover ratio
1)
a)
b)
c)
d)
The method of valuation is affected by the financial fundamental and speculative factors
Price earnings ratio
Market based approach
Discounted Cash Flow
Market to book value
2) The acquisition takeover bids fall under the purview of the
a) RBI
b) IRDA
c) EXIM
d) SEBI
3) Which of the following is/are more rigorous test of the solvency position of a business firm?
a)Interest Coverage Ratio
b)Debt Service Coverage Ratio
c) Both are Rigorous
d)None of these
4) From the economic point of view the profit for a firm would mean
a) Increase in value of the shareholders wealth
b) Profit worked out by accounting professional while preparing the financial statements
c) All of these
d) None of these
5) Cash Flow statement (base on as- 3) indicates change in
a) Bank and cash equalent
b) Cash and cash equalent
c) Both
d) None of these
6) A budget is a combination of ______________________ and__________________
expressed in financial term
a) Forecast & asset
b) Plans& asset
c) Forecast& Plans
d) None of these
7)
a)
b)
c)
d)
Return on resources on shareholders equity is computed divided EAT by
Share Capital
Total asset
Shareholders Fund
None of these
8) Preparation of cash flow statement is mandatory for all the listed companies as well as for
all enterprises which have turnover of more than
a) 40 Crores
b) 50 Crores
c) 10 Crores
d) 1 Crores
9) All those liabilities which are payable in cash in the normal course of business with in a
period of one year is called
a) Long term liability
b) Overdraft
c) Short term loan
d) Current liability
10) Cash Payments to Suppliers for goods and services are shown under
a)
b)
c)
d)
Operating activities
Financing activities
Investing activities
None of these
11) The term real goodwill is the excess of rate of return on invested funds than:a) Similar Firms
b) All firm in industry
c) Discount rate
d) Profitability index
12) In case of poor financial reporting quality, the following statement may be falsified:a) The balance sheet
b) The profit and loss account statement
c) Fund flow statement
d)All of these
13) The key to successful alliance building lies in defining a_____________________ scope for
the partnership as is adequate to get the job done
a) Simple and focused
b) All encompassing corporate partnership
c) All encompassing equity partnership
d) None of these
14) Activities related with the expansion/contraction of a firm operations
a) Corporate Parenting
b) Corporate restructuring
c) Corporate management
d) Corporate governance
15) On which budget that all the other budget are based?
a)Capital budgets
b)Sales budget
c)Financial budget
d)Cash budget
16)Major advantages of a merger are
a)Tax benefit
b)Synergy
c)Economic of scale
d)All of these
17)An annalyst applied the dupont system to the following data of a company. A) equity turnover 4.2
b)net profit margin 5.5%c) total assets turnover 2.0 and d) dividend payout ratio 30% the company
rate of return on equity
a)0.11
b)0.231
c)0.22
d)0.13
18) Twelve months average of the stock exchange prices are used in which method of valuation
a)Market value approach doubt
b)Book Value approach
c)Balance sheet approach
d)RI approach
19) Alliances are
(a) Conventional organizations with fully internalized activities
(b) Well-specified transaction relationships through which externalized activities may be linked by
market-based contracts.
(c) combine elements of both (a) and (b)
(d) none of the above
20) Return on investment include
a) Return on current assets
b) Return on capital employed
c) Return on shareholders’ equity
d)All of these
21) The free cash flow (fcf) is the legitimate cash flow for the purpose of business valuation in that it
reflects the cash flows generated by companies operation for
a) Debt provider
b) Equity capital provider
c) All the capital provider
d) None of these
22) The master budget does not include
a) Operating budget
b) Capital expenditure budget
c) Projected balance sheet
d) Earlier period balance sheet
23) Key business venture of the firm which are NOT growing and yielding high profit margins are
known as
a) Star performer
b) Question marks
c) Cash cow
d) All of these
24) The common accounting warning signified flags do not include
a) Aggressive revenue recognition
b) Year-end surprise
c) Reducing economic of fixed asset
d) All of these
25)The fund flow statement
a) Shows changes in working capital of the firm during a financial period
b) Helps the firm to plan future working capital requirement
c) Can be presented vertical
d) all of these
26) Value determined by dividing net worth by the number of equity share outstanding is known as
a) Book value
b)Appraisal value
c)Market Value
d)None of these
27) Decrease in creditors cash
a) Increases
b) No change in cash
c) Decrease
d) None of these
28) Which of the following condition is not present when fraud occurs
a) Opportunities for fraud
b) Higher market price of share
c) Attitude and
d) incentives of pressure
29) Cash flow from operating ratio is calculated with help of which equation?
a)Current asset/Cash flow from operation
b)Cash flow from operation/current asset
c)Cash flow from operation/current liability
d)Current liabilities /cash flow from operation
30)The amount at which the asset is shown in the balance sheet is:a)Fair value
b)Economic value
c)Book Value
d)Market Value
31) If inventory turnover ratio 6 times per year What is inventory holding period(months)
a)1
b)25
c)2
d)15
32) Sustainable growth refers to growth in sales which can be achieved without
a)Fresh planning
b)Strategy
c)Modeling
d)Fresh equity
33) Some of the limitation which characterized ratio analysis are
a) Difficulty in comparison
b) Impact of inflation
c) Conceptual diversity
d)All of these
34)Ratio of net profit before interest and tax to sales is
a)Solvency ratio
b)Capital garing
c)Turnover raio
d) operating profit ratio
35)Suppliers evaluate short term liquidity where as long term funds providers evaluate
a)Long term solvency
b) Mid term liquidity
c)Long term liability
d)Long term fixed expenses
36) The balance sheet
a)is a statement of revenues and expenses
b)Gives a snapshot of financial health of the firm
c) is a statement of change in the financial performance of a firm
d) None of these
37)Determine the market price per share of a firm having equity capital of Rs 100000(face value of
Rs 50 per share) the profit after taxes is Rs 12000 & P/E ratio is 5
a) Rs 30
b)Rs 60
c)Rs 50
d) Rs 20
38)Concept of profit does not include
a)Operating profit
b)profit before tax
c)profit after tax
d)Future expected profit
39) The long term solvency of a firm can be examined by using which ratio?
a)Leverage ratio
b)Current ratio
c)Gearing ratio
d)Leverage & gearing ratio
40) Recorded facts, accounting convention and personal judgement best defines the
a) Nature of financial statement
b) Meaning of financial statement
c) Significance of financial statement
d) None of these
41) Ratio used for comparing the firm with those of the other firm in the same line of business
a)inter firm ratio
b)intra firm ratio
c)Trend ratio
d)Current ratio
42) If the future cash earnings are well predictable then the most suitable approach of valuation of
business is
a)P/e ratio approach
b)Discounted cash flow approach
c)No one superior to other
d)None of these
43) The following firm is not involved in accounting scandal
a)Enron
b)Larsen and Turbo
c) WorldCom
d) Satyam
44) ____________________________ are cash flow associated with purchase/sale of both fixed
asset and business interest.
a) Operating cash flow
b) Financing cash flow
c) Extraordinary item
d)None of these
45) The statement of change in financial position (SCFP) shows
a) How the funds were generated during the period
b) How funds were used during the period
c)How the funds were generated and used in the period
d)None of these
46) Revenue and expenses are recorded in profit and loss account use the
a) Amount of total credit sales basis
b)Accrual basis
c)Realisation basis
d)Cash receipt
47)In the context of fraud, main objectives of the auditors includes the following
All of these
48)When the control in the another firm is acquired through bidding is called
a)MBO
b)Auction of assets
c)Demerge
d)Tender offer
49)Merger can provide tax benefit in the case of ________________ of losses
a)Sacrified asset
set off & carry forwad
b)Market value added
c)Rate of return on asset
d)Net value of equity
50) Market value of the firm’s equity minus equity capital investment is used to compute
a) Economic value added
b)Market value added
c)Rate of return on asset
d)Net value of equity
51)The present value of the incremental cash inflows discounted at some specific rate is
a)intrinsic value
b)Replacement value
c)Liquidation value
d)Book value
52)The term valuation implies the task of estimating the worth of an
a)scrap
b)Non fictious transaction
c)Net working capital
d)Assets
53)Companies are generally remarkably_______________ when they go about forming strategic
partnership
a)Non-myopic
b)Longsighted
c)Myophic
d)None of these
54)Financial statement of a firm include the following
a) Balance sheet
b)Profit & loss account
c)Cash flow statement
d)All of these
55)Preparation of cash flow statement is mandatory for all the listed companies as well as for all
enterprises which have turnover more than
a)Rs 40 cr
b)50 cr
c)10 cr
d)Rs 1 cr
56)__________________________refers to approach of the firm to utilise the resources ,core
competencies and strengths of the firm in the available opportunities and risk presented by the
environment
a) Financial planning
b) Projection
c) Growth
d) Strategy
57)Internal growth rate is maximum rate at which a firm grow without
a)internal financing
b)increase in debtors
c)increase in current asset
d)External financing
58)Viewed on a stand alone basis alliances can help companies
a)Achieve economies of scale
b)obtain access to partner
c)increase competition in the market
d)Achieve economies of scale & obtain access to partner competency asse knowledge and skill
59)The earning power of a firm has the following elements
a)Profitability on sales
b)Profitability of asset
c)Profitability on sales & profitability of asset
d)None of these
60) Incremental budgeting approach is applied in the preparation of
a) Master budget
b) Production budget
c) Raw material budget
d) Zero base budget
Case study
61) Calculate the fixed asset turnover ratio for xyz ltd 3
62) Calculate the debt equity ratio .66
63) calculate turnover ratio
64) calculate return on total asset for xyz ltd .6
65) calculate stock turnover ratio 2.5
1. the overall ability of a firm to serve outside liabilities is reflected in the
Total Cash coverage ratio not sure 50/50
2. which is the best method among these for valuation of a firm where not much data about it net
profit is available and its share are not actively traded?
Discounted cash flow
3. the term fund can be defined as financial resources generated by
Both current and non-current items
4. coverage ratio measures the firm's ability to pay
Dividend
5. Return on asset may not provide correct result when the firm have different
a. short term sources of finance
b. sole depends on debt for financing
c. Capital structure
Google: ROA depends on the company and industry
d. rate of return
6. an Alliance opportunity that promise to create value from ______________ Perspective may not
necessarily be value creating from an _____________
Stand-alone, alliance portfolio perspective
7. when the operating expenses and depreciation are deducted from gross profit the result would be
PBIT
8. if P/E ratio is 8 times and market price per share is 134 what is the EPF
16.75
9. firms ability to make contractual interest payment is measured by
Interest Coverage ratio
10. purchase of treasury bills will strengthen acid test ratio
a. Strengthen
b. weaken
c. not effect
d. none of there
11. The following information is given about a company current asset is
900lakh……………………………………… 450 lakh lib.
0.08
12. The type of financing in which an initial payment to the shareholders of an acquired firm is
followed by additional payment in future years based on the target firms increase in earning is
known as
Preference share financing
13. the reciprocal of price earning ratio is indicator of
Profitability index
14 unpaid dividend on preference shares are reckoned ________ of the firm in asset based valuation
Liability
15. the term strategic Alliance is currently used to describe a variety of inter form cooperation
agreement which include
Formal joint Ventures
16. High P/E ratios reflects
Optimism
17. the 2011 joint venture between China sir Lenovo and Japanese neck is the example of
Technology agreement
18. ________is calculated by deducting interest from the ebit
Profit bdfore tax
19. hostile takeover includes
Bear hug
20. difficulty in comparison may relate to
Differences in the basis of inventory valuation & difference depre. Method
21. the fund flow statement helps the firm to plan its
All of these
22. debt to total capital ratio expresses the relationship between
Short term and long term borrowing
23. price earnings ratio can be calculated by
Market price of share/ Eps
24. buyback of shares is shown under
Financing activities
25. Firm A acquires firm B. Market price of shares of B is Rs 20 per share and EPS is Rs 5. For an
exchange ratio of 1.5 : 1, what was the P/E ratio used in acquire B
4
26. which of the following techniques used to construct projected financial statements by use of
specific relationship[ between the parameters
Forecasting
27. forecasting is best achieved with the
a. Judgement of shareholder
b. Financial models
c. Opinion of managers
d. customers Feedbacks
28. issue of 12% preference share will__________ debt equity ratio of the corporate Enterprise
Decrease
28. categories which are given by market growth market share model popularity known as Boston
Consulting Group matrix include
All of the above
29. a partnership is often motivated by the desire to joint and leverage complementary
Skills & Resources
30. Buyouts may be
Management or leverged Buyout
31. strategy of a firm involves
matchings of strength and competency of the form with market opportunities
32. cash planning is done through
Cash Budget
33. the value determined after the explicit forecast period is referred to
Continuing value
34. which of the following statement is provided in the annual report of the form
All of the above
35. current ratio and acid test ratio of the business firm are vertically the same this implies that the
None of these
36. the MVA approach can be used for all type of firm
Can
37. the sustainable growth rate is the maximum rate at which the company can grow by using
retained earning
a. retained earning
b. external financing
c. retained earning and additional external earning
d none
38. types of merger
All of these
39. level of interaction between firms in strategic Alliance is very high in which types of firms
Franchising
40. main drawback of financial statement is that they do not cover the change in
Application of funds
41 the method of valuation is affected by the financial fundamentals and speculative factors
Discounting cash flow
42.the main steps involved In financial planning includes
All of the aboves
43. key motivations that are driving the formation of strategic alliances include
All of these
44. the process of preparing the projected financial statement generally begins with projection of
Sales
45. rate of net profit before interest and tax to sales is
Operating profits ratio
46 the fund flow statement
All of these
47. when the forms dealing in different and related activities merged together is example of
Vertical merger
48. the free cash flow is the legitimate cash flow for the purpose of business valuation in that is
reflects the cash flows generated by a company operations for which providers
All capital providers
49. this method is used to arrive at the market price of an equity share
Price earning ratio
50. the statement of changes in financial position shows
how the funds were generated during the period
51. the cost of acquiring a new asset of equal utility and usefulness refers to
a. liquidation value
b. replacement value
c. salvage value
d none
52 takeover can be
All of these
53 operating budgets pertain to various activities and operational of the form this include
All of these
54. we add back depreciation in cash flow statement due to
Non cash flow expences
55. four times stock turnover ratio implies ______month inventory holding period
3
56. which of the following ratio is used to examine the sustainable growth for a single product from
a. inventory/sales ratio
b. debt equity ratio
c debt capital employed ratio
d sales debtors ratio
FINANCIAL ANALYSIS & BUSINESS VALUATION
1. Is that acquisition of an enterprise by a person or merger
Ans. Combination
2. Information that goes into can be used to help prepare
Ans. cash budget forecast financial statements
3. involves predicting and estimating future outcomes based on past trends and current actions
Ans. financial forecasting
4. capital invested is a measure of
Ans. economic value added
5. Which Is not the category of return on investment
Ans. return on turnover
6. which of the following is an example of cash flow from financial activity
Ans. Dividend received
7. which is not that tax concessions to amalgamated company
Ans. Free of capital gain tax
8. In a merger the
Ans. stockholders of the target farm have little if any say as to whether or not the merger occurs
9. Is that acquisition of entertainers or person or merger
Ans. Combinations
10. information that goes into can use to help prepare
Ans. forecast income statement a cash budget
11. which of the following is an example of horizontal merger
Ans. All of these
12. Involves predicting an estimated future outcome based on past trends and current actions
Ans. Financial Forecasting
13. NOPAT (Capital Invested xWACC) is measures of
Ans. Economic value added
14. it is not applications of fund
Ans. long term borrowing
15. Which represents the budget prepared for the next financial period
Ans. Budget estimates
16. In indirect method of calculating operation cash flow which of the following will be added to the
net profit
Ans. Gain on sale of asset
17. Which is not the tax concessions to amalgamated company
Ans. free of capital gains tax
18. A snapshot of the financial condition of the farm at a particular time
Ans. balance sheet
19. In a merger the
Ans. Acquiring farm returns its name and legal status
20. The firm which was involved in accounting scandal
Ans. Satyam
21. Quick assets is
Ans. Current assets - inventory - prepaid expense
22. The positive incremental net gain associated with the combination of two farms through a
merger or acquisition is called
Ans. Synergy
23. Which of the following is not a cash outflow for the firm
Ans. Depreciation
24. A public offer by one form to directly buy the shares of another form is called
Ans. Merger
25. Which of the following is a measure of liquidity
Ans. Current ratio
26. Which of the following items can be found on an income statement
Ans. Sales
27. the uprising at which an asset can be sold in the firms is liquidated is
Ans. liquidation value
28. in a merger or acquisition a form should be acquired if it
Ans. it generates a positive net present value to the shareholder of an acquiring firm
29. Which statement is prepared in the process of funds flow analysis
Ans. fund flow statement
30. Unrealised gains and losses arising from foreign exchange rates are
Ans. not cash flows
31. A budget which includes activities relating to the capital expenditure during the positive period
Ans. Capital budgeting
32. Industries has an equity market capitalization of 5000 lakh in current year resume for that its
equity share capital is 1500 lakh and its retained earnings is 900 lakhs
Ans. 2600
33. operating profit is
Ans. Gross profit - operating expense - depreciation
34. Which of the following denotes the firm with high market growth rates and high market share
Ans. Star
35. Merger of firms engaged at a different stage of production but in the same industry is called
Ans. vertical mergers
36. Which ratio is the best-known measure of financial strength
Ans. Current ratio
37. Which analysis helps in assessing the effect of changes in input of parameters of the financial
parameters contained in projected financial statement
Ans. sensitivity analysis
38. Ordinary equity is also called
Ans. net worth of the firm
39. Which of the following is not a cash outflow for the firm
Ans. Depreciation
40. The statements helps in analysing the changes in the working capital position of the firm is
Ans. Fund flow statement
41. The process of developing strategy for a business by researching the businesses and the
environment in which its function is called
Ans. strategic analysis
42. The ideal quick ratio is
Ans. 01:01
43. Principal revenue generating activities often enterprises are called as
Ans. operating activity
44. What remains after we subtract operating cost and capital expenditures necessary to at least
sustain cash flows from total firm revenues
Ans. free cash flow
45. Which is not the tax concessions to amalgamated company
Ans. bad debts
46. Which is not bad vantage of merger
Ans. Simplification
47. Cash cows are businesses with
Ans. high market share and low market growth
48. the value at which assets are shown in balance sheet is
Ans. book value
49. Going private transactions in which a large percentage of the money used to buy the outstanding
stock is borrowed is called
Ans. tender offer
lOMoARcPSD|20440291
FINC002 2
MBA executive (Institute of Management Technology, Ghaziabad)
Studocu is not sponsored or endorsed by any college or university
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lOMoARcPSD|20440291
6.
Moon ltd invests rs 800000 in a paper manufacturing plant. This is expected to generate Rs
150,000 Every year for next seven years. Cost of capital for the project is 10%. PVAF for 7 years at
10% is 5.3349. Calculate the NPV of the project.
a.
800000
b.
800235
c.
235
d.
-235
7.
which of the following method is considered the best evaluation techniques for long term
investment decision
a.
NPV
b.
IRR
c.
Pay Back period
d.
profitability index
8.
Which of the following instrument is riskiest ?
a.
Shares
b.
Preference shares
c.
Debentures
d.
Fixed Deposit
9.
Current Year dividend of sun Ltd is Rs 5per share. Expected growth rate is 8% and market
capitalization rate is 10%. Calculate the intrinsic value of stock. ?
a.
5.4
b.
67.5
c.
54
d.
270
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10.
In Excel, in order to calculate the EMI for loan repayment , which function has to be used ?
a.
PV
b.
FV
C.
NPV
d.
PMT
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Financial Management
Financial Analysis (Institute of Management Technology, Ghaziabad)
Studocu is not sponsored or endorsed by any college or university
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lOMoARcPSD|20440291
Financial Management
Test 1
1. Why depreciation has to be added back in the calculation of cash flow as it is a_____?
Ans – Non-cash expense
2. If growth rate of expected goes up than price of stock will_____?
Ans – Increase
3. If proportion of debt is increased in capital structure overall cost of capital will_____?
Ans – Decrease
4. When in the calculation of IRR, intermittent cash flows are reinvested at required rate of return; the resultant
rate is known as_____?
Ans – MIRR - (modified internal rate of return)
5. A liberal working capital policy will lead to
a. Low debtors
b. low inventory
c. low cost
d. high inventory
6. Dividend declared at 12% means that this %age will be applied on ______?
a. Issue price
b. Market price
c. Face value
d. Profits
7.
a.
b.
c.
d.
Brexit, Greece Crises, Chinese Crises, Sub -Prime Crises are example of which of the following?
Systematic Risk
Unsystematic Risk
Total Risk
Specific Risk
8.
a.
b.
c.
d.
Increased financial leverage give rise to _____ volatile EPS?
More
Less
Non
None of the above
9.
a.
b.
c.
d.
If the cost of capital of a project goes up the NPV Will ______?
Decrease
Increase
Remain same
Fluctuate
10. The cash flows invested in a project at t=0 period is known as ____?
a. Initial cash flows
b. Operating cash flows
c. Terminal cash flows
d. Regular cash flows
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11. Proportion of profit distributed among share holders is known as _____?
a. Dividend ratio
b. Dividend capitalization ratio
c. Retention ratio
d. Pay-out ratio
12. The internal rate of return generated by an fixed income investment, if held till maturity is known as
a. Current yield
b. YTM
c. Yield curve
d. Coupon rate
13. The rate beyond which the preference between two independent projects reverses is knows as____?
a. IRR
b. Reversal rate
c. Cross over rate
d. Cut off rate
14. Arun buys a stock at Rs 20 and sells at Rs 25 after 10 months. During this period, he receives a dividend of Rs 5
on his investments. Calculate Holding Period return?
a. 0.25
b. 0.5
c. 0.2
d. 0.4
Holding Period Return is returning an asset after holding in for a period of time. It
is expressed in percentage.
HPR = Selling Price - 25, Cost Price = 20, Dividend = 5,
"
15. If the coupon rate of a debenture is increased then its YTM will ______?
a. Decrease
b. Increase
c. Remain same
d. Fluctuate
16. Preference share is a ______ instrument?
a. Ownership
b. Debt
c. Hybrid
d. None of the above
17. Calculate standard deviation with the help of following data: p=0.3, r=30%, p=0.4, r=16%, p=0.3, r=18%
a. 74.76
b. 24.92
c. 4.21
d. 8.64
18. If business risk of company goes up than price of stock will _____?
a. Decrease
b. Increase
c. Remain same
d. Fluctuate
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19. Which of the following evaluation techniques for long-term investment decisions doesn’t consider the time value
of money?
a. NPV
b. IRR
c. Pay-back period
d. Profitability index
20. If credit sales 100000, credit period is 30 days, calculate the average receivables
a. 8219
b. 8333
c. 3333
d. 3288
21. For A Ltd. Annual demand is 10000 units, carrying cost is 2 Rs per unit and order cost is Rs 50. Calculate the EOQ
Ans – 707
EOQ = Sq Root 2 x (10000x50) /2
22. Stream of equal cash flows at regular interval starting at the beginning of the period is known as?
a. Lumpsum cash flows
b. Annuity
c. Conventional cash flows
d. Annuity due
23. Which of the following is an example of unsystematic risk?
a) Interest rate fluctuations
b) Political uncertainty
c) Increased steel prices
d) Global economic Crises
24. Calculate the expected return with the help of following data: p=0.3, r=30%, p=0.4, r=16%, p=0.3, r=18%
a. 17.8
b. 18
c. 5.8
d. 7.35
25. For daily ltd Beta is 0.8. Nifty returns = 15% and T-Bill rate is 8% what is the cost of equity?
a. 13.56%
b. 15%
c. 5.6%
d. 7%
Answer: The cost of equity works out to 13.6% as per the CAPM. None of the answers given are the answers to the
question. However, the risk premium of Dairy Ltd, works out to 0.056.
We use the Capital Asset Princing Model or CAPM in order to calculate the cost of equity, required rate of return on an
asset or the discount rate.
The formula for computing the cost of equity is:
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In the formula above, the term
refers to the risk premium of the given security, and it represents the rate
of return that the security must give over and above the return obtained on T-bills.
Substituting the values in the formula above we get,
26. As per MM proposition with taxes, value of unlevered firm is _____than levered firm?
a. Lower
b. Same
c. Higher
d. Fluctuating
27. The difference between present value of cash inflows and outflows is known as____?
a. NPV
b. IRR
c. Pay Back period
d. Profitability Index
28. Sales proceeds from the asset sold at the end of project forecasting period is treated as ____?
a. Initial cash flows
b. Operating cash flows
c. Terminal cash flows
d. Regular cash flows
29. Which of the following is not the function of investment banking?
a. New issue management
b. Private equity advisory
c. Venture capital fund advisory
d. Working capital management
30. Dividend payment linked to profits left out after meeting the expansion needs is based on ____ theory/policy?
Ans - Residual payout policy
Financial Management
Test 2
1. ______ Method tells the period in which original investment in a project will be recovered?
a.
b.
c.
d.
