1. In case the firm makes varying investments on the different investment projects, the appropriate project evaluation technique would be, which one of the following?
(1) Average annual rate of return technique
(2) Pay back period technique
(3) Net present value technique
(4) Profitability index technique
Answer: (4)
2. The cost of external equity can be most appropriately computed as per the
(1) Earnings price ratio
(2) Dividend price ratio
(3) Dividend price plus growth ratio
(4) Capital assets pricing model
Answer: (4)
3. For the following items in List – I and List – II, indicate the correct code after matching them: List – I List – II
i. Net income approach for capital structure a. Modigliani, M. and Miller M.H.
ii. Net operating income approach for capital structure b. Robert Bruner
iii. Irrelevance of capital structure for the value of the firm. c. Ezra Soloman
iv. FRICT analysis for capital structure d. David Durand
Codes: i ii iii iv
(1) a b c d
(2) d c a b
(3) d c b a
(4) b a d c
Answer: (2)
4. Which one of the following is not a feature of ‘Preference Shares’?
(1) Prior claim on income / assets of the company over equity shareholders.
(2) Redeemability after certain period.
(3) Possessing voting rights on important issues of the company.
(4) May possess the right to participate in surplus profits of the company.
Answer: (3)
5.The basic consideration for dividend pay-out for a company excludes which one of the following?
(1) Investment opportunities for the company
(2) Expectations of the shareholders of the company
(3) Legal and financial restrictions for the company
(4) Stability of the dividend considerations
Answer: (4)
6. For the following two statements of Assertion (A) and Reasoning (R) indicate the correct code:
Assertion (A): Shareholders Wealth Maximisation (SWM) and not the profit maximisation is an appropriate and operationally feasible financial management goal.
Reasoning (R): There exists a principal-agent relationship between the shareholders and the management of the company.
Codes: (1) (A) and (R) both are correct.
(2) (A) is correct but (R) is incorrect.
(3) (A) is incorrect but (R) is correct.
(4) (A) and (R) both are incorrect.
Answer: (1)
7 Indicate the correct code of the combinations of the following methods commonly used for capital budgeting
a. Payback Period
b. Profitability Index
c. Utility theory
d. Internal rate of return
Codes: (1) a, b and c
(2) b, c and d
(3) a, b and d
(4) a, c and d
Answer: (3)
8 Match the items of List – I with those of List – II and indicate the correct code from the following: List – I List – II
i. Sale of existing firm to the management a. Reverse synergy
ii. Financing acquisition with substantial secured borrowings b. Management buyout
iii. Firms demerged worth more to other firms c. Reverse capital budgeting
iv. Cash inflows on demerger at present at the sacrifice
in form of cash out-flow on transfer of division/asset d. Leveraged buyout
Codes: i ii iii iv
(1) a b c d
(2) c a b d
(3) b d a c
(4) b a d c
Answer: (3)
9 NPV and IRR methods of investment evaluation may give divergent accept-reject decisions on account of which of the following?
a. Varying initial investment
b. Divergent cash flows from the investment projects
c. Disparity in the lives of the investment projects
Indicate the correct code of their combinations
Codes: (1) a and b only
(2) b and c only
(3) a and c only
(4) a, b and c all
Answer: (4)
10 . Which of the following is not one of the important objectives of Financial Management?
(A) Profit maximisation
(B) Wealth maximisation
(C) Value maximisation
(D) Social responsibility
Answer: (D)
11. For ‘make or buy decision’, which cost is to be considered?
(A) Marginal cost
(B) Total cost
(C) Fixed cost
(D) None of the above Answer: (A)
12.Which is the method applied for measuring GNP?
(A) Income method
(B) Expenditure method
(C) Value Added method
(D) All of the above
Answer: (D)
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13 . Which of the following project appraisal method is not based on time value of money?
(A) Payback method
(B) Net present value method
(C) Internal rate of return method
(D) Discounted payback method
Answer: (A)
14. The exchange rate between the currencies of two countries will be equal to the ratio of the price indices in these countries is explained by
(A) Inflation adjustment
(B) Purchase power parity
(C) Interest rate parity
(D) Transaction exposure
Answer: (B)
15. The cost of equity can be measured as
(A) Rate of interest (1 - t).
