FSM PRACTICE QUESTION 1:

1. Long Term Objective of financial Management is to:

(a) maximize earnings per share
(b) maximize the value of firm’s common stock
(c) maximize return on investment
(d) maximize market share

2. Financial management is concerned with –

(a) Investment Decisions
(b) Finance Decisions
(c) Dividend Decisions
(d) All of the above

3. Which of the following is not function of finance manager?

(a) Managing Assets
(b) Managing Funds
(c) Managing Economy
(d) Managing Flow of Internal Funds

4. The goal of _____________overlooks the interest of other parties than the

shareholders and is therefore criticized and considered as unrealistic, inappropriate
and immoral:
(a) Wealth Maximization
(b) Profit Maximization
(c) Both of above
(d) None of above

5. The lower the levels of financial gearing, the more __________are the financial
policies of the company:
(a) Aggressive
(b) Conservative
(c) Moderate
(d) Any of above

6. Using borrowed funds or fixed cost funds in the capital structure of a company
is called __________________.
(a) Risk Bearing
(b) Liquidity
(c) Financial Gearing
(d) Financial Distress

7. The funds raised by the issue of………..are the best from the risk point of view
for the company.
(a) Equity shares
(b) Debentures
(c) Both (A) & (B)
(d) None of the above
8. ____________means ability of the business to meet short-term obligations:
(a) Profitability
(b) Liquidity
(c) Solvency
(d) Efficiency

9. One can get a reasonably accurate broad idea about the risk profile of the firm
from its –
(a) Dividend policy
(b) Capital structure
(c) Debt service ratio
(d) Earning yield

10. Business Risk is:

(a) Avoidable risk
(b) Unavoidable risk
(c) Not relevant
(d) Less important than financial risk

11. Inability to pay fixed financial payments e.g. payment of interest, preference
dividend, return of the debt capital, etc. is called as –
(a) Business risk
(b) Financial risk
(c) Operating risk
(d) (a) and (c)

12. ____________________explains that due to the arbitrage mechanism the value of

a leveraged firm cannot be higher than that of an unlevered firm, other things being
equal:
(a) Net Income Approach
(b) Net Operating Income Approach
(c) Traditional Approach
(d) MM Approach

13. Degree of __________ is the ratio of percentage change in earning per share to
the percentage change in sales.
(a) Financial leverage
(b) Operating leverage
(c) Combined leverage
(d) Working leverage

14. If the Return on Investment (ROI) exceeds the rate of interest on debt, it is
……… financial leverage.
(a) Unfavourable
(b) Adverse
(c) A favourable
(d) Negative

15. Payout ratio is subtracted from one to calculate –

(a) Growth ratio
(b) Present value ratio
(c) Retention ratio
(d) Future value ratio

16. ____________________Model is also known as Dividend Capitalization Model:

(a) Walter
(b) Gordon
(c) Modigliani Miller
(d) None of above

17. __________________is understood to be the best available method for evaluating

the capital investment proposals:
(a) Net Present Value method
(b) Internal Rate of Return method
(c) Profitability Index Method
(d) All of above

18. The shorter the payback period –

(a) The more risky is the project.
(b) The less risky is the project.
(c) Less will the NPV of the project.
(d) More will the NPV of the project

19. ______________is the rate of present value of the future cash benefits at the
required rate of return to the initial cash outflow of the investment:
(a) Net Present Value
(b) Internal Rate of Return
(c) Profitability Index
(d) None of above

20. …………is an important profitability ratio from the angle of shareholders and
reflects on the ability of management to earn a return on resources put in by the
shareholders:
(a) Gross Profit Margin
(b) Net Profit Margin
(c) Return on Investment
(d) Return on Equity

21. ____________is tax deductible:

(a) Preference Dividend
(b) Equity Dividend
(c) Interest
(d) All of above

22. Which of the following represents the amount of time that it takes for a capital
budgeting project to recover its initial cost?
(a) Maturity period
(b) Payback period
(c) Redemption period
(d) Investment period
23. The rationale behind capital budgeting decisions is ………………:
(a) Profitability
(b) Effectiveness
(c) Efficiency
(d) Risk Management

24. ______________is an Annuity in which the periodic payments or receipts begin

on a fixed date and continue indefinitely:
(a) Annuity Factor
(b) Time Value of Money
(c) Perpetuity
(d) Sinking Fund

25. Which of the following is a Non-Discounted Cash Flow Technique:

(a) Payback period method
(b) Average Rate of Return method
(c) Both of above
(d) None of above

26. Financial Management can be judged by the study of the nature of –

(a) Corporate, social & benefit decisions.
(b) Accounting, financing & dividend decisions.
(c) Personnel, human cost & economic decisions
(d) Investment, financing & dividend decisions.

27. According to Solomon………… means maximizing the net present value of a

course of action to shareholders.
(a) Wealth maximization
(b) Profit maximization
(c) Dividend maximization
(d) None of the above

28. ………and……….carry a fixed rate of interest and are to be paid off irrespective
of the firm’s revenues.
(a) Debentures, Dividends
(b) Debentures, Bonds
(c) Dividends, Bonds
(d) Dividends, Treasury notes

29. If expected level of EBIT is more than the breakeven point, then the EPS will be
–
(a) Minimum
(b) Negative
(c) Positive
(d) Infinite

30. ____________is the level of EBIT at which EPS is Zero:

(a) Cost BEP
(b) EBIT EPS Point
(c) Financial BEP
(d) Operating BEP
31. Degree of …….. is the ratio of the percentage increase in earnings per share
(EPS) to the percentage increase in earnings before interest and taxes (EBIT).
(a) Operating Leverage
(b) Combined Leverage
(c) Working Capital Leverage
(d) Financial Leverage

32. It the firm fails to earn return at the expected rate, the market value of shares
will……..:
(a) Remains Constant
(b) Falls
(c) Rises
(d) Can’t Say

33. Which of the following figure is irrelevant while calculating cost of redeemable
preference shares?
(a) Flotation cost
(b) Discount
(c) EPS
(d) Net proceeds

34. Which of the following is uncontrollable factor affecting the cost of capital of the
firm?
(a) Investment Policy
(b) Capital Structure Policy
(c) Level of Interest Rates
(d) Dividend Policy

35. For which of the following costs is it generally necessary to apply a tax
adjustment to a yield measure?
(a) Cost of debt
(b) Cost of preferred stock
(c) Cost of common equity
(d) Cost of retained earnings

