505B - Corporate Finance

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III B.Com(CS) [2012-2014]

Semester VI
Core: Corporate Finance– 505B
Multiple Choice Questions.
1. Financial Management is mainly concerned with _____

A. Arrangement of funds.
B. All aspects of acquiring and utilizing financial resources for firms activities
C. Efficient Management of every business
D. Profit maximization
ANSWER: B
2. In his traditional role the finance manager is responsible for _____

A. Arrange of utilization of funds.
B. Arrangement of financial resources.
C. Acquiring capital assets of the organization
D. Effective management of capital.
ANSWER: D
3. The primary goal of the financial management is _____

A. To maximize the return.
B. To minimize the risk
C. To maximize the wealth of owners
D. To maximize profit
ANSWER: D
4. Capital budgeting is related to _____

A. Long terms assets
B. Short term assets
C. Long terms and short terms assets
D. Fixed assets
ANSWER: A
5. Working capital management is _____ managing.

A. Long term assets
B. Short term assets and liabilities
C. Long terms liabilities
D. Only short term assets
ANSWER: B
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6. Which few hold the shares of a public limited company it is called _____
A. Privately owned company
B. Publicly traded company
C. Closely held company.
D. Public and private company
ANSWER: A
7. Future value interest factor takes _____ a. Compounding rate

A. Compounding rate
B. Discounting rate
C. Inflation rate
D. Deflation rate
ANSWER: A
8. Present value takes _____

A. Compounding rate
B. Discounting rate
C. Inflation rate
D. Deflation rate
ANSWER: B
9. Financial decisions involve _____

A. Investment, financing and dividend decisions
B. Investment sales decisions
C. Financing cash decisions.
D. Investment dividend decisions.
ANSWER: C
10. Traditional approach cofines finance function only to _____ of funds

A. Raising
B. Mobilizing
C. Utilizing
D. Financing
ANSWER: A
11. The companys cost of capital is called _____

A. Leverage rate
B. Hurdle rate
C. Risk rate
D. Return rate
ANSWER: A
12. Market value of the cost of capital is decided by _____

A. The respective companies
B. The investment market
C. The government
D. Share holders
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ANSWER: D
13. Cost of retained earnings is equal to _____

A. Cost of equity
B. Cost of debt
C. Cost of term loans
D. Cost of bank loan.
ANSWER: C
14. Beta measures the _____

A. Financial risk
B. Investment risk rate
C. Market risk
D. Market and finance risk
ANSWER: B
15. The expansion of CAMP is _____

A. Capital amount pricing model
B. Capital asset pricing model
C. Capital asset printing model.
D. Capital amount printing model.
ANSWER: B
16. The companys average cost of capital is _____

A. The average cost of equity shares and debentures
B. The average cost of equity preference shares
C. The average cost of all sources of long term funds
D. The average cost of short term funds
ANSWER: B
17. The cost of capital of a long term debt is generally _____

A. Lower than the owned funds.
B. Equal to that of owned funds.
C. Higher than that of owned funds.
D. More or less than owned funds.
ANSWER: C
18. Interest on debt capital provides a _____ to the equity share holders.
A. Added profit
B. Tax shield
C. Additional financial burden
D. Dividend
ANSWER: A
19. The most difficult to calculate is _____

A. The cost of equity capital.
B. The cost of preferred capital
C. The cost of retained earnings
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D. The cost of equity and preference capital.

ANSWER: B
20. The required rate of return for an investment project should _____
A. Leave the market price of the stock unchanged
B. Increase the market price
C. Reduce the market price.
D. Constant market price.
ANSWER: A
21. When a company uses increased fixed cost for production, this is an example of what type of leverage.
A. Operating leverage
B. Financial leverage
C. Variable cost leverage
D. Combined leverage.
ANSWER: A
22. When a company uses debt fund in its financial structure, it will lead to a change in _____
C. Money market leverage
D. Stock market leverage
ANSWER: A
23. . The objective of break even analysis is to determine the break-even quantity of output by studying the
relationships among _____
A. The firms cost structure, volume of output and profit
B. The firms dividend policy and cost of capital
C. The firms working capital and its components
D. The firms capital structure
ANSWER: A
24. Fixed cost per unit _____

A. Changes according to volume of production
B. Be flexible according to the rate of interest
C. Does not change with volume of production
D. Remains constant.
ANSWER: C
25. Variable cost in an organization _____

A. Changes with the volume of production
B. Be fixed according to the rate of growth.
C. Does not change with volume of production
D. Remains constant.
ANSWER: B
26. Variable cost per unit _____

A. Varies with the level of output
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B. Remains constant irrespective of the level of output.

