Financial Management Q & A - Sem II

Overview of Finance Function
Unit-1
"Shareholder wealth" in a firm is represented by:
the number of people employed in the firm.

the book value of the firm's assets less the book value of its liabilities.
the amount of salary paid to its employees.
the market price per share of the firm's common stock.
Yes, the answer is correct.
Score: 1
Feedback:
Shareholder wealth in a firm is represented by the market price per share of the firms common
stock. Shareholder wealth is defined as the present value of the expected future returns to the
owners (that is, shareholders) of the firm.
Accepted Answers:
the market price per share of the firm's common stock.
1 point
The long-run objective of financial management is to:
Maximize earning per share

Maximize earnings per share.
Maximize return on inestment.
Maximize market share.
Score: 1
Feedback:
Maximize the value of the firm's common stock
Accepted Answers:
Maximize earnings per share.
1 point
The focal point of financial management in a firm is:
the number and types of products or services provided by the firm.

the minimization of the amount of taxes paid by the firm
the creation of value for shareholders.
the dollars profits earned by the firm.
Score: 1
Feedback:
The focal point of financial management in a firm is the creation of value for shareholders.
Accepted Answers:
the creation of value for shareholders.
1 point
The finance manager is accountable for.
Earning capital assets of the company

Effective management of a fund
Arrangement of financial resources
Proper utilization of funds
Score: 1
Feedback:
Fianance manager is accountable for arragement of financial resources
Accepted Answers:
Arrangement of financial resources
1 point
The objective of wealth maximization takes into account
Amount of returns expected

Timing of anticipated returns
Risk associated with uncertainty of returns
All of the above
Score: 1
Feedback:
The objective of wealth maximization takes into account amount of returns expected, timing of
anticipated returns as well as risk associated with uncertainty of returns
Accepted Answers:
All of the above
1 point
Financial management mainly focuses on
Efficient management of every business

Brand dimension
Arrangement of funds
All elements of acquiring and using means of financial resources for financial activities
Score: 1
Feedback:
Financial management mainly focuses on all elements of acquiring and using means of financial
resources for financial activities.
Accepted Answers:
All elements of acquiring and using means of financial resources for financial activities
1 point
_______ of a firm refers to the composition of its long-term funds and its capital structure.
Capitalisation
Over Capitalisation
Under Capitalisation
Market Capitalisation
Score: 1
Feedback:
Capitaliation of a firm refers to the composition of its long-term funds and its capital structure.
Accepted Answers:
Capitalisation
1 point
In the _______________, the future value of all cash inflow at the end of time horizon at a
particular rate of interest is calculated
Risk free rate

Compounding technique
Discounting technique
Risk Premium
Score: 1
Feedback:
Discounting is the process of determining present value of a series of future cash flows.
Accepted Answers:
Discounting technique
1 point
In order for dividends to be paid a company must have made profits in the current year. Is this
statement TRUE or FALSE?
True
False
Score: 1
Feedback:
The profit that the dividend is paid from can be from this current year, or from a previous year,
but the directors must have a board meeting to check that there is enough profit available before
they allow a dividend to be paid
Accepted Answers:
False
1 point
Prime responsibility of finance management is to ensure that sufficient amount of funds is made
available to all business activities all the times.
True
False
Score: 1
Feedback:
Prime responsibility of finance manager is to ensure that sufficient amount of funds is made
available to all business activities all times.
Accepted Answers:
True
Financial System
Unit-2
What is NOT a function of the stock market?
To enable companies to raise capital.

