E Content Name: MBA/Semester-1/MBOF912D-Financial Management/Jul2016-

Assignment2
Assignment Name: MBA/Semester-1/MBOF912D-Financial Management/Jul2016-
Assignment2(MBA/Semester-1/MBOF912D-Financial
Management/Jul2016-Assignment2)
Start Date: Jul 1 2016 12:00AM
End Date: Nov 15 2016 11:59PM

Marks: 1.00 page 266

Question 1: Credit standards, Credit period, Cash discount and Collection

are the variables of credit policy.

Options: True False

Marks: 1.00

Question 2: Which of the following statements is most correct?

Option 1: Risk refers to the chance that some unfavorable event will

occur, and a probability distribution is completely described by a listing of

the likelihood of unfavorable events.

Option 2: Portfolio diversification reduces the variability of returns on an

individual stock.

Option 3: When company-specific risk has been diversified the inherent

risk that remains is market risk, which is constant for all securities in the
market.

Option 4: The Security Market Line (SML) relates required returns to firm’s

market risk. The slope and intercept of this line cannot be controlled by the
financial manager.
Marks: 1.00

Question 3: An investor had invested in a company's equity shares (100 shares, each share at ` 10). The
company decided to declare dividend of 10 per cent on book value of share, but due to capital
requirements it retains its investment on one project that is having return on investment (RoI) of 4 per
cent. Elsewhere, the project rate of interest (banks) is at 6 per cent. Calculate opportunity cost.

Option 1: `4

Option 2: 0.04

Option 3: `6

Option 4: 0.06

Option 5: 0.02

Marks: 1.00 page 133

Question 4: In the ------- analysis, the lessee's evaluation is based on cash

flows associated with various options.

Option 1: IRR

Option 2: NPV

Option 3: WACC

Option 4: Discounting
Marks: 3.00

Question 5: Ageing schedule incorporates the relationship between

Option 1: Creditors and Days Outstanding

Option 2: Debtors and Days Outstanding

Option 3: Average Age of Directors

Option 4: Average Age of All Employees

Marks: 1.00

Question 6: Cash is one of the components of current assets.

Options: True False

Marks: 1.00 page 128

Question 7: The ------- promotes leasing as a method of financing industrial

development in the developing countries.

Option 1: Inter-finance corporation

Option 2: Industrial finance corporation

Option 3: International finance corporation

Option 4: International finance organisation

Marks: 1.00

Question 8: Sensitivity analysis and ------- can be used to assess the general
level of risk associated with a single asset.

Option 1: Probability distribution

Option 2: Mean

Option 3: Correlation

Option 4: None of the above

Marks: 2.00 Page 151

Question 9: Which one of the following affects bonds more directly than
common stocks and is a major risk that all bondholders face.

Option 1: Reinvestment

Option 2: Opportunity risk

Option 3: Interest rate risk

Option 4: None of the above

Marks: 3.00
Question 10: Which of the following is related to Receivables Management

Option 1: Cash Budget

Option 2: Economic Order Quantity

Option 3: Ageing schedule

Option 4: All of the above

Marks: 1.00

Question 11: Credit period is one of the terms of credit.

Options: True False

Marks: 1.00

Question 12: The capital budgeting decision depends in part on the

Option 1: Availability of funds

Option 2: Relationships among proposed projects

Option 3: Risk associated with a particular project

Option 4: All of the above

Marks: 2.00

Question 13: Sales and Production Budgets are Capital Budgets.

Options: True False

Marks: 1.00

Question 14: A company that places orders smaller than the EOQ amount will
incur a higher annual holding cost as a result.

Options: True False

Marks: 1.00

Question 15: From a financial analyst’s viewpoint, 'working capital' simply

refers to current assets.

Options: True False

Marks: 2.00 Page 189

Question 16: The average cost of capital declines as the leverage ratio
increases

Option 1: Because when the leverage ratio increases, the cost of debt,

which is lower than the cost of equity, gets a higher weightage in the
calculation of the cost of capital.
Option 2: Because when the leverage ratio increases, the cost of debt,

which is higher than the cost of equity, gets a lower weightage in the
calculation of the cost of capital.

Option 3: It is possible to change the cost of capital by changing the debt

equity mix

Option 4: The statement is incorrect

Marks: 2.00

Question 17: Both scrip dividend and bond dividend are same, but they differ
in terms of maturity

Options: True False

Bond Dividend: The Bond Dividends are similar to the scrip dividends, but the
only difference is that they carry longer maturity period and bears interest.