(B) Rate of dividend (1- t).
(C) Rate of dividend x
______(face value)-issue Price ____________
n
D) ___D1_+g
P0
Answer: (D)
16 In investment decision, ƒÒ is associated with
(A) Return
(B) Risk
(C) Return and Risk
(D) None of the above
Answer: (B)
17. Among the following financial derivatives, which involves the least risk for the holder?
(A) Forward
(B) Option
(C) Futures
(D) Swap
Answer: (B)
18. With reference to Working Capital Management, the term ‘float’ relates to
(A) Inventory Management
(B) Receivables Management
(C) Cash Management
(D) Marketable Securities
Answer: (C)
19. Takeover generally involves
(A) the acquisition of part of an undertaking to enable the acquirer to increase the market share of the product concerned.
(B) the acquisition of certain block of equity capital of a company which enables the acquirer to exercise control over the affairs of the company.
(C) taking over the responsibility to have trade agreement for finished product.
(D) taking over certain long-term liabilities of another group company to help it financially.
Answer (B)
20. Which of the following is a main method of issue of stocks?
(A) Vendor placing
(B) Public issue through Prospectus
(C) Private placements
(D) None of the above
Answer: (B)
21. The Tax shield would result in
i. increase in tax liability ii. increase in EPS
iii. decrease in EPS
iv. decrease in tax liability Codes:
(A) (ii) and (iv)
(B) (i) and (iii)
(C) (i) and (iv)
(D) (iii) and (iv)
Answer: (A)
22. The goal of financial management is to
(A) Maximise the wealth of Preference Shareholders (B) Maximise the wealth of Debentureholders
(C) Maximise the wealth of Equity shareholders
(D) All of the above
Answer: (C)
23. The Internal Rate of Return (IRR) is determined where
A) the Net Present Value is positive
(B) the Net Present Value is negative
(C) the Net Present Value is zero
(D) None of the above
Answer: (C)
24. According to MM - Approach proposition - I, value of firm is:
(1) Independent of capital structure
(2) Dependent on capital structure
(3) Dependent on tax-rate of the enterprise
(4) Dependent on risk of the enterprise
Answer (2)
26. A stable dividend policy indicates:
(A)Stable earning/price ratio
(B) Stable pay-out ratio
(C) Stable price/earnings ratio
(D) Stable earnings per share
Answer (A)
27. The vertical merger represents merger of firms engaged in:
(1) The same line of business
(2) Different stages of production in an industry
(3) Unrelated lines of business
(4) All of the above
Answer (4)
28. The degree of total leverage is equal to:
(1) Percentage change in EPS/percentage change in sales
(2) Percentage change in EBIT/percentage change in sales
(3) Percentage change in EPS/percentage change in EBIT
(4)Percentage change in sales/percentage change in EBIT
Answer (1)
30. The computation of NPV is based on the assumption that:
(1) Cash flows for each year remain constant
(2) Net present value can never be less than zero
(3) Discount factor should remain constant throughout the life of the project
(4)Intermediate cash flows are being reinvested at the discount factor
Answer(4)
31 . If raw materials are in store for 2 months, processing time 21⁄2 months, finished goods remain in store for 15 days, debtors are allowed 60 days‟ credit and credit received from suppliers of raw material is one month, the operating cycle period is:
(1) 7 months
(2) 6 months
(3) 61⁄2 months
(4) 5 months
Answer: (2)
32. Which of the following is not general disclosure requirement under accounting standard-14?
(1) Name and nature of Business
(2) Accounting method followed
(3)Description and number of shares issued
(4) Particulars of scheme sanctioned
Answer (3)
33. Under the Modified Accelerated Cost Recovery System (MACRS) an asset in the “5 year property class” would typically be depreciated over how many years?
(1) 4 years
(2) 5 years
(3) 6 years
(4) 7 years
Answer (3)
34.According to the concept of financial signaling, management behavior results in new debt issues being regarded as “ news” by investors.