36. Which of the following may be defined as the cost of raising an additional rupee
of capital?
(a) Average cost of capital
(b) Cost of retained earnings
(c) Marginal cost of capital
(d) Marginal cost of reserve & surplus

37. EVA = ?
(a) PAT – (Capital Employed WACC)
(b) NOPAT – (Capital Employed K_e)
(c) NOPAT – (Capital Employed WACC)
(d) NOPAT – (Total Assets K_e K_e)
38. Capital Structure of a firm –
(a) Is a reflection of the overall investment and financing strategy of the firm.
(b) Shows how much reliance is being placed by the firm on external sources of
finance and how much internal accrual is being used to finance expansions
(c) Means the structure or constitution or break-up of the capital employed by a
firm.
(d) All of the above

39. As the Financial Leverage increases, the financial break-even point of the
company_______________:
(a) Decreases
(b) Increases
(c) Does not Change
(d) Becomes Zero

40. ……… is the ratio of net operating income before fixed charges to net operating
income after fixed charges.
(a) Financial Leverage
(b) Operating Leverage
(c) Operation Leverage
(d) Fiscal Leverage

41. Which of the following is correct formula to calculate EPS?

(𝒂)[(𝑬𝑩𝑰𝑻+𝑰)(𝟏−𝑻)−𝑫𝒑]/𝑵𝟎
(𝒃)[𝑬𝑩𝑰𝑻−𝑰+𝑻−𝑫𝒑]/𝑵𝟎
(𝒄)[(𝑬𝑩𝑰𝑻−𝑰)(𝟏−𝑻)−𝑫𝒑]/𝑵𝟎
(𝒅)[(𝑬𝑩𝑰𝑻−𝑰)(𝟏−𝑻)+𝑫𝒑]/𝑵𝟎

42. In Current Ratio, Current Assets are compared with:

(a) Current Profit
(b) Current Liabilities
(c) Fixed Assets
(d) Equity Share Capital

43. Which of the following represents the amount utilized at the time of
contingencies?
(a) Reserve working capital
(b) Net working capital
(c) Extra working capital
(d) Fixed working capital

44. The focal point of financial management in a firm is_

(a) The number and types of products or services provided by the firm
(b) The minimization of the amount of taxes paid by the firm
(c) The creation of value for shareholders
(d) The profits earned by the firm

45.Investment decisions are concerned with_

(a) Efficient allocation of funds to specific assets
(b) Determining the proper amount of funds to be employed in the firm
(c) Determining the composition of liabilities
(d) short run projects
46. _________ is the discount rate which should be used in capital budgeting.
(a) Cost of capital (𝐾𝑜)
(b) Risk free rate (𝐾𝑓)
(c) Risk premium (𝐾𝑚)
(d) Beta rate (𝛽)

47…………….simply measures the time required for cash flows from the project to
return the initial investment to the firm’s account
(a) Present value
(b) Internal Rate of Return
(c) Pay Back
(d) Break Even Point

48.Investment decisions encompass –

(a) Cost of capital
(b) Capital budgeting
(c) Management of liquidity and current assets
(d) All of the above

49. A company will like to have liquid resources for _________________:

(a) Transactions purpose
(b) Speculation purpose
(c) Precautionary measure
(d) All of above

50. There is an……………relationship between liquidity and profitability

(a) Direct
(b) Inverse
(c) Positive
(d) Negative
 ANSWER:

1 2 3 4 5 6 7 8 9 10

A D C B B C A B B B

11 12 13 14 15 16 17 18 19 20

B D C C C B D B C C

21 22 23 24 25 26 27 28 29 30

C B C C C D A B C C

31 32 33 34 35 36 37 38 39 40

D B C C A C C D B B

41 42 43 44 45 46 47 48 49 50

C B A C A A C B D B
 FMS PRACTICE QUESTION 2:

1.XYZ Ltd. has capital investment of ` 150 crores. After tax operating
income is ` 20 crores and company has a cost of capital of 12%. Estimate
the Economic Value Added of the firm
(a) ` 150 Crores
(b) ` 20 Crores
(c) ` 2 Crores
(d) ` 18 Crores

2.which of the following is not a feature of capital budgeting?

(a) Irreversible
(b) Large Amount of Funds
(c) Short Term Implication
(d) Full of Risk & Uncertainity

3. Probability of all events to occur lies between ………….

(a) -1 to + 1
(b) – 1 to 0
(c) 0 to 1
(d) 1 to 100

4. _____________Model is also known as Dividend Growth Model:

(a) Walter
(b) Gordon
(c) Modigliani Miller
(d) None of above

5. Dividend irrelevance hypothesis is implied in the _____________:

(a) Walter
(b) Gordon
(c) Modigliani Miller
(d) None of above

6. If the payout ratio is 0.45, then the retention ratio will be_______:
(a) 0.45
(b) 0.55
(c) 1.45
(d) 1.85

7. Which of the following is/ are the reasons why Risk & Uncertainty is Inherent in
every project:
(a) Seasonal Fluctuations
(b) Technological Changes
(c) Business Cycles
(d) All of the above

8. If present value of cash outflow is equal to present value of cash inflow, the net
present value will be:
(a) Positive
(b) Negative
(c) Zero
(d) Infinite

9. Using profitability index, the preference rule for ranking projects is:
(a) The lower the profitability index, the more desirable the project.
(b) The higher the profitability index, the more desirable the project.
(c) The lower the sunk cost, the more desirable the project.
(d) The higher the sunk cost, the more desirable the project.