Read more: http://businessjargons.com/types-of-dividend.html#ixzz4u3lrXsNJ

Marks: 1.00 Page 141.( Need for EVA)

Question 18: The right formula for the calculation of EVA is -------

Option 1: Net Operating Profit after Tax (NOPAT) - Cost of Capital

Option 2: Net Operating Profit before Tax (NOPBT) - Cost of Capital

Option 3: Net Operating Profit after Tax (NOPAT) + Cost of Capital

Option 4: Net Operating Profit after Tax (NOPAT) * Cost of Capital

Marks: 1.00

Question 19: Liberalizing the discount rate means increasing the discount
rate for the same period.

Options: True False

Marks: 1.00 Page 199 D/E=(A/E) x(D/A)

Question 20: A ------- is equal to gearing times debt over assets

Option 1: Operating leverage

Option 2: Equity-to debt

Option 3: Debt-to-equity

Option 4: Combined leverage

Marks: 1.00

Question 21: Management of earnings has nothing to do with retention of

profits.

Options: True False

Marks: 1.00

Question 22: The funds accumulated from depreciation may not be sufficient
to replace the absolute asset or equipment, since depreciation is provided
based on historical costs

Options: True False

Marks: 2.00

Question 23: A part of firm’s current assets could be permanent investment.

Options: True False

CORRECT! As a category of working capital, permanent working capital can

include only the CURRENT ASSETS required for minimum long-term needs.

Marks: 1.00

Question 24: Cost of capital is a -------

Option 1: Rate of return

Option 2: Investment

Option 3: Cost

Option 4: Incremental value

Marks: 2.00
Question 25: Services of a factor are always beneficial.

Options: True False

Marks: 1.00

Question 26: Firm can use industry ------- ratio as standard for construction of
capital structure.

Option 1: Quick asset

Option 2: Profitability

Option 3: Current asset

Option 4: Leverage

Marks: 2.00

Question 27: Carrying cost and ordering cost are opposite forces in
receivable management.

Options: True False

Marks: 1.00

Question 28: The funds accumulated from depreciation may not be sufficient
to replace the absolute asset or equipment, since depreciation is provided
based on historical costs
Options: True False

Marks: 1.00

Question 29: Under ------- lease, the lessee maintains and insures the leased
asset rather than the lessor in a full-service lease.

Option 1: Financial

Option 2: Operating

Option 3: Net

Option 4: None of the above

Marks: 1.00

Question 30: When a firm distributes more earning as dividends in the form
of cash it increases its cash position

Options: True False

Marks: 1.00 Page 274

Question 31: Holding of inventories to take the advantages of changes in

prices and getting quantity discounts are known as speculative motive.

Options: True False

Marks: 1.00 page 303

Question 32: Which relative measure of the sensitivity of an assets' return to

changes in the return on the market portfolio.

Option 1: Alpha coefficient

Option 2: Correlation

Option 3: Standard deviation

Option 4: Beta coefficient

Marks: 1.00

Question 33: Capital Budgeting decisions are ------- without -------

Option 1: Irreversible, loss;

Option 2: Loss, irreversible;

Option 3: Unreversable, loss

Option 4: None of the above

Marks: 2.00

Question 34: As the degree of leverage ------- the proportion of a cheaper

source of funds (debt) in the capital structure increases
Option 1: Increases

Option 2: Decreases

Option 3: Falls to zero

Option 4: None of the above

Marks: 1.00

Question 35: Ageing schedule of receivables is one way or monitoring the

receivables.

Options: True False

Marks: 2.00

Question 36: The additional cost incurred to obtain additional funds required
by a firm.

Option 1: Opportunity

Option 2: Incremental

Option 3: Break even

Option 4: Marginal

Marks: 1.00
Question 37: Trading on equity refers to

Option 1: Operating leverage

Option 2: Financial leverage

Option 3: Combined leverage

Option 4: Degree of operating leverage

Marks: 4.00

Question 38: Which of the following is typically part of the cash budget

Option 1: Payments lag

Option 2: Payment for plant construction

Option 3: Cumulative cash

Option 4: Statements a and c are correct

Option 5: All of the above statements are correct

Marks: 2.00

Question 39: Payment to creditors is a manifestation of cash held for:

Option 1: Transactionery Motive

Option 2: Precautionary Motive

Option 3: Speculative Motive

Option 4: All of the above

Marks: 1.00

Question 40: Firms that hold more current assets are in general less liquid
than firms that do not hold current assets.

Options: True False

Marks: 1.00

Question 41: Which of the following is not a type of financial lease

arrangement?

Option 1: Sale and lease back

Option 2: Indirect leasing

Option 3: Leveraged leasing

Option 4: All of the above

Marks: 2.00

Question 42: As the service level rises, the amount of buffer stock falls.
Options: True False

Marks: 4.00

Question 43: Which of the following statements is most correct

Option 1: Current assets of the typical manufacturing firm account for

over half of its total assets.