To enable individuals to sell shares in a company.
To facilitate transactions between buyers and sellers.
To increase the cost of equity of listed companies is not the function of
Score: 1
Feedback:
To increase the cost of equity of listed companies is not the function of stock market.
Accepted Answers:
To enable companies to raise capital.
1 point
SEBI has launched an online registration system for?
REITs
InvITs
P-notes
Only a & b
Score: 1
Feedback:
To make it easier to do business, markets regulator Sebi has introduced an online registration
system for REITs and InvITs.
Accepted Answers:
Only a & b
1 point
Which trading individuals has SEBI decided to grant a unified license to operate in
Clearing Members
Brokers
NBFCs
Only a & b
Score: 1
Feedback:
Market regulator SEBI on 26th April, 2017 decided to grant a unified licence to brokers and
clearing members to operate in commodity derivative as well as equity markets.
Accepted Answers:
Only a & b
1 point
SEBI announced plans to tighten regulations for which type of trading?
Spot trading
Investor trading
Algorithmic trading
None of the above
Score: 1
Feedback:
The Securities and Exchange Board of India (SEBI) plans to further tighten the regulations for
algorithmic trading.
Accepted Answers:
Algorithmic trading
1 point
Which financial body has asked intermediaries and companies to make regulatory payments in
digital mode?
SEBI
RBI
NSE
BSE
Score: 1
Feedback:
Post-demonetization cashless drive, Market regulator SEBI has allowed to give option to market
intermediaries and companies to make digital payments.
Accepted Answers:
SEBI
1 point
Financial market for creation and exchange of financial assets.
True
Flase
Score: 1
Feedback:
Financial transactions could be in the form of creation of financial assets such as the initial issue
of shares and debentures by a firm or the purchase and sale of existing financial assets like
equity shares, debentures and bonds.
Accepted Answers:
True
1 point
The treasury bills issued by Govt. for duration 14 to 364 days.
True
False
Score: 1
Feedback:
364 days T-bills: The maturity period of these bills is 364 days.
Accepted Answers:
True
1 point
………………… a market where short term securities for a period one year or less are traded.
Money Market
Capital Market
Long term capital market
Short term capital market
Score: 1
Feedback:
Money market is the place where short term securities for a period one year or less are traded.
Accepted Answers:
Money Market
1 point
……….. has made it mandatory for all debts instruments to be rated from any one of the
authorized credit rating company.
SEBI
RBI
FERA
IDFC
Score: 1
Feedback:
Credit rating agencies in India are regulated by SEBI. It has made it mandatory for all debts
instruments to be rated from any one of the authorized credit rating company.
Accepted Answers:
SEBI
1 point
SEBI has constituted a committee under TK Viswanathan for ________.
Manufacturing market conduct

Fair market conduct
Partial market conduct
All of the above
Score: 1
Feedback:
SEBI constituted a Committee on Fair Market Conduct in August, 2017 under the Chairmanship
of Shri T.K. Viswanathan.
Accepted Answers:
Fair market conduct
Financial Analysis
Unit-3
The process of explaining the meaning, significance and relationship between two financial
factors is called
Interpretaion
Analysis
Summarization
None
Score: 1
Feedback:
The term 'analysis' means the simplification of financial data by methodical classification of the
data given in the financial statements
Accepted Answers:
Analysis
1 point
Which of the following is technique of financial statement analysis?
Common size statement