10. Capital budgeting is the process of identifying analyzing and selecting

investment project whose returns are expected to extend beyond –
(a) 3 years
(b) 2 years
(c) 1 year
(d) 6 Months

11.It expected level of EBIT is more than the breakeven point, then the EPS will be-
(a) Minimum
(b) Negative
(c) Positive
(d) Infinite

12. ____________________explains that due to the arbitrage mechanism the value of

a leveraged firm cannot be higher than that of an unlevered firm, other things being
equal:
(a) Net Income Approach
(b) Net Operating Income Approach
(c) Traditional Approach
(d) MM Approach

13. Current Assets: 250000; Current Liabilities: 100000; Working Capital?

(a) 250000
(b) 100000
(c) 150000
(d) 350000

14. Risk Free Rate of Return =8%; Beta =1.5; market return = 18%, Cost of Equity
as per CAPM will be?
(a) 8%
(b) 18%
(c) 10%
(d) 23%

15. Interest Rate: 15%; Tax Rate: 30%: Calculate Cost of Debt?
(a) 15%
(b) 9%
(c) 4.5%
(d) 10.5%

16. which one of the following is most suitable coverage ratio for deciding the debt
capacity of a firm?
(a) Interest Coverage ratio
(b) Cash flow Coverage ratio
(c) Debt Service Coverage ratio
(d) fixed Assets Coverage ratio

17. Indicate the cost of equity capital, based on capital asset pricing model, with
the following information: Bata coefficient – 1.40 Risk-free rate of interest – 9%
Expected Rate of Return on equity in the market – 16%
(a) 18.8%
(b) 9.%
(c) 22.4%
(d) 16%

18. which of the following would not be financed from working capital?
(a) Cash Float
(b) Account receivables
(c) Credit Sales
(d) New Personal Computer for Office

19.which one of the following is the most popular method for estimating the
cost of equity?
(a) Capital Asset Pricing Model
(b) Dividend Yield Method
(c) Gorden Growth Model
(d) Earnings Yield Method

20.Kumar Company has sales of ` 25,00,000. Variable cost of ` 15,00,000

and fixed cost of ` 5,00,000 and debt of ` 12,50,000 at 8% rate of interest.
Calculate combined leverage.
(a) 2
(b) 1.25
(c) 2.5
(d) 1

21.a firm issues debentures worth ` 1,00,000 and realizes ` 98,000 after
allowing 2% commission to brokers. They carry an interest rate of 10% and
are due for maturity at the end of 10th year. The company has 40% tax
bracket.
(a) 10.3%
(b) 10%
(c) 6.18%
(d) 7%

22.A company has currently 10,000 equity shares of ` 100 each and its’
earnings are ` 150,000. Its’ current market price is ` 112 and the growth
rate of EPS is expected to be 5%. Calculate the cost of equity using Earnings
Price Growth Approach.
(a) 10%
(b) 12%
(c) 14%
(d) 18%
23. ABC Ltd. has expected earnings at ` 30 per share which is growing at
8% annually. Company follows fixed payout ratio of 50%. The market price
of its share is ` 300. Find Current cost of equity using dividend growth
model.
(a) 11%
(b) 12%
(c) 13%
(d) 14%

24. ABC Ltd. has expected earnings at ` 30 per share which is growing at
8% annually. Company Follows Fixed payout ratio of 50%. The market price
of its share is ` 300. Floatation cost of 5%. Calculate Cost of Equity using
dividend growth model
(a) 13%
(b) 13.27%
(c) 14%
(d) 14.27%

25.Calculate Weighted Average Cost of Capital: Cost of Debt: 7% Cost of

Equity: 15%, Proportion of Debt in Capital employed: 10%
(a) 7%
(b) 15%
(c) 10%
(d) 14.20%

26. Calculate Weighted Average Cost of Capital: Cost of Debt: 8.5%, Cost of
Equity: 19%, Proportion of Debt in Capital employed: 50%
(a) 8.5%
(b) 19%
(c) 14%
(d) 13.75%

27. a project requires ` 25,000 as initial investment, and it will generate an

annual cash inflow ` 5,000 for ten years than pay back period will be
(a) 4 years
(b) 5 years
(c) 6 years
(d) 10 years

28. ______________is one of the most reliable methods of computation of working

capital:
(a) Ratio of Sales
(b) Ratio of Fixed Investment
(c) Operating Cycle
(d) Current Assets Holding Period

29. Working Capital Turnover measures the relationship of Working Capital with:
(a) Fixed assets
(b) Sales
(c) Purchases
(d) Stock

30. The cash discount is given to customers for:

(a) Early payments
(b) Good business relations
(c) Bulk purchase
(d) Frequent purchases

31. To increase a given present value, the discount rate should be adjusted:
(a) Upward
(b) Downward
(c) Any of above
(d) Constant

32. Capital structure of a company refers to the composition or make up of its

capitalization and it includes all …………….capital resources
(a) Short Term
(b) Long Term
(c) Short Term as well as Long Term
(d) None of above

33. Generally, the cost of issuing debt capital is…………than the share
capital
(a) More
(b) Less
(c) Equal
(d) Cant Say

34 . __________________Risk is Macro in Nature:

(a) Systematic
(b) Unsystematic
(c) Both a & b
(d) None

35. The returns in ................are high and known to the parties in advance:
(a) Investment
(b) Speculation
(c) Betting & Gambling
(d) A & B Both

36. According to Dow Jones Theory, Share prices demonstrate a pattern over
________________:
(a) One to three years
(b) Three to four years
(c) Four to Five Years
(d) Four to Six Years

37. It is understood that a current ratio of………..for a manufacturing firm

implies that the firm has an optimum amount of working capital.
(a) 1 : 1
(b) 1.33 : 1
(c) 2 : 1
(d) 7 : 1

38. it is understood that a Quick ratio of………..for a manufacturing firm

implies that the firm has an optimum amount of working capital
(a) 0.9 : 1
(b) 1 : 1
(c) 1.33 : 1
(d) 2 : 1

39. Current ratio is 4:1. Net Working Capital is `30,000. Find the amount of
Current Assets.
(a) 10000
(b) 40000
(c) 24000
(d) 6000

40. ………. Refers to the length of time allowed by a firm for its customers to make
payment for their purchases.
(a) Holding period
(b) Pay-back period
(c) Average collection period
(d) Credit period

41. Operating cycles period equals:

(a) Collection period + Inventory holding period – Creditor Payment Period
(b) Collection period – Inventory holding period + Creditor Payment Period
(c) Creditor Payment Period + Inventory holding period – Collection period
(d) Any of the above

42. Which Committee recommended three alternate methods of Maximum

Permissible Bank Finance:
(a) Chore Committee
(b) Kannan Committee
(c) Tandon Committee
(d) Marathe Committee

43. Which of the following may be defined as the cost of raising an additional rupee
of capital?
(a) Average cost of capital
(b) Cost of retained earnings
(c) Marginal cost of capital
(d) Marginal cost of reserve & surplus

44.CAPM describes the………between risk and return for securities.