(1) Non-Event
(2) Bad
(3) RiskNeutral
(4) Good
Answer :(4)
35 The Exchange of interest and/or principal payment between two parties is called:
(1) Swap
(2) In the money
(3) Forward
(4) Put option
Answer (1)
36 .State the price of the share for the year t, if the rate of growth of the firm is 10%, EPS and DPS for the year t11, are ` 3 and ` 2 respectively and the investors‟required rate of return is 20%.
(1) Rs30
(2)Rs20
(3) Rs25
(4) Rs10
Answer(2)
37. In which of the following appraisal criteria of capital budgeting, the use of varying opportunity cost of capital as a discount factor is possible?
(A)NPV
(b) IRR
(c) Pay-back Period
(d) ARR
(1) Only (a) is correct.
(2) (b) and (d) both are correct.
(3) (a) and (b) both are correct.
(4) Only (c) is correct.
Answer(1)
38. According to the CAPM model, the cost of equity is represented by:
(1) Rm1 (Rm2Rf) bj
(2) bj1(Rm2Rf)Rm
(3) Rf1(Rm2Rf)bj
(4) Rm1Rf1bj
Answer(3)
39. Where R indicates market rate of return, R indicates risk free rate of return and b indicates beta of stock jAnticipated annual dividend divided by the market price of the stock is referred as:
(1) Dividend Pay-out
(2) Return on Equity
(3) Dividend yield
(4) Regular dividend
Answer (3)
40. If the existing shareholder does not exercise his/her right or does not sell the right entitlement:
(1) his/her wealth will remain unaffected
(2) his/her wealth will increase
(3)his/her wealth will decrease
(4) his/her wealth may increase or decrease
Answer (3)
41. Consider the following two statements:
Statement I:Bond value would decline when the market rate of interest rises.
Statement II: There is a positive relationship between the value of a bond and the interest rate . Select the correct code:
Codes:
(1) Statement I and Statement II both are correct.
(2) Statement I is correct, but Statement II is incorrect. (3) Statement II is correct, but Statement I is incorrect. (4) Statement I and Statement II both are incorrect.
Answer (2)
42. While granting the term loan, if lending institution puts a condition to reduce the debt equity ratio by issuing additional equity share-capital or preference share capital, it is known as
(1) asset-related restrictive covenant
(2) Cash flow related restrictive covenant
(3) Control related restrictive covenant
(4) Liability related restrictive covenant
Answer (4)
43. According to Lintner‟s model of corporate dividend behavior, the dividend for the year„t‟ is dependent on:
(1) earnings per share for the year t
(2) Dividend per share for the year t-1
(3) Adjustment rate
(4) Target pay-out ratio
(5) market price of share
Select the correct code:
(1) I, II and III are correct.
(2) II, III, IV and V are correct.
(3) I, II, III and IV are correct.
(4) I, II, IV and V are correct.
Answer :(3)
44.The value of a bond with a given maturity period is
(1) Present value of maturity value of the bond
(2) Present value of annual interest plus present value of maturity value
(3) Total amount of interest plus the maturity value received
(4) Maturity value received
Answer (2)
45. Which one of the following types of working capital is financial through a portion of long-term funds?
(1) Gross working capital
(2) Net working capital
(3) Floating working capital
(4) Regular working capital
Answer (2)
46. If the going rate of interest is above the coupon rate, the bond will sell :
(1) At a Premium
(2)At a Discount
(3) At Par
(4) None of the above
Answer (2)
47.In case the sales or project‟s investment deviates from expected ones, it needs
(1) Optimistic scenario analysis
(2) Sensitivity analysis
(3) Simulation analysis
(4) Financial break-even analysis
Answer (2)
48„Trading on equity‟ refers to
(1) Optimum capital structure
(2) Appropriate capitalization
(3) Capital gearing
(4) Watered capital
Answer (3)
49. The excess payment by the new company to the amalgamating companies for the appraised value of the assets and liabilities taken over is accounted as
(1) Capital Reserve
(2) Bonus Share Capital
(3) Goodwill
(4) Amount paid for the acquisition of the brand
Answer (3)
50. In which case, The acquirer puts pressure on the management of the target company by threatening to make an open offer; the board capitulates straight away and agrees for settlement with the acquirer for change of control.
(1) Poison Put
(2) Bear Hug
(3) Poison Pill
(4) none of these
Answer : (2)
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