Comparative statement
Trend analysis
All of the above
Score: 1
Feedback:
Common size statement, Comparative statement, Trend analysis are some of the techniques
used for financial statement analysis.
Accepted Answers:
All of the above
1 point
The technique of converting figures into percentage in some common base is called
Ratio analysis
Common size statement analysis
Trend percentages
None
Score: 1
Feedback:
The technique of converting figures into percentage in some common base is called ratio
analysis.
Accepted Answers:
Ratio analysis
1 point
The technique of taking first year figures as base and comparing with subsequent years is called
Ratio analysis
Common size statement analysis
Trend analysis
None
Score: 1
Feedback:
The technique of taking first year figures as base and comparing with subsequent years is called
Trend analysis.
Accepted Answers:
Trend analysis
1 point
What is the expected standard for current ratio?
`1:2
`2:1
`2:3
`1:3
Score: 1
Feedback:
Commonly acceptable current ratio is 2; it's a comfortable financial position for most enterprises.
Accepted Answers:
`2:1
1 point
Common size statements analysis is useful for comparing competitor's performance with our
company.
True
False
Score: 1
Feedback:
Common size analysis is used to calculate net profit margin, as well as gross and operating
margins. The ratios tell investors and finance managers how the company is doing in terms of
revenues, and they can make predictions of future revenues.
Accepted Answers:
True
1 point
Trend Analysis is useful for knowing trend of various financial parameters.
True
False
Score: 1
Feedback:
Trend analysis is important in the business and financial sectors. Trend analysis is often used to
make projections and assessments of financial health.
Accepted Answers:
True
1 point
………………….. financial statements are prepared both for income statement and balance
sheet.
Comparative
Common size
Cash flow
Fund flow
Score: 1
Feedback:
Financial statements are prepared for comparative analysis of different financial statements.
Accepted Answers:
Comparative
1 point
The analysis and interpretations of the financial statement will reveal_______
Profitability
Financial position
Both
None
Score: 1
Feedback:
The analysis and interpretations of the financial statement reveal both Profitabilithy and Financial
position of organization.
Accepted Answers:
Both
1 point
In ______ figures of two or more periods are placed side by side to facilitate easy and
meaningful comparisons
Common‐size statement analysis

Comparative statement analysis
Trend percentage analysis
None
Score: 1
Feedback:
Comparative Financial Statement Analysis is also called as Horizontal analysis. The
Comparative Financial Statement provides information about two or more years.
Accepted Answers:
Comparative statement analysis
Valuation
Unit-4
Time value of money indicates that
A unit of money obtained today is worth more than a unit of money obtained in future
A unit of money obtained today is worth less than a unit of money obtained in future
There is no difference in the value of money obtained today and tomorrow
None of the above
Score: 1
Feedback:
Accepted Answers:
1 point
Time value of money supports the comparison of cash flows recorded at different time period by
Discounting all cash flows to a common point of time

Compounding all cash flows to a common point of time
Using either a or b
None of the above
Score: 1
Feedback:
Using either a or b. Time value of the money is the concept which states that the cash received
in current year is more worth than the same amount received at the later date as money has the
potential to earn interest
Accepted Answers:
Using either a or b
1 point
The If the nominal rate of interest is 10% per annum and there is quarterly compounding, the
effective rate of interest will be:
10% per annum
10.10 per annum
10.25%per annum
10.38% per annum
Score: 1
Feedback:
The effective interest rate is calculated through a simple formula: r = (1 + i/n)^n - 1. So answer
would be 10.38% per annum
Accepted Answers:
10.38% per annum
1 point
Relationship between annual nominal rate of interest and annual effective rate of interest, if
frequency of compounding is greater than one:
Effective rate > Nominal rate

Effective rate < Nominal rate
Effective rate = Nominal rate
None of the above
Score: 1
Feedback:
Effective rate > Nominal rate: The more often compounding occurs, the higher the effective
interest rate.
Accepted Answers:
Effective rate > Nominal rate
1 point
To find the present value of a sum of Rs. 10,000 to be received at the end of each year for the
next 5 years at 10% rate, we use:
Present value of a single cash flow table

Present value of annuity table
Future value of a single cash flow table
Future value of annuity table
Score: 1
Feedback:
Accepted Answers:
1 point
If nominal rate of return is 10% per annum and annual effective rate of interest is 10.25% per
annum, determine the frequency of compounding:
1
2
3
None of the above
Score: 1
Accepted Answers:
2
1 point
Interest rate which is not reinvested but earned is classified as
Invested interest
Simple interest
Earned interest
Unstated interest
Score: 1
Feedback:
Interest rate which is not reinvested but earned is classified as Simple interest.
Accepted Answers:
Simple interest
1 point
The value which converts series of equal payments in to the value received at the beginning of
investment is classified as:
Decreased value of annuity