(a) Linear relationship
(b) Hypothetical relationship
(c) No relationship
(d) No relationship

45.represents the economic profits generated by a business above and beyond the
minimum return required by all providers of capital.
(a) Shareholder Value Added (SVA)
(b) Economic Value Added (EVA)
(c) Market Value Added (MVA)
(d) Debt holders Value Added (DVA)

46.is one of the techniques to measure the impact the impact of changes in
sales which lead for change in the profits of the company.
(a) Operating Leverage
(b) Financial Leverage
(c) Working Capital Leverage
(d) Both A & B

47. Jain & Co sells a new issue of 6% irredeemable debentures to raise `

100,000 and realizes the full face value of ` 100. The company falls in 40%
tax bracket. Debts are issued at per. Find Cost of Debt
(a) 6%
(b) 2.4%
(c) 3.6%
(d) 40%

48.Calculate the cost of 10% preference capital of 10,000 preference shares whose
face value is `100. The market price of the share is currently ` 115.
(a) 10%
(b) 15%
(c) 8.7%
(d) 7.8%

49. ____________Capital Structure is indicative of Risk Averse Conservative Firms:

(a) Inverted Pyramid Shaped
(b) Vertical
(c) Pyramid Shaped
(d) None of above

50. ________________Capital Structure is highly vulnerable to Collapse:

(a) Horizontal
(b) Vertical
(c) Pyramid Shaped
(d) Inverted Pyramid
 ANSWER:

1 2 3 4 5 6 7 8 9 10
C C C B C B D C B C

11 12 13 14 15 16 17 18 19 20
C D C D D C A D A C

21 22 23 24 25 26 27 28 29 30
C C C B D D B C B A

31 32 33 34 35 36 37 38 39 40
B B B A C C C B B C

41 42 43 44 45 46 47 48 49 50
A C C A B A C C C D

WORKING NOTES:

1. (20 - (150*12%) = 20 - 18 = 2)

13. (WC= CA - CL = 250000 - 100000 = 150000)

14. (8% + [1.5(18%-8%)]= 23%)

15. (Cost of debt = I(1-t) = 15%(1-0.3) = 10.5%)

20. (contribution = 2500000 -1500000 = 1000000

EBT = (100000-500000-100000) = 400000
Combined leverage = 1000000/400000= 2.5 times
interest = 1250000*8% = 100000)

21. (6000 + 200)/99000 = 6.26%

6000 is I(1-t)
200 is (100000-98000)/10
99000 is (100000+98000)/2
this question is from module answer of module is 6.18% which is wrongly
calculated. actual answer should be 6.26%)

22. (EPS = 150000/10000 = 15 `

Ke= 15(1+0.05)/112
= 14%)

23. [30(1-0.5)/300] + 8%
5% + 8% = 13%
24. [30(1-0.5)/(300-5%)]+8%
5.27%+8% = 13.27%

25. (7%×0.1) + (15%*0.9) = 14.2%

26. (8.5% * 0.5) + (19% * 0.5) = 13.75%

27. 25000/5000= 5Years

47. Cost of debt = I(1-t)/NP = 6(1-0.4)/100 = 3.6%

48. Cost of PS = PD/NP = 10/115= 8.7%

 FSM PRACTICE QUESTION 3:

1. ……….Capital structure is more vulnerable to hostile takeovers

(a) Horizontal
(b) Vertical
(c) Pyramid Shaped
(d) Inverted Pyramid

2. Operating leverage indicates the tendency of operating profits (EBIT) to vary

disproportionately with –
(a) Profit
(b) Fixed cost
(c) Sales
(d) EPS

3. Degree of total leverage can applied in measuring change in –

(a) EBIT to a percentage change in sales
(b) EPS to a percentage change in EBIT
(c) EPS to a percentage change in sales
(d) Sales to a percentage change in EBIT

4. If the fixed costs are high, the operating leverage will also be –
(a) Low
(b) High
(c) Zero
(d) Negative

5. ………. Is also known as working capital ratio.

(a) Current ratio
(b) Quick ratio
(c) Liquid ratio
(d) Working capital turnover ratio

6.In which of the following type of bank accounts, no interest is payable to

the firm on the balance maintained:
(a) Savings
(b) Current
(c) Fixed Deposit
(d) All of above

7.working capital management is primarily concerned with the management

and financing of:
(a) Cash & inventory
(b) Current assets & current liabilities
(c) Current assets
(d) Receivables and payables

8. Total Return is equal to ________________:

(a) Current Return
(b) Capital Return
(c) Both A & B
(d) None of above

9.Current Return on a security can be………..:

(a) Positive
(b) Zero
(c) Negative
(d) A & B

10. Capital Return of a Security can be………..:

(a) Positive
(b) Zero
(c) Negative
(d) Any of above

11. Investment is the employment of funds on assets with the aim of

_________________:
(a) Earning Income
(b) Capital Appreciation
(c) Both A & B
(d) None of above

12. Risk in Finance is classified into __________________:

(a) Systematic
(b) Unsystematic
(c) Both a & b
(d) None of above

13._______________Risk is Controllable in Nature:

(a) Systematic
(b) Unsystematic
(c) Both a & b
(d) None

14. A conservative policy implies –

(a) Greater liquidity and lower risk
(b) Greater risk and lower liquidity
(c) Negligible risk
(d) No risk at all with low liquidity

15. Current assets are those assets –

(a) Which can be sold by the companies.
(b) Which are less important from production angle.
(c) Which are held by the companies to pay-off current liabilities.
(d) Which are converted in to cash within a period of one year.

16. Paucity of working capital may lead to a situation where

(a) The firm may not be able to meet its long term finance
(b) The firm may not be able to meet its current liabilities
(c)The firm may not be able to achieve its sale target
(d) The firm may take some different project with low internal rate of return
17. Which of the following is a Type of Systematic Risk:
(a) Interest Rate Risk
(b) Market Risk
(c) Inflation Risk
(d) All of above

18. Systematic Risk is due to the influence of _________factors on an organisation.

(a) Internal
(b) External
(c) Both of above
(d) None of above

19. Beta is measure of –

(a) Non-diversifiable risk
(b) Diversifiable risk
(c) Total risk
(d) Both A & B

20. It the primary trend is upward, it is called as ………..phase of the market

(a) Golden
(b) Rising
(c) Bullish
(d) Bearish

21. The basic assumption of _________________is that history trends to repeat itself:
(a) Fundamental Approach
(b) Technical Approach
(c) Efficient Market Theory
(d) All of above

22. ______________indicates the bottom which the share values are unable to pierce:
(a) Support Level
(b) Resistance Level
(c) Head & Shoulder
(d) None of above