NPV
IRR
Pay-back period
Profitability index
2. In how much time Rs 10 lacs can be approximately doubled, if invested at 8% computed annually?
Ans – 9 years
A=P(1+r)n,or, 2P = P (1 + 0.08)n,
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2000000 = (1000000 + 80000)n
n = 9 years (approximately)
3. Shyam deposits Rs 5000 every year for next 3 years at 6% semiannual compounding. Calculate the future value
if investment? Future value annuity factor at 3% for 3years and 6 years is 3.0909 & 6.4684 respectively and at
6% for 3years and 6 years is 3.1836 & 6.9753 respectively.
a. 15454.5
b. 16171
c. 15918
d. 17438.25
4. What will be the price of bond with face value of Rs 1000 carrying a coupon of 10% maturing in 3 years at 10%
premium on par value? Present value factor and PVAF at 10% for 3 years is 0.7513 and 2.4869 respectively
a. 1000
b. 826.43
c. 1075.12
d. 1348.69
5. The cash flows forecasted during the projection period for capital budgeting decisions are known as ___?
a. initial cash flows
b. operating cash flows
c.
terminal cash flows
d. regular cash flows
6. Cost of preference share is _____?
a. Preference dividend rate
b. Pref Dividend / Pref. share market price
c. Both of the above
d. None of the above
7. Current year dividend of Sun Ltd is Rs 5 per share. Expected growth rate is 8% and market capitalization rate is
10%. Calculate intrinsic value of the stock
a. 5.4
b. 67.5
c. 54
d. 270
Answer
Current year dividend, D0 = Rs 5
Expected growth rate, g = 8%
Market capitalization rate, ke = 10%
Next year dividend, D1 = D0 × (1 + g)
= 5 × (1 + 0.08)
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= 5.4
Intrinsic value of stock:
= D1 ÷ (ke - g)
= 5.4 ÷ (0.1 - 0.08)
= 5.4 ÷ 0.02
= Rs. 270
8. Market interest rate is 9%. A bond with 10% coupon will sell ____ par value?
a. Above
b. below
c. at
d. none of the above
9. Which of the following is ultimate objective of financial management?
a. profit maximization
b. share holder’s wealth maximization
c. leverage minimization
d. funding maximization
10. As per liquidity premium theory, interest rates on long term bonds will be ____ than short term bonds?
a. lower
b. same
c. higher
d. fluctuating
11. Discounted payback period is considered an improvement over payback period because it considers____?
a. all cash flows
b. time value of money
c. easy to understand
d. all of the above
12. Moon Ltd invests Rs. 800000 in a paper manufacturing plant. This is expected to generate Rs. 150000 every
year for next seven years. Cost of capital for the project is 10%PVAF for 7 years at 10% is 5.3349. Calculate NPV off the
project?
The computation of the net present value is shown below:
Net present value would be
= Cash inflows after considering the discount factor - initial investment
where,
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Cash inflows after considering the discount factor would be
= Cash inflows × PVIFA factor for 7 years at 10%
= $150,000 × 5.3349
= $800,235
And, the initial cost of investment is $800,000
So, the net present value equal to
= $800,235 - $800,000
= $235
13. When interest rates on long term bonds are higher than short term bonds, yield curve will be ____?
a. upward slopping
b. downward slopping
c.flat
d. none of the above
Financial Management
Test 3
1. The MM Proposition without taxes, Value of firm is _______ by changing its capital structure?
a. Affected
b. Not affected
c.
Increases
d. Decreases
2. Which of the following is not the method for calculation of cost of equity?
a. CAPM
b. Dividend discount model
c.
YTM + Risk premium
d. YTM
3. For a firm weight of equity and debt is 0.6 and 0.4 respectively and cost of equity is 15%, cost of debt is 9%,
tax rate is 30%. Calculate WACC for the firm?
Answer = 0.1152
Weight Average Cost of Capital (WACC) =
{E/V × ke} + [ D/V × Kd × (1-Tc)
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where :
E = Market value of the firm's equity
0.6
D = Market value of the firm's debt
0.4
V = total market value of equity & debt (E+D)
Ke = Cost of equity
15%
Kd = Cost of debt
9%
Tc = Corporate tax
30%
0.6+0.4
WACC = {(0.6/1) × 0.15 } + {(0.4/1 ×0.09×(1-0.3)}
WACC = 0.09+0.0252
=0.1152 × 100%
WACC the firm = 11.52%
4. As per matching approach permanent working capital requirements should be funded by ______ ?
a)long term funds
b)short term funds
c)medium term funds
d)any of the above
5. As per bird in hand theory high dividend payout is ______ to low pay out
A) Preferred
B) not preferred
C) irrelevant for investors
D) none of above
6. For calculation of present value of annuity regular,in excel,the value of type should be?
A)1
B)0
C)10
D)0.1
7. Which of the following will result in shareholders wealth maximization?
a) optimum utilization of resources
b) maximum utilization of resources
c) leverage minimization
d) Funding maximization
8. Which of the following AAA debentures will have highest price if YTM is _____?
a. 0.07
b. 0.08
c. 0.075
d. 0.085
9.
In which of the following frequency of compounding present value of annuity will be lowest ?
daily
quaterly
monthly
annual
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10. If the annual rent expense goes up the operating leverage will________and will give rise to more than
proportionate change in______?
a. decrease, EPS
b. decrease, EBIT
c. increase ,EPS
d. increase , EBIT
11. Which of the following cost is important while evaluating the investment decision?
1. sunk cost
2. incremental cost
3. both
4. none of above
12. The underlying assumption in irr method is that all the intermittent cash flows are reinvested at
a)cut off rate
b)required rate of return
c)cost of capital
d)irr
Financial Management
Test 4
1. Sheela needs rs 100000 at the end of each year in the next 5 years. How much amount she should invest now
@10% present value of annuity factor at 10% for 5 years is 3.7908
The present value is given by:
Let PV represent the present value and X the annuity.
The present value is given by :
PV = X × The annuity factor
We do this substitution in the question as follows:
X = 100000
We work out as follows:
100000 × 3.7908
= 379080
Sheela needs to invest 379080 now in order to get 100000 at the end of each year.
2.
a.
b.
c.
d.
In which of the following frequency of compounding maturity value of investment will be highest?
Annual
Quarterly
Monthly
Daily
3.
a.
b.
c.
d.
If the face value of a bond is 100 and its redemption value is 110, bond is maturing at ______?
10% discount
10% premium
At par
None of the above
4. Sales of Zing ltd for 2016 was Rs.10000, COGS Rs.6000, Depreciation Rs.1000 interest Rs.800, tax rate 30%.
Calculate the operating cash flows of Zing ltd for 2016
a. Rs.4000
b. Rs.1540
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c. Rs.2540
d. Rs.2200
5. Arun buys in stock at Rs 20 and sells at Rs 25 after 10 months. During this period, he receives a dividend of Rs 5
on his investments. Calculate the holding period return?
Selling price = 25
Cost = 20
Dividend = 5
We need to calculate the holding period return =
Selling price - Cost + Dividend
------------------------------------------Cost
= 25-20+5/20 = .5 => 50%
6.
a.
b.
c.
d.
In India, dividend is ____ in the hands of investors?
Taxable
Not-taxable
Heavily taxable
None of the above
7. A tight working capital policy will lead to?
a) Low debtors
b) Low inventory
c) Low inventory carrying cost
d) all of the above
8. 1/10,30 credit term means?
a. 1% discount
b. 0.1% discount
c. 1% discount for payment within 10 days
d. 0.1% discount for payment within 30 days
9. Which of the following following is the spontaneous source of financing the working capital requirements?
1.commercial paper
2.account payable
3.bank finance
4.all of the above
10. Cost of equity is always equal to or _____ than WACC
a. Lower
b. Same
c. Higher
d. Fluctuating
11. The proportion of reserves is distributed among shareholders as shares is known as____?
a.
b.
c.
d.
Bonus Shares
Stock dividend
Dividend
Both 1 & 2
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Financial Management
Test 5
1. After the 2 for 1 share split number of shares will _____ ?
A- Remain same
B-Reduce
C-Be half
d- Double
2. In Excel, in order to calculate the EMI for loan repayment, which function has to be used?
a.
b.
c.
d.
PV
FV
NPV
PMT
3. Growth of the company can be expected to be higher when _____ is high?
a. Pay-out ratio
b. Distribution ratio
c. Dividend ratio
d. Retention ratio
4. Mathematical model for calculating the optimum inventory order quantity is known as________?
a. JIT
b. ABC
c. EOQ
d. All of the above
5. If the credit period is increased for the customers of the company operating cycle will _____?
a. Reduce
b. Increase
c. Remain same
d. Unaffected
6. If the credit period is increased by the suppliers of the company cash conversion cycle will
A) Reduced
B) Increase
C) Remain same
D) Unaffected
7. A company replaces old machinery with salvage value of Rs 100000 replaced by machinery costing Rs 500000.
The relevant cash flows for evaluation of this project is _____ ?
a. 100000
b. 500000
c. 400000
d. 600000
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8.
a.
b.
c.
d.
In case of share buyback number of outstanding share will _____?
Reduce
Increase
Remain same
Unaffected
9.
a.
b.
c.
d.
Which of the following are two components of holding period return?
Beginning value and ending value
Periodic return and ending value
Divident Yield
Price appreciation
Periodic return and capital appreciation
Income Component
Beginning value and capital appreciation
Capital Appreciation
10.
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FINC521
1. Interest yields for different maturity periods, plotted on a graph is known as________?
a) Yield Curve
b) Term structure of interest rates
c) Both of the above
d) None of the above
2. A company replaces an old machinery with salvage value of Rs. 100000 replaced by
a machinery costing Rs. 500000. The relevant cash flows for evaluation of this
project is_______?
a) 100000
b) 500000
c) 400000 [Purchase 500000 – Salvage Value 100000]
d) 600000
3. Sales of Zing Ltd. For 2016 was Rs 10000, COGS Rs 6000, Depreciation Rs 1000,
Interest Rs 800, Tax Rate 30%. Calculate the operating cashflows of Zing ltd for
2016.
a) Rs 4000
b) Rs 1540
c) Rs 2540
d) Rs 2200
4. In ABC classification of inventory, maximum attention has to be paid on_________
items?
a) A category
b) B category
c) C category
d) All of them
5. Brexit, Greece Crises, Chinese Crises, Sub-prime Crises are the examples of which
of the following?
a) Systematic risk
b) Unsystematic risk
c) Total risk
d) Specific risk
6. Cost of debt is______?
a) Coupon rate
b) YTM (1-tax rate)
c) YTM
d) YTM/Bond Price
7. Cost of equity is always equal to or____________ than WACC.
a) Lower
b) Same
c) Higher
d) Fluctuating
8. For a firm, weight of equity & debt is 0.6 & 0.4 respectively and cost of equity is
15%, Cost of debt is 9%, tax rate is 30%. Calculate the WACC for the firm?
a) 0.126
b) 0.1152
c) 0.12
d) 0.084
9. If proportion of debt is increased in capital structure, overall cost of capital
will_______?
a) Decrease
b) Increase
c) Remain same
d) Fluctuate
10. When a proportion of reserves is distributed among shareholders as shares, it is
known as_____________?
a) Stock Dividend
b) Bonus Shares
c) Dividend
d) Both 1& 2
11. Which of the following is combined measure of risk & return?
a) Mean
b) HPR
c) Expected Return
d) Coefficient of variation
12. If the cost of capital of a project goes up then NPV will__________?
a) Decrease
b) Increase
c) Remain same
d) Fluctuate
13. Current year dividend of Sun Ltd is Rs 5 per share. Expected growth rate is 8% and
market capitalization rate is 10%. Calculate the intrinsic value of stock?
a) 5.4
b) 67.5
c) 54
d) 270 [Given, D0=5, g=8%, r=10% and D1= D0(1+g), Stock= D1/(r-g)]
14. When in the calculation of IRR, intermitant cashflows are reinvested at required rate
of return, the resultant rate is known as__________?
a) CIRR
b) MIRR
c) IRR
d) None of the above
15. The internal rate of return generated by a fixed income investment, if held till
maturity is known as
a) Current yield
b) YTM
c) Yield curve
d) Coupon rate
16. What will be the price of bond with face value Rs 1000 carrying a coupon of 10%
maturing in 3 years at 10% premium on par value? Present value factor and PVAF at
10% for 3 years is .7513 and 2.4869 respectively.
a) 1000
b) 826.43
c) 1075.12
d) 1348.69
17. Which of the following is not the function of investment banking?
a) New issue management
b) Private equity advisory
c) Venture capital fund advisory
d) Working capital management
18. If the credit period is increased for the customers of the company, operating cycle
will_________?
a) Reduce
b) Increase
c) Remain same
d) Unaffected
19. Which of the following is an example of unsystematic risk?
a) Interest rates fluctuations
b) Political Uncertainty
c) Increased steel prices
d) Global economic crises
20. Which of the following method is considered the best evaluation techniques for longterm investment decisions?
a) NPV
b) IRR
c) Pay-Back period
d) Profitability Index
21. Stream of equal cashflows at regular interval starting at the beginning of the period
is known as?
a) Lumpsum Cash Flows
b) Annuity
c) Conventional Cash Flows
d) Annuity Due
22. If the annual rent expense goes up, the operating leverage will __________ and will
give rise to more than proportions change in____________?
a) Decrease, EPS
b) Decrease, EBIT
c) Increase, EPS
d) Increase, EBIT
23. Increased financial leverage gives rise to____________ volatile EPS?
a) More
b) Less
c) Non
d) None of the above
24. If the credit period is increased by the suppliers of the company, cash conversion
cycle will______________?
a) Reduce
b) Increase
c) Remain same
d) Unaffected
25. In how much time Rs 10 lacs can be approximately doubled, if invested at 8%
compounded annually?
a) 8 years
b) 9 years
c) 10 years
d) 12 years
26. If the face value of a bond is 100 and its redemption value is 110, bond is maturing
at_________?
a) 10% discount
b) 10% premium
c) At par
d) None of the above
27. For dairy Ltd Beta is 0.8, Nifty return= 15% and T-bill rate is 8%. What is the cost of
equity?
a) O.15
b) 0.08
c) 0.056
d) 0.07
28. Levered equity beta is________ than unlevered equity beta?
a) Less
b) Equal to
c) More
d) None of the above
29. Arun buys a stock at Rs 20 & sells at Rs 25 after 10 months. During this period, he
receives a dividend of Rs 5 on his investments. Calculate the Holding Period Return?
a) 0.25
b) 0.5
c) 0.2
d) 0.4
30. Why depreciation has to be added back in the calculation of cash-flow as it is
a______?
a) Manufacturing expense
b) Cash expense
c) Non-cash expense
d) Non-operating expense
31. Calculate the expected return with the help of following data: p=.3 r=30%, p=.4
r=16%, p=.3 r=8%
a) 17.8
b) 18
c) 5.8
d) 7.35
32. In Excel, in order to calculate the EMI for loan repayment, which function has to be
used?
a) PV
b) FV
c) NPV
d) PMT
33. Which of the following will result in Shareholder’s wealth maximization?
a) Optimum utilization of resources
b) Maximum utilization of resources
c) Leverage Minimization
d) Funding maximization
34. If credit sale is 100000, credit period is 30 days, calculate the average receivables?
a) 8219
b) 8333
c) 3333
d) 3288
35. Sheela needs Rs 100000 at the end of each year in the next 5 years. How much
amount she should invest now @ 10%? Present Value of annuity factor at 10% for 5
years is 3.7908.
a) 131898.28
b) 500000
c) 100000
d) 379080
36. For projects with different scales, which of the evaluation techniques should be
used?
a) NPV
b) IRR
c) Pay-Back Period
d) Profitability Index
37. If the coupon rate of a debenture is increased then its YTM will?
a) Decrease
b) Increase
c) Remain same
d) Fluctuate
38. Proportion of profit distributed among shareholders is known as__________?
a) Dividend rate
b) Dividend capitalization rate
c) Retention ratio
d) Pay-out ratio
39. A stock’s average return in last 3 years were 12% and standard deviation is 8%.
Calculate the coefficient of variation?
a) 1.5
b) 0.33
c) 0.67
d) 9.6
40. Cost of preference share is________?
a) Preference Dividend Rate
b) Pref Dividend/Pref. share market price
c) Both of the above
d) None of the above
41. 1/10,30 credit term means?
a) 1% discount
b) 0.1% discounts
c) 1% discount for payment with 10 days
d) 0.1% discount for payment within 30 days
42. Which of the following AAA debentures will have highest price if YTM is_____?
a) 0.07
b) 0.08
c) 0.075
d) 0.085
43. When interest rates on long term bonds are higher than short term bonds, yield
curve will be_________?
a) Upward slopping
b) Downward slopping
c) Flat
d) None of the above
44. In case of capital budgeting decisions, the projects in which choice of one
automatically excludes the another are known as________?
a) Dependend Projects
b) Independent projects
c) Mutually Exclusive Projects
d) Mutually Inclusive Projects
45. Dividend declared at 12% means that this %age will be applied on________?
a) Issue price
b) Market price
c) Face Value
d) Profits
46. Which of the following is ultimate objective of financial management?
a) Profit maximization
b) Shareholder’s wealth maximization
c) Leverage minimization
d) Funding maximization
47. Market interest rate is 9%. A bond with 10% coupon will sell ___________ par value?
a) Above
b) Below
c) At
d) None of the above
48. The rate at which present value of cash inflows becomes equal to Present value of
cash outflows is called_______?
a) Cut-off rate
b) Required date of return
c) Cost of capital
d) IRR
49. Stream of equal cashflows at regular interval is known as?
a) Lumpsum cash flows
b) Annuity
c) Conventional cash flows
d) Annuity due
50. Moon Ltd invests Rs 800000 in a paper manufacturing plant. This is expected to
generate Rs 150000 every year for next seven years. Cost of capital for the project
is 10%. PVAF for 7 years at 10% is 5.3349. Calculate the NPV of the project?
a) 800000
b) 800235
c) 235
d) -235
51. ________method tells the period in which original investment in a project will be
recovered.
a) NPV
b) IRR
c) Pay-Back Period
d) Profitability Index
52. The risk which can be reduced by diversification is known as________?
a) Systematic Risk
b) Unsystematic Risk
c) Total Risk
d) Market Risk
53. Sheela needs Rs 500000 at the end of 5 years. How much amount she should invest
now @ 10%? Present Value of 1 Rs at 10% for 5 years is .6209.
a) 100000
b) 155225
c) 310450
d) 400000
54. The underlying assumption in IRR method is that all the intermitant cashflows are
reinvested at__________.
a) Cut-off rate
b) Required rate of return
c) Cost of capital
d) IRR
55. In which of following frequency of compounding, maturity value of investment will be
highest?
a) Annual
b) Quarterly
c) Monthly
d) Daily
56. Which of the following is not the method for calculation of cost of equity?
a) CAPM
b) Dividend Discount Model
c) YTM + Risk Premium
d) YTM
57. The relationship between security return and market return is shown by_____?
a) Rf
b) Rm
c) Rm-Rf
d) Beta
58. As per liquidity premium theory, interest rates on long term bonds will be________
than short term bonds?
a) Lower
b) Same
c) Higher
d) Fluctuating
59. Which of the following are the two components of Holding Period Return?
a) Beginning Value & Ending Value
b) Periodic Return & Ending Value
c) Periodic Return & Capital Appreciation
d) Beginning Value & Capital Appreciation
60. A liberal working capital policy will lead to______?
a) Low debtors
b) Low inventory
c) Low cost
d) High inventory
61. As per bird in hand theory, high dividend pay-out in __________to low pay-out?
a) Preferred
b) Not preferred
c) None of the above
1-- If there are more traders with _______ offers than ________ offers for a particular contract,
the futures price will __________ until this imbalance is removed.
a-- Sell, buy, rise
b-- Buy, cell, fall
c-- Buy, sell, rise
d-- None of the above
2-- _________ risk refers to fluctuations in the value of the instrument as a result of market
conditions.
a-- Market
b-- Liquidity
c-- Credit
d-- Basic
3-- To liquidate a futures position by entering an equivalent, but opposite transaction which
eliminates the delivery obligation is called as:
a-- Open interest
b-- Offsetting
c-- Delivery
d-- Maintenance margin
4-- The major types of risk in derivatives trading are.
a-- Credit
Counterparty risk, or counterparty credit risk
b-- Liquidity
c-- Settlement
d-- All of these
5-- Future contracts are preferred to forward contract because of
a-- High Liquidity
b-- High Counterparty risk
c-- Low liquidity
d-- All of the above
6-- To ensure a stock portfolio against price Decreases, owners of stock portfolios should:
a-- Buy a put on stock index
b-- Buy a call on stock index
c-- Sell a put on stock index
d-- Sell a call on stock index
7-- A call option has an exercise price of $48 and a premium of $2 per share. What is the breakeven price of the underlying stock on the expiration date?
a-- 50
b-- 48
c-- 46
d-- None of these
8-- The type of contract in which the contract holder has the right to sell an asset at specific
period for predetermine price is classified as
a-- Option
b-- Written contract
c-- Determined contract
d-- Featured contracts
9-- By selling a short futures contract of $10,00,000 at a price of 96, you are agreeing to deliver
a-- $100,000 face value securities for $104,167
b-- $96,000 face value securities for $100,000
c-- $100,000 face value securities for $96,000
d-- 100,000 face value securities for $100,000
10-- The variability of stock price, option term to maturity and the free rate are dependents of
a-- Price of an option
b-- Expiry of an option
c-- Exercise of an option
d-- Estimation of an option
11-- When an investor exercises a call option on a future contract, she or he:
a-- Receives the asset underlying the futures contract
b-- Pays an amount of money equal to the current futures price
c-- Receive a long position in the futures contract
d-- Receives an amount of money equal to the current futures price
12-- The basic aim of the hedger is to
a-- Maximize profits.
b-- Eliminate risk.
c-- Minimize risk.
d-- None of these
13-- You purchase a call option on British pounds for a premium of $.04 per unit with an
exercise price of $1.65. The option will not be exercised until the expiration date, if at all. If the
spot rate on the expiration date is $1.67, your net profit or net loss will be
a-- Profit of $.04.
b--Profit of $.02.
c-- Loss of -$.02.
d-- Loss of -$.04.
14-- In binomial approach of option pricing model, the fourth step is to create
a-- Equalize the domain of payoff
b-- Equalize the ending price
c-- Riskless investment
d-- High risky investment
15-- Margin level are determined by
a-- investor credibility
b-- Time period to maturity
c-- Negotiation power
d-- Variation in prices of underlying asset
16-- The higher the maturity, the higher will be the premium of both call and put option
because
a-- The option holder has more time to exercise the option.
b-- The option holder has less time to exercise the option.
c-- The extra time decreases the probability of profit for option holder and loss for option
writer.
d-- None of these
17-- Call swaptions are attractive when interest rates are expected to _______.
a-- Fall
b-- Rise
c-- Stay the same
d-- None of these
18--Person a has a call option of 10 shares of ibm. The time to maturity for his contract is 10
months. Person b also has call option for the same number of ibm shares with the maturity of 6
months.
a-- Person a will pay more premium than person b.
b-- Person b will pay more premium than person a.
c-- Both will pay the same premiums.
d-- None of these.