Increased value of annuity
Present value of annuity
Future value of annuity
Score: 1
Feedback:
It is called Present value of annuity.
Accepted Answers:
Present value of annuity
1 point
Present value tables for annuity cannot be straight away applied to varied stream of cash flows.
True
Fasle
Score: 1
Accepted Answers:
True
1 point
Value is an estimate of what ______ ought to be.
Value
Price
Cost
Worth
Score: 1
Feedback:
Value is an estimate of what price should be.
Accepted Answers:
Price
Long-Term Sources of Finance

Unit-5
A person who purchases common stock of a corporation is known as:
Preferred stockholder
Creditor
Bond holder
Common stockholder
Score: 1
Feedback:
A person who purchases common stock of a corporation is called as common stockholder
Accepted Answers:
Common stockholder
1 point
Which of the following statements is not true about preferred stock?
The rate of dividend is usually fixed

Stockholders always have a voting right
Stockholders' usually have a preference as to assets upon liquidation of the corporation
Stockholders' usually have a preference as to dividends
Score: 1
Feedback:
Preffered stock holder do not have voting right
Accepted Answers:
Stockholders always have a voting right
1 point
Which of the following capital is taken up by the general public?
Issued capital
Subscribed capital
Authorized capital
Reserve capital
Score: 1
Feedback:
Issued capital is taken up by the general public, It is that part of subscribed capital, which is
called by the company to pay on shares allotted.
Accepted Answers:
Issued capital
1 point
Which of the following capital is required for the registration for a company?
Issued capital
Subscribed capital
Authorized capital
Reserve capital
Score: 1
Feedback:
Authorized capital is required for the registration of the company. The authorized capital of a
company is the maximum amount of share capital that the company is authorized by its
constitutional documents to issue (allocate) to shareholders.
Accepted Answers:
Authorized capital
1 point
Authorized share capital is also known as
Registered capital
Issued capital
Pid up capital
Called up capital
Score: 1
Feedback:
Authorized share capital is also known as Registered capital. The authorized capital of a
company is the maximum amount of share capital that the company is authorized by its
constitutional documents to issue to shareholders.
Accepted Answers:
Registered capital
1 point
Debentures represent:
Fixed capital of the company

Permanent capital of the company
Fluctuating capital of the company
Loan capital of the company
Score: 1
Feedback:
Debenture represents the loan capital of company.
Accepted Answers:
Loan capital of the company
1 point
Equity shares were earlier known as Preference shares.
True
False
Score: 1
Feedback:
Equity shares are not known as Preference shares.
Accepted Answers:
False
1 point
Equity shareholders are the real owners of the company who have the voting. rights.
True
False
Score: 1
Feedback:
Equity shareholders have voting rights.
Accepted Answers:
True
1 point
An operating lease is a noncancelable agreement.
True
False
Score: 1
Feedback:
An operating lease is a cancelable agreement.
Accepted Answers:
False
1 point
Preferred shareholders' claims on assets and income of a firm come those of________creditors
those of common_________ shareholders.
before; and also before

after; but before
after; and also after
equal to; and equal to
Score: 1
Feedback:
Preferred shareholders' claims on assets and income of a firm come after creditors bu before
common shareholders.
Accepted Answers:
after; but before
Cost of Capital
Unit-6
The weighted average cost of capital for a firm is the:
Discount rate which the firm should apply to all of the projects it undertakes.
Rate of return a firm must earn on its existing assets to maintain the current value of its
stock.
Coupon rate the firm should expect to pay on its next bond issue.
Maximum rate which the firm should require on any projects it undertakes.
Score: 1
Feedback:
WACC : Rate of return a firm must earn on its existing assets to maintain the current value of
its stock.
Accepted Answers:
Rate of return a firm must earn on its existing assets to maintain the current value of its stock.
1 point
A single, overall cost of capital is often used to evaluate projects because:
it avoids the problem of computing the required rate of return for each investment proposal.
it is the only way to measure a firm's required return.
it acknowledges that most new investment projects have about the same degree of risk.
it acknowledges that most new investment projects offer about the same expected return.
Score: 1
Accepted Answers:
it avoids the problem of computing the required rate of return for each investment proposal.
1 point
The cost of equity capital is all of the following except:
the minimum rate that a firm should earn on the equity-financed part of an investment.
a return on the equity-financed portion of an investment that, at worst, leaves the market
price of the stock unchanged.
by far the most difficult component cost to estimate.
generally lower than the before-tax cost of debt.
Score: 1
Feedback:
Accepted Answers:
1 point
To compute the required rate of return for equity in a company using the CAPM, it is necessary
to know all of the following except:
the risk-free rate.