23. __________________is a form of financing of receivables pertaining to

International Trade:
(a) Factoring
(b) Bill Discounting
(c) Forfaiting
(d) Accounts Receivable Loans

24. may also be offered for the early payment of dues

(a) Trade discounts
(b) Special discounts
(c) Both (A) and (B)
(d) Cash discounts
25. is an arrangement to have debts collected by a third party entity for a
fee.
(a) Factoring
(b) Loan Servicing
(c) Demand Draft
(d) Discounting

26. Foreign Sources of Capital usually take the form of which of the following:
(a) External Borrowings
(b) Foreign Investments
(c) Deposits from NRIs
(d) All of above

27. For which of the following costs is it generally necessary to apply a tax
adjustment to a yield measure?
(a) Cost of debt
(b) Cost of preferred stock
(c) Cost of common equity
(d) Cost of retained earnings

28. CAPM describes the………..between risk and return for securities

(a) Linear relationship
(b) Hypothetical relationship
(c) No relationship
(d) Diagonal relationship

29. Choice of correlation coefficient is between-

(a) 0 to +1
(b) 0 to +2
(c) -1 to +1
(d) -1 to 0

30. If rate of return of two securities are independent, Covariance is______________:

(a) Positive
(b) Negative
(c) Zero
(d) Can’t Say

31. If rates of return of two securities show inverse movement then their covariance
is ___________:
(a) Positive
(b) Negative
(c) Zero
(d) Can’t Say

32. The Cost of Retained earnings are often taken as equal to ________________:
(a) Cost of Debt
(b) Cost of Preference Shares
(c) Cost of Equity
(d) Sum of a, b and c
33. Required rate of return = ?
(a) Risk free rate + Risk premium
(b) Risk free rate – Risk premium
(c) Risk free rate + Risk premium (1 – t)
(d) Risk free rate – Risk premium (1 + t)

34. Which of the following formula you will use while calculating value of the firm?
(a) NOPAT ÷ 𝐾𝑜
(b) NOPAT × 𝐾𝑜
(c) NOPAT ÷ (1−𝑡)
(d) None of the above

35. The returns on an individual stock will depend upon a variety of_____________:
(a) Anticipated Factors
(b) Unanticipated Factors
(c) Both of above
(d) None of above

36. Professor Sharpe won a Nobel Memorial Prize in Economic Sciences in 1990 for
his work on the _______________:
(a) Arbitrage Pricing Model
(b) CAPM
(c) Sharpe Ratio
(d) All of above

37. According to security market line, the expected return of any security is a
function of:
(a) Diversifiable risk
(b) Unique risk
(c) Unsystematic risk
(d) Systematic risk

38. If rate of return of two securities are independent, Covariance is______________:

(a) Positive
(b) Negative
(c) Zero
(d) Can’t Say

39. ____________means ability of the business to meet short-term obligations:

(a) Profitability
(b) Liquidity
(c) Solvency
(d) Efficiency

40.Lower the level of financial gearing-

(a) Greater will be the risk
(b) Lower will be the risk
(c) Risk will be constant
(d) None of the above
41. The Higher the levels of financial gearing, the more …………are the
financial policies of the company:
(a) Aggressive
(b) Conservative
(c) Moderate
(d) Any of above

42. ………..should not be about market marginal changes but ensuring quantum
leaps in performance
(a) Business Process reengineering
(b) Benchmarking
(c) Total Quality Management
(d) Six Sigma

43. Retained earnings are –

(a) An indication of a company’s liquidity.
(b) The same as cash in the bank.
(c) Not important when determining dividends.
(d) The cumulative earnings of the company after dividends.

44. There are basically ________________types of Dividend Policy:

(a) Two
(b) Three
(c) Four
(d) Five

45. Dividend policy is determined by the –

(a) Shareholders in AGM
(b) CEO of the company
(c) Board of directors
(d) Ministry of Corporate Affairs

46. The funds raised by the issue of……….. are the best from the risk point of view
for the company.
(a) Equity shares
(b) Debentures
(c) Both (A) & (B)
(d) None of the above

47. A company will like to have liquid resources for _________________:

(a) Transactions purpose
(b) Speculation purpose
(c) Precautionary measure
(d) All of above

48. ………and……….carry a fixed rate of interest and are to be paid off irrespective
of the firm’s revenues.
(a) Debentures, Dividends
(b) Debentures, Bonds
(c) Dividends, Bonds
(d) Dividends, Treasury notes
49. Rational Investors are likely to pay a _______________for shares on which more
current dividends are paid:
(a) Higher Price
(b) Lower Price
(c) Average Price
(d) Exceptional Price

50. A ____________ is a payment of additional shares to shareholders in lieu of cash.

(a) Stock split
(b) Stock dividend
(c) Extra dividend
(d) Regular dividend

ANSWER:

1 2 3 4 5 6 7 8 9 10
B C C B A B B C D D

11 12 13 14 15 16 17 18 19 20
C C B A D B D B A C

21 22 23 24 25 26 27 28 29 30
B A C D A D A A C C

31 32 33 34 35 36 37 38 39 40
B C A A C B D C C B

41 42 43 44 45 46 47 48 49 50
A A D C C A D B A B
 FSM PRACTICE QUESTION 4:

1. A _________ is the expected cash dividend that is normally paid to shareholders.

(a) Stock split
(b) Stock dividend
(c) Extra dividend
(d) Regular dividend

2. Dow Jones theory was formulated by –

(a) John P. Dow
(b) Charles H. Dow
(c) James T. Dow
(d) Michel R. Dow

3. According to Dow Jones theory, share prices patterns can be divided into three
distinct cyclical trends –
(a) Preliminary, primary and secondary trends
(b) Preliminary, bullish and bearish trends
(c) Primary, secondary and minor trends
(d) Primary, secondary and major trends.