19--The options that gives investors the right to sell a stock at predefined price is classified as
a-- Put option
b-- Call option
c-- Money back options
d-- Out of money options
20-- The excess of actual price of option over the exercise value of option is classified as
a-- Time value option
b-- Actual options
c-- Estimated options
d-- Optional pricing
21-- ______take offsetting positions in two or more instruments to lock in a profit.
a-- hedgers
b-- Arbitrageurs
c-- Speculators
d-- None of these
22-- A stock is currently selling for $50. One month from today the stock price could go up by
10% or fall by 50%. If the monthly interest rate is 1% (periodic rate) calculate the price of a
European call option on the stock with an exercise price of $48 and a maturity of one months.
a-- 2.77
b-- 2
c-- 1.98
d-- None of the above
23-- The black-Scholes opm is dependent on which five parameters?
a-- Stock price, exercise price, risk free rate, beta, and time to maturity
b-- Stock price, risk free rate, beta, time to maturity, and variance
c-- Stock price, risk free rate, probability, variance and exercise price
d-- Stock price, exercise price, risk free rate, variance and time to maturity
24-- The _______ rate indicates the rate at which a currency can be exchanged in the future.
a-- Spot exchange
b-- Forward
c-- Cross exchange
d-- None of the above
25-- None of the below is incorrect except
a-- Minimum levels for initial & maintenance margins are set by the mutual consent of parties
b-- Maintenance margin is usually 75% of the initial
c-- margin requirement on short futures positions are same as on long futures position
d-- To satisfy initial margin requirements investor can deposit securities with broker
26-- The value of the option which is considered as its worth as soon as it is expired is classified
as
a-- Minimum option value
b-- Minimum value
c-- Maximum value
d-- Exercise value
27-- The last day at which the European and American option can be exercised is classified as
a-- European date
b-- American date
c-- Expiration date
d-- Money date
28-- Today is 30th of November and you have entered a long futures contract to buy 300 ounces
of silver that settles on 30th of February. The futures price is Rs. 800per ounce. On 1 st December
the current market price is Rs. 827 per ounce. You are having:
a-- A loss of Rs. 8100
b-- A gain of Rs. 8100
c-- after entering the contact, profit and losses do not occur
d-- No profit, no loss
29-- A________ is the minimum level by which an investor’s equity position may fall as a result
of unfavorable price movements before the investor is required to deposit additional amount.
a-- Initial margin
b-- variation margin
c-- maintenance margin
d-- Deposit margin
30-- As the time to maturity increases, call and put option become:
a-- Call option is not valuable
b-- put option is not valuable
c-- Both call and put option tend to become valuable
d-- Neither of the two type option is valuable
31-- Under______ option the buyer/holder gets the right to sell the underlying asset.
a-- Put
b-- Call
c-- Both of these
d-- None of these
32-- Person a entered long in a futures contract for corn on December 21. The locked price for
the contract is Rs. 20. On December 22 the futures price at the close of the trading day is Rs. 22
and on December 23 it is Rs. 24 and on December 24 it is Rs. 22. Calculate the profit or loss
from the contract.
a-- Profit of Rs. 2
b-- Loss of Rs. 2
c-- profit of Rs. 4
d-- loss of Rs. 4
33-- Spot rate of Canadian dollar is $0.80. A 90-day forward rate of Canadian dollar is $0.79. 90day Canadian interest rate is 4% and 90 day us interest rate is 2.5%. If the initial investment is
$1,000,000 what would be the percentage return to us investor
a-- 0.025
b-- 0.027
c-- 0.023
d-- 0.029
34-- A stock is currently selling for $100. One year from today the stock price could go up by
30% or go down by 20%. The risk-free interest rate is 10%[apr]. Calculate the price of a oneyear European call option on the stock with an exercise price of $100.
a-- 30
b-- 16.36
c-- 15.67
d-- none of the above
35-- Which of the following is a derivative that give the owner the right but not the obligations
to buy the underlying asset?
a-- Long, futures
b-- Put option
c-- Call option
d-- Short features
36-- A currency swap bank is usually ______.
a-- An end user
b-- A financial intermediary
c-- A currency speculator
d-- All of these
37-- Relative to the underlying stock, a call option always has:
a-- A higher beta and a higher standard deviation of return
b-- A lower beta and a higher standard deviation of return
c-- A higher beta and a lower standard deviation of return
d-- A lower beta and a lower standard deviation of return
38-- Interest rate swaps involve counterparties who want to _______.
a-- Exchange a floating rate commitment for a fixed rate loan
b-- Exchange debt for stock
c-- Exchange a short-term loan for a long-term loan
d-- None of these
39-- In order to gain profit from an identified arbitrage opportunity, the future price of the
commodity should be ______ the spot price.
a-- Less than
b-- Equal to
c-- More than
d-- Less than or more than
40-- The value of n(d) in the black-Scholes model can take any value between:
a-- -1 and +1
b-- 0 and +1
c-- -1 and 0
d-- None of these
41-- Financial swap markets have emerged in recent years because of the following reasons
______.
a-- Interest rates fluctuate widely
b-- Forward marks may not function properly
c-- Currency futures are available only for selected currencies
d-- All of these
42-- Option premiums consist of
a-- Intrinsic value, time value, and current value
b-- Intrinsic value, time value, and volatility
c-- Current value, time value, and volatility
d-- Time value, intrinsic value, and historical value
43-- A farmer who must purchase his inputs now but will sell his corn at a market price at a
future date
a-- faces a market risk that cannot be offset
b-- is a good example of what the chapter refers to as a speculator
c-- would hedge by taking the short position in a corn futures contract
d-- would hedge by taking the long position in a corn futures contract
44-- The situation in call options in which the strike price is greater than current price of stock is
classified as
a-- Out-of-the-portfolio
b-- In-the-portfolio
c-- in-the-money
d-- out-of-the-money
45-- The situation in financial options in which the strike price is less than current price of stock
is classified as
a-- in-the-money
b-- out-of-the-money
c-- out-of-the-portfolio
d-- in-the-portfolio
46-- Which of the following statements regarding short selling is not true?
a-- It is an arbitrage strategy
b-- Assets involved are not owned
c-- Is possible for all investment assets
d-- None of these
47-- Victoria’s stock price is currently $20. In the next six months it will either fall to $10 or rise
to $30. What is the current value of a put option with an exercise price of $12? The six-month
risk-free interest rate is 5% (periodic rate).
a-- 9.78
b-- 2
c-- 0.86
d-- 9.43
48-- Differences between the futures market and the forward market include
a-- Price range
b-- Maturity
c-- Credit risk
d-- All of these
49-- According to exercise value and option price, the market value of the option will be zero
when
a-- Stock price is maximum
b-- Option price is zero
c-- Stock price is zero
d-- Stock price is minimum
50-- If the strike price increases then the: [assume everything else remaining the same]
a-- Value of the put option increases and that of the call option decreases
b-- Value of the put option decreases and that of the call option increases
c-- Value of the put option and the call option increases
d-- Value of the put option and the call option decreases
51-- The premium for a British put pound with an exercise price of $1.70 is $.05. What is the
breakeven spot rate for the buyer of the put?
a-- $1.70.
b-- $1.65.
c-- $1.75.
d-- $1.60.
52-- In cross-hedging, when the futures contract is highly correlated with the portfolio being
hedged, the value of the futures contract changes by:
a-- A higher percentage than the portfolio’s market value.
b-- A lower percentage than the portfolio’s market value.
c-- The same percentage as the portfolio’s market value.
d-- Either a higher percentage, a lower percentage, or the same percentage as the portfolio’s
market value.
53-- Carol’s stock price is currently $20. In the next six months it will either fall to $10 or rise to
$40.What is the current value of a six-month call option with an exercise price of $ 12?The sixmonth risk-free interest rate (periodic rate) is 5%.
a-- 9.78
b-- 10.28
c-- 16.88
d-- 13.33
54-- The current value of stock included in portfolio is subtracted from present value of
portfolio to calculate
a-- Last month option price
b-- Last year option price
c-- Current option price
d-- Future option price
55-- In put call parity relationship, the put option minus call option plus stock is equal to
a-- Exercise price present value
b-- Exercise price future value
c-- Time line value
d-- Time value of bond
56-- If you grow sugarcane in your farms, how will you hedge your risk?
a-- By taking contracts to sell at spot price
b-- By taking contracts to buy at spot price
c-- By taking contracts to sell at per agreed forward price
d-- By taking contracts to buy at pre agreed forward price
57-- In put call party relationship, the present value of exercise price is added to call option
which is equal to
a-- Put option stock
b-- Call option + stock
c-- Call option + market price
d-- Put option + market price
58-- In short-selling
a-- A person takes long position in spot market and short position in forward contract.
b-- A person takes short position in spot market and long position in forward contract.
c-- Short –selling cannot be done in forward contracts.
d-- None of these.
59-- In calculation of the value of dividend paying securities, the income is subtracted because
a-- We own the asset
b-- We own the current income
c-- We will receive it at the maturity
d-- All of these
60-- The movement of price or the rise or fall or prices of options is classified as
a-- Option lattice
b-- Pricing movement
c-- Price change
d-- Binomial lattice
61-- When there is increase in future price broker of parties with ______ positions pay money
to exchange
a-- Long position
b-- Short position
c-- Long as well as short position
d-- None of these
62-- Ann’s stock price is currently $25. In the next six months it will either fall to $15 or rise to
$40. What is the current value of a six-month call option with an exercise price of $20? The sixmonth risk-free interest rate is 5% (periodic rate).
a-- 20
b-- 8.57
c-- 9.52
d-- 13.1
63-- _________ are transactions for which there are, at present, no contracts or agreements
between parties.
a-- Backlog exposure
b-- Quotation exposure
c-- Anticipated exposure
d-- None o these
64-- An investor is trying to determine the price of a forward contract of 9 month maturity on a
stock with current market price of Rs. 70. Assuming risk free rate as 6% per annum. Also
assume an equal dividend of rs. 10 is expected after 6 months and 9 months.
a-- Rs. 73.22
b-- Rs. 56.76
c-- Rs. 53.07
d-- None of these
65-- ________ is an agreement to buy or sell an asset today.
a-- Forward contract
b-- Future contract
c-- Spot contract
d-- Option contract
66- A short forward contract is profitable until
a-- St<e
b-- St>e
c-- St=e
d-- None of the above.
67-- Consider the following data relating to NM stock. NM has a beta of 0.7 with Nifty. Each
Nifty contract is equal to 200 units. NM now quotes at Rs. 150 and the Nifty futures is 1400
index points.
How many future contracts will you have to take?
a-- 4.2
b-- 4.5
c-- 5.2
d-- 5.5
68-- Consider the following data relating to NM stock. NM has a beta of 0.7 with Nifty. Each
Nifty contract is equal to 200 units. NM now quotes at Rs. 150 and the Nifty future is 1400
index points. You expects price to fall and have gone short on 1200 shares of NM in the spot
market.
If the price in the spot market drops by 10%, what will be the amount of gain or loss?
a-- Loss Rs. 9,000
b-- Gain Rs. 9,000
c-- Loss Rs. 18,000
d-- Gain Rs. 18,000
69-- Consider the following data relating to NM stock. NM has a beta of 0.7 with Nifty. Each
Nifty contract is equal to 200 units. NM now quotes at Rs. 150 and the Nifty future is 1400
index points. You expects price to fall and have gone short on 1200 shares of NM in the spot
market.
If the price increase by 5%, what will be the amount of gain or loss?
a-- Loss Rs. 9,000
b-- Gain Rs. 9,000
c-- Loss Rs. 18,000
d-- Gain Rs. 18,000
70-- Consider the following data relating to NM stock. NM has a beta of 0.7 with Nifty. Each
Nifty contract is equal to 200 units. NM now quotes at Rs. 150 and the Nifty future is 1400
index points. You expects price to fall and have gone short on 1200 shares of NM in the spot
market.
The above situation deals with
a-- Swaps
b-- Hedging through future
c-- Hedging through options
d-- Hedging through forward
71-- A 6 month forward contract on an investment asset with current price of Rs 90 is expected
to provide income equal to 3% of the asset price twice in a year. The risk free rate of interest
(with continuous compounding) is 8% per annum. the forward price in this case will be:
a-- 92.74
b-- 97.74
c-- 67.71
d-- 94.61
72-- black-schole model uses the following variables to value non-dividend paying call option
except
a-- Current stock price
b-- Exercise price of call
c-- Quality of call option
d-- The variability of the Underlying asset prices
73-- Which of the below mentioned statement is false
a-- Profits from the option contracts are linear.
b-- Profits from the option contracts are not linear.
c-- Profits from the future contracts are not linear.
d-- Both a and c
74-- Interest rate parity exists when
a-- Opportunity for covered interest arbitrage finishes
b-- Rh = Rf
c-- Consumers have same buying over domestic and foreign goods
d-- Both A & B
75-- To speculate on an anticipated depreciation of a foreign currency, an investor would take a
_______ position in dollars and a ______ position in the foreign currency
a-- Short, Short
b-- Long, long
c-- Short, long
d-- Long, short
76-- Which of the following is not a characteristic of speculation
a-- profit motive
b-- exchange rate fluctuation
c-- hedging
d-- risk taking
77-- A US company is expected to receive £100,000 in 120 days. If the company wants to
minimize the risk of foreign exchange, then it would
a-- buy British pounds forward
b-- sell British pounds forward
c-- buy British pounds 120 days from now
d-- sell British pounds 120 days from now
78-- Option premium consists of
a-- intrinsic value, time value, and current value
b-- intrinsic value, time value, and volatility
c-- current value, time value, and volatility
d-- time value, intrinsic value , and historical value
79-- Transaction exposure occurs if there is a change in an exchange rate and
a-- an outstanding obligation denominated in a foreign currency is settled
b-- sales are made in cash
c-- purchases are made in cash
d-- an outstanding obligation denominated in a home currency is settled
80-- The three types of foreign exchange exposure are
a-- precautionary, transaction, and speculative
b-- translation, economic, and transaction
c-- translation, precautionary, and political
d-- transaction, political, and devaluation
81-- Which of the following is related to the Euro dollar market?
a-- KIBOR
b-- LIBOR
c-- SIBOR
d-- MIBOR
82-- The option delta is calculated as the ratio:
a-- (the spread of possible share prices) / (the spread of possible option prices)
b-- (the share price) / (the option price)
c-- (the spread of possible option prices) / (the spread of possible share prices)
d-- (the option price) / (the share price)
83-- The delta of a put option is always equal to:
a-- The delta of an equivalent call option
b-- The delta of an equivalent call option with a negative sign
c-- The delta of an equivalent call option minus one
d-- None of the above
84-- If the volatility (variance) of the underlying stock increases then the: [Assume everything
else remaining the same]
a-- Value of the put option increases and that of the call option decreases
b-- Value of the put option decreases and that of the call option increases
c-- Value of both the put option and the call option increases
d-- Value of both the put option and the call option decreases
85-- Which of the following statements regarding American puts is/are true?
a-- An American put can be exercised any time before expiration
b-- An American put is always more valuable than an equivalent European put
c-- Multi-period binomial model can be used to value an American put
d-- All of the above
86-- A stock is currently selling for $50. The stock price could go up by 10% or fall by 5% each
month. The monthly interest rate is 1% (periodic rate). Calculate the price of a European call
option on the stock with an exercise price of $48 and a maturity of two months.
a-- $3.96
b-- $2.77
c-- $1.98
d-- None of the above
87-- Losses from ______ exposure generally reduce taxable income in the year they are realized
______ exposure losses are not cash losses and therefore, are not tax deductible.
a-- Transaction; operating
b-- Accounting; operating
c-- Accounting; transaction
d-- Transaction; translation
88-- An investor purchases a six-month (182-day) T-bill with a $10,000 par value for $9,850. If
the investor holds the Treasury bill to maturity, his annualized yield is ____ percent.
a-- 1.52
b-- 1.50
c-- 3.05
d-- 3.01
89-- An investor purchases a six-month (182-day) T-bill with a $10,000 par value for $9,850. If
the investor holds the Treasury bill to maturity, the Treasury bill discount yield is ______
percent.
a-- 3.05
b-- 2.97
c-- 3.01
d-- none of the above
90-- An investor purchases a six-month (182-day) T-bill with a $10,000 par value for $9,850. If
the investor had sold the T-bill after 100 days for $9,940, her annualized yield would be
_______ percent.
a-- 3.34
b-- 3.29
c-- 1.83
d-- 1.80
91-- If a bond sells above its par value, it is called a _____ bond
a-- discount
b-- premium
c-- callable
d-- convertible
92-- exchange-traded funds:
a-- are funds designed to mimic particular stock indexes.
b-- are traded on a stock exchange
c-- resemble some index mutual funds in several ways
d-- all of the above
93-- A private investor would like to invest in the stock market via S&P 500 futures contracts.
The investor purchases futures when the S&P 500 index is at 1,150. At the settlement date, the
S&P 500 index is at 1,210. The investor's profit or loss is $_______.
a-- 15,000 profit
b-- 15,000 loss
c-- 6,000 profit
d-- 6,000 loss
94-- Suppose Ralph's stock price is currently $50. In the next six months it will either fall to $30
or rise to $80. What is the option delta of a call option with an exercise price of $50?
a-- 0.375
b-- 0.5
c-- 0.6
d-- 0.75
95-- Suppose Waldo's stock price is currently $50. In the next six months it will either fall to $40
or rise to $60. What is the current value of a six-month call option with an exercise price of
$50? The six-month risk-free interest rate is 2% (periodic rate).
a-- $5.39
b-- $15.00
c-- $8.25
d-- $8.09
96-- Suppose Waldo's stock price is currently $50. In the next six months it will either fall to $40
or rise to $80. What is the current value of a six-month call option with an exercise price of
$50? The six-month risk-free interest rate is 2% (periodic rate).
a-- $2.40
b-- $15.00
c-- $8.25
d-- $8.09
97-- Situation in which large portion of majority Borrowed from broker of investor is classified
as
a-- Future investment
b-- Forward investment.
c-- Leveraged investment
d-- Non leveraged investment.
98-- The short position in a future contract represent to party that will
a-- Accept the risk
b-- Ultimately suffer the loss
c-- Deliver a commodity or financial instrument to the buyer at a future date
d-- Benefit from increases in price of the underlying asset
FINE003 – Answer Key
1
C
26
D
51
B
76
C
2
A
27
C
52
D
77
D
3
B
28
B
53
A
78
B
4
A
29
C
54
C
79
A
5
B
30
C
55
A
80
B
6
A
31
A
56
C
81
B
7
A
32
A
57
A
82
C
8
A
33
B
58
A
83
C
9
C
34
B
59
C
84
C
10
A
35
C
60
D
85
D
11
C
36
B
61
A
86
A
12
C
37
A
62
B
87
D
13
C
38
A
63
C
88
C
14
C
39
D
64
C
89
B
15
A
40
B
65
A
90
A
16
A
41
D
66
D
91
B
17
A
42
B
67
A
92
D
18
B
43
C
68
D
93
A
19
A
44
D
69
A
94
C
20
A
45
A
70
B
95
A
21
B
46
A
71
D
96
D
22
A
47
C
72
C
97
C
23
D
48
C
73
D
98
C
24
B
49
C
74
C
25
D
50
A
75
D
lOMoARcPSD|24900278
FINE005 - Sem 4 Assignment
Post graduate program in Management (Institute of Management Technology,
Ghaziabad)
Studocu is not sponsored or endorsed by any college or university
Downloaded by Navneet chauhan (navneet.3890@gmail.com)
lOMoARcPSD|24900278
1)
a)
b)
c)
d)
The method of valuation is affected by the financial fundamental and speculative factors
Price earning ratio
Market based approach
Discounted Cash Flow
Market to book value
2) The acquisition takeover bids fall under the purview of the
a) RBI
b) IRDA
c) EXIM
d) SEBI
3) Which of the following is/are more rigorous test of the solvency position of a business firm?
a)Interest Coverage Ratio
b)Debt Service Coverage Ratio
c) Both are Rigorous
d)None of these
4) From the economic point of view the profit for a firm would mean
a) Increase in value of the shareholders wealth
b) Profit worked out by accounting professional while preparing the financial statements
c) All of these
d) None of these
5) Cash Flow statement (base on as- 3) indicates change in
a) Bank and cash equalent
b) Cash and cash equalent
c) Both
d) None of these
6) A budget is a combination of ______________________ and__________________ expressed in
financial term
a) Forecast & asset
b) Plans& asset
c) Forecast& Plans
d) None of these
7)
a)
b)
c)
d)
Return on resources on shareholders equity is computed divided EAT by
Share Capital
Total asset
Shareholders Fund
None of these
8) Preparation of cash flow statement is mandatory for all the listed companies as well as for all
enterprises which have turnover of more than
a) 40 Crores
b) 50 Crores
c) 10 Crores
d) 1 Crores
9) All those liabilities which are payable in cash in the normal course of business with in a period of
one year is called
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a)
b)
c)
d)
Long term liability
Overdraft
Short term loan
Current liability
10) Cash Payments to Suppliers for goods and services are shown under
a)
b)
c)
d)
Operating activities
Financing activities
Investing activities
None of these
11) The term real goodwill is the excess of rate of return on invested funds than:a)Similar Firms
b)All firm in industry
c)Discount rate
d)Profitability index
12) In case of poor financial reporting quality, the following statement may be falsified:a)The balance sheet
b) The profit and loss account statement
c)Fund flow statement
d)All of these
13) The key to successful alliance building lies in defining a_____________________ scope for the
partnership as is adequate to get the job done
a) Simple and focused
b) All encompassing corporate partnership
c) All encompassing equity partnership
d) None of these
14) Activities related with the expansion/contraction of a firm operations
a) Corporate Parenting
b) Corporate restructuring
c) Corporate management
d) Corporate governance
15) On which budget that all the other budget are based?
a)Capital budgets
b)Sales budget
c)Financial budget
d)Cash budget
16)Major advantages of a merger are
a)Tax benefit
b)Synergy
c)Economic of scale
d)All of these
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17)An annalyst applied the dupont system to the following data of a company. A) equity turnover 4.2
b)net profit margin 5.5%c) total assets turnover 2.0 and d) dividend payout ratio 30% the company rate of
return on equity
a)0.11
b)0.231
c)0.22
d)0.13
18) Twelve months average of the stock exchange prices are used in which method of valuation
a)Market value approach
b)Book Value approach
c)Balance sheet approach
d)RI approach
19) Alliances are
(a) conventional organizations with fully internalized activities
(b) well-specified transaction relationships through which externalized activities may be linked by marketbased contracts.
(c) combine elements of both (a) and (b)
(d) none of the above
20) Return on investment include
a)
Return on current assets
b)Return on capital employed
c)Return on shareholders equity
d)All of these
21)The free cash flow (fcf) is the legitimate cash flow for the purpose of business valuation in that it
reflects the cash flows generated by companies operation for
a)Debt provider
b)Equity capital provider
c)All the capital provider
d) None of these
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22) The master budget does not include
a)Operating budget
b)Capital expenditure budget
c)projected balance sheet
d)Earlier period balance sheet
23) Key business venture of the firm which are growing and yielding high profit margins are known as
a)Star performer
b)Question marks
c)Cash cows
d)All of these
24) The common accounting warning signified flags do not include
a)Aggressive revenue recognition
b)Year end surprise
c)Reducing economic of fixed asset
d)All of these
25)The fund flow statement
a)Shows changes in working capital of the firm during a financial period
b)Helps the firm to plan future working capital requirement
c)can be presented vertical
d) all of these
26)Value determined by dividing networth by the number of equity share outstanding is known as
a) Book value
b)Appraisal value
c)Market Value
d)None of these
27) Decrease in creditors cash
a) increases
b)No change in cash
c)Decrease
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d)None of these
28)Which of the following condition is not present when fraud occurs
a)Opportunities for fraud
b)Higher market price of share
c)Attitude and
d) incentives of pressure
29)Cash flow from operating ratio is calculated with help of which equation?
a)Current asset/Cash flow from operation
b)Cash flow from operation/current asset
c)Cash flow from operation/current liability
d)Current liabilities /cash flow from operation
30)The amount at which the asset is shown in the balance sheet is:a)Fair value
b)Economic value
c)Book Value
d)Market Value
31) If inventory turnover ratio 6 times per year What is inventory holding period(months)
a)1
b)25
c)2
d)15
32) Sustainable growth refers to growth in sales which can be achieved without
a)Fresh planning
b)Strategy
c)Modeling
d)Fresh equity
33)Some of the limitation which characterized ratio analysis are
a)Difficulty in comparison
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b)impact of inflation
c)Concepual diversity
d)All of these
34)Ratio of net profit before interest and tax to sales is
a)Solvency ratio
b)Capital garing
c)Turnover raio
d) operating profit ratio
35)Suppliers evaluate short term liquidity where as long term funds providers evaluate
a)Long term solvency
b) Mid term liquidity
c)Long term liability
d)Long term fixed expenses
36) The balance sheet
a)is a statement of revenues and expenses
b)Gives a snapshot of financial health of the firm
c) is a statement of change in the financial performance of a firm
d) None of these
37)Determine the market price per share of a firm having equity capital of Rs 100000(face value of Rs 50
per share) the profit after taxes is Rs 12000 & P/E ratio is 5
a) Rs 30
b)Rs 60
c)Rs 50
d) Rs 20
38)Concept of profit does not include
a)Operating profit
b)profit before tax
c)profit after tax
d)Future expected profit
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39) The long term solvency of a firm can be examined by using which ratio?
a)Leverage ratio
b)Current ratio
c)Gearing ratio
d)Leverage & gearing ratio
40) Recorded facts, accounting convention and personal judgement best defines the
a)Nature of financial statement
b)Meaning of financial statement
c)significance of financial statement
d)None of these
41) Ratio used for comparing the firm with those of the other firm in the same line of business
a)inter firm ratio
b)intra firm ratio
c)Trend ratio
d)Current ratio
42) If the future cash earnings are well predictable then the most suitable approach of valuation of
business is
a)P/e ratio approach
b)Discounted cash flow approach
c)No one superior to other
d)None of these
43) The following firm is not involved in accounting scandal
a)Enron
b)Larsen and Turbo
c)Vorldcom
d) Satyam
44) ____________________________ are cash flow associated with purchase/sale of both fixes asset and
business interest.
a) Operating cash flow
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b)Financing cash flow
c)Extraordinary item
d)None of these
45) The statement of change in financial position (SCFP) shows
a) How the funds were generated during the period
b) How funds were used during the period
c)How the funds were generated and used in the period
d)None of these
46) Revenue and expenses are recorded in profit and loss account use the
a) Amount of total credit sales basis
b)Accrual basis
c)Realisation basis
d)Cash receipt
47)In the context of fraud, main objectives of the auditors includes the following
All of these
48)When the control in the another firm is acquired through bidding is called
a)MBO
b)Auction of assets
c)Demerge
d)Tender offer
49)Merger can provide tax benefit in the case of ________________ of losses
a)Sacrified asset
b)Market value added
c)Rate of return on asset
d)Net value of equity
50) Market value of the firm’s equity minus equity capital investment is used to compute
a) Economic value added
b)Market value added
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c)Rate of return on asset
d)Net value of equity
51)The present value of the incremental cash inflows discounted at some specific rate is
a)intrinsic value
b)Replacement value
c)Liquidation value
d)Book value
52)The term valuation implies the task of estimating the worth of an
a)scrap
b)Non fictious transaction
c)Net working capital
d)Assets
53)Companies are generally remarkably_______________ when they go about forming strategic
partnership
a)Non-myopic
b)Longsighted
c)Myophic
d)None of these
54)Financial statement of a firm include the following
a) Balance sheet
b)Profit & loss account
c)Cash flow statement
d)All of these
55)Preparation of cash flow statement is mandatory for all the listed companies as well as for all
enterprises which have turnover more than
a)Rs 40 cr
b)50 cr
c)10 cr
d)Rs 1 cr
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56)__________________________refers to approach of the firm to utilise the resources,core
competencies and strengths of the firm in the available opportunities and risk presented by the
environment
a)Financial planning
b)Projection
c)Growth
d)Strategy
57)Internal growth rate is maximum rate at which a firm grow without
a)internal financing
b)increase in debtors
c)increase in current asset
d)External financing
58)Viewed on a stand alone basis alliances can help companies
a)Achieve economies of scale
b)obtain access to partner
c)increase competition in the market
d)Achieve economies of scale & obtain access to partner competency asse knowledge and skill
59)The earning power of a firm has the following elements
a)Profitability on sales
b)Profitability of asset
c)Profitability on sales & profitability of asset
d)None of these
60)incremental budgeting approach is applied in the preparation of
a)Master budget
b)Production budget
c)Raw material budget
d)Zero base budget
Case study
61)Calculate the fixed asset turnover ratio for xyz ltd
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62)Calculate the debt equity ratio
63)calculate turnover ratio
64)calculate return on total assetfor xyz ltd
65)calculate stock turnover ratio
1) The method of valuation is affected by the financial fundamental and speculative factors
a) Price earnings ratio
b) Market based approach
c) Discounted Cash Flow
d) Market to book value
2) The acquisition takeover bids fall under the purview of the
a) RBI
b) IRDA
c) EXIM
d) SEBI
3) Which of the following is/are more rigorous test of the solvency position of a business firm?