the beta for the firm.
the earnings for the next time period.
the market return expected for the time period.
Score: 1
Feedback:
The capital asset pricing model provides a formula that calculates the expected return on a
security based on its level of risk.
Accepted Answers:
the earnings for the next time period.
1 point
The cost of debt capital is calculated on the basis of
Net proceeds
Annual Interest
Capital
Arumal Depreciation
Score: 1
Feedback:
Calculating the cost of debt involves finding the average interest paid on all of a company's
debts.
Accepted Answers:
Annual Interest
1 point
Which of the following has the highest cost of capital?
Loans
Equity Shares
Bonds
Preference shares
Score: 1
Feedback:
Cost of equity is a return, a firm needs to pay to its equity shareholders to compensate the risk
they undertake, by investing the amount in the firm.hence this is the highest cost of capital.
Accepted Answers:
Equity Shares
1 point
Debenture holders are
Debtors of the Company

Creditors of the Company
Debtors of the Company
Owners of the Company
Score: 1
Feedback:
Debenture is as good as debt of the company which carries a certain percentage of interest.
Such amount is payable to the debenture holders and therefore, debenture holders are
considered as creditors of the company and having a preference to the shareholders.
Accepted Answers:
Creditors of the Company
1 point
WACC is nothing but the minimum rate of return required to create value for the firm.
True
False
Score: 1
Feedback:
Weighted average cost of capital may be hard to calculate, but it's a ... the minimum rate of
return at which a company produces value for its investors.
Accepted Answers:
True
1 point
The weights are calculated based on the amount of capital invested by each category of capital
in comparison to the total capital.
True
False
Score: 1
Feedback:
When assessing the efficacy of a corporate financing strategy, analysts use a calculation called
the weighted average cost of capital (WACC) to determine how much a company ends up paying
for the funds it raises.
Accepted Answers:
True
1 point
Optimum WACC is the lowest cost of capital possible due to the optimum mix of capital.
True
False
Score: 1
Feedback:
An optimal capital structure is the best mix of debt and equity financing that maximizes a
company's market value while minimizing its cost of capital.
Accepted Answers:
True
Capital Structure
Unit-7
The term "capital structure" refers to:
long-term debt, preferred stock, and common stock equity.long-term debt, preferred stock,
and common stock equity.
current assets and current liabilities
total assets minus liabilities
shareholders' equity.
Score: 1
Feedback:
The term "capital structure" refers to: long-term debt, preferred stock, and common stock equity.
current assets and current liabilities. total assets minus liabilities. shareholders' equity.
Accepted Answers:
long-term debt, preferred stock, and common stock equity.long-term debt, preferred stock, and
common stock equity.
1 point
A firm should select the capital structure which
produces the highest cost of capital

maximizes the value of the firm.
minimizes taxes.
has no debt
Score: 1
Feedback:
Accepted Answers:
1 point
Capital structure desinging has nothing to do with:
Profitability
Solvency
Flexibility
Transferability
Score: 1
Feedback:
Capital structure desinging has nothing to do with transferability.
Accepted Answers:
Transferability
1 point
The optimal capital structure has been achieved when the:
debt-equity ratio is equal to 1.

weight of equity is equal to the weight of debt.
cost of equity is maximized given a pre-tax cost of debt
debt-equity ratio results in the lowest possible weighted average cost of capital.
Score: 1
Feedback:
The optimal capital structure of a firm is the best mix of debt and equity financing that maximizes
a company's market value while minimizing its cost of capital.
Accepted Answers:
debt-equity ratio results in the lowest possible weighted average cost of capital.
1 point
The optimal capital structure:
will be the same for all firms in the same industry.