4. The industry life cycle or the industry growth cycle can be divided into
__________:
(a) Single Stage
(b) Two Stages
(c) Three Stages
(d) Four Stages

5. ____________is also known as Trade Off theory of Capital Structure:

(a) Net Income Approach
(b) Net Operating Income Approach
(c) Traditional Approach
(d) Modified MM Approach

6. External sources of finance do not include:

(a) Overdrafts
(b) Leasing
(c) Retained earnings
(d) Debentures

7. Which of the following is not commonly used measures of leverage in financial

analysis?
(a) Operating Leverage
(b) Financial Leverage
(c) Combined Leverage
(d) Total Leverage

8. Management is –
(a) Science
(b) Art
(c) Both science and art
(d) History
9. Henry Fayol shelled out the first ever………..principles of classical
management theory formally
(a) Four
(b) Five
(c) Nine
(d) Fourteen

10. maintaining discipline and rewarding effective performance is part of

…….. function of management
(a) Planning
(b) Directing
(c) Forecasting
(d) Staffing

11.Buisness polity should be………in application:

(a) Rigid
(b) Complex
(c) Flexible
(d) Indecisive

12. ………..is the final step of strategic management process:

(a) strategy formulation
(b) strategy evaluation
(c) environmental scanning
(d) strategy implementation

13. ………..is a function which brings together human, physical and

financial resources of the organization.
(a) Planning
(b) Organizing
(c) Controlling
(d) Directing

14. Which of these basic questions should a vision statement answer?

(a) What is our business?
(b) Who are our competitors?
(c) Where we are to go?
(d) Why do we exist?

15. which of the following is the first step of Benchmarking Process:

(a) Improve
(b) Find
(c) Plan
(d) Collect

16. Benchmarking wheel is a………Stage process

(a) three
(b) four
(c) five
(d) six

17. ____________means ability of the business to meet short-term obligations:

(a) Profitability
(b) Liquidity
(c) Solvency
(d) Efficiency

18. A company/Business is called as Levered Firm when it is using?

(a) Equity
(b) Debt
(c) Preference Shares
(d) Retained Earnings

19. ………is tax deductible?

(a) Equity Dividend
(b) Interest on Debentures
(c) Interest on Bank Loans
(d) Both B & C

20. Capital is a……….resource and hence its supply cast is………:

(a) abundant, Low
(b) abundant, Vary High
(c) Scarce, Low
(d) Scarce, Vary High

21. is the proportion of dividend paid out of total earnings of the year of the
business.
(a) Retention Ratio
(b) Profitability Ratio
(c) Payout Ratio
(d) Yield Ratio

22. …….. Ensures that firm utilizes its available resources most efficiently under
conditions of competitive markets.
(a) Wealth Maximization
(b) Profit Maximization
(c) Property Maximization
(d) Both A & B

23. By the term optimal capital structure we mean a particular arrangement

of various components of the structure which is just in tune with
the……………….of the firm.
(a) Short Term Objectives
(b) Long Term Objectives
(c) Both of Above
(d) Medium Term Objectives

24. which of the following is not a Floatation Costs:

(a) Commission to Underwriters
(b) Printing Cost of Prospectus
(c) Legal Fees
(d) Rent

25. which of the following theories supports the view that capital structure
is irrelevant in determining the value of a firm:
(a) Net Income Approach & Net Operating Income Approach
(b) Net Income Approach & Traditional Approach
(c) Net Operating Income & MM Approach
(d) Net Income Approach & MM Approach

26. Which of the following is floatation cost?

(a) Commission of underwriters
(b) Brokerage paid on issue of securities
(c) Stationery expenses on issue of securities
(d) All of the above

27. If the debt component in the capital structure is predominant –

(a) The fixed interest cost of the firm will be minimum thereby decreasing its risk.
(b) Earnings per share (EPS) will be very low.
(c) Dividend expectations of equity shareholders are Low and P/E Ratio may
decrease.
(d) The fixed interest cost of the firm increases thereby increasing its risk.

28. Capital Structure will be equal to Financial Structure, when_______________:

(a) There are no long term borrowings
(b) There is no Current Liabilities
(c) There is no Current Asset
(d) All of above

29. Business Process Reengineering is also known as……………?

(a) Business Process Redesign
(b) Business Transformation
(c) Business Process Change Management
(d) All of above

30. The Prime Objective of BPR is to:

(a) Eliminate redundancies or futile layers in the whole process
(b) Eliminate enterprise costs
(c) Both of above
(d) None of above

31. The rationale behind capital budgeting decisions is _______________:

(a) Profitability
(b) Effectiveness
(c) Efficiency
(d) Risk Management

32. The values of the future net incomes discounted by the cost of capital are called
–
(a) Average capital cost
(b) Discounted capital cost
(c) Net capital cost
(d) Net present values

33. Which of the following is a Discounted Cash Flow Technique:

(a) Net Present Value method
(b) Internal Rate of Return Method
(c) Profitability Index method
(d) All of above

34. …………….=Contribution/EBIT
(a) Operating Leverage
(b) Financial Leverage
(c) Combined Leverage
(d) Working Capital Leverage

35. ………..= NOPAT-(% Cost of Capital Capital)

(a) Market Value Added
(b) Shareholders Value Added
(c) Economic Value Added
(d) Value Added

36. in which of the following technique of project evaluation earnings/cash

flows of entire life of project are not considered:
(a) Average rate of return
(b) Net Present Value method
(c) Payback period method
(d)IRR

36. is also known as Benefit Cost Ratio Method:

(a) Payback period method
(b) NPV Method
(c) IRR Method
(d) Profitability Index Method

38. which of the following method does not consider time value of money?
(a) NPV Method
(b) Profitability Index Method
(c) Payback Period method
(d) IRR Method

40. __________________ is a working plan for implementation of project proposal

after investment decision by a company has been taken:
(a) Concept Paper
(b) Project Report
(c) Bank Report
(d) Appraisal Report

40. Which of the following is a type of private equity investment:

(a) Leveraged Buyout
(b) Venture Capital
(c) Growth Capital
(d) All of above

41. If Investment in a project is too large and several banks come together to
finance it. Such type of term loan funding is called as _________________:
(a) Combined Loan
(b) Consolidated Loan
(c) Consortium Loan
(d) Conglomerate Loan

42. we may define the term „strategy‟ as a ……….blueprint

(a) Long range
(b) short range
(c) Short and medium range
(d) Unlimited range

43. The Answer to the Question “Are the actions being performed according
to the plan?” is given by which of the following:
(a) Planning
(b) Organizing
(c) Directing
(d) Controlling

44. is defined as the process by which a manager guides and influences the
work of his subordinates.
(a) Supervision
(b) Commanding
(c) Motivation
(d) Leadership

45. Function aims to warrant the or organization always has the right
people in the right positions:
(a) Directing
(b) Controlling
(c) Planning
(d) Staffing

46. Profitability index is actually a modification of the –

(a) Payback period method
(b) IRR Method
(c) Net present value method
(d) Risk premium method