a)Interest Coverage Ratio
b)Debt Service Coverage Ratio
c) Both are Rigorous
d)None of these
4) From the economic point of view the profit for a firm would mean
a) Increase in value of the shareholders wealth
b) Profit worked out by accounting professional while preparing the financial statements
c) All of these
d) None of these
5) Cash Flow statement (base on as- 3) indicates change in
a) Bank and cash equalent
b) Cash and cash equalent
c) Both
d) None of these
6) A budget is a combination of ______________________ and__________________
expressed in financial term
a) Forecast & asset
b) Plans& asset
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c) Forecast& Plans
d) None of these
7) Return on resources on shareholders equity is computed divided EAT by
a) Share Capital
b) Total asset
c) Shareholders Fund
d) None of these
8) Preparation of cash flow statement is mandatory for all the listed companies as well as for
all enterprises which have turnover of more than
a) 40 Crores
b) 50 Crores
c) 10 Crores
d) 1 Crores
9) All those liabilities which are payable in cash in the normal course of business with in a
period of one year is called
a) Long term liability
b) Overdraft
c) Short term loan
d) Current liability
10) Cash Payments to Suppliers for goods and services are shown under
a) Operating activities
b) Financing activities
c) Investing activities
d) None of these
11) The term real goodwill is the excess of rate of return on invested funds than:a) Similar Firms
b) All firm in industry
c) Discount rate
d) Profitability index
12) In case of poor financial reporting quality, the following statement may be falsified:a) The balance sheet
b) The profit and loss account statement
c) Fund flow statement
d)All of these
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13) The key to successful alliance building lies in defining a_____________________ scope for
the partnership as is adequate to get the job done
a) Simple and focused
b) All encompassing corporate partnership
c) All encompassing equity partnership
d) None of these
14) Activities related with the expansion/contraction of a firm operations
a) Corporate Parenting
b) Corporate restructuring
c) Corporate management
d) Corporate governance
15) On which budget that all the other budget are based?
a)Capital budgets
b)Sales budget
c)Financial budget
d)Cash budget
16)Major advantages of a merger are
a)Tax benefit
b)Synergy
c)Economic of scale
d)All of these
17)An annalyst applied the dupont system to the following data of a company. A) equity turnover 4.2
b)net profit margin 5.5%c) total assets turnover 2.0 and d) dividend payout ratio 30% the company
rate of return on equity
a)0.11
b)0.231
c)0.22
d)0.13
18) Twelve months average of the stock exchange prices are used in which method of valuation
a)Market value approach doubt
b)Book Value approach
c)Balance sheet approach
d)RI approach
19) Alliances are
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(a) Conventional organizations with fully internalized activities
(b) Well-specified transaction relationships through which externalized activities may be linked by
market-based contracts.
(c) combine elements of both (a) and (b)
(d) none of the above
20) Return on investment include
a) Return on current assets
b) Return on capital employed
c) Return on shareholders’ equity
d)All of these
21) The free cash flow (fcf) is the legitimate cash flow for the purpose of business valuation in that it
reflects the cash flows generated by companies operation for
a) Debt provider
b) Equity capital provider
c) All the capital provider
d) None of these
22) The master budget does not include
a) Operating budget
b) Capital expenditure budget
c) Projected balance sheet
d) Earlier period balance sheet
23) Key business venture of the firm which are NOT growing and yielding high profit margins are
known as
a) Star performer
b) Question marks
c) Cash cow
d) All of these
24) The common accounting warning signified flags do not include
a) Aggressive revenue recognition
b) Year-end surprise
c) Reducing economic of fixed asset
d) All of these
25)The fund flow statement
a) Shows changes in working capital of the firm during a financial period
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b) Helps the firm to plan future working capital requirement
c) Can be presented vertical
d) all of these
26) Value determined by dividing net worth by the number of equity share outstanding is known as
a) Book value
b)Appraisal value
c)Market Value
d)None of these
27) Decrease in creditors cash
a) Increases
b) No change in cash
c) Decrease
d) None of these
28) Which of the following condition is not present when fraud occurs
a) Opportunities for fraud
b) Higher market price of share
c) Attitude and
d) incentives of pressure
29) Cash flow from operating ratio is calculated with help of which equation?
a)Current asset/Cash flow from operation
b)Cash flow from operation/current asset
c)Cash flow from operation/current liability
d)Current liabilities /cash flow from operation
30)The amount at which the asset is shown in the balance sheet is:a)Fair value
b)Economic value
c)Book Value
d)Market Value
31) If inventory turnover ratio 6 times per year What is inventory holding period(months)
a)1
b)25
c)2
d)15
32) Sustainable growth refers to growth in sales which can be achieved without
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a)Fresh planning
b)Strategy
c)Modeling
d)Fresh equity
33) Some of the limitation which characterized ratio analysis are
a) Difficulty in comparison
b) Impact of inflation
c) Conceptual diversity
d)All of these
34)Ratio of net profit before interest and tax to sales is
a)Solvency ratio
b)Capital garing
c)Turnover raio
d) operating profit ratio
35)Suppliers evaluate short term liquidity where as long term funds providers evaluate
a)Long term solvency
b) Mid term liquidity
c)Long term liability
d)Long term fixed expenses
36) The balance sheet
a)is a statement of revenues and expenses
b)Gives a snapshot of financial health of the firm
c) is a statement of change in the financial performance of a firm
d) None of these
37)Determine the market price per share of a firm having equity capital of Rs 100000(face value of
Rs 50 per share) the profit after taxes is Rs 12000 & P/E ratio is 5
a) Rs 30
b)Rs 60
c)Rs 50
d) Rs 20
38)Concept of profit does not include
a)Operating profit
b)profit before tax
c)profit after tax
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d)Future expected profit
39) The long term solvency of a firm can be examined by using which ratio?
a)Leverage ratio
b)Current ratio
c)Gearing ratio
d)Leverage & gearing ratio
40) Recorded facts, accounting convention and personal judgement best defines the
a) Nature of financial statement
b) Meaning of financial statement
c) Significance of financial statement
d) None of these
41) Ratio used for comparing the firm with those of the other firm in the same line of business
a)inter firm ratio
b)intra firm ratio
c)Trend ratio
d)Current ratio
42) If the future cash earnings are well predictable then the most suitable approach of valuation of
business is
a)P/e ratio approach
b)Discounted cash flow approach
c)No one superior to other
d)None of these
43) The following firm is not involved in accounting scandal
a)Enron
b)Larsen and Turbo
c) WorldCom
d) Satyam
44) ____________________________ are cash flow associated with purchase/sale of both fixed
asset and business interest.
a) Operating cash flow
b) Financing cash flow
c) Extraordinary item
d)None of these
45) The statement of change in financial position (SCFP) shows
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a) How the funds were generated during the period
b) How funds were used during the period
c)How the funds were generated and used in the period
d)None of these
46) Revenue and expenses are recorded in profit and loss account use the
a) Amount of total credit sales basis
b)Accrual basis
c)Realisation basis
d)Cash receipt
47)In the context of fraud, main objectives of the auditors includes the following
All of these
48)When the control in the another firm is acquired through bidding is called
a)MBO
b)Auction of assets
c)Demerge
d)Tender offer
49)Merger can provide tax benefit in the case of ________________ of losses
a)Sacrified asset set off & carry forwad
b)Market value added
c)Rate of return on asset
d)Net value of equity
50) Market value of the firm’s equity minus equity capital investment is used to compute
a) Economic value added
b)Market value added
c)Rate of return on asset
d)Net value of equity
51)The present value of the incremental cash inflows discounted at some specific rate is
a)intrinsic value
b)Replacement value
c)Liquidation value
d)Book value
52)The term valuation implies the task of estimating the worth of an
a)scrap
b)Non fictious transaction
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c)Net working capital
d)Assets
53)Companies are generally remarkably_______________ when they go about forming strategic
partnership
a)Non-myopic
b)Longsighted
c)Myophic
d)None of these
54)Financial statement of a firm include the following
a) Balance sheet
b)Profit & loss account
c)Cash flow statement
d)All of these
55)Preparation of cash flow statement is mandatory for all the listed companies as well as for all
enterprises which have turnover more than
a)Rs 40 cr
b)50 cr
c)10 cr
d)Rs 1 cr
56)__________________________refers to approach of the firm to utilise the resources ,core
competencies and strengths of the firm in the available opportunities and risk presented by the
environment
a) Financial planning
b) Projection
c) Growth
d) Strategy
57)Internal growth rate is maximum rate at which a firm grow without
a)internal financing
b)increase in debtors
c)increase in current asset
d)External financing
58)Viewed on a stand alone basis alliances can help companies
a)Achieve economies of scale
b)obtain access to partner
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c)increase competition in the market
d)Achieve economies of scale & obtain access to partner competency asse knowledge and skill
59)The earning power of a firm has the following elements
a)Profitability on sales
b)Profitability of asset
c)Profitability on sales & profitability of asset
d)None of these
60) Incremental budgeting approach is applied in the preparation of
a) Master budget
b) Production budget
c) Raw material budget
d) Zero base budget
Case study
61) Calculate the fixed asset turnover ratio for xyz ltd 3
62) Calculate the debt equity ratio .66
63) calculate turnover ratio
64) calculate return on total asset for xyz ltd .6
65) calculate stock turnover ratio 2.5
1. the overall ability of a firm to serve outside liabilities is reflected in the
Total Cash coverage ratio not sure 50/50
2. which is the best method among these for valuation of a firm where not much data about it net
profit is available and its share are not actively traded?
Discounted cash flow
3. the term fund can be defined as financial resources generated by
Both current and non-current items
4. coverage ratio measures the firm's ability to pay
Dividend
5. Return on asset may not provide correct result when the firm have different
a. short term sources of finance
b. sole depends on debt for financing
c. Capital structure Google: ROA depends on the company and industry
d. rate of return
6. an Alliance opportunity that promise to create value from ______________ Perspective may not
necessarily be value creating from an _____________
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Stand-alone, alliance portfolio perspective
7. when the operating expenses and depreciation are deducted from gross profit the result would be
PBIT
8. if P/E ratio is 8 times and market price per share is 134 what is the EPF
16.75
9. firms ability to make contractual interest payment is measured by
Interest Coverage ratio
10. purchase of treasury bills will strengthen acid test ratio
a. Strengthen
b. weaken
c. not effect
d. none of there
11. The following information is given about a company current asset is
900lakh……………………………………… 450 lakh lib.
0.08
12. The type of financing in which an initial payment to the shareholders of an acquired firm is
followed by additional payment in future years based on the target firms increase in earning is
known as
Preference share financing
13. the reciprocal of price earning ratio is indicator of
Profitability index
14 unpaid dividend on preference shares are reckoned ________ of the firm in asset based valuation
Liability
15. the term strategic Alliance is currently used to describe a variety of inter form cooperation
agreement which include
Formal joint Ventures
16. High P/E ratios reflects
Optimism
17. the 2011 joint venture between China sir Lenovo and Japanese neck is the example of
Technology agreement
18. ________is calculated by deducting interest from the ebit
Profit bdfore tax
19. hostile takeover includes
Bear hug
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20. difficulty in comparison may relate to
Differences in the basis of inventory valuation & difference depre. Method
21. the fund flow statement helps the firm to plan its
All of these
22. debt to total capital ratio expresses the relationship between
Short term and long term borrowing
23. price earnings ratio can be calculated by
Market price of share/ Eps
24. buyback of shares is shown under
Financing activities
25. Firm A acquires firm B. Market price of shares of B is Rs 20 per share and EPS is Rs 5. For an
exchange ratio of 1.5 : 1, what was the P/E ratio used in acquire B
4
26. which of the following techniques used to construct projected financial statements by use of
specific relationship[ between the parameters
Forecasting
27. forecasting is best achieved with the
a. Judgement of shareholder
b. Financial models
c. Opinion of managers
d. customers Feedbacks
28. issue of 12% preference share will__________ debt equity ratio of the corporate Enterprise
Decrease
28. categories which are given by market growth market share model popularity known as Boston
Consulting Group matrix include
All of the above
29. a partnership is often motivated by the desire to joint and leverage complementary
Skills & Resources
30. Buyouts may be
Management or leverged Buyout
31. strategy of a firm involves
matchings of strength and competency of the form with market opportunities
32. cash planning is done through
Cash Budget
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33. the value determined after the explicit forecast period is referred to
Continuing value
34. which of the following statement is provided in the annual report of the form
All of the above
35. current ratio and acid test ratio of the business firm are vertically the same this implies that the
None of these
36. the MVA approach can be used for all type of firm
Can
37. the sustainable growth rate is the maximum rate at which the company can grow by using
retained earning
a. retained earning
b. external financing
c. retained earning and additional external earning
d none
38. types of merger
All of these
39. level of interaction between firms in strategic Alliance is very high in which types of firms
Franchising
40. main drawback of financial statement is that they do not cover the change in
Application of funds
41 the method of valuation is affected by the financial fundamentals and speculative factors
Discounting cash flow
42.the main steps involved In financial planning includes
All of the aboves
43. key motivations that are driving the formation of strategic alliances include
All of these
44. the process of preparing the projected financial statement generally begins with projection of
Sales
45. rate of net profit before interest and tax to sales is
Operating profits ratio
46 the fund flow statement
All of these
47. when the forms dealing in different and related activities merged together is example of
Vertical merger
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48. the free cash flow is the legitimate cash flow for the purpose of business valuation in that is
reflects the cash flows generated by a company operations for which providers
All capital providers
49. this method is used to arrive at the market price of an equity share
Price earning ratio
50. the statement of changes in financial position shows
how the funds were generated during the period
51. the cost of acquiring a new asset of equal utility and usefulness refers to
a. liquidation value
b. replacement value
c. salvage value
d none
52 takeover can be
All of these
53 operating budgets pertain to various activities and operational of the form this include
All of these
54. we add back depreciation in cash flow statement due to
Non cash flow expences
55. four times stock turnover ratio implies ______month inventory holding period
3
56. which of the following ratio is used to examine the sustainable growth for a single product from
a. inventory/sales ratio
b. debt equity ratio
c debt capital employed ratio
d sales debtors ratio
FINANCIAL ANALYSIS & BUSINESS VALUATION
1. Is that acquisition of an enterprise by a person or merger
Ans. Combination
2. Information that goes into can be used to help prepare
Ans. cash budget forecast financial statements
3. involves predicting and estimating future outcomes based on past trends and current actions
Ans. financial forecasting
4. capital invested is a measure of
Ans. economic value added
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5. Which Is not the category of return on investment
Ans. return on turnover
6. which of the following is an example of cash flow from financial activity
Ans. Dividend received
7. which is not that tax concessions to amalgamated company
Ans. Free of capital gain tax
8. In a merger the
Ans. stockholders of the target farm have little if any say as to whether or not the merger occurs
9. Is that acquisition of entertainers or person or merger
Ans. Combinations
10. information that goes into can use to help prepare
Ans. forecast income statement a cash budget
11. which of the following is an example of horizontal merger
Ans. All of these
12. Involves predicting an estimated future outcome based on past trends and current actions
Ans. Financial Forecasting
13. NOPAT (Capital Invested xWACC) is measures of
Ans. Economic value added
14. it is not applications of fund
Ans. long term borrowing
15. Which represents the budget prepared for the next financial period
Ans. Budget estimates
16. In indirect method of calculating operation cash flow which of the following will be added to the
net profit
Ans. Gain on sale of asset
17. Which is not the tax concessions to amalgamated company
Ans. free of capital gains tax
18. A snapshot of the financial condition of the farm at a particular time
Ans. balance sheet
19. In a merger the
Ans. Acquiring farm returns its name and legal status
20. The firm which was involved in accounting scandal
Ans. Satyam
21. Quick assets is
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Ans. Current assets - inventory - prepaid expense
22. The positive incremental net gain associated with the combination of two farms through a
merger or acquisition is called
Ans. Synergy
23. Which of the following is not a cash outflow for the firm
Ans. Depreciation
24. A public offer by one form to directly buy the shares of another form is called
Ans. Merger
25. Which of the following is a measure of liquidity
Ans. Current ratio
26. Which of the following items can be found on an income statement
Ans. Sales
27. the uprising at which an asset can be sold in the firms is liquidated is
Ans. liquidation value
28. in a merger or acquisition a form should be acquired if it
Ans. it generates a positive net present value to the shareholder of an acquiring firm
29. Which statement is prepared in the process of funds flow analysis
Ans. fund flow statement
30. Unrealised gains and losses arising from foreign exchange rates are
Ans. not cash flows
31. A budget which includes activities relating to the capital expenditure during the positive period
Ans. Capital budgeting
32. Industries has an equity market capitalization of 5000 lakh in current year resume for that its
equity share capital is 1500 lakh and its retained earnings is 900 lakhs
Ans. 2600
33. operating profit is
Ans. Gross profit - operating expense - depreciation
34. Which of the following denotes the firm with high market growth rates and high market share
Ans. Star
35. Merger of firms engaged at a different stage of production but in the same industry is called
Ans. vertical mergers
36. Which ratio is the best-known measure of financial strength
Ans. Current ratio
37. Which analysis helps in assessing the effect of changes in input of parameters of the financial
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parameters contained in projected financial statement
Ans. sensitivity analysis
38. Ordinary equity is also called
Ans. net worth of the firm
39. Which of the following is not a cash outflow for the firm
Ans. Depreciation
40. The statements helps in analysing the changes in the working capital position of the firm is
Ans. Fund flow statement
41. The process of developing strategy for a business by researching the businesses and the
environment in which its function is called
Ans. strategic analysis
42. The ideal quick ratio is
Ans. 01:01
43. Principal revenue generating activities often enterprises are called as
Ans. operating activity
44. What remains after we subtract operating cost and capital expenditures necessary to at least
sustain cash flows from total firm revenues
Ans. free cash flow
45. Which is not the tax concessions to amalgamated company
Ans. bad debts
46. Which is not bad vantage of merger
Ans. Simplification
47. Cash cows are businesses with
Ans. high market share and low market growth
48. the value at which assets are shown in balance sheet is
Ans. book value
49. Going private transactions in which a large percentage of the money used to buy the outstanding
stock is borrowed is called
Ans. tender offer
EXAM QUESTIONS --- FINE005
CASE STUDY:


Total Assets: 0.6
Debt-Equity Ratio: 0.66
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

Stock Turnover: 2.5
Fixed Asset Turnover: 3
NORMAL QUESTIONS:
1.
This ratio measures the overall profitability and operational efficiency of a firm.
Answer: Earnings per share
2.
Hostile takeover includes
a. street sweep
b. bear hug
c. brand power
d. All of these
3.
A partnership is often motivated by the desire to join and leverage complementary
Answer: Skills and resource
4.
This method is used to arrive at the market price of the equity share:
Answer: Price earnings ratio
5.
Twelve months average of the stock exchange prices are used in which method
ofvaluation?
Answer: Market Value approach
6.
A budget is a combination of
Answer: Forecasts and plans
and
expressed in financial terms
7.
Buy back of shares are shown under
Answer: Financing activities
8.
Group means two/more enterprises which directly/indirectly are in a position to
a. exercise at least 26% of the voting rights
b. appoint more than 51% of the board of directors
c. control the management/ affairs of other enterprise
d. All of these
9.
Which term refers to the accuracies, consistencies and authenticity of
reportedinformation?
Answer: Quality of financial reporting
10. Return on asset may not provide correct result when the firms have different:
Answer: Capital Structure
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11. Level of interaction between firms in strategic alliance is very high in:
Answer: Joint Venture
12. Alliances are:
Answer: Conventional organizations with fully internalized activities & well-specified
transaction…
13. On which budget that all the other budget are based?
Answer: Sales budget
14. Market Value of the firm’s equity minus equity capital investment is used to compute
Answer: Market Value added
15. Revenue and expenses are recorded in profit and loss account use the:
Answer: Accrual basis
16. Alliance portfolio often results from a “Sedimentary” accumulation process. That is,
companies engage in multiple alliances over time and all these partnerships accumulate .
Answer: Haphazardly
17. The type of financing in which an initial payment (to shareholders of an acquired firm) is
followed by additional payment in future years based on the target firm’s increase in earnings
isknown as
Answer: Deferred payment plan
18. The free cash flow (fcf) is the legitimate cash flow for the purpose of business valuation in
that it reflects the cash flows generated by a company’s operation for
Answer: All the capital Providers
19. The following agencies are not responsible for ensuring proper financial reporting quality:
Answer: Customers
20. Buyouts may be:
Answer: Management or Leveraged buyout
21. Assuming ROA 19.50% and retention ratio as 2/3 what is the expected internal
growthrate:
Answer: 0.1494
22.
is calculated by deducting interest from the EBIT.
Answer: Profit before tax
23. Financial planning may be
Answer: Short & Long term financial planning
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24. Which of the following ratio is the used to examine the sustainable growth for a
singleproductfirm:
Answer: Debt-Equity ratio
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25. Main drawback of the financial statement is that they do not cover the changes in:
Answer: Asset, liabilities and owners liquidity
26. Deducting total external liabilities from total assets will give:
Answer: Net assets
27. Decrease in creditor’s
Answer: Decrease
cash.
28. The term real goodwill is the excess of rate of return on invested funds than:
Answer: Similar firms
29. Key business venture of the firms which are not growing and yielding high return
areknown as:
Answer: Cash Cows
30. Cash flow from operating ratio is calculated with the help of which equation?
Answer: Cash flow from operations/Current liabilities
31. If P/E ratio is 8 times and market price per share is 134, what is the EPS:
Answer: 16.75
32. Difficulty in comparison may relate to:
Answer: Difference is the basis of inventory valuation and Different depreciation methods
33. The common accounting warning signs/red flags do not include:
Answer: Reducing economic life of fixed assets
34. Coverage ratio measure the firm’s ability to pay
Answer: Fixed charges
35. The term valuation implies the task of estimating the worth of an:
Answer: Assets
36. The master budget does not include,
Answer: Earlier Period balance sheet
37. Treat to financial stability and profitability factor giving rise to fraud comes under:
Answer: Incentive or pressure
38. Which of the following is not the component of financial planning model?
Answer: Value
39. This represents the budget prepared for next financial period:
Answer: Forecast estimates
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40. Unpaid dividends on preference shares are reckoned of the firm in asset-based valuation.
Answer: Liability
41.
Return on resources on shareholder’s equity is computed divided by EAT by:
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Answer: Shareholder’s fund
42. Internal growth rate is maximum rate at which a firm can grow without
Answer: External financing
43. The statement of changes in financial position (SCFP) shows:
Answer: How the funds were generated and used during the period
44. The present value of the incremental cash inflows discounted at some specific rate is:
Answer: Intrinsic value
45. The amount at which the asset is shown in the balance sheet is:
Answer: Book value
46. It is a ratio between net credit purchase and the average amount of creditors outstanding:
Answer: Creditors turnover ratio
47. Four-times stocks turnover ratio implies
Answer: 3
months inventory holding period
48. Which of the following condition is not present when fraud occurs?
Answer: Higher market price of share
49. From the economic point of view, the profit for a firm would be
Answer: Increase in value of the shareholder’s wealth
50. Activities related with the expansion/contraction of a firm’s operations:
Answer: Corporate restructuring
51.
Some of the limitations which characterize ratio analysis are:
a. Difficulty in comparison
b. Impact of inflation
c. Conceptual diversity
d. All of these
52. Mergers can be provide tax benefit in the case of
Answer: Set off & Carry forward
of losses
53. Debt to total capital ratio expresses the relationship between:
Answer: Long term debt and owner capital
54. The cost of acquiring a new asset of equity utility and usefulness refer to:
Answer: Replacement Value
55. When the firms dealing in different unrelated activities merge together is the example of:
Answer: Conglomerate merger
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56. The term strategic alliance is currently used to describe a variety of inter-firm
corporationagreements which includes:
Answer: Formal joint venture & Minority equity participation
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57.