will remain constant over time unless the firm does an acquisition.
will vary over time as taxes and market conditions change.
places more emphasis on operations than on financing.
Score: 1
Feedback:
The optimal capital structur will vary over time as taxes and market conditions change.
Accepted Answers:
will vary over time as taxes and market conditions change.
1 point
Capital structure means the arrangement of capital from different sources so that the long-term
funds needed for the business are raised.
True
False
Score: 1
Accepted Answers:
True
1 point
A sound capital structure enables management to increase the profits of a company in the form
of higher return to the equity shareholders i.e., increase in earnings per share.
True
False
Score: 1
Accepted Answers:
True
1 point
A good capital structure allows the equity shareholders control on business to be diluted.
True
False
Score: 1
Accepted Answers:
False
1 point
A sound capital structure provides a room for expansion or reduction of debt capital so that,
according to changing conditions, adjustment of capital can be made.
True
False
Score: 1
Accepted Answers:
True
1 point
In _______________ approach, the capital structure decision is relevant to the valuation of the
firm.
Net income
Net operating income
Traditional
Miller and Modigliani
Score: 1
Feedback:
In Net income approach, the capital structure decision is relevant to the valuation of the firm.
Accepted Answers:
Net income
Leverage Analysis
Unit-8
Operating leverage may be defined as:
the degree to which debt is used in financing the firm

the difference between price and variable costs
the extent to which capital assets and fixed costs are utilized
the difference between fixed costs and the contribution margin
Score: 1
Feedback:
The amount of plant and equipment used in the production process determines operating
leverage.
Accepted Answers:
the extent to which capital assets and fixed costs are utilized
1 point
Financial leverage:
reflects the firm's commitment to fixed, financial assets

has no impact on the earning of the firm
reflects the amount of debt used in the capital structure of the firm
primarily affects the left side of the balance sheet
Score: 1
Feedback:
Accepted Answers:
1 point
The highly financially leverage firm will typically:
has a higher EPS figure than the conservative firm

has a lower EPS figure than the conservative firm
uses less debt than the conservative firm
will produce the same EPS figure as the conservative firm
Score: 1
Feedback:
Accepted Answers:
1 point
To enhance overall operating results, a firm should prudently use which of the following:
operating leverage
financial leverage
combined leverage
conservative leverage
Score: 1
Feedback:
Operating leverage and financial leverage compound upon each other and therefore a firm
combining both should do so wisely.
Accepted Answers:
combined leverage
1 point
Financial leverage is measured by:
EBIT / EAT
EAIT / EBT
C / EBIT
EBIT / EBT
Score: 1
Feedback:
The financial leverage formula is measured as the ratio of total debt to total assets. As the
proportion of debt to assets increases, so too does the amount of financial leverage.
Accepted Answers:
EBIT / EBT
1 point
A firm's degree of operating leverage (DOL) depends primarily upon its
sales variability.
level of fixed operating costs.
closeness to its operating break-even point.
debt-to-equity ratio.
Score: 1
Feedback:
A firm's degree of operating leverage (DOL) depends primarily upon its closeness to its operating
break-even point.
Accepted Answers:
closeness to its operating break-even point.
1 point
Combined leverage measures the total leverage due to the both operating and financial
True
False
Score: 1
Accepted Answers:
True
1 point
In financial management leverage analysis means arranging fixed assets in such a way that fixed
return is ensured.
True
False
Score: 1
Accepted Answers:
True
1 point
An EBIT-EPS indifference analysis chart is used for_________
evaluating the effects of business risk on EPS.

examining EPS results for alternative financing plans at varying EBIT levels.
determining the impact of a change in sales on EBIT.
showing the changes in EPS quality over time.
Score: 1
Feedback:
It is used for examining EPS results for alternative financing plans at varying EBIT levels.
Accepted Answers:
examining EPS results for alternative financing plans at varying EBIT levels.
1 point
Main objective of employing financial leverage is to:
Reduce the risk associated with profits