47. If present value of cash outflow is equal to present value of cash inflow, the net
present value will be:
(a) Positive
(b) Negative
(c) Zero
(d) Infinite
48. Choice of correlation coefficient is between –
(a) 0 to 1
(b) 0 to 2
(c) -1 to + 1
(d) -1 to 3

49. the beta of the risk-asset is:

(a) 0
(b) 0.5
(c) 1
(d)2

50. Markowitz model presumed generally investors are –

(a) Risk averse
(b) Risk natural
(c) Risk seekers
(d) Risk moderate

ANSWER :

1 2 3 4 5 6 7 8 9 10
D B C C D C D C D D

11 12 13 14 15 16 17 18 19 20
C B B C C C C B D D

21 22 23 24 25 26 27 28 29 30
C B C D C D D B D C

31 32 33 34 35 36 37 38 39 40
C D D A C C D C B D

41 42 43 44 45 46 47 48 49 50
C A D D D C C C A A
 FSM PRACTICE QUESTION 5:

1. Certainty Equivalent Coefficient varies ____________with Risk:

(a) Directly
(b) Inversely
(c) Proportionately
(d) None of above

2. Which of the following is/ are the reasons why Risk & Uncertainty is Inherent in
every project:
(a) Seasonal Fluctuations
(b) Technological Changes
(c) Business Cycles
(d) All of the above

3. Which of the following method is based on trial & error method:

(a) Net Present Value method
(b) Internal Rate of Return Method
(c) Profitability Index Method
(d) Accounting Rate of return

4. An important means to get an insight into collection pattern of debtors is the

preparation of their –
(a) List of proposed discount
(b) Discount schedule
(c) Schedule of personal information of debtors
(d) Ageing Schedule

5. Which of the following is transferred in factoring arrangement?

(a) Receivable
(b) Payable
(c) Outstanding liabilities
(d) Prepaid assets

6. Inventory held for sale in the ordinary course of business is known as ………
(a) Finished Goods
(b) Raw Material
(c) Work-in-progress
(d) Stores & Spares

7. A vision statement is a company’s

(a) Profitability statement
(a) Road map
(c) Ethical thinking
(d) Policy statement

8. Policy should be……….in application

(a) Rigid
(b) Complex
(c) Flexible
(d) Indecisive
9. Has their objective to build strong ties with the existing customer base
and develop strong loyalty with them:
(a) Market Leader
(b) Market Follower
(c) Market Challenger
(d) Market Nicher

10. Business Risk is:

(a) Avoidable risk
(b) Unavoidable risk
(c) Not relevant
(d) Can’t Say

11. External sources of finance do not include:

(a) Overdrafts
(b) Leasing
(c) Retained earnings
(d) Debentures

12. External sources of finance do not include:

(a) Operating Leverage
(b) Financial Leverage
(c) Combined Leverage
(d) Consolidated Leverage

13. If you invest ` 10,000 (𝑃𝑜) in a bank at simple interest of 7% p.a., what will be
the amount at the end of 3 (n) years?
Note: Use simple interest rate method.
(a) ` 12,100
(b) ` 15,400
(c) ` 17,500
(d) ` 20,600

14. If Current Assets are ` 1,09,05,750 and Current Liabilities are ` 76,55,750 then
maximum permissible Bank Finance as per Second Method of Tandon Committee
norms is –
(a) ` 57,41,813
(b) ` 49,29,313
(c) ` 52,29,813
(d) ` 49,41,813

15. The monthly requirement of a component is 4,000 units. The cost per order is `
1,000 and the carrying cost per unit per annum is ` 24. The Economic Ordering
Quantity is:
(a) 2,000 units
(b) 4,000 units
(c) 577.35 units
(d) 1,825.74 units
16. About 50 units are required every day for a machine. Fixed cost of `50 is
incurred for placing an order. The inventory carrying cost per unit amounts to
`0.02 per day. The lead period is 32 days. Economic Order Quantity is –
(a) 200 Units
(b) 300 Units
(c) 500 Units
(d) 100 Units

17. Operating cost is ` 18,90,000.

Current asset are ` 5,20,000
Current liabilities are ` 1,00,000
Operating cycle days = ?
(Assume a 360 day year.)
(a) 80 days
(b) 99 days
(c) 19 days
(d) 70 days

18. Opening and closing balance of creditors are ` 2,00,000 & ` 2,40,000
respectively. Raw material purchased on credit was ` 11,00,000. Creditors payment
period for the purpose of working capital statement will be –
[1 Year = 360 days]
(a) 72 days
(b) 32 days
(c) 65 days
(d) 78 days

19.Find the amount of an annuity if payment of ` 5,000 is made annually for 7

years at interest rate of 14% compounded annually.
(a) 5,356.25
(b) 5,563.52
(c) 5,365.25
(d) 5,635.52

20. Strategy formulation requires –

(a) An operational process
(b) Motivation and leadership skills
(c) Conceptual intuitive and analytical skills
(d) None of the above

21. ` 2,000 is invested at annual rate of interest of 10%. What is the amount after
2 years if the compounding is done annually?
(a) ` 2,420.00
(b) ` 2,431.00
(c) ` 2,440.58
(d) ` 2,442.70

22. according to entry strategies, who have the first-mover advantage?

(a) Market Nicher
(b) Close Followers
(c) Pioneers
(d) Late Entrants
23. Which of the following is not a part of Human Resource Strategy:
(a) Recruitment Strategy
(b) Retention Strategy
(c) Network Strategy
(d) Mentorship Programs

24. Has their objective to build strong ties with the existing customer base and
develop strong loyalty with them:
(a) Market Leader
(b) Market Follower
(c) Market Challenger
(d) Market Nicher

25. is the process we use to gain understanding and insight into our present
situation.
(a) Situational analysis
(b) Sensitive analysis
(c) Simulation analysis
(d) All of the above

26. the low growth, low share businesses in BCG matrix are:
(a) Cows
(b) Dogs
(c) Cats
(d) Question Marks

27. an organization that has a low relative market share position and competes in a
High growth industry is referred to as a……….
(a) Dog
(b) Question Mark
(c) Star
(d) Cash Cows

28. is the most appropriate goal of the firm.