Which of the following items is not included in profit and loss appropriation account?
a. General reserves
b. Interim Dividend
c. Corporate dividend tax
d. None of these
58. Threat to financial stability and profitability factor giving to fraud come under:
Answer: Incentive or pressure
59. Suppliers evaluate short term liquidity where as long term funds providers evaluate
Answer: Long term solvency
60. The reciprocal of price earning P/E ratio is the indicative of:
Answer: Capitalisation factor
61.
refers to approach of the firm to utilize the resources, core competence and
strengthsof thefirms in the available opportunities and risk presented by the environment.
Answer: Strategy
62. Issue of 12% preference shares will
Answer: Decrease
debt-equity ratio of a corporate enterprise.
63. An analyst applied the dupont system to the following data of a company (a) equity
turnover 4.2, (b) net profit margin 5.5%, (c) total assets turnover 2.0 and (d) dividend
payoutratio 30%, the company’s rate of return on equity
Answer: 0.231 or 23.1 %
64. An alliance opportunity that promises to create value from a perspective may
notnecessarilyfrom an
Answer: Stand-alone, Alliance portfolio perspective
65. Strategy of a firm involves,
Answer: Matching’s of strengths and competencies of the firm with market opportunities
66. Which of the following techniques used to construct projected financial statement by
useofspecified relationships between parameters?
Answer: Financial modelling
67. Companies are generally remarkably when they go about forming strategic partnerships.
Answer: Myopic
68. Internal Growth rate is the
financingof anykind.
Answer: Maximum
69.
rate at which the firm can grow without external
Evaluation of firm investment options, requirement of funds and sources of funds refers
as:
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Answer: Financial Planning
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70. Which is the best method among these for valuation of a firm where not much data
aboutits netprofit is available and its shares are not actively traded?
Answer: Net-asset-based approach
71. Methods in which the reported earnings equality of a firm can be lowered include
Answer: Recognising revenues too soon & recording fictitious
72. High P/E ratios reflects
Answer: Optimism
73. Reasons that collaborative venture inevitable present some significant
managementchallengesinclude
a. Strategic and environmental disparities among these
b. Lack of a common experience and perception
c. Difficulties in inter-firm communications
d. All of these
74. Decrease in inventory (decrease/Increase) Cash:
Answer: Increases
75.
In case of poor financing reporting quality, the following statements may be falsified:
a. The balance sheet
b. The profit and loss account statement
c. Fund Flow Statement
d. All of these
76. Dividends paid to shareholders are classified as
Answer: Financing activities
77. The key to successful alliance building lies in defining a
asis adequateto get the job done
Answer: simple and focused
scope for the partnership
78. If dividend pay-out ratio is 60%, what amount is the retention ratio?
Answer: 0.4
79. Return on investment is a
Answer: Combined ratio
80. When the control in the another firm is acquired through bidding is called
Answer: Tender offer
81. The value determined after the explicit forecast period is referred to a:
Answer: Continuing value
82. Determine the market price per share of a firm having equity capital of ₹100,000
(facevalue of ₹50per share); the profit after taxes is ₹12,000 & P/E ratio is 5.
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Answer: 30
83.
The term fund can be defined as financial resources generated by
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Answer: Both current and non-current items
84.
Which of the following is the part of victims of fraud?
a. Shareholders see huge amount of drop in share prices
b. Employees face non-payment of salaries
c. Client of firm showed lack of trust by cancellation of contracts
d. All of these
85. The financial planning ends with
Answer: comparison of actual parameters with projected
86. Incremental budgeting approach is applied in the preparation of:
Answer: Master budget
87. The 2011 joint venture between China's Lenovo and Japan's NEC is the example of:
Answer: Global competition
88. Ratio of net profit before interest and tax to sales is
Answer: Operating profit ratio
89. Recorded facts, accounting conventions and personal judgments best defines the:
Answer: Meaning of financial statements
90.
are cash flows associated with purchase/sale of both fixed assets and business
interest
a. Operating cash flows
b. Financing cash flows
c. Extraordinary items
d. None of these
91. Ratio used for comparing the firm with those of the other firms in the same line
ofbusiness
Answer: Inter firm ratio
92. The method of valuation is affected by the financial fundamentals and speculative factors:
Answer: Market based approach
93. Method used to arrive at market price of an equity share:
Answer: Price earnings ratio
94. The acquisition/takeover bids fall under the purview of the
Answer: SEBI
95. When the operating expenses and depreciation are deducted from gross profit, the
resultwould be
Answer: PBIT
96.
Types of mergers are
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a. Horizontal
b. Vertical
c. Conglomerate
d. All of these
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97.
The main steps involved in financial planning include
a. analysis of firm's earlier periods' performance
b. understanding the firm's operating characteristics
c. deciding the financial sources
d. All of these
98. The process of preparing projected financial statement generally begins with the
projectionof
Answer: Sales
99.
The long term solvency of a firm can be examined by using which ratio?
Answer: Leverage ratios
100. The benefits that a new alliance can create on the alliance portfolio level mainly stem
fromways inwhich the new alliance and existing ones can enhance each other. The types of
synergy include
Answer: Sharing or recombining know-how & Reinforcing existing coalitions
101. Firms ability to make contractual interest payment is measured by:
Answer: Internal coverage ratio
102. Firm A acquires Firm B, MPS of B is ₹20 and EPS is ₹5. For an exchange rate of 1.5:1,
what is the P/Eratio used in acquiring B?
Answer: 6
103. Which of the following statement is provided in the annual report of the firm?
a. Balance Sheet
b. P&L A/C
c. Cash Flow statement
d. All of these
104. The funds flow statement
a. show changes in the working capital of firms during a financial period
b. helps the firm to plan its future working capital requirements
c. can be represented in vertical and horizontal form
d. All of the above
105. The common accounting warning signs/red flags that a stakeholder, analyst and other
userof FSmust be aware of include:
a. aggressive revenue recognition
b. abnormal sales growth
c. abnormal inventory growth
d. All of the above
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106. The following information is given about a company: (a) current assets = Rs. 900 lakh and
current liabilities = Rs 450 lakh in current yr (b) current assets =₹1,100 lakh and current
liabilities = ₹530 lkh inprev yr the approximate percentage decrease in current ratio is
Answer: 4% or 0.04
107. Dividend per share is computed by dividing - dividend paid to ordinary shareholders by
Answer: Number of new share capital issues
108. Cash payments to suppliers for goods & services are shown under:
Answer: operating activities
109. Operating budgets pertain to various activities and operations of the firm. This includes?
a. Sales
b. Purchases
c. Productions
d. All of these
110. In the context of fraud, main objectives of the auditor include the following:
a. To identify and assess the risk of material miss-statement is FS
b. Obtain sufficient audit evidence about assessed risks
c. Respond appropriately to identified and suspected fraud
d. All of these
111. The funds flow statement helps the firm to plan its
Answer: Working capital requirement
112. Financial statements of a firm include the following:
a. Balance Sheet
b. Profit & Loss account
c. Cash Flow Statement
d. All of these
113. Return on investment include:
a. Return on current assets
b. Return on capital employed
c. Return on shareholders' equity
d. All of these
114. Key motivations that are driving the formation of strategic alliances include
a. technology exchange
b. industry convergence
c. economies of scale
d. All of these
115. Academic research has also shown that managers frequently behave and use
allianceformationas ways to improve freedom of action.
Answer: opportunistically, their own
116. In case of poor financial reporting quality, the following statements can be falsified
a. The Balance Sheet
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b. The Profit & Loss account
c. Fund Flow statement
d. All of these
117. Reasons that collaborative venture inevitable present some significant
managementchallengesinclude
a. strategic and environmental disparities among the partners
b. lack of a common experience and perception base
c. difficulties in inter-firm communication
d. All of these
118. The fund flow statement:
a. Shows changes in the working capital firms during
b. Helps the firm to plan its future working capital
c. Can be Presented in vertical & horizontal form
d. All of these
119. The Earning power of a firm has the following elements:
Answer: Profitability on sales & Profitability of assets
120. The overall ability of a firm to service outside liabilities is reflected in the:
Answer: Total Cash flow ratio
121. If the future cash earnings are well predictable then the most suitable approach
ofvaluation ofbusiness is:
Answer: Discounted cash flow approach
122. Price Earnings ratio can be calculated by
Answer: Market price of share/EPS
123. Concept of profit does not include
Answer: Future expected profit
124. We add back depreciation in Cash Flow Statement due to
Answer: non-cash flow expense
125. The sustainable growth rate is the maximum rate at which the company can grow by
using:
Answer: retained earnings and additional external debt
126. Predicting and estimating future outcomes based on past trends and current
actions iscalled
Answer: Financial forecasting
127. Takeovers can be
a. negotiated/friendly
b. open markets/ hostile
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c. bail out
d. All of these
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128. Mergers can provide tax benefits in the case of
Answer: Set off and carry forward
_ of losses
129. Value determined by dividing net worth by the no. of equity shares outstanding is
knownas
Answer: book value
130. The type of financing in which the purchaser approaches the shareholders directly
insteadof the mgmt to acquire interest in acquired firm is known as
Answer: tender offer
131. Erosion of profits could be caused by
a. the actions of competitors
b. the bargaining power of customers and suppliers
c. the bargaining power of govts
d. all of the above
132. The MVA approach
Answer: cannot
be used for all types of firms
133. The following firm is not involved in accounting scandal:
Answer: L&T
134. Cash planning is done through
Answer: Cash budgets
135. Forecasting is best achieved with the
Answer: financial models
136. Forecasts are based on past performance of the firm which
Answer: may not be necessarily repeated in future
137. Key business venture of the firm which are growing and yielding high profit margins are
Answer: star
138. Which of the following is/are a more rigorous test of the solvency position of a
businessfirm?
Answer: Debt-service coverage ratio
139. Purchase of T-bills will
Answer: not affect
acid-test ratio
140. Current ratio and acid-test ratio of a business firm are virtually the same. This implies
thatthe
Answer: Firm has low investment in inventory
141. The Balance Sheet
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Answer: gives a snapshot of financial health of the firm
142. This method of valuation is affected by the financial fundamentals and speculative factors:
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Answer: Market Based Approach
143. All those assets which are converted into cash in the normal course of business
within oneyear are known as:
Answer: Current Assets
144. Sustainable growth refers to growth in sales which can be achieved without:
Answer: Fresh equity
145. Sarbanes-oxley act of 2002-sox aims at restoring investor confidence in security market
in
Answer: U.S
146. Cash Flow statement (base on as- 3) indicates change in
Answer: Cash and cash equivalent
147. Preparation of cash flow statement is mandatory for all the listed companies as well
as forall enterprises which have turnover of more than
Answer: 50 crores
148. MRTP stands for
Answer: Monopolies and Restrictive practices
149. Vertical merger is the merger of two firms which are involved:
Answer: In different stages of distribution and production in the same business activity
150. If dividend pay-out ratio is 60% what amount is the retention ratio:
Answer: 0.4
1) The method of valuation is affected by the financial fundamental and speculative factors
a) Price earnings ratio
b) Market based approach
c) Discounted Cash Flow
d) Market to book value
2) The acquisition takeover bids fall under the purview of the
a) RBI
b) IRDA
c) EXIM
d) SEBI
3) Which of the following is/are more rigorous test of the solvency position of a business firm?
a)Interest Coverage Ratio
b) Debt Service Coverage Ratio
c) Both are Rigorous
d) None of these
4) From the economic point of view the profit for a firm would mean
a) Increase in value of the shareholders wealth
b) Profit worked out by accounting professional while preparing the financial statements
c) All of these
d) None of these
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5) Cash Flow statement (base on as- 3) indicates change in
a) Bank and cash equalent
b) Cash and cash equalent
c) Both
d) None of these
6) A budget is a combination of
expressed in financial term
a) Forecast & asset
b) Plans& asset
c) Forecast& Plans
d) None of these
7)
a)
b)
c)
d)
and
Return on resources on shareholders equity is computed divided EAT by
Share Capital
Total asset
Shareholders Fund
None of these
8) Preparation of cash flow statement is mandatory for all the listed companies as well as for
all enterprises which have turnover of more than
a) 40 Crores
b) 50 Crores
c) 10 Crores
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d) 1 Crores
9) All those liabilities which are payable in cash in the normal course of business with in a
period of one year is called
a) Long term liability
b) Overdraft
c) Short term loan
d) Current liability
10) Cash Payments to Suppliers for goods and services are shown under
a)
b)
c)
d)
Operating activities
Financing activities
Investing activities
None of these
11) The term real goodwill is the excess of rate of return on invested funds than:a) Similar Firms
b) All firm in industry
c) Discount rate
d) Profitability index
12) In case of poor financial reporting quality, the following statement may be falsified:a) The balance sheet
b) The profit and loss account statement
c) Fund flow statement
d)All of these
13) The key to successful alliance building lies in defining a
the partnership as is adequate to get the job done
a) Simple and focused
b) All encompassing corporate partnership
c) All encompassing equity partnership
d) None of these
14) Activities related with the expansion/contraction of a firm operations
a) Corporate Parenting
b) Corporate restructuring
c) Corporate management
d) Corporate governance
15) On which budget that all the other budget are based?
a)Capital budgets
b)Sales budget
c)Financial
budget d)Cash
budget
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16)Major advantages of a merger are
a)Tax benefit
b)Synergy
c)Economic of
scale
d)All of these
17)An annalyst applied the dupont system to the following data of a company. A) equity turnover 4.2
b)net profit margin 5.5%c) total assets turnover 2.0 and d) dividend payout ratio 30% the
company rate of return on equity
a)0.11
b)0.23
1
c)0.22
d)0.13
18) Twelve months average of the stock exchange prices are used in which method of valuation
a)Market value approach
doubt b)Book Value approach
c) Balance sheet approach
d) RI approach
19) Alliances are
(a) Conventional organizations with fully internalized activities
(b) Well-specified transaction relationships through which externalized activities may be linked by
market-based contracts.
(c) combine elements of both (a) and (b)
(d) none of the above
20) Return on investment include
a) Return on current assets
b) Return on capital employed
c) Return on shareholders’ equity
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d) All of these
21) The free cash flow (fcf) is the legitimate cash flow for the purpose of business valuation in that it
reflects the cash flows generated by companies operation for
a) Debt provider
b) Equity capital provider
c) All the capital provider
d) None of these
22) The master budget does not include
a) Operating budget
b) Capital expenditure budget
c) Projected balance sheet
d) Earlier period balance sheet
23) Key business venture of the firm which are NOT growing and yielding high profit margins are
known as
a) Star performer
b) Question marks
c) Cash cow
d) All of these
24) The common accounting warning signified flags do not include
a) Aggressive revenue recognition
b) Year-end surprise
c) Reducing economic of fixed asset
d) All of these
25)The fund flow statement
a) Shows changes in working capital of the firm during a financial period
b) Helps the firm to plan future working capital requirement
c) Can be presented vertical
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d) all of these
26) Value determined by dividing net worth by the number of equity share outstanding is known as
a) Book value
b)Appraisal
value c)Market
Value
d)None of these
27) Decrease in creditors cash
a) Increases
b) No change in cash
c) Decrease
d) None of these
28) Which of the following condition is not present when fraud occurs
a) Opportunities for fraud
b) Higher market price of share
c) Attitude and
d) incentives of pressure
29) Cash flow from operating ratio is calculated with help of which equation?
a)Current asset/Cash flow from operation
b) Cash flow from operation/current asset
c) Cash flow from operation/current liability
d)Current liabilities /cash flow from operation
30)The amount at which the asset is shown in the balance sheet is:a)Fair value
b) Economic value
c) Book Value
d)Market Value
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31) If inventory turnover ratio 6 times per year What is inventory holding period(months)
a)1
b) 25
c) 2
d)15
32) Sustainable growth refers to growth in sales which can be achieved without
a)Fresh planning
b)Strategy
c)Modelin
g
d)Fresh equity
33) Some of the limitation which characterized ratio analysis are
a) Difficulty in comparison
b) Impact of inflation
c) Conceptual diversity
d) All of these
34)Ratio of net profit before interest and tax to sales is
a)Solvency ratio
b) Capital garing
c) Turnover raio
d) operating profit ratio
35)Suppliers evaluate short term liquidity where as long term funds providers evaluate
a) Long term solvency
b) Mid term liquidity
c) Long term liability
d) Long term fixed expenses
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36) The balance sheet
a) is a statement of revenues and expenses
b) Gives a snapshot of financial health of the firm
c) is a statement of change in the financial performance of a firm
d) None of these
37)Determine the market price per share of a firm having equity capital of Rs 100000(face value of
Rs 50 per share) the profit after taxes is Rs 12000 & P/E ratio is 5
a) Rs 30
b)Rs 60
c) Rs 50
d) Rs 20
38)Concept of profit does not include
a)Operating profit
b) profit before tax
c) profit after tax
d) Future expected profit
39) The long term solvency of a firm can be examined by using which ratio?
a)Leverage
ratio b)Current
ratio
c) Gearing ratio
d) Leverage & gearing ratio
40) Recorded facts, accounting convention and personal judgement best defines the
a) Nature of financial statement
b) Meaning of financial statement
c) Significance of financial statement
d) None of these
41) Ratio used for comparing the firm with those of the other firm in the same line of business
a) inter firm ratio
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b) intra firm ratio
c) Trend ratio
d) Current ratio
42) If the future cash earnings are well predictable then the most suitable approach of valuation of
business is
a) P/e ratio approach
b) Discounted cash flow approach
c)No one superior to other
d)None of these
43) The following firm is not involved in accounting scandal
a)Enron
b) Larsen and Turbo
c) WorldCom
d) Satyam
44)
asset and business interest.
are cash flow associated with purchase/sale of both fixed
a) Operating cash flow
b) Financing cash flow
c) Extraordinary item
d) None of these
45) The statement of change in financial position (SCFP) shows
a) How the funds were generated during the period
b) How funds were used during the period
c) How the funds were generated and used in the period
d)None of these
46) Revenue and expenses are recorded in profit and loss account use the
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a) Amount of total credit sales basis
b) Accrual basis
c)Realisation basis
d)Cash receipt
47)In the context of fraud, main objectives of the auditors includes the following
All of these
48)When the control in the another firm is acquired through bidding is called
a)MBO
b)Auction of
assets c)Demerge
d)Tender offer
49)Merger can provide tax benefit in the case of
a) Sacrified asset
of losses
set off & carry forwad
b) Market value added
c) Rate of return on asset
d) Net value of equity
50) Market value of the firm’s equity minus equity capital investment is used to compute
a) Economic value added
b)Market value added
c)Rate of return on asset
d)Net value of equity
51)The present value of the incremental cash inflows discounted at some specific rate is
a) intrinsic value
b)Replacement value
c)Liquidation value
d)Book value
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52)The term valuation implies the task of estimating the worth of an
a)scrap
b) Non fictious transaction
c) Net working capital
d) Assets
53)Companies are generally remarkably
partnership
when they go about forming strategic
a)Nonmyopic
b)Longsighte
d
c)Myophic
d)None of these
54)Financial statement of a firm include the following
a) Balance sheet
b) Profit & loss account
c) Cash flow statement
d) All of these
55)Preparation of cash flow statement is mandatory for all the listed companies as well as for all
enterprises which have turnover more than
a) Rs 40 cr
b) 50 cr
c)10 cr
d)Rs 1 cr
56)
refers to approach of the firm to utilise the resources ,core
competencies and strengths of the firm in the available opportunities and risk presented by the
environment
a) Financial planning
b) Projection
c) Growth
d) Strategy
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57)Internal growth rate is maximum rate at which a firm grow without
a)internal financing
b) increase in debtors
c) increase in current asset
d) External financing
58)Viewed on a stand alone basis alliances can help companies
a)Achieve economies of scale
b) obtain access to partner
c) increase competition in the market
d) Achieve economies of scale & obtain access to partner competency asse knowledge and skill
59)The earning power of a firm has the following elements
a)Profitability on sales
b) Profitability of asset
c) Profitability on sales & profitability of asset
d)None of these
60) Incremental budgeting approach is applied in the preparation of
a) Master budget
b) Production budget
c) Raw material budget
d) Zero base budget
Case study
61) Calculate the fixed asset turnover ratio for xyz ltd 3
62) Calculate the debt equity ratio .66
63) calculate turnover ratio
64) calculate return on total asset for xyz ltd .6
65) calculate stock turnover ratio 2.5
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1. the overall ability of a firm to serve outside liabilities is reflected in the
Total Cash coverage ratio not sure 50/50
2. which is the best method among these for valuation of a firm where not much data about it net
profit is available and its share are not actively traded?
Discounted cash flow
3. the term fund can be defined as financial resources generated by
Both current and non-current items
4. coverage ratio measures the firm's ability to pay
Dividend
5. Return on asset may not provide correct result when the firm have different
a. short term sources of finance
b. sole depends on debt for financing
c. Capital structure
Google: ROA depends on the company and industry
d. rate of return
6. an Alliance opportunity that promise to create value from
necessarily be value creating from an
Perspective may not
Stand-alone, alliance portfolio perspective
7. when the operating expenses and depreciation are deducted from gross profit the result would be
PBIT
8. if P/E ratio is 8 times and market price per share is 134 what is the EPF
16.75
9. firms ability to make contractual interest payment is measured by
Interest Coverage ratio
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10. purchase of treasury bills will strengthen acid test ratio
a. Strengthen
b. weaken
c. not effect
d. none of there
11. The following information is given about a company current asset is
900lakh ....................................... 450 lakh lib.
0.08
12. The type of financing in which an initial payment to the shareholders of an acquired firm is
followed by additional payment in future years based on the target firms increase in earning is
known as
Preference share financing
13. the reciprocal of price earning ratio is indicator of
Profitability index
14 unpaid dividend on preference shares are reckoned
valuation
of the firm in asset based
Liability
15. the term strategic Alliance is currently used to describe a variety of inter form cooperation
agreement which include
Formal joint Ventures
16. High P/E ratios reflects
Optimism
17. the 2011 joint venture between China sir Lenovo and Japanese neck is the example of
Technology agreement
18.