Maintain the stability in profits
Decrease the cost of debt capital
Magnify the return on equity share capital
Score: 1
Feedback:
Main objective of employing financial leverage is to magnify the return on equity share capital.
Accepted Answers:
Magnify the return on equity share capital
Working Capital Management

Unit-9
In finance, "working capital" means the same thing as
Total assets
Fixed assets
Current assets
current assets minus current liabilities.
No, the answer is incorrect.
Score: 0
Feedback:
In finance, "working capital" means the same thing as current assets minus current liabilities.
Working capital is the amount of cash a business can safely spend.
Accepted Answers:
Current assets
1 point
Which of the following would be consistent with a more aggressive approach to financing working
capital?
Financing short-term needs with short-term funds.

Financing permanent inventory buildup with long-term debt.
Financing seasonal needs with short-term funds.
Financing some long-term needs with short-term funds.
Score: 1
Feedback:
Accepted Answers:
1 point
Financing a long-lived asset with short-term financing would be
An example of "moderate risk -- moderate (potential) profitability" asset financing.

An example of "low risk -- low (potential) profitability" asset financing.
An example of "high risk -- high (potential) profitability" asset financing.
An example of the "hedging approach" to financing.
Score: 1
Feedback:
Accepted Answers:
1 point
There is deterioration in the management of working capital of XYZ Ltd. What does it refer to?
That the Capital Employed has reduced

That the Profitability has gone up
That debtors collection period has increased
That Sales has decreased
Score: 1
Feedback:
Deterioration in managing capital is linked to the organization's ability to debt collection and
collection period.
Accepted Answers:
That debtors collection period has increased
1 point
If trade receivable days are 42 days, trade payables days 28 and inventory days 16, what is the
working capital cycle in days?
54 days
86 days
2 days
30 days
Score: 1
Feedback:
The working capital cycle is 42 + 16 - 28 = 30 days.
Accepted Answers:
30 days
1 point
Hire purchase is a financial service designed to help firms in managing their book debts and
receivables in a better manner.
True
False
Score: 1
Feedback:
Hire purchase is a method of financing of the fixed asset to be purchased on future
date,Ownership of the asset is transferred after the payment of the last installment.
Accepted Answers:
False
1 point
Cash credit is an arrangement whereby the commercial banks allow borrowing money up to a
specified-limit known as 'cash credit limit'.
True
False
Score: 1
Feedback:
Cash credit refers to an arrangement whereby the bank allows the borrower to withdraw money
from time to time within a specified limit known as the cash credit limit.
Accepted Answers:
True
1 point
The amount of current assets that varies with seasonal requirements is referred to as
__________ working capital.
Permanent
Net
Temporary
Gross
Score: 1
Feedback:
Temporary working capital (TWC) is the temporary fluctuation of networking capital over and
above the permanent working capital.
Accepted Answers:
Temporary
1 point
Having defined working capital as current assets, it can be further classified according
to________.
Financing method and time

Rate of return and financing method
Time and rate of return
Components and time
Score: 1
Feedback:
Having defined working capital as current assets, it can be further classified according to
components and time.
Accepted Answers:
Components and time
1 point
If a company moves from a "conservative" working capital policy to an "aggressive" policy, it
should expect ______.
Liquidity to decrease, whereas expected profitability would increase

Expected profitability to increase, whereas risk would decrease
Liquidity would increase, whereas risk would also increase
Risk and profitability to decrease
Score: 1
Feedback:
It should expect, liquidity to decrease, whereas expected profitability would increase.
Accepted Answers:
Liquidity to decrease, whereas expected profitability would increase
Capital Budgeting
Unit-10
1 point
The span of time within which the investment made for the project will be recovered by the net
returns of the project is known as
Period of return
Payback period
Span of return
None of the above
Score: 1
Feedback:
The span of time within which the investment made project will be recovered by the net returns of
the project is known as Payback Period
Accepted Answers:
Payback period
1 point
The values of the future net incomes discounted by the cost of capital are called
Average capital cost