Option 2: For small companies, long-term debt is the principal source of

external financing.

Option 3: Strict adherence to the maturity matching approach to

financing would call for all current assets to be financed solely with current
liabilities.

Option 4: Similar to the capital structure management, working capital

management requires the financial manager to make a decision and not

address the issue again for several months.

Marks: 2.00

Question 44: Which is not a service of a factor

Option 1: Administrating Sales Ledger

Option 2: Advancing against Credit Sales

Option 3: Assuming bad debt losses

Option 4: None of the above

Marks: 4.00

Question 45: In the EOQ Model

Option 1: EOQ will increase if order cost increases

Option 2: EOQ will decrease if holding cost decreases

Option 3: EOQ will decrease if annual usage increases

Option 4: None of the above

Marks: 3.00

Question 46: The ------- market ends when the market index reaches a peak
and starts a downward trend.

Option 1: Systematic

Option 2: Unsystematic

Option 3: Bear

Option 4: Bull

Marks: 1.00

Question 47: The market risk affecting securities:

Option 1: Structural changes in the economy

Option 2: Tax law changes

Option 3: Changes in consumer preferences

Option 4: All of the above

Marks: 1.00

Question 48: A firm ' s collection policy, i.e., the procedures it follows to
collect accounts receivable, plays an important role in keeping its average
collection period short, although too strict a collection policy can reduce
profits due to lost sales.

Options: True False

Marks: 2.00

Question 49: In the ------- method, an investment project is accepted, if the

present value of cash inflows is greater than the present value of cash
outflow.

Option 1: NPV

Option 2: IRR

Option 3: financial leverage

Option 4: ARR

Marks: 1.00

Question 50: Which of the following is not an assumption of capital structure

theories

Option 1: There are only two sources of funds i .e. debt and equity

Option 2: The total financing remains constant.

Option 3: The total assets of the company are given and changes over

period of time

Option 4: Operating profits (EBIT) are not expected to grow

Option 5: Dividend payout ratio = 100%.

Marks: 4.00

Question 51: Which of the following is correct regarding the capital

component costs for a group?

Option 1: The component cost of common equity is based on the firm's

component cost of common equity.

Option 2: The component cost of debt is based on the firm's component

cost of debt.

Option 3: Both of the above answers are

Option 4: All of the above answers are

Marks: 4.00

Question 51: Which of the following is correct regarding the capital

component costs for a group?

Option 1: The component cost of common equity is based on the firm's

component cost of common equity.

Option 2: The component cost of debt is based on the firm's component

cost of debt.

Option 3: Both of the above answers are

Option 4: All of the above answers are

Marks: 1.00

Question 53: The hedging principle states that assets of the firm not financed
by spontaneous sources should be financed with temporary sources.

Options: True False

Marks: 4.00

Question 54: Which of the following must be satisfied to support a

classification as a finance lease?

Option 1: Ownership is transferred by the end of the lease term.

Option 2: The lease contains a bargain purchase option.

Option 3: The lease term is for the major part of an asset's useful life.

Option 4: The present value of the minimum lease payments are

substantially more or equal to the asset's fair value.

Option 5: Any of the above

Marks: 1.00

Question 55: The industry in ------- should use less debt capital or more
equity capital in capital structure

Option 1: Declining

Option 2: Growing

Option 3: Infancy

Option 4: Maturity

Marks: 2.00

Question 56: One of the reasons for the popularity of leasing is

Option 1: Leasing better utilizes equipment

Option 2: The steady stream of new and improved technology

Option 3: Lease is not connected to the success of the business

Option 4: All of the above

Marks: 1.00

Question 57: There is no time gap between cash inflows and outflows.

Options: True False

Marks: 1.00

Question 58: ABC analysis is based on the Pareto principle.

Options: True False

Marks: 1.00

Question 59: Inventory management does not include management work in

progress.

Options: True False

Marks: 1.00

Question 60: Cash management is a responsibility of the Controller.

Options: True False

Marks: 3.00

Question 61: In Projected Balance Sheet, a balancing figure:

Option 1: May appear on Assets Side

Option 2: May appear on Liabilities Side

Option 3: Would never appear

Option 4: Any of (a) or (b).

Marks: 1.00

Question 62: Credit period allowed to customers must be equal to credit

period allowed by the supplier to the firm.

Options: True False

Marks: 1.00

Question 63: In theory, when making capital budgeting decisions, all

projects with positive NPVs should be

Option 1: Rejected

Option 2: Recalculated
Option 3: voided

Option 4: Accepted