is calculated by deducting interest from the ebit
Profit bdfore tax
19. hostile takeover includes
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Bear hug
20. difficulty in comparison may relate to
Differences in the basis of inventory valuation & difference depre. Method
21. the fund flow statement helps the firm to plan its
All of these
22. debt to total capital ratio expresses the relationship between
Short term and long term borrowing
23. price earnings ratio can be calculated by
Market price of share/ Eps
24. buyback of shares is shown under
Financing activities
25. Firm A acquires firm B. Market price of shares of B is Rs 20 per share and EPS is Rs 5. For an
exchange ratio of 1.5 : 1, what was the P/E ratio used in acquire B
4
26. which of the following techniques used to construct projected financial statements by use of
specific relationship[ between the parameters
Forecasting
27. forecasting is best achieved with the
a. Judgement of shareholder
b. Financial models
c. Opinion of managers
d. customers Feedbacks
28. issue of 12% preference share will
debt equity ratio of the corporate Enterprise
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Decrease
28. categories which are given by market growth market share model popularity known as Boston
Consulting Group matrix include
All of the above
29. a partnership is often motivated by the desire to joint and leverage complementary
Skills & Resources
30. Buyouts may be
Management or leverged Buyout
31. strategy of a firm involves
matchings of strength and competency of the form with market opportunities
32. cash planning is done through
Cash Budget
33. the value determined after the explicit forecast period is referred to
Continuing value
34. which of the following statement is provided in the annual report of the form
All of the above
35. current ratio and acid test ratio of the business firm are vertically the same this implies that the
None of these
36. the MVA approach can be used for all type of firm
Can
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37. the sustainable growth rate is the maximum rate at which the company can grow by using
retained earning
a. retained earning
b. external financing
c. retained earning and additional external earning
d none
38. types of merger
All of these
39. level of interaction between firms in strategic Alliance is very high in which types of firms
Franchising
40. main drawback of financial statement is that they do not cover the change in
Application of funds
41 the method of valuation is affected by the financial fundamentals and speculative factors
Discounting cash flow
42. the main steps involved In financial planning includes
All of the aboves
43. key motivations that are driving the formation of strategic alliances include
All of these
44. the process of preparing the projected financial statement generally begins with projection of
Sales
45. rate of net profit before interest and tax to sales is
Operating profits ratio
46 the fund flow statement
All of these
47. when the forms dealing in different and related activities merged together is example of
Vertical merger
48. the free cash flow is the legitimate cash flow for the purpose of business valuation in that is
reflects the cash flows generated by a company operations for which providers
All capital providers
49. this method is used to arrive at the market price of an equity share
Price earning ratio
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50. the statement of changes in financial position shows
how the funds were generated during the period
51. the cost of acquiring a new asset of equal utility and usefulness refers to
a. liquidation value
b. replacement value
c. salvage value
d none
52 takeover can be
All of these
53 operating budgets pertain to various activities and operational of the form this include
All of these
54. we add back depreciation in cash flow statement due to
Non cash flow expences
55. four times stock turnover ratio implies
month inventory holding period
3
56. which of the following ratio is used to examine the sustainable growth for a single product from
a. inventory/sales ratio
b. debt equity ratio
c debt capital employed
ratio d sales debtors ratio
FINANCIAL ANALYSIS & BUSINESS VALUATION
1. Is that acquisition of an enterprise by a person or merger
Ans. Combination
2. Information that goes into can be used to help prepare
Ans. cash budget forecast financial statements
3. involves predicting and estimating future outcomes based on past trends and current actions
Ans. financial forecasting
4. capital invested is a measure of
Ans. economic value added
5. Which Is not the category of return on investment
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Ans. return on turnover
6. which of the following is an example of cash flow from financial activity
Ans. Dividend received
7. which is not that tax concessions to amalgamated company
Ans. Free of capital gain tax
8. In a merger the
Ans. stockholders of the target farm have little if any say as to whether or not the merger
occurs
9. Is that acquisition of entertainers or person or merger
Ans. Combinations
10. information that goes into can use to help prepare
Ans. forecast income statement a cash budget
11. which of the following is an example of horizontal merger
Ans. All of these
12. Involves predicting an estimated future outcome based on past trends and current actions
Ans. Financial Forecasting
13. NOPAT (Capital Invested xWACC) is measures of
Ans. Economic value added
14. it is not applications of fund
Ans. long term borrowing
15. Which represents the budget prepared for the next financial period
Ans. Budget estimates
16. In indirect method of calculating operation cash flow which of the following will be added to the
net profit
Ans. Gain on sale of asset
17. Which is not the tax concessions to amalgamated company
Ans. free of capital gains tax
18. A snapshot of the financial condition of the farm at a particular time
Ans. balance sheet
19. In a merger the
Ans. Acquiring farm returns its name and legal status
20. The firm which was involved in accounting scandal
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Ans. Satyam
21. Quick assets is
Ans. Current assets - inventory - prepaid expense
22. The positive incremental net gain associated with the combination of two farms through a
merger or acquisition is called
Ans. Synergy
23. Which of the following is not a cash outflow for the firm
Ans. Depreciation
24. A public offer by one form to directly buy the shares of another form is called
Ans. Merger
25. Which of the following is a measure of liquidity
Ans. Current ratio
26. Which of the following items can be found on an income statement
Ans. Sales
27. the uprising at which an asset can be sold in the firms is liquidated is
Ans. liquidation value
28. in a merger or acquisition a form should be acquired if it
Ans. it generates a positive net present value to the shareholder of an acquiring firm
29. Which statement is prepared in the process of funds flow analysis
Ans. fund flow statement
30. Unrealised gains and losses arising from foreign exchange rates are
Ans. not cash flows
31. A budget which includes activities relating to the capital expenditure during the positive period
Ans. Capital budgeting
32. Industries has an equity market capitalization of 5000 lakh in current year resume for that its
equity share capital is 1500 lakh and its retained earnings is 900 lakhs
Ans. 2600
33. operating profit is
Ans. Gross profit - operating expense - depreciation
34. Which of the following denotes the firm with high market growth rates and high market share
Ans. Star
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35. Merger of firms engaged at a different stage of production but in the same industry is called
Ans. vertical mergers
36. Which ratio is the best-known measure of financial strength
Ans. Current ratio
37. Which analysis helps in assessing the effect of changes in input of parameters of the financial
parameters contained in projected financial statement
Ans. sensitivity analysis
38. Ordinary equity is also called
Ans. net worth of the firm
39. Which of the following is not a cash outflow for the firm
Ans. Depreciation
40. The statements helps in analysing the changes in the working capital position of the firm is
Ans. Fund flow statement
41. The process of developing strategy for a business by researching the businesses and the
environment in which its function is called
Ans. strategic analysis
42. The ideal quick ratio is
Ans. 01:01
43. Principal revenue generating activities often enterprises are called as
Ans. operating activity
44. What remains after we subtract operating cost and capital expenditures necessary to at least
sustain cash flows from total firm revenues
Ans. free cash flow
45. Which is not the tax concessions to amalgamated company
Ans. bad debts
46. Which is not bad vantage of merger
Ans. Simplification
47. Cash cows are businesses with
Ans. high market share and low market growth
48. the value at which assets are shown in balance sheet is
Ans. book value
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49. Going private transactions in which a large percentage of the money used to buy the
outstandingstock is borrowed is called
Ans. tender offer
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FINE008-Banking Services
Post graduate program in Management (Institute of Management Technology,
Ghaziabad)
Studocu is not sponsored or endorsed by any college or university
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FINE008: Bank Services and Practice:
1. FCNR (B) deposit can be kept only in the form of ___ deposits.
Ans- (c) term deposit account
2. Which of the following are not related to Internet Banking Services?
Ans- (c) Letter of Credit
3. ___ indicates the bank’s capacity to maintain capital commensurate with the nature and extent
of all types of risks.
Ans- (b) Capital Adequacy
4. For ___ all identified losses have to be charged off. Uncollectible loans with such little value that
their continuance as bankable assets is not warranted are generally charged off. Losses are
expensed in the same period in which they are written off
Ans- (b) Loss Assets
5. Through Mobile Banking customer can’t avail the facility of ____
Ans- (b) Letter of Credit Services
6. Period after which the payment of installments and interest starts is called
Ans- (b) Grace period
7. Cash to deposit ratio is
Ans- (b) (Cash in hand + balance with RBI/ Deposit) * 100
8. Risk may be listed as (a) credit risk, (b) liquidity risk, (c) Premature closure risk
Ans- (c) a and b
9. Securities backed by mortgage is the example of
Ans- (a) Securitization
10. Paid up Equity capital of the bank and Share premium resulting from the issue of equity shares is
part of ____ capital
Ans- (b) Tier II
11. What is the next step after the advance senctioned by the competent authority
Ans- (c) Disbursement
12. Which is not an element of Tire II capital
Ans- (b) Undisclosed Reserve
13. The Point of Sale (POS) terminals do not represent which of the following ____
Ans- (c) Transfer of funds to any third party
14. CRR funds are kept by the bank in
Ans- (a) balance in a special account with RBI
15. Credit risk is
Ans- (a) possibility of loss of credit
16. Which is not an element of Tier II capital
Ans- (b) Undisclosed reserve / (c) paid-up ordinary share capital
17. RBI designated those NBFCs with asset size of over ____ as ‘systematically important’ (NBFC-NDSI), due to their linkages with money markets, equity markets, banks and financial institutions
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and brought them under a specific regulatory framework (capital adequacy and exposure
norms22) from April 1, 2007
Ans- (c) Rs. 5 billion
18. ____ is calculated as the difference between current and projected credit and deposit flows
Ans- (a) funding gap
19. Which of the following is an example of negative covenant?
Ans- (a) Limiting further capital expenditure
20. _____ is normally for a period of or less than 2 years and hence provides funds for short
duration only
Ans- (b) Factoring
21. What are the advantages of retail banking?
Ans- (d) a and b
22. _____ are individuals ‘recruited’ over the Internet with the sole purpose of being intermediaries
for illegally acquired funds. These f phishing and other types of scams.
Ans- (d) Mules
23. Which of the following is not a Retail Deposit Products?
Ans- (c) CC/OD account facility to a corporate office
24. Under the cheque clearing system, truncation specifically means that the cheque
Ans- (c) provides the drawee with access to funds from day one
25. The form which serves as a data base for cross selling of different products in banks
Ans- (a) account opening form
26. In case of ____, the bank has to pay the money on due date of the bills drawn by the
beneficiary/ supplier irrespective of whether the party pays the money or not.
Ans- (c) Letter of credit
27. An asset would be classified as _____ if it has remained in the sub-standard category for a
period of 12 months
Ans- (d) Doubtful assets
28. Senior securities are normally
Ans- (c) AAA rated
29. Risk arises from a bank’s inability to meet its obligations when they come due, and refers to
situations in which a party is willing but unable to find counter party to trade an asset
Ans- (a) Interest Bank Risk
30. Capital for the purpose of capital adequacy ratio means
Ans- (b) Tire I & II
31. Prepayments charges collected by branches should be credited to which account?
Ans- (b) Commission A/c
32. A provision of _____% should be made on loss assets
Ans- (b) 100%
33. Which of the following entities can create Payments banks
Ans- (d) All of these
34. ATM stands for
Ans- (d) Automated Teller Machine
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35. The likelihood that default will take place over a specified time horizon is known as _____
Ans- (a) probability of default
36. Interest payments on deposits and borrowings are deducted from interest income to arrive at
_____
Ans- (a) Net Interest Income
37. Which of the following entities can create Payments banks
Ans38. Which of the following is not a benefit and use of Mobile Banking?
Ans- (b) It is a tool to attract of the old generation clients
39. Preference Share Capital Instruments is part of ____ capital
Ans- (b) Tier II
40. NABARD was established to have a control over ____.
Ans- (b) Regional Rural Banks
41. If a bank is not able to respond to a situation in time in internet banking, this is called ____
Ans- (d) Operational Risk
42. Which of the following facility a Mobile Banking customer cannot use?
Ans- (c) Facilities of withdrawing cash anywhere anytime
43. Full form of SHG is ____
Ans- (c) Self Help Group
44. SLR maintain as a percentage of
Ans- (d) Net demand and time liability
45. An ____ is a loan or an advance where Interest and/or installment of principal remain
‘overdue’4 for a period of more than 90 days in respect of a term loan.
Ans- (b) NPA
46. ISP in Internet Banking stands for ____ ?
Ans- (b) Internet Service Providers
47. Which is not the function of investment/treasury management
Ans- (d) Providing loan
48. Revaluation reserve is included in
Ans- (b) Tier II capital
49. A cash credit or a overdue account will be treated as NPA if an account remains out of order for
a period of more than ____ days
Ans- (b) 90
50. ____ is the bailment of goods as security for payment of a debt or performance of a promise.
Ans- (c) Pledge
51. _____ signify fraudulent capture and recording of customers’ security details, to be used later
for committing fraud. It originates from the analogy that Internet fraudsters are using email
lures to ‘fish’ for passwords and financial data from myraids of Internet users
Ans- (c) Phishing
52. The bank levies a ____ on the unutilized portion of the cash credit limit.
Ans- (c) commitment charge
53. Increase in reserve requirements will lead to _____ in money supply
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Ans- (c) Decrease
54. Rate of interest income to total assets is
Ans- (a) (Interest earned/total assets) * 100
55. Regional rural bank were setup on the recommendation of
Ans- (c) Narasimham committee
56. Which of the following entities can create Payments banks
Ans- (d) All of these
57. _____ assets contain all the weaknesses of a sub-standard asset and, additionally, recovery of
the debt in full is quite remote. Any portion of the balance outstanding in the loan, which is
uncovered by the market value of the collateral, may be identified as uncollectible and written
off.
Ans- (d) Doubtful assets
58. _____ denotes a loss of income or profit that could arise when funds are sourced at a higher
cost than the return on investment of these funds.
Ans- (c) Negative carry
59. Which of the following is an example of affirmative covenant?
Ans- (b) Ensuring that the funds are applied for the purpose for which they were intended
60. The ____ served as the minimum lending rate to borrowers
Ans- (b) Base Rate
61. Income from NPAs is not to be recognized on ____ basis
Ans- (d) accrual
62. Case Study:
The reported gross bad loans of banks declined to Rs 7.5 trillion in the quarter ended December
from Rs 8 trillion in Q2 of FY21.
Gross non-performing assets (NPAs) of public sector banks (PSBs) contracted between
December 2018 and December 2020. Among PSBs, State Bank of India (SBI) which accounts for
the highest share at around 20% of the gross NPAs of state-owned banks in Q3 FY21, reported
the highest asset quality improvement, with a decline in bad loan to 4.8%, followed by Punjab
National Bank (PNB)…………………………
(i)
The ______ banks have highest percentage of NPAs
(a) State owned (b) Scheduled commercial (c) Private (d) Cooperative
(ii)
The key reason for decline in Gross NPA is _____.
(a) Improved collection (b) Bad loan write-off (c) Increase in Provision coverage….. (d)
Decrease in Provision
(iii)
An increase in Provision Coverage Ratio Implies _____.
(a) Decrease in Asset Quality (b) Increase in Gross NPA (c) Increase in Net NPA (d)
Improvement in Asset Quality
(iv)
The highest improvement in asset quality is reported by ______.
(a) ICICI Bank (b) HDFC Bank (c) SBI (d) PNB
63. What is ‘collateral securities’?
Ans- (c) the securities as offered either in few or along with ……. Securities (options blur)
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64. Banks in India are required to maintain a Tier 1 capital ratio of at least 6 percent, and a total
capital to Risk Weighted Assets ratio of at least. The Common Equity Tier 1 capital should be at
least _____ of Risk Weighted Assets.
Ans- (c) 9 percent/ 5.5 percent
65. What is “overdue deposit”?
Ans- (d) Term deposits as held with the bank are classified as
66. Which is not a type of foreign exchange risk:
Ans- (b) Translational risk
67. What is the meaning of ‘Risk-Adjusted’ Assets?
Ans- The weighted aggregate of funded and non-funded items
68. In which of the following document, stamp duty will not differ from state to state:
Ans- (b) Commercial Paper
69. Which of the following is NOT a typical instrument of Money market?
Ans- (c) Equities and Bonds
70. The fiscal policy targets two major parameters. They are:
Ans- (c) Tax receipts and government expenditure
71. Which provisions are not to be considered for arriving at net NPA:
Ans- (c) Provisions made for Standard Assets
72. The aggregate of Tier1 and Tier2 capital forms the total for banks for the purpose of computing
‘capital adequacy’.
Ans- (b) Capital Funds
73. _______ (phishing in sessions) is a rapidly growing threat to online banking security. Fake
Websites are set up to closely replicate the bank’s authentic Web sites.
Ans- (a) Man in Middle Attacks
74. DICGC is fully owned subsidiary of RBI. DICGC stand for:
Ans- (a) Deposit Insurance and Credit Guarantee Corporation
75. Which of the following is not a component of liquidity risk in banks:
Ans- (c) Call risk (as per book-page133) / (d) Reinvestment risk
76. Which of the following is not true about Reserve Bank of India:
Ans- (c) It regulates Indian stock market
77. What is Funding Gap?
Ans- (d) The difference between current and projected credit and deposit flows
78. In Macroeconomics policies, three basic indicators are monitored and studied. They are:
Ans- (a) Prices, Employment and Balance of Payments (d) Supply in Market, Employment and
Price of Goods
79. How Provisioning Coverage Ratio (PCR) is calculated?
Ans- (a) It is a ratio of Provisions (specific and floating) to Gross NPAs.
80. Reverse Repo Rate is the rate at which:
Ans- (a) RBI lends money from commercial banks/ (c) RBI borrows money from commercial
banks
81. which of the following is apex bank in Indian banking system:
Ans- (a) RBI
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82. The funds have to be used for the purpose of export finance as a part of working capital
requirements. It is called:
Ans- (b) Packing credit
83. ING Vysya bank got merged with
Ans- (a) Kotak Mahindra Bank
84. Which of the following is not an element of Tier 1 capital:
Ans- (c) General Provisions and loss reserves
85. In Credit Migration Approach, the credit portfolio (sponsored credit value-at-risk(VAR) model) is
sponsored by
Ans- (c) McKinsey
86. Hypothecation provided security to the lender
Ans- (d) as the ownership right has been given up by the borrower
87. What is ‘Tenor Premium’?
Ans- (b) In order to cover the risk, the banks usually shift the load to borrowers by charging an
amount in the form of ‘premium’. Because we know that increment of duration of loan and risk
are proportional. /(d) The tenures of premium being fixed by RBI for the borrowers
88. The full form of CRM technique is
Ans- (b) Credit Risk Management
89. Repo rate is the rate at which:
Ans- (a) RBI lends money to commercial banks
90. In Basel III Accord, the concept of Liquidity Cover age Ratio (LCR) is designed to improve
Ans- (b) long-term resilience of the liquidity risk profile of banks/ (d) short-term resilience of
credit risk profile of banks
91. The lending rate cannot be below the _____ for any loan maturities.
Ans- (d) MCLR
92. Retail finance is:
Ans- (a) Highly profitable business for banks
93. What is Net Bank Credit?
Ans- (a) The total outstanding advances as presented in the balance sheet
94. Which of the following is an important development in the Indian banking sector:
Ans- (a) Internet banking (b) Mobile banking (c) MICR and automated cheque clearing (d) All of
these
95. Which of the following is a step of ALM process:
Ans- (a) Risk identification (b) Risk measurement (c) Risk management (d) All of these
96. Under Basel III Accord, what Tier-1 capital in relation with Capital Adequecy Ratios?
Ans- (c) The Capital which is used to absorb losses in the event of liquidation / (d) Core Capital of
Bank which includes equity capital and disclosed reserves (confusion with correct answer)
97. In the time of analyzing Financial Ratios, the ‘Operating’ ratio demonstrates
Ans- (d) how efficiently the assets are being utilized to generate revenue
98. __________controls and administers commercial banks, non-banking finance companies
(NBFCs), development finance institutions, urban co-operative banks and primary dealers.
Ans- (a) Board for Financial Supervision
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99. In bank lending, there is ______ upside risk and _____ downside risk and in market investments,
it holds _____ downside risk and ______ upside risk.
Ans- (d) limited/unlimited/unlimited/limited
100.
The ‘non-deposit funding sources’ also called as
Ans- (d) whole-sale funding sources
101.
_______ risk is the probability of default by borrowers or counterparty in fulfilling their
obligations
Ans- (c) Credit Risk
102.
Interest rates and margins in weaker section loans are decided by:
Ans- (c) RBI
103.
________ is the reverse process of stripping.
Ans- (a) Reconstitution
104.
Securitisation is:
Ans- (b) When investments are made
105.
Which of the following is a private sector bank
Ans- (d) None of these
106.
In the context of liquidity risk management, which of the following is a level 2 asset of a
bank
Ans- (d) Corporate bonds which have been rated AAA above by an eligible credit rating agency
107.
If a borrower provides the bank with the charge on fixed assets:
Ans- (b) The bank has a right to use such assets
108.
Guarantees are classified as:
Ans- (c) Contingent liability
109.
Money kept by a bank with RBI or with other commercial banks in current account
represents:
Ans- (b) Second line of defence to the bank
110.
Foreign banks can fulfil the shortfall in priority sector targets by:
Ans- (c) Depositing in bonds of SIDBI
111.
In which of the following document, stamp duty will not differ from state to state:
Ans- (b) Commercial paper
112.
NBFC stand for:
Ans- Non-Banking Financial Company (but here ans (d) None of these))
113.
In the parlance of banking, the terms RTGS stands for:
Ans- (a) Real time gross settlement system
114.
Identify theft is the misuse of personal data or documents in order to impersonate
another individual to carry out illegal or _______. E.g., to abuse the victim’s banking facilities or
other assets.
Ans- (c) fraudulent activities
115.
Which of the following is a technique of measuring interest rate risk:
Ans- (a) Maturity gap analysis
116.
______ is an asset wherein the outstanding amount is not at all recoverable or the
valuation of the security is of no significance
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Ans- (d) Loss asset
117.
Which of the following is not a function of SEBI:
Ans- (d) Regulation of money market
118.
Front office of treasury department deals with:
Ans- (c) Maintaining no stro accounts
119.
The definition of the terms micro enterprises, small enterprises and medium enterprises
shall be in terms of:
Ans- (b) RBI Master Circular
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1-- For amalgamation in the nature of merger, the shareholders holding at least _____ or more if the equity
shares of the transferors company becomes the equity shareholders of the transferee company
a-- 90%
b-- 49%
c-- 100%
d-- 51%
2-- All of the following are common motives for a merger or acquisition except ________
a-- Economies of scale
b-- Economies of scope
c-- Tax savings
d-- Raising cost of capital
3-- A conglomerate merger occurs between firms
a-- At different stages of the value chain
b-- in the same industry
c-- In different industry
d-- Under same management
4-- In case of ________ the acquirer entity purchases the common stock of the target entity, Normally the
consideration is in the form of cash to target shareholders.
a-- Asset purchase
b-- Stock purchase
c-- Merger
d-- All of these
5-- If two merged firms are shown to have a higher combined market value than the sum of the individual
market values, then
a-- Economic gains are said to have taken place
b-- The firms were previously underpriced
c-- The mergers provides diversification to investors
d-- There is no cost involved in the merger
6-- One of the major reason of merger failure is
a-- Undervaluation
b-- Overpayment
c-- Fair valuation
d-- None of these
7-- If Firm A is acquiring Firm B and Bs shareholders are given the fraction X of the combined firm, then the
cost of this merger is
a-- (X) (PV of AB) – PV of B
b-- PV of AB – (X) PV of B
c-- PV of AB – (X) PV of A
d-- (X) (PV of AB –(X) PV of B
8-- Under net asset method value of a share depends on
a-- Net assets available to equity shareholders
b-- Net assets available to debentures holders
c-- Net assets available to prefer holders
d-- None of these
9-- _________ restricts both the parties from entering into merger talks with any other third party for a
specified period
a-- Non disclosure agreement
b-- Letter of intent
c-- Exclusivity Agreement
d-- Deterministic Agreement
10-- Creation of Goodwill in case of merger is to be amortized in ___________
a-- 10 years
b-- 5 years
c-- Never
d-- Test for impairment
11-- When both merging entities proceeds with merger process , A ________ sent to target entity, states the
deal price and terms and conditions of the offer like business/assets to be bought, valuation summary mode
of payment etc.
a-- Non disclosure agreement
b-- Letter of intent
c-- Exclusivity Agreement
d-- Deterministic Agreement
12-- If the management of a company tries to take controlling stake in the other company, it is referred to as
__________
a-- Management Buyout
b-- Leveraged buyout
c-- Management Buyin
d-- Leveraged Buyin
13-- Akash education institute was acquired by ____________
a-- White hat junior
b-- Fitjee
c-- Vedantu
d-- Byju’s
14-- In this structure, the acquirer entity creates a wholly-owned subsidiary/acquisition subsidiary. The
subsidiary entity later on merges or gets merged with the target entity
a-- Triangular merger
b-- Acquisition
c-- Single Firm Capitalization
d-- Two Stage Merger
15-- The legal status of the target entity will cease to exist in which of the following deal structure. The brand
name of the entity might prevail in cases where the board of directors of the acquirer entity feels to use the
name and logo.
a-- Asset purchase
b-- Stock purchase
c-- Merger
d-- All of these
16-- In this structure, during the first stage the acquirer will buy target’s share from the open market via
tender offer so as to gain a controlling interest in the target firm
a-- Triangular merger
b-- Acquisition
c-- Slump sale
d-- Two stage merger
17-- Which two leading telecommunication companies merged with each other in the year 2018?
a-- BSNL and Idea
b-- Vodafone and Idea
c-- Jio and Vodafone
d-- Bharti Airtel and BSNL
18-- Which online food delivery platform acquire Uber Eats in 2020, for around $350 million?
a-- Zomato
b-- Swiggy
c-- Flipkar Groceries
d-- Amazon Pantry
19-- In the merger negotiation process, what should be the key factor considered by the management and
board of directors of the target company when analyzing offers?
a-- The financing plan of the bidder
b-- The price offered for each common share
c-- The prime motivation for the offer
d-- Total amount of cash offered
20-- If acquirer acquires more than _________ shareholding of the target, then it has to make an open offer
of at least ________ additional stake to be brought from the existing shareholders.
a-- 15%, 20%
b-- 20%, 26%
c-- 25%, 26%
d-- 51%, 15%
21-- The acquirer can exercise the control if ____________
a-- They hold controlling number of share
b-- Majority voting rights or management rights
c-- Shareholder’s agreement
d-- Any of these
22-- As per the provision in a CEO’s contract which states that a large bonus in the form of cash or stock shall
be given to him if the company is acquired is an example of ______defense mechanism
a-- Poison pill
b-- Golden parachute
c-- Crown Jewel
d-- White Knight
23-- At times, the EPS of the combined entity would have been increased at the initial levels itself, merely due
to acquisition of firms with lower PE multiples and not necessarily due to synergistic benefits. This is
popularly referred to as _____________
a-- Performance effect
b-- Bootstrapping effect
c-- Merger effect
d-- Delfi Effect
24-- Birla Sunlife Insurance is an example of ____________
a-- Merger
b-- Acquisition
c-- Joint Venture
d-- Franchising
25-- Net assets minus Capital Reserve is __________
a-- Goodwill
b-- Total assets
c-- Purchase consideration
d-- None of these
26-- __________ suggests that the post-acquisition performance would improve if the acquisition is effected
through debt or cash and not equity
a-- Free cash flow theory
b-- Market for co-operate control theory
c-- Hubris Theory
d-- Winners’ Curse Theory
27-- The Companies Act 2013 specifically ask for obtaining sanctions from various regulators. The timeline
with which the regulators should revert back with their concern or approval is ________
a-- 30 days
b-- 60 days
c-- 90 days
d-- 1 year
28-- It is a defense that generally requires 70% or 80% of shareholders to approve of any acquisition.