(a) Shareholder wealth maximization
(b) Profit maximization
(c) Stakeholder maximization
(d) EPS maximization

29. Investment Decision in Financial Management does not include:

(a) Dividend Payout Decision
(b) Capital Budgeting Decision
(c) Working Capital Management
(d) Re-allocation of Capital

30. Strategy formulation is done at……………level of the Organisation:

(a) Functional
(b) Business
(c) Corporate
(d) All the levels of Organisation
31. Which of the following is not included in McKinsey 7 S framework?
(a) Strategy
(b) Structure
(c) System
(d) Safety

32. Capital budgeting refers to _____________planning for proposed capital outlays

and their financing:
(a) Short Term
(b) Long Term
(c) Both Short Term & Long Term
(d) None

33. A project is accepted when:

(a) Net present value is greater than zero
(b) Internal Rate of Return will be greater than cost of capital
(c) Profitability index will be greater than unity
(d) Any of the above

34. Financial Management is a Science as well as Art.

Reason (R):
When there is a Theory of Systematic Knowledge it is Science and where there is
application, it is Art.
(a) Both A and R are true and R is correct explanation of A.
(b) Both A and R true but R is not correct explanation of A.
(c) A is true but R is false
(d) A is false but R is true

35. EBIT should be ___________interest charges as a satisfactory guideline for

Interest Service Coverage ratio:
(a) 2 to 3 Times
(b) 4 To 5 Times
(c) 5 to 6 Times
(d) 8 to 10 Times

36. Which of the following is the correct formula of calculating Economic Value
Added?
(a) EVA = NOPAT + (% Cost of Capital x Capital)
(b) EVA = NOPAT – (% Cost of Capital ÷ Capital)
(c) EVA = NOPAT – (% Cost of Capital x Capital)
(d) EVA = NOPAT ÷ (% Cost of Capital x Capital)

37. Which of the following is not a Criticism of Profit Maximisation Objective?

(a) it ignores timings of returns
(b) it ignores risk factors
(c) it emphasis generally on long run projects
(d) it is vague conceptually

38. An increase in the discount rate will:

(a) Reduce the present value of future cash flows.
(b) Increase the present value of future cash flows.
(c) Have no effect on net present value.
(d) Compensate for reduced risk
39. _________ is the discount rate which should be used in capital budgeting.
(a) Cost of capital
(b) Risk free rate
(c) Risk premium
(d) Beta rate

40. Lower standard deviation indicates –

(a) Lower risk
(b) Higher risk
(c) No risk at all
(d) Highly favourable situation

41. Accept a project if the profitability index is:

(a) Less than 1
(b) Positive
(c) Greater than 1
(d) Negative

42. ________ of a capital budgeting project is the discount rate at which the Net
Present Value (NPV) of a project equals zero.
(a) External Rate of Return (ERR)
(b) Risk Free Rate of Return (RFRR)
(c) Price Cost Method (PCM)
(d) Internal Rate of Return (IRR)

43. Indifference criteria when BCR (Benefit Cost Ratio)?

(a) BCR >1
(b) BCR = 1
(c) BCR < 1
(d) None of the above

44. The manner in which an organization’s assets are financed is referred to as its
–
(a) Capital structure
(b) Financial structure
(c) Asset structure
(d) Owners structure

45. Which of the following is not commonly used measures of leverage in financial
analysis?
(a) Operating Leverage
(b) Financial Leverage
(c) Combined Leverage
(d) Consolidated Leverage

46. Foreign Sources of Capital usually take the form of which of the following:
(a) External Borrowings
(b) Foreign Investments
(c) Deposits from NRIs
(d) All of above
47.Market value added is the difference between –
(a) EPS and Price Earning per share
(b) Cost of capital and economic value added
(c) The Company’s adjusted value for inflation and book value of various assets
(d) The Company’s market and book value of shares.

48. Required rate of return = ?

(a) Risk free rate + Risk premium
(b) Risk free rate – Risk premium
(c) Risk free rate + Risk premium (1 – t)
(d) Risk free rate – Risk premium (1 + t)

49. There is no commitment to pay equity dividends and it is the sole discretion of
the ___________________to pay or not to pay dividends or to decide the rate of
dividend:
(a) Finance Manager
(b) Board of Directors
(c) Equity Shareholders
(d) Employees

50. How you will calculate expected dividend i.e. dividend at the end of year one?
(𝑎)𝐷1=[𝐷0(1+𝑔)]
(𝑏)𝐷1=[𝐷0(1−𝑡)]
(𝑐)𝐷1=[𝐷0×(1−𝑔)]
(𝑑)𝐷1=[𝐷0+(1−𝑔)](1−𝑡)

ANSWER:

1 2 3 4 5 6 7 8 9 10
B D B D A A A C D B

11 12 13 14 15 16 17 18 19 20
D D A B A C A A C C

21 22 23 24 25 26 27 28 29 30
A C C D A B B A D C

31 32 33 34 35 36 37 38 39 40
D B D A C C C A A A

41 42 43 44 45 46 47 48 49 50
C D B B D D D A B A
 WORKING NOTES:

13. Future Value, [(FV)] _n = P_o+SI = PO + PO (i)

(n) = 10,000 + 10,000(0.07)(3) = 12,100

14. Maximum permissible bank finance as per Tandon Committee norms:

Method 2: 75% of Current Assets = Current Liabilities
= (0.75 × 1,09,05,750) – 32,50,000 = 49,29,313

15. 𝑎 𝑜 𝑡𝑜 4000 × 12 48 000

(2 ) (2 × 48 000 × 1000) 24) 2000 𝑡

16.
𝑎 𝑜 𝑡𝑜 50 × 365 18 250 𝑎 𝑔 𝑡 𝑎 0 02 × 365
73
(2 × 𝑎 𝑐𝑜 𝑡𝑜 × 𝑑𝑒 𝑔 𝑜 𝑡) ( 𝑎 𝑔 𝑜 𝑡 𝑎)
(2 × 18 250 × 50) 7 3) 500 𝑡

17. Working Capital = 5,20,000 – 1,00,000 = 4,20,000

Working Capital = (Opening Cost)/(360 days) × Operating Cycle days
4,20,000 = 18,90,000/(360 days) × Operating Cycle days Operating Cycle
days = 80 days

18. Creditors payment period = (Average Creditors)/(Credit purchase) * 360

= 2,20,000/11,00,000 * 360
= 72 days

19. R = 500, n = 7, i = 0.14

FVA = 500* FVIFA (7,0.14)=500 * 10.7304915=5,365.25

21.The annual compounding is given by:

FV = P (1+i) n, n being 2, i being 10/100 = 0.1 and P being 2,000
2,000 [(1.1)] 2 = 2,000 * 1.21 = 2,420