Discounted capital cost
Net capital cost
Net present values
Score: 1
Feedback:
NPV is used in capital budgeting and investment planning to analyze the profitability of a
projected investment or project.
Accepted Answers:
Net present values
1 point
Under Net present value criterion, a project is approved if
Its net present value is positive

The funds are unlimited
Both (A) and (B)
None of the above
Score: 1
Feedback:
A positive net present value indicates that the projected earnings generated by a project or
investment
Accepted Answers:
Both (A) and (B)
1 point
The internal Rate of Return (IRR) criterion for project acceptance, under theoretically infinite
funds is: accept all projects which have
IRR equal to the cost of capital

IRR greater than the cost of capital
IRR less than the cost of capital
None of the above
Score: 1
Feedback:
Accepted Answers:
1 point
Process that involves decision making with respect to investment in fixed asset?
Valuation
Break-Even analysis
Capital budgeting
Material management decision
Score: 1
Feedback:
Capital budgeting involves the decision-making process with respect to investment in fixed
assets.
Accepted Answers:
Capital budgeting
1 point
Present value of future cash flows is Rs 2000 and an initial cost is Rs 1100 then profitability index
will be
5
1.82
0.55
0.0182
Score: 1
Feedback:
Profitability index = Present value of future cash flow / Initial cost = 2000 / 1100 = 1.82%.
Accepted Answers:
1.82
1 point
If net present value is positive then profitability index will be
greater than two

equal to
less than one
greater than one
Score: 1
Feedback:
A positive NPV will correspond with a profitability index that is greater than one.
Accepted Answers:
greater than one
1 point
Projects with __________ are preferred
Lower payback period

Normal payback period
Higher payback period
Any of the above
Score: 1
Feedback:
The lower payback period is generally considered to be the most acceptable.
Accepted Answers:
Lower payback period
1 point
_________ on capital is called ‘Cost of capital’.
Lower expected return

Normally expected return
Higher expected return
None of the above
Score: 1
Accepted Answers:
Normally expected return
1 point
A profitability index (PI) of .73 for a project means that _______
the project's costs (cash outlay) are (is) less than the present value of the project's benefits
the project's NPV is greater than zero
the project's NPV is greater than 1
the project returns 73 cents in present value for each current dollar invested (cost)
Score: 1
Accepted Answers:
the project returns 73 cents in present value for each current dollar invested (cost)

Financial Management Q & A - Sem II

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Financial Management Q & A - Sem II

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Overview of Finance Function

the number of people employed in the firm.

Maximize earning per share

the number and types of products or services provided by the firm.

Earning capital assets of the company

Amount of returns expected

Efficient management of every business

Risk free rate

To enable companies to raise capital.

Manufacturing market conduct

Common size statement

Common‐size statement analysis

Discounting all cash flows to a common point of time

Effective rate > Nominal rate

Present value of a single cash flow table

Decreased value of annuity

Long-Term Sources of Finance

The rate of dividend is usually fixed

Fixed capital of the company

before; and also before

the risk-free rate.

Debtors of the Company

produces the highest cost of capital

debt-equity ratio is equal to 1.

will be the same for all firms in the same industry.

the degree to which debt is used in financing the firm

reflects the firm's commitment to fixed, financial assets

has a higher EPS figure than the conservative firm

evaluating the effects of business risk on EPS.

Reduce the risk associated with profits

Working Capital Management

Financing short-term needs with short-term funds.

An example of "moderate risk -- moderate (potential) profitability" asset financing.

That the Capital Employed has reduced

Financing method and time

Liquidity to decrease, whereas expected profitability would increase

Average capital cost

Its net present value is positive

IRR equal to the cost of capital

greater than two

Lower payback period

Lower expected return

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