Conducting a takeover by buying enough stock for a controlling interest in this situation becomes almost
impossible. Which strategy it would be?
a-- Super majority
b-- Golden parachute
c-- Crown Jewel
d-- White Knight
29-- Company/Person/Group of person etc are said to have control over the target company if they have the
right to appoint majority of directors, control is also established if the acquirer can
a-- have right to appoint majority of directors
b-- If the acquirer can control the management
c-- Influence the strategic decision in the target company
d-- Any of these
30-- Taking the reasonable care while entering into a transaction and checking every area minutely so that
acquirer is sure what being bought and there are no major problem areas in the target. The process is known
as ___________
a-- Caution signs
b-- Investigation
c-- Due diligence
d-- Surveillance
31-- In bank mergers held in 2021, the bank which merged with Punjab National Bank include __________
a-- Bank of Rajasthan
b-- Oriental Bank of Commerce and United Bank of India
c-- Vijaya bank and Dena Bank
d-- Oriental Bank of Commerce and Union Bank of India
32-- Estimated fair value of an asset is based on the _______ value of operating cash flows.
a-- Current
b-- Discounted
c-- Future
d-- Past
33-- Under this method of accounting, the assets. Liabilities and reserves of target companies will be
recorded by the acquirer at their book value/carrying value
a-- Consolidation
b-- Pooling
c-- Amalgamation
d-- Purchase
34-- Firm A is planning to acquire Firm B. If firm A prefers to make a cash offer for the merger it indicates that
a-- Firm A’s managers are optimistic about the post merger value of A
b-- Firm A’s managers are pessimistic about the post merger value of A
c-- Firm A’s managers are neutral about the post merger value of A
d-- None of these
35-- ___________ states that the information shared between two entities will remain confidential and will
not be shared with any other third party and will be returned whenever demanded
a-- Non disclosure agreement
b-- Letter of intent
c-- Exclusivity Agreement
d-- Deterministic Agreement
36-- The process of intensive investigation of each business activity like operations, finances etc. is called:
a-- Due-Diligence
b-- Non-disclosure agreement
c-- Letter of intent
d-- Definitive agreement
37-- Which of the following is the date on which all the formalities as per scheme of merger are fulfilled and
merger is said to be completed:
a-- Appointed date
b-- Ex-merger date
c-- Effective date
d-- No specific terminology for this
38-- A dissident group solicits votes in an attempt to replace existing management. This is called a:
a-- Proxy fight
b-- Shareholder derivative action
c-- Tender offer
d-- Management freeze-out
39-- The constant growth rate assumed at the end of forecast horizon in which the free cash flow will
perpetually is:
a-- Terminal growth rate
b-- WACC
c-- Short term growth rate
d-- Risk free rate
40-- A shoe manufacturing firm acquiring a brokerage house is an example of a
a-- Horizontal merger
b-- Vertical merger
c-- Congeneric merger
d-- Conglomerate merger
41-- If an acquisition is made using cash payment then the acquisition is:
a-- Taxable
b-- Viewed as exchanging of shares and is not taxed
c-- a tax free transaction as no capital gains or losses are recognized
d-- Nome of these
42-- IndAS 103 recognizes which of the method of accounting for business combination:
a-- Pooling of interest method
b-- Purchase method
c-- Both of the above
d-- None of the above
43-- Which amongst the following is least likely the benchmark used in case of comparable company analysis
method of valuation
a-- Industry Average/Median
b-- Peer Group average/Median
c-- Risk free Rate
d-- Index Ratio
44-- The maximum timeline within which the regulators should revert back their concern or approval from
the date of receiving the scheme of Merger documents is
a-- 30 days
b-- 60 days
c-- 90 days
d-- 120 days
45-- Which of the following model is least likely be used in case of valuing an M&A transaction:
a-- Dividend discount model
b-- Free cash flow to firm model
c-- Transaction based valuations
d-- Sum of parts Approach
46-- As per the companies Act;2013, for the approval of scheme of merger, shareholders and creditors can
caste their respective votes through which of the following modes:
a-- In person
b-- Postal Ballot
c-- E-voting
d-- All of the above
47-- In which of the following merger accounting method Goodwill is recorded?
a-- Pooling of interest method
b-- Purchase method
c-- Both of the above
d-- None of the above
48-- If the consideration paid for an acquisition is less than the Net Asset Value of transferor company then
the difference is transferred to which of the following account
a-- Goodwill
b-- General Reserve
c-- Capital Reserve
d-- Retained Earnings
49-- A proposed acquisition may create synergy by ..I increasing the market power of the combined firm. II.
Improving the distribution network of the acquiring firm. III. Providing the combined firm with a strategic
advantage. IV. Reducing the utilization of the acquiring firm’s asset
a-- I and III only
b-- II and III only
c-- I and IV only
d-- I, II and III only
50-- Suppose that the market price of company P is Rs. 40 per share and that of company Q is Rs.20. If P
offers one share of common stock for three shares of Q, the ratio of exchange of market prices would be
a-- 0.667
b--2
c-- 1.125
d-- 1.5
51-- If acquirers receives the large depreciation tax shield as a result of acquisition, this will lead to:
a-- Value creation
b-- Value destruction
c-- Value neutral
d-- None of the above
52-- When the target shareholders get additional benefits in future-subject to additional turnover achieved
by combined entity, it is most likely the form of ________ payment.
a-- Earn outs
b-- Stock deal
c-- Debt
d-- Cash deal
53-- The shareholders will receive the rights to buy the shares of target at pre-decided prices in the event of
acquisition as per which of the following defensive strategy:
a-- White knight
b-- Poison pill
c-- Crown Jewell
d-- Golden Parachutes
54-- In which of the following methods for M&A accounting, the identity of reserves will be preserved:
a-- Purchase method
b-- Pooling of interest Method
c-- Both of the above
d-- None of the above
55-- What is the minimum size of offer in case of voluntary open offer for acquisition of a target company:
a-- 0.025
b-- 0.05
c-- 0.1
d-- 0.15
56-- Merger of Bank of Rajasthan into ICICI Bank is an example of:
a-- Horizontal Merger
b-- Vertical Merger
c-- Conglomerate Merger
d-- Congeneric Merger
57-- Higher third party approvals are required in which of the following case?
a-- Asset purchase
b-- Merger
c-- Stock purchase
d-- LBOs
58-- The merger of Sunpharma and Ranbaxy is an example of
a-- Cross-border merger
b-- Horizontal merger
c-- Conglomerate merger
d-- Vertical merger
59-- Firm A has a value of Rs. 100 million, and B has a value of Rs. 70 million. Merging the two would allow a
cost saving with a present value of Rs. 20 million. Firm A purchases B for Rs. 75 million. What is the cost of
this merger?
a-- Rs. 30 million
b-- Rs. 20 million
c-- Rs. 5 million
d-- Rs. 10 million
60-- Buju’s acquisition of Akash Educational Services is an example of
a-- Horizontal merger
b-- Vertical merger
c-- Congeneric merger
d-- Conglomerate merger
61-- Which of the following measure is used for performance evaluation:
a-- Return on investment
b-- Net Profit Margin
c-- Operating Cash Flows
d-- All of the above
62-- If market capitalization of acquirer and target is Rs 1000 Cr and 800 Cr respectively, calculate their
weights for combining the performance measures of merging entities?
a-- 1000 and 800
b-- 10/8 and 8/10
c-- 10 and 8
d-- 10/18 and 8/18
63-- When incumbent management acquires the organization with large amount of debt funding then such a
transaction is known as
a-- Demerger
b-- LBO
c-- Equality carve-out
d-- Management buy-in
64-- The shareholders of a target firm benefit the most when:
a-- An acquiring firm has the better management team and replaces the target firm’s managers.
b-- The management of the target firm is more efficient than the management of the acquiring firm which
replaces them.
c-- The management of both the acquiring firm and the target firm are as equivalent as possible.
d-- Their current management team is kept in place even though the managers of the acquiring firm are
more suited to manage the target firm’s situation.
65-- The cost of Equity for a firm given a risk free rate of 7%. Market return 12% and 1.5 times the beta, is
closest to:
a-- 0.105
b-- 0.125
c-- 0.145
d-- 0.15
66-- As per IndAS 103 , which of the following does not form the part of consideration paid for the
acquisition:
a-- Share capital issued, Cash paid or Liabilities assumed
b-- Existing holding of acquirer in acquired company
c-- Non-controlling interest assumed
d-- Goodwill
67-- A public offer by one firm to directly buy the shares of another firm is called a:
a-- Merger
b-- Consolidation
c-- Tender offer
d-- Spinoff
68-- As per the Companies Act 2013, which of the following is the regulatory authority for the approval of
scheme of merger:
a-- High Courts
b-- Ministry of Finance
c-- NCLT
d-- SEBI
69-- Which amongst the following is least likely the method of payment that should be chosen if the deal
structure does not want to impart tax liability of the target shareholders:
a-- Cash
b-- Debt
c-- Stock
d-- Earn outs
70-- When a large Public Ltd. firm with a private entity then such a transaction is categorized as:
a-- Slump sale
b-- Reverse merger
c-- Takeover
d-- Leverage Buyout
71-- Going-private transaction in which large percentage of the money used to buy the outstanding stock is
borrowed is called a:
a-- Tender offer.
b-- Proxy contest.
c-- Merger.
d-- Leveraged buyout
72-- When the management of the board intends to alter its capital structure, it can most likely go for which
of the glowing structure?
a-- Forward Triangular Merger
b-- Leveraged Buyout
c-- Single firm recapitalization
d-- Reverse Triangular Merger
73-- As per SEBI takeover code -2011, trigger point for mandatory open offer is, acquisition of ________
shareholding of target entity.
a-- 0.1
b-- 0.15
c-- 0.2
d-- 0.25
74-- In order to measure whether a merger is successful, it should result into which of the following, over a
medium to long term period after merger?
a-- Decreased leverage in the merged entity
b-- Increase share-price of merged entity
c-- Increased market share of merged entity
d-- Increase outlets of combined entity
75-- Mc- Doanld business model is an example of
a-- Acquisitions
b-- Licensing
c-- Franchising
d-- Organic Growth
When a firm is able to charge higher charges for its product due to its large size, the source of synergy
is caused by
a)
b)
c)
d)
Economics of scope
Market power
Corporate control
Economies of scale
A vertical merger occurs between firms
a)
b)
c)
d)
At different stages of the value chain
In the same industry
In different industry
Under same management
The essential element for successful post-merger integration includes
a)
b)
c)
d)
Clear communication
Know the people
Common vision
All of these
Which of the following is not benefit of synergy
a)
b)
c)
d)
Increase revenue
Raising tax
Decreasing cost
Decreasing cost of fund
Following an acquisition the acquiring firms balance sheet shows an asset labeled goodwill what form
of merger accounting is being used
a)
b)
c)
d)
Consolidation
Pooling
Amalgamation
Purchase
________happens when an entity sale either the assets or part of its business usually subsidiary or to
the outsiders in order to concentrate on the core operations
a)
b)
c)
d)
Split off
Divestiture
Demerger
Split up
Getting a valuation report from registered merchant banker is _______________in case of merger
a)
b)
c)
d)
Voluntary
Optional
Mandatory
Occasional
In this takeover defence the target company sells one its most valuable assets which make the target
company less attractive in the eyes of the raider company
a)
b)
c)
d)
Poison pill
Golden parachute
Crown jewel
White knight
In the case of _______a larger entity or a parent entity merges with a small entity or a subsidiary entity
a)
b)
c)
d)
Merger
Acquisition
Reverse Merger
Consolidation
When the merging entities reach a mutually decided price, mode of payment, etc and deal is closed,
a_______ will be signed between the two entities
a)
b)
c)
d)
Non disclosure agreement
Definitive Agreement
Exclusivity Agreement
Deterministic Agreement
This is a defence mechanism wherein a friendly third party is sought who can buy the target at an
attractive price
a)
b)
c)
d)
Super Majority
Golden Parachute
Crown Jewel
White knight
As per_________ it is believed that the acquire company’s assets would not have been efficiency
managed. This acts as a stimulant for different managers /company’s to acquire those companies or
the assets at a lower price and manager it themselves efficiently to increase its market value
a)
b)
c)
d)
Synergy theory
Market for Corporates control theory
Hubris theory
Winner’s curse theory
In which method of accounting, post merger the reserves will not reflect in books of account
a)
b)
c)
d)
Consolidation
Pooling
Amalgamation
Purchase
As per IND AS 103 for common control business combination which method of accounting is to be
used?
a)
b)
c)
d)
Purchase
Pooling
Normal
Liquidation
1. In case of capital budgeting decision, the project in which choice of one automatically
exclude the other are known as _____?
Mutually Exclusive Projects
2. Which of the following are the two components of holding period return?
Capital Appreciation & periodic return
3. If the credit period is increased for the customer of the company, operating cycle
will______?
reduce
4. Which of the following will result in shareholders wealth maximisation?
​Maximum utilisation of resources
5. Stream of Equal cash flow at regular intervals starting at the beginning of the period is
known as?
Annuity Due
6. Cost of preference share is?
7. The rate beyond which the preference between two independent project reverses is
known as?
​Reversal Rate
8. 1/10,30 credit term means?
1% discount for payment within 10 days
9. Market interest rate is 9%. A bond with 10% coupon will sell _______ par value?
Above
10. The relationship between security return and market return is shown by______?
Beta
11. Preference share is a ______ instrument?
None of the above
12. Which of the following is not the method for calculation of cost of equity?
13. As per liquidity premium theory, interest rates on long term bonds will be _____ than
short term bonds?
Higher
14. Current year dividend of Sun Ltd is Rs. 5 per share. Expected growth rate is 8% and
market capitalisation rate is 10%. Calculate the intrinsic value of stock?
270
15. For a firm, weight of equity and debt is 0.6 and 0.4 respectively and cost of equity is 5%.
Cost of debt is 9%, tax rate is 30%. Calculate the WACC for the firm?
0.126
16. A stock's average return in last 3 years were 12% and standard deviation is 8%.
Calculate the coefficient of variation?
0.67
17. A liberal working capital policy will lead to_______?
High Inventory
18. For A ltd annual demand is 10000 units, carrying cost is 2 Rs.per unit and order cost is
Rs. 50. Calculate the EOQ?
28
19. Sheela needs Rs. 500000 at the end of 5 years. How much amount she should invest
right now @10%. Present value of 1 Rs at 10% for 5 years is 0.6209?
310450
20. If the annual rent expense goes up, the operating leverage will ______ and will give rise
to more than proportionate change in _______?
Increase, EBIT
21. What will be the price of bond with face value Rs. 1000 carrying a coupon of 10%
maturing in 3 years at 10% premium on par value? Present value factor and PVAF at
10% for 3 years is 0.7513 and 2.4869 respectively.
1075.12
22. As per matching approach, permanent working capital requirements should be funded
by ______?
Long term funds
23. For project with different scales, which of the evaluation techniques should be used?
​IRR
24. Cost of equity is always Equal to or ______ than WACC.
Lower
25. Which of the following AAA debentures will have highest price if YTM is_____?
0.07
26. If business risk of a company goes up than price of stock will________?
Decrease
27. The underlying assumption in IRR method is that all the intermittent cash flows are
reinvested at________.
IRR
28. Days inventory+days sales outstanding is known as______?
​Cash conversion cycle
29. Which of the following is an example of unsystematic risk?
Increased steel prices
30. Stream of equal cash flows at regular interval starting at the beginning of the period is
known as?
31. The difference between present value of cash inflows and outflows is known as______?
NPV
32. Calculate the standard deviation with the help of following data: p=.03,r=30%, p=.4,
r=16%, p=0.3 r=8%
4.21
33. Cost of preference share is________?
34. Moon ltd invests Rs. 800000 is a proper manufacturing plant. This is expected to
generate Rs. 150000 every year for next seven years. Cost of capital of the project is
10%. PVAF for 7 years at 10% is 5.3349. Calculate the NPV of the project?
235
35. If the credit period is increased for the customers of the company, operating cycle
will______?
36. Increased financial leverage givers rise to _________ volatile EPS?
More
37. Shyam deposits Rs. 5000 every year for next 3 years at 6% semiannual compounding.
Calculate the future value if investment? Future value annuity factor at 3% for 3 years is
3.0909 & 6.4684 respectively and at 6% for 3 years and 6 years is 3.1836 & 6.9753
respectively.
15918
38. If the coupon rate of a debenture is increased then its YTM will _____?
​Increase
39. Arun buys an stock at Rs. 20 & sells at Rs. 25 after 10 months. During this period, he
receives a dividend of Rs. 5 on his investments. Calculate the holding period return?
0.5
40. Sales proceeds from the asset sold at the end of project forecasting period is treated as
_____?
​Terminal cash flow
41. For dairy ltd. beta is 0.8. Nifty returns= 15% and T-bill rate is 8% what is the cost of
equity?
0.15
42. Increase in the frequency of compounding results into ______ maturity value.
Higher
43. A tight working capital policy will lead to ________?
All of the above​ “Low inventory, low debtors and low inventory carrying cost”
44. ________ method tells the period in which original investment in a project will be
recovered.
Pay Back Period
45. Which of the following is combined measure of risk and return?
Coefficient of variation
46. For accepting the project IRR has to be compared with _______ ?
47. A company replaces an old machinery with salvage value of Rs. 100000 replaced by a
machinery costing Rs. 500000. The relevant cash flows for evaluation for this project is
______?
600000
48. Why depreciation has to be added back in the calculation of cash flow as it is a _____?
49. If the credit period is increased by the suppliers of the company, cash conversion cycle
will?
Reduce
50. If the cost of capital of a project goes up then NPV will ______?
​Increase
51. Sales of zing ltd. for 2016 was Rs. 10000, COGS Rs. 6000, depreciation Rs. 1000
interest Rs 800, Tax Rate 30%. Calculate the operating cashflows of zing ltd. for 2016?
Rs. 2540
52.
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Test1 FINC002 - Assignments
Financial Management (Institute of Management Technology, Ghaziabad)
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Q1. The difference between present value of cash inflows and outflows is known as
NPV
Q2. Increase in the frequency of compounding results in to _________ maturity value
Higher
Q3. Arum buys a stock at rupees 20 and sells at rupees 25 after 10 months. During this
period he receives a dividend of rupees 5 on his investments. Calculate the holding
period return
0.5
Q4. If the annual rent expense goes up, the operating leverage will _________ and will
give rise to more than proportionate change in ___________
Increase, EBIT
Q5. Market interest rate is 9%. A bond with 10% coupon will sell ______ par value
Above
Q6. After the 2 for 1 shares split number of shares will ______?
Double
Q7. 1/10 30 credit term means
1% discount for payment within 10 days
Q8. If the face value of a bond is 100 and its redemption value is 110 bond is maturing
at ________?
10% premium
Q9. Current year dividend of Sun limited is rupees 5 per share expected growth rate is
8% and market capitalization rate is 10%. Calculate the intrinsic value of stock
Rs. 270
Q10. If growth rate of expected earnings goes up then price of stock will ________?
Increase
Q11. As per MM proposition without taxes value of firm is __________ by changing the
capital structure?
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Not affected
Q12. Which of the following instrument is riskiest : shares, preference shares,
debentures, fixed deposit ?
Shares
Q13. If credit sales is 1,00,000 credit period is 30 days calculate the average receivables
3333
Q14. What are the two components of holding period return
Periodic return and capital appreciation
Q15. Dividend payment linked to profits left-out after meeting the expansion needs is
based on ________ theory/policy ?
Residual Payout Policy
Q16. In which of the following frequency of compounding present value of annuity will be
lowest : annual, quarterly, monthly, daily
Daily
Q17. Days inventory + days sales outstanding is known as ________ ?
The Cash Conversion Cycle
Q18. If the coupon rate of a debenture is increased then its YTM will _______?
Decrease
Q19. Brexit Greece crisis Chinese crisis subprime crisis are examples of which of the
following : systematic risk, unsystematic risk, total risk, specific risk
systematic risk
Q20. If the cost of capital of a project goes up then NPV will _________?
Decrease
Q21. A tight working capital policy will lead to ________?
All of the above
Q22. When in the calculation of IRR intermittent cash flows are reinvested at required
rate of return the resultant rate is known as
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MIRR
Q23. As per MM proposition with taxes, value of unlevered firm is _______ then levered
firms
Same
Q24. For Dairy limited beta is 0.8 nifty returns equal to 15% and T bill rate is 8% what is
the cost of equity
13.56
Q 25. Sales of Zing limited for 2016 was rupees 10,000, CoGS Rs. 6000 depreciation
rupees 1000 interest rupees 800. Tax rate 30%. Calculate the operating cash flow of zing
limited for 2016
2540
Q26. As per matching approach, permanent working capital requirements should be
funded by ______?
Long term funds
Q 27. Proportion of profit distributed among shareholders is known as
Payout ratio
Q 28. For A limited annual demand is 10,000 units, carrying cost is rupees two per unit
and order cost is rupees 50. Calculate EOQ
707
Q 29. The cash flows forecasted during the projection period for capital budgeting
decisions are known as
Regular cash flow
Q 30. The stock's average return in last three years where 12% and standard deviation is
8%. Calculate the coefficient of variation
0.67
Test 2
Q1. The relationship between security return and market return is shown by ______?
Rm-Rf
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Q2. If the credit period is increased for the customers of the company operating cycle
will ______?
Increase
Q3. Which of the following instrument is riskiest: shares, preference shares, debentures,
fixed deposit ?
Shares
Q4. If the cost of capital of a project goes up then NPV will _________?
Decrease
Q5. _________ method tells the period in which original investment in a project will be
recovered?
Payback period
Q6. In which of the following frequency of compounding maturity value of investment
will be highest : annual, quarterly, monthly, daily
Daily
Q7. As per MM proposition with taxes, value of unlevered firm is _______ then levered
firms
Higher
Q8. Shyam deposits Rs 5000 every year for next three years at 6% semi annual
compounding. Calculate the future value of investment? Future value annuity factor at
3% for three years and six years is 3.0909 and 6.4684 respectively and at 6% for three
years and six years is 3.1836 and 6.9753 respectively
17438.25
Q9. What will be the price of bond with face value Rs. 1000 carrying a coupon of 10%
maturity in three years at 10% premium on par value. The present value factor and PVAF
at 10% for three years is 0.75132 and 2.4869 respictively
1000
Q10. Sheila needs rupees 5,00,000 at the end of five years. How much amount she
should invest right now at 10%. The present value of ₹1 at 10% for five years is .6209
310450
Q11. Stocks average return in last three years were 12% and standard deviation is 8%,
Calculate the coefficient of variation
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0.67
Q12. If the annual rent expense goes up, the operating leverage will _________ and will
give rise to more than proportionate change in ___________
Increase, EBIT
Q 13. Proportion of profit distributed among shareholders is known as
Payout ratio
Q14. In which of the following frequency of compounding present value of annuity will be
lowest : annual, quarterly, monthly, daily
Daily
Q15. Which of the following costs is important while evaluating the investment decisions
: sunk cost, incremental cost, both of the above and none of the above
Incremental cost
Q16. Stream of equal cash flows at regular interval is known as
Annuity
Q17. If proportion of debt is increased in Capital structure, overall cost of capital will
________?
Decrease
Q18. For A limited annual demand is 10,000 units, carrying cost is rupees two per unit
and order cost is rupees 50. Calculate EOQ
707
Q19. For projects with different scales which of the evaluation techniques should be
used: NPV, IRR, pay-back period and profitability index
NPV
Q20. A company replaces an old machinery with salvage value of rupees 1,00,000
replaced by a machinery costing rupees 5 Lac. The relevant cash flows for evaluation of
this project is
4lac
Q21. For Dairy limited beta is 0.8 nifty returns equal to 15% and T bill rate is 8% what is
the cost of equity
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13.56
Q22. If the credit period is increased by the suppliers of the company's cash conversion
cycle will _____?
Reduce
Q23. As per bird in hand theory high dividend payout is _______ to low payout? Options
are preferred, not preferred, irrelevant for investor and none of the above
Preferred
Q24. Preference share is a _________ instrument? Ownership, debt, hybrid and none of
the above
Hybrid
Q25. If growth rate of expected earnings goes up then price of stock will ________?
Increase
Q26 The cash flows forecasted at the end of the projection period for capital budgeting
decisions are known as
Terminal cash flow
Q27. In case of share buy-back number of outstanding share will
Reduce
Q28. If business risk of a company goes up then price of stock will
Decrease
Q29. Market rate is 9% I'm born with 10% coupon we'll sell _______ par value
Above
Q30. A tight working capital policy will lead to _______ ?
All of the above
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FINC521 - Assignment pdf
MBA executive (Institute of Management Technology, Ghaziabad)
Studocu is not sponsored or endorsed by any college or university
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FINC521
1. Interest yields for different maturity periods, plotted on a graph is known as________?
a) Yield Curve
b) Term structure of interest rates
c) Both of the above
d) None of the above
2. A company replaces an old machinery with salvage value of Rs. 100000 replaced by
a machinery costing Rs. 500000. The relevant cash flows for evaluation of this
project is_______?
a) 100000
b) 500000
c) 400000 [Purchase 500000 – Salvage Value 100000]
d) 600000
3. Sales of Zing Ltd. For 2016 was Rs 10000, COGS Rs 6000, Depreciation Rs 1000,
Interest Rs 800, Tax Rate 30%. Calculate the operating cashflows of Zing ltd for
2016.
a) Rs 4000
b) Rs 1540
c) Rs 2540
d) Rs 2200
4. In ABC classification of inventory, maximum attention has to be paid on_________
items?
a) A category
b) B category
c) C category
d) All of them
5. Brexit, Greece Crises, Chinese Crises, Sub-prime Crises are the examples of which
of the following?
a) Systematic risk
b) Unsystematic risk
c) Total risk
d) Specific risk
6. Cost of debt is______?
a) Coupon rate
b) YTM (1-tax rate)
c) YTM
d) YTM/Bond Price
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7. Cost of equity is always equal to or____________ than WACC.
a) Lower
b) Same
c) Higher
d) Fluctuating
8. For a firm, weight of equity & debt is 0.6 & 0.4 respectively and cost of equity is
15%, Cost of debt is 9%, tax rate is 30%. Calculate the WACC for the firm?
a) 0.126
b) 0.1152
c) 0.12
d) 0.084
9. If proportion of debt is increased in capital structure, overall cost of capital
will_______?
a) Decrease
b) Increase
c) Remain same
d) Fluctuate
10. When a proportion of reserves is distributed among shareholders as shares, it is
known as_____________?
a) Stock Dividend
b) Bonus Shares
c) Dividend
d) Both 1& 2
11. Which of the following is combined measure of risk & return?
a) Mean
b) HPR
c) Expected Return
d) Coefficient of variation
12. If the cost of capital of a project goes up then NPV will__________?
a) Decrease
b) Increase
c) Remain same
d) Fluctuate
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13. Current year dividend of Sun Ltd is Rs 5 per share. Expected growth rate is 8% and
market capitalization rate is 10%. Calculate the intrinsic value of stock?
a) 5.4
b) 67.5
c) 54
d) 270 [Given, D0=5, g=8%, r=10% and D1= D0(1+g), Stock= D1/(r-g)]
14. When in the calculation of IRR, intermitant cashflows are reinvested at required rate
of return, the resultant rate is known as__________?
a) CIRR
b) MIRR
c) IRR
d) None of the above
15. The internal rate of return generated by a fixed income investment, if held till
maturity is known as
a) Current yield
b) YTM
c) Yield curve
d) Coupon rate
16. What will be the price of bond with face value Rs 1000 carrying a coupon of 10%
maturing in 3 years at 10% premium on par value? Present value factor and PVAF at
10% for 3 years is .7513 and 2.4869 respectively.
a) 1000
b) 826.43
c) 1075.12
d) 1348.69
17. Which of the following is not the function of investment banking?
a) New issue management
b) Private equity advisory
c) Venture capital fund advisory
d) Working capital management
18. If the credit period is increased for the customers of the company, operating cycle
will_________?
a) Reduce
b) Increase
c) Remain same
d) Unaffected
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19. Which of the following is an example of unsystematic risk?
a) Interest rates fluctuations
b) Political Uncertainty
c) Increased steel prices
d) Global economic crises
20. Which of the following method is considered the best evaluation techniques for longterm investment decisions?
a) NPV
b) IRR
c) Pay-Back period
d) Profitability Index
21. Stream of equal cashflows at regular interval starting at the beginning of the period
is known as?
a) Lumpsum Cash Flows
b) Annuity
c) Conventional Cash Flows
d) Annuity Due
22. If the annual rent expense goes up, the operating leverage will __________ and will
give rise to more than proportions change in____________?
a) Decrease, EPS
b) Decrease, EBIT
c) Increase, EPS
d) Increase, EBIT
23. Increased financial leverage gives rise to____________ volatile EPS?
a) More
b) Less
c) Non
d) None of the above
24. If the credit period is increased by the suppliers of the company, cash conversion
cycle will______________?
a) Reduce
b) Increase
c) Remain same
d) Unaffected
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25. In how much time Rs 10 lacs can be approximately doubled, if invested at 8%
compounded annually?
a) 8 years
b) 9 years
c) 10 years
d) 12 years
26. If the face value of a bond is 100 and its redemption value is 110, bond is maturing
at_________?
a) 10% discount
b) 10% premium
c) At par
d) None of the above
27. For dairy Ltd Beta is 0.8, Nifty return= 15% and T-bill rate is 8%. What is the cost of
equity?
a) O.15
b) 0.08
c) 0.056
d) 0.07
28. Levered equity beta is________ than unlevered equity beta?
a) Less
b) Equal to
c) More
d) None of the above
29. Arun buys a stock at Rs 20 & sells at Rs 25 after 10 months. During this period, he
receives a dividend of Rs 5 on his investments. Calculate the Holding Period Return?
a) 0.25
b) 0.5
c) 0.2
d) 0.4
30. Why depreciation has to be added back in the calculation of cash-flow as it is
a______?
a) Manufacturing expense
b) Cash expense
c) Non-cash expense
d) Non-operating expense
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31. Calculate the expected return with the help of following data: p=.3 r=30%, p=.4
r=16%, p=.3 r=8%
a) 17.8
b) 18
c) 5.8
d) 7.35
32. In Excel, in order to calculate the EMI for loan repayment, which function has to be
used?
a) PV
b) FV
c) NPV
d) PMT
33. Which of the following will result in Shareholder’s wealth maximization?
a) Optimum utilization of resources
b) Maximum utilization of resources
c) Leverage Minimization
d) Funding maximization
34. If credit sale is 100000, credit period is 30 days, calculate the average receivables?
a) 8219
b) 8333
c) 3333
d) 3288
35. Sheela needs Rs 100000 at the end of each year in the next 5 years. How much
amount she should invest now @ 10%? Present Value of annuity factor at 10% for 5
years is 3.7908.
a) 131898.28
b) 500000
c) 100000
d) 379080
36. For projects with different scales, which of the evaluation techniques should be
used?
a) NPV
b) IRR
c) Pay-Back Period
d) Profitability Index
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37. If the coupon rate of a debenture is increased then its YTM will?
a) Decrease
b) Increase
c) Remain same
d) Fluctuate
38. Proportion of profit distributed among shareholders is known as__________?
a) Dividend rate
b) Dividend capitalization rate
c) Retention ratio
d) Pay-out ratio
39. A stock’s average return in last 3 years were 12% and standard deviation is 8%.
Calculate the coefficient of variation?
a) 1.5
b) 0.33
c) 0.67
d) 9.6
40. Cost of preference share is________?
a) Preference Dividend Rate
b) Pref Dividend/Pref. share market price
c) Both of the above
d) None of the above
41. 1/10,30 credit term means?
a) 1% discount
b) 0.1% discounts
c) 1% discount for payment with 10 days
d) 0.1% discount for payment within 30 days
42. Which of the following AAA debentures will have highest price if YTM is_____?
a) 0.07
b) 0.08
c) 0.075
d) 0.085
43. When interest rates on long term bonds are higher than short term bonds, yield
curve will be_________?
a) Upward slopping
b) Downward slopping
c) Flat
d) None of the above
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44. In case of capital budgeting decisions, the projects in which choice of one
automatically excludes the another are known as________?
a) Dependend Projects
b) Independent projects
c) Mutually Exclusive Projects
d) Mutually Inclusive Projects
45. Dividend declared at 12% means that this %age will be applied on________?
a) Issue price
b) Market price
c) Face Value
d) Profits
46. Which of the following is ultimate objective of financial management?
a) Profit maximization
b) Shareholder’s wealth maximization
c) Leverage minimization
d) Funding maximization
47. Market interest rate is 9%. A bond with 10% coupon will sell ___________ par value?
a) Above
b) Below
c) At
d) None of the above
48. The rate at which present value of cash inflows becomes equal to Present value of
cash outflows is called_______?
a) Cut-off rate
b) Required date of return
c) Cost of capital
d) IRR
49. Stream of equal cashflows at regular interval is known as?
a) Lumpsum cash flows
b) Annuity
c) Conventional cash flows
d) Annuity due
50. Moon Ltd invests Rs 800000 in a paper manufacturing plant. This is expected to
generate Rs 150000 every year for next seven years. Cost of capital for the project
is 10%. PVAF for 7 years at 10% is 5.3349. Calculate the NPV of the project?
a) 800000
b) 800235
c) 235
d) -235
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51. ________method tells the period in which original investment in a project will be
recovered.
a) NPV
b) IRR
c) Pay-Back Period
d) Profitability Index
52. The risk which can be reduced by diversification is known as________?
a) Systematic Risk
b) Unsystematic Risk
c) Total Risk
d) Market Risk
53. Sheela needs Rs 500000 at the end of 5 years. How much amount she should invest
now @ 10%? Present Value of 1 Rs at 10% for 5 years is .6209.
a) 100000
b) 155225
c) 310450
d) 400000
54. The underlying assumption in IRR method is that all the intermitant cashflows are
reinvested at__________.
a) Cut-off rate
b) Required rate of return
c) Cost of capital
d) IRR
55. In which of following frequency of compounding, maturity value of investment will be
highest?
a) Annual
b) Quarterly
c) Monthly
d) Daily
56. Which of the following is not the method for calculation of cost of equity?
a) CAPM
b) Dividend Discount Model
c) YTM + Risk Premium
d) YTM
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57. The relationship between security return and market return is shown by_____?
a) Rf
b) Rm
c) Rm-Rf
d) Beta
58. As per liquidity premium theory, interest rates on long term bonds will be________
than short term bonds?
a) Lower
b) Same
c) Higher
d) Fluctuating
59. Which of the following are the two components of Holding Period Return?
a) Beginning Value & Ending Value
b) Periodic Return & Ending Value
c) Periodic Return & Capital Appreciation
d) Beginning Value & Capital Appreciation
60. A liberal working capital policy will lead to______?
a) Low debtors
b) Low inventory
c) Low cost
d) High inventory
61. As per bird in hand theory, high dividend pay-out in __________to low pay-out?
a) Preferred
b) Not preferred
c) None of the above
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Financial Management
Test 1
1. Why depreciation has to be added back in the calculation of cash flow as it is a_____?
Ans – Non-cash expense
2. If growth rate of expected earnings goes up than price of stock will_____?
Ans – Increase
3. If proportion of debt is increased in capital structure overall cost of capital will_____?
Ans – Decrease
4. When in the calculation of IRR, intermittent cash flows are reinvested at required rate of return; the
resultant rate is known as_____?
Ans – MIRR - (modified internal rate of return)
5. A liberal working capital policy will lead to
a. Low debtors
b. low inventory
c. low cost
d. high inventory
6. Dividend declared at 12% means that this %age will be applied on ______?
a. Issue price
b. Market price
c. Face value
d. Profits
7.
a.
b.
c.
d.
Brexit, Greece Crises, Chinese Crises, Sub -Prime Crises are example of which of the following?
Systematic Risk
Unsystematic Risk
Total Risk
Specific Risk
8. Increased financial leverage give rise to _____ volatile EPS?
a.
More
b. Less
c. Non
d. None of the above
9.
a.
b.
c.
d.
If the cost of capital of a project goes up the NPV Will ______?
Decrease
Increase
Remain same
Fluctuate
10.The cash flows invested in a project at t=0 period is known as ____?
a. Initial cash flows
b. Operating cash flows
c. Terminal cash flows
d. Regular cash flows
11.Proportion of profit distributed among share holders is known as _____?
a. Dividend ratio
b. Dividend capitalization ratio
c. Retention ratio
d. Pay-out ratio
12.The internal rate of return generated by an fixed income investment, if held till maturity is known as
a. Current yield
b. YTM
c. Yield curve
d. Coupon rate
13.The rate beyond which the preference between two independent projects reverses is knows as____?
a. IRR
b. Reversal rate
c. Cross over rate
d. Cut off rate
14.Arun buys a stock at Rs 20 and sells at Rs 25 after 10 months. During this period, he receives a
dividend of Rs 5 on his investments. Calculate Holding Period return?
a. 0.25
b. 0.5
c. 0.2
d. 0.4
Holding Period Return is returning an asset after holding in for a period of time. It
is expressed in percentage.
HPR = Selling Price - 25, Cost Price = 20, Dividend = 5,
"
15.If the coupon rate of a debenture is increased then its YTM will ______?
a. Decrease
b. Increase
c. Remain same
d. Fluctuate
16.Preference share is a ______ instrument?
a. Ownership
b. Debt
c. Hybrid
d. None of the above
17.Calculate standard deviation with the help of following data: p=0.3, r=30%, p=0.4, r=16%, p=0.3,
r=18%
a. 74.76
b. 24.92
c. 4.21
d. 8.64
18.If business risk of company goes up than price of stock will _____?
a. Decrease
b. Increase
c. Remain same
d. Fluctuate
19.Which of the following evaluation techniques for long-term investment decisions doesn’t consider
the time value of money?
a. NPV
b. IRR
c. Pay-back period
d. Profitability index
20.If credit sales 100000, credit period is 30 days, calculate the average receivables
a. 8219
b. 8333
c. 3333
d. 3288
21.For A Ltd. Annual demand is 10000 units, carrying cost is 2 Rs per unit and order cost is Rs 50.
Calculate the EOQ
Ans – 707
EOQ = Sq Root 2 x (10000x50) /2
22.Stream of equal cash flows at regular interval starting at the beginning of the period is known as?
a. Lumpsum cash flows
b. Annuity
c. Conventional cash flows
d. Annuity due
23.Which of the following is an example of unsystematic risk?
a) Interest rate fluctuations
b) Political uncertainty
c) Increased steel prices
d) Global economic Crises
24.Calculate the expected return with the help of following data: p=0.3, r=30%, p=0.4, r=16%, p=0.3,
r=18%
a. 17.8
b. 18
c. 5.8
d. 7.35
25.For daily ltd Beta is 0.8. Nifty returns = 15% and T-Bill rate is 8% what is the cost of equity?
a. 13.56%
b. 15%
c. 5.6%
d. 7%
Answer: The cost of equity works out to 13.6% as per the CAPM. None of the answers given are the
answers to the question. However, the risk premium of Dairy Ltd, works out to 0.056.
We use the Capital Asset Princing Model or CAPM in order to calculate the cost of equity, required rate of
return on an asset or the discount rate.
The formula for computing the cost of equity is:
In the formula above, the term
refers to the risk premium of the given security, and it
represents the rate of return that the security must give over and above the return obtained on T-bills.
Substituting the values in the formula above we get,
26.As per MM proposition with taxes, value of unlevered firm is _____than levered firm?
a. Lower
b. Same
c. Higher
d. Fluctuating
27.The difference between present value of cash inflows and outflows is known as____?
a. NPV
b. IRR
c. Pay Back period
d. Profitability Index
28.Sales proceeds from the asset sold at the end of project forecasting period is treated as ____?
a. Initial cash flows
b. Operating cash flows
c. Terminal cash flows
d. Regular cash flows
29.Which of the following is not the function of investment banking?
a. New issue management
b. Private equity advisory
c. Venture capital fund advisory
d. Working capital management
30.Dividend payment linked to profits left out after meeting the expansion needs is based on ____
theory/policy?
Ans - Residual payout policy
Financial Management
Test 2
1. ______ Method tells the period in which original investment in a project will be recovered?
a.
b.
c.
d.
NPV
IRR
Pay-back period
Profitability index
2. In how much time Rs 10 lacs can be approximately doubled, if invested at 8% computed annually?
Ans – 9 years
A=P(1+r)n,or, 2P = P (1 + 0.08)n,
2000000 = (1000000 + 80000)n
n = 9 years (approximately)
3. Shyam deposits Rs 5000 every year for next 3 years at 6% semiannual compounding.
Calculate the future value if investment? Future value annuity factor at 3% for 3years
and 6 years is 3.0909 & 6.4684 respectively and at 6% for 3years and 6 years is 3.1836
& 6.9753 respectively.
a. 15454.5
b. 16171
c. 15918
d. 17438.25
4. What will be the price of bond with face value of Rs 1000 carrying a coupon of 10% maturing in 3
years at 10% premium on par value? Present value factor and PVAF at 10% for 3 years is 0.7513
and 2.4869 respectively
a. 1000
b. 826.43
c. 1075.12
d. 1348.69
5. The cash flows forecasted during the projection period for capital budgeting decisions are known as
___?
a.
b.
c.
d.
initial cash flows
operating cash flows
terminal cash flows
regular cash flows
6. Cost of preference share is _____?
a. Preference dividend rate
b. Pref Dividend / Pref. share market price
c. Both of the above
d. None of the above
7. Current year dividend of Sun Ltd is Rs 5 per share. Expected growth rate is 8% and market
capitalization rate is 10%. Calculate intrinsic value of the stock
a. 5.4
b. 67.5
c. 54
d. 270
Answer
Current year dividend, D0 = Rs 5
Expected growth rate, g = 8%
Market capitalization rate, ke = 10%
Next year dividend, D1 = D0 × (1 + g)
= 5 × (1 + 0.08)
= 5.4
Intrinsic value of stock:
= D1 ÷ (ke - g)
= 5.4 ÷ (0.1 - 0.08)
= 5.4 ÷ 0.02
= Rs. 270
8. Market interest rate is 9%. A bond with 10% coupon will sell ____ par value?
a. Above
b. below
c. at
d. none of the above
9. Which of the following is ultimate objective of financial management?
a. profit maximization
b. share holder’s wealth maximization
c. leverage minimization
d. funding maximization
10. As per liquidity premium theory, interest rates on long term bonds will be ____ than short term
bonds?
a. lower
b. same
c. higher
d. fluctuating
11. Discounted payback period is considered an improvement over payback period because it
considers____?
a. all cash flows
b. time value of money
c. easy to understand
d. all of the above
12. Moon Ltd invests Rs. 800000 in a paper manufacturing plant. This is expected to generate Rs.
150000 every year for next seven years. Cost of capital for the project is 10%PVAF for 7 years at 10% is
5.3349. Calculate NPV off the project?
The computation of the net present value is shown below:
Net present value would be
= Cash inflows after considering the discount factor - initial investment
where,
Cash inflows after considering the discount factor would be
= Cash inflows × PVIFA factor for 7 years at 10%
= $150,000 × 5.3349
= $800,235
And, the initial cost of investment is $800,000
So, the net present value equal to
= $800,235 - $800,000
= $235
13. When interest rates on long term bonds are higher than short term bonds, yield curve will be
____?
a. upward slopping
b. downward slopping
c.flat
d. none of the above
Financial Management
Test 3
1. The MM Proposition without taxes, Value of firm is _______ by changing its capital structure?
a.
b.
c.
d.
Affected
Not affected
Increases
Decreases
2.
a.
b.
c.
d.
Which of the following is not the method for calculation of cost of equity?
CAPM
Dividend discount model
YTM + Risk premium
YTM
3.
For a firm weight of equity and debt is 0.6 and 0.4 respectively and cost of equity is 15%,
cost of debt is 9%, tax rate is 30%. Calculate WACC for the firm?
Answer = 0.1152
Weight Average Cost of Capital (WACC) =
{E/V × ke} + [ D/V × Kd × (1-Tc)
where :
E = Market value of the firm's equity
0.6
D = Market value of the firm's debt
0.4
V = total market value of equity & debt (E+D)
Ke = Cost of equity
15%
0.6+0.4
Kd = Cost of debt
9%
Tc = Corporate tax
30%
WACC = {(0.6/1) × 0.15 } + {(0.4/1 ×0.09×(1-0.3)}
WACC = 0.09+0.0252
=0.1152 × 100%
WACC the firm = 11.52%
4. As per matching approach permanent working capital requirements should be funded by
______ ?
a)long term funds
b)short term funds
c)medium term funds
d)any of the above
5.
As per bird in hand theory high dividend payout is ______ to low pay out
A) Preferred
B) not preferred
C) irrelevant for investors
D) none of above
6. For calculation of present value of annuity regular,in excel,the value of type should
be?
A)1
B)0
C)10
D)0.1
7. Which of the following will result in shareholders wealth maximization?
a) optimum utilization of resources
b) maximum utilization of resources
c) leverage minimization
d) Funding maximization
8. Which of the following AAA debentures will have highest price if YTM is _____?
a. 0.07
b. 0.08
c. 0.075
d. 0.085
9.
In which of the following frequency of compounding present value of annuity will be
lowest?
a. Daily
b. Quarterly
c. Monthly
d. Annual
10. If the annual rent expense goes up the operating leverage will________and will give rise
to more than proportionate change in______?
a. decrease, EPS
b. decrease, EBIT
c. increase ,EPS
d. increase , EBIT
11. Which of the following cost is important while evaluating the investment decision?
1. sunk cost
2. incremental cost
3. both
4. none of above
12. The underlying assumption in irr method is that all the intermittent cash flows are
reinvested at
a)cut off rate
b)required rate of return
c)cost of capital
d)irr
Financial Management
Test 4
1. Sheela needs rs 100000 at the end of each year in the next 5 years. How much amount she should
invest now @10% present value of annuity factor at 10% for 5 years is 3.7908
The present value is given by:
Let PV represent the present value and X the annuity.
The present value is given by :
PV = X × The annuity factor
We do this substitution in the question as follows:
X = 100000
We work out as follows:
100000 × 3.7908
= 379080
Sheela needs to invest 379080 now in order to get 100000 at the end of each year.
2.
a.
b.
c.
d.
In which of the following frequency of compounding maturity value of investment will be highest?
Annual
Quarterly
Monthly
Daily
3.
a.
b.
c.
d.
If the face value of a bond is 100 and its redemption value is 110, bond is maturing at ______?
10% discount
10% premium
At par
None of the above
4. Sales of Zing ltd for 2016 was Rs.10000, COGS Rs.6000, Depreciation Rs.1000 interest Rs.800, tax
rate 30%. Calculate the operating cash flows of Zing ltd for 2016
a. Rs.4000
b. Rs.1540
c. Rs.2540
d. Rs.2200
5. Arun buys in stock at Rs 20 and sells at Rs 25 after 10 months. During this period, he receives a
dividend of Rs 5 on his investments. Calculate the holding period return?
Selling price = 25
Cost = 20
Dividend = 5
We need to calculate the holding period return =
Selling price - Cost + Dividend
------------------------------------------Cost
= 25-20+5/20 = .5 => 50%
6.
a.
b.
c.
d.
In India, dividend is ____ in the hands of investors?
Taxable
Not-taxable
Heavily taxable
None of the above
7. A tight working capital policy will lead to?
a) Low debtors
b) Low inventory
c) Low inventory carrying cost
d) all of the above
8. 1/10,30 credit term means?
a. 1% discount
b. 0.1% discount
c. 1% discount for payment within 10 days
d. 0.1% discount for payment within 30 days
9. Which of the following is the spontaneous source of financing the working capital
requirements?
1.commercial paper
2.account payable
3.bank finance
4.all of the above
10.Cost of equity is always equal to or _____ than WACC
a. Lower
b. Same
c. Higher
d. Fluctuating
11.The proportion of reserves is distributed among shareholders as shares is known as____?
a.
Bonus Shares
b. Stock dividend
c. Dividend
d. Both 1 & 2
Financial Management
Test 5
1. After the 2 for 1 share split number of shares will _____ ?
A- Remain same
B-Reduce
C-Be half
d- Double
2. In Excel, in order to calculate the EMI for loan repayment, which function has to be used?
a.
b.
c.
d.
PV
FV
NPV
PMT
3. Growth of the company can be expected to be higher when _____ is high?
a. Pay-out ratio
b. Distribution ratio
c. Dividend ratio
d. Retention ratio
4. Mathematical model for calculating the optimum inventory order quantity is known as________?
a. JIT
b. ABC
c. EOQ
d. All of the above
5. If the credit period is increased for the customers of the company operating cycle will _____?
a.
b.
c.
d.
Reduce
Increase
Remain same
Unaffected
6. If the credit period is increased by the suppliers of the company cash conversion cycle will
A) Reduced
B) Increase
C) Remain same
D) Unaffected
7. A company replaces old machinery with salvage value of Rs 100000 replaced by machinery costing
Rs 500000. The relevant cash flows for evaluation of this project is _____ ?
a. 100000
b. 500000
c. 400000
d. 600000
8. In case of share buyback number of outstanding share will _____?
a.
b.
c.
d.
Reduce
Increase
Remain same
Unaffected
9. Which of the following are two components of holding period return?
a.
b.
c.
d.
Beginning value and ending value
Periodic return and ending value
Periodic return and capital appreciation
Beginning value and capital appreciation
Financial Management
Test 5
1. Which of the following is combined measure of risk & return?
a. Mean
b. HPR
c. Expected return
d. Coefficient of variation
2. In ABC classification of inventory, maximum attention has to be paid on ____ items?
a.
b.
c.
d.
A category
B category
C category
All of them
3. A stock’s average return in last 3 years were 12% and standard deviation is 8%. Calculate the
coefficient of variation?
a. 1.5
b. 0.33
c. 0.67
d. 9.6
Step-by-step explanation:
Given:
S.D=8
Mean=12
Coefficient of variaation
=(0.6666)x100
4. In case of capital budgeting decisions, the projects in which choice of one automatically excludes
the other are known as _______?
a.
b.
c.
d.
Dependent projects
Independent projects
Mutually exclusive projects
Mutually inclusive projects
5. The rate at which present value of cash inflows becomes equal to present value of cash outflows is
called ____?
a. Cut off rate
b. Required rate of return
c. Cost of capital
d. IRR
6. The risk which can be reduced by diversification is known as _____?
a. Systematic risk
b. Unsystematic risk
c. Total risk
d. Market Risk
7. Interest yields for different maturity periods, plotted on a graph is known as ____?
a. Yield curve
b. Term structure of interest rates
c. Both of the above
d. None of the above
8. Levered equity beta is ______ than unlevered equity beta?
a. Less
b. Equal to
c. More
d. None of the above
9. Which of the following method is considered the best evaluation techniques for long-term
investment decisions?
a. NPV
b. IRR
c. Pay Back Period
d. Profitability Index
10. For accepting the project IRR has to be compared with _____?
a. Cut off rate
b. Required rate of return
c. Cost of capital
d. All of the above
11. The relationship between security return and market return is shown by____?
a. Rf
b. Rm
c. Rm-Rr
d. Beta
12. Increase in the frequency of compounding results into ____ maturity value
a. Higher
b. Lower
c. Same
d. Fluctuating
13. Days Inventory + days sales outstanding is known as _____?
a. Operating cycle
b. Cash conversion cycle
c. Collection period
d. Inventory conversion period
14. For Projects with different scales, which of the evaluation techniques should be used?
a. NPV
b. IRR
c. Payback period
d. Probability Index
15.