C. Changes with the growth of the firm
D. Does not change with volume of production
ANSWER: A
27. Financial leverage measures ______

A. Sensitivity of EBIT with respect ot 1% change with respect to output.
B. 1% variation in the level of production
C. Sensitivity of EPS with respect to 1% change in level of EBIT
D. No change with EBIT and EPS.
ANSWER: A
28. Operating leverage measures ______

A. The business risk
B. Financial risk
C. Both risks
D. Production risk.
ANSWER: D
29. Financial leverage helps one to estimate _____

A. The business risk
B. The financial risk
C. Both risks
D. Production risk.
ANSWER: C
30. Financial leverage is also known as ______

A. Trading on equity
B. Trading on debt
C. Interest on equity
D. Interest on debt
ANSWER: A
31. A firm will have favourable leverage if its _____ are more than the debt cost.
A. Debt
B. Interest
C. Equity
D. Earnings
ANSWER: C
32. Operating leverage * financial leverage= _____

A. Composite leverage
B. Financial composite leverage
C. Operating composite leverage
D. Fixed leverage
ANSWER: C
33. Operating leverage = ______
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A. Contribution profit
B. Contribution sales
C. Contribution total expenses
D. Contribution operating profit
ANSWER: B
34. Cost of capital is the _____ rate of return expected by its investors
A. Minimum
B. Maximum
C. Equal
D. Higher
ANSWER: D
35. According to the traditional approach cost of capital affected by _____

A. Debt-equity mix
B. Debt-capital mix
C. Equity expenses mix
D. Debt-interest mix
ANSWER: D
36. L= r0 + ___ + ____

A. b, f
B. b, f
C. m,f
D. r,f
ANSWER: D
37. Shares having no face value are known as ____

A. No par stock
B. At par stock
C. Equal stock
D. Debt equity stock
ANSWER: D
38. A fixed rate of _____ is payable on debentures

A. Dividend
B. Commission
C. Interest
D. Brokerage
ANSWER: D
39. Effective cost of debentures is ______ as compared to shares

A. Higher
B. Lower
C. Equal
D. Medium
ANSWER: C
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40. Ownership securities are represented by _____

A. Securities
B. Equities
C. Debt
D. Debentures
ANSWER: A
41. Corporation is not a part of _____ finance

A. Public
B. Private
C. Public & private
D. Organization
ANSWER: C
42. . ______ management is the important task of the finance manager

A. Debt
B. Equity
C. Profit
D. Cash
ANSWER: D
43. Finance function is one of the most important functions of _____ management
A. Business
B. Marketing
C. Financial
D. Debt
ANSWER: C
44. Nominal rate is the rate compounded ______

A. One time in 2 years
B. Twice in 2 years
C. More than once in an year
D. More than two years
ANSWER: D
45. The expansion of EAR is ____

A. Equivalent annual rate
B. Equivalent annuity rate
C. Equally applied rate
D. Equal advance rate
ANSWER: B
46. Traditional theorists believe that ______

A. There exists an optimal capital structure
B. No optimal capital structure
C. Equal optimal capital structure
D. 100% debt financial organizations
ANSWER: B
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47. Modigliani and Miller believe that ______

A. There exists an optimal capital structure
B. There is no optimal capital structure in a firm as such
C. There exists 100% debt financial organizations
D. Minimum capital utilization exists
ANSWER: C
48. By inducting debt component in the capital structure one is able to bring down the overall cost of
capital. This is the preposition of ______
A. Net income approach
B. Traditional approach
C. Operating income approach
D. Modern approach
ANSWER: D
49. Altering the leverage ratio does not influence the market value of the firm. This is the basic premise of
_____
C. Modern approach
D. Net operating income approach
ANSWER: D
50. The effect of bank rupture and agency cost _____

A. Reduces the cost of capital
B. Tends to increase the cost of capital
C. Balance the cost of capital
D. Higher the cost of capital
ANSWER: C
51. Arbitrage is the level processing technique introduced in

B. Mm approach
C. Operating approach
D. Traditional approach
ANSWER: A
52. Operating incomes and the discount rate of a particular risk class are the 2 factors determining ______
A. Dependence hypothesis
B. Traditional view
C. Modern view
D. Independence hypothesis
ANSWER: D
53. Induction of debt component into a capital structure is advantageous if taxes are applicable to corporate
income. The following is the reasons for such action
A. Dividend and retained earnings are not deductible for tax purpose
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B. Interest on debt is a tax deductible expense

C. Both a & b
D. Only on interest on debts
ANSWER: D
54. The probability of bankrupt is higher ______

A. For a levered firm than an unlevered firm
B. For a unlevered firm than an levered firm
C. Only levered firm
D. Only unlevered firm
ANSWER: C
55. The decision to invest a substantial sum in any business venture expecting to earn a minimum return is
called ______
A. A working capital decision
B. An investment decision
C. A production decision
D. A sales decision
ANSWER: D
56. The available capital funds are to be carefully allocated among competing projects by careful
prioritization. This is called ______
A. Capital positioning
B. Capital structuring
C. Capital rationing
D. Capital budgeting
ANSWER: D
57. Capital budgeting decisions in India cannot be reversed due to ____

A. Leaviness of the project
B. I will organized market for second hand capital goods
C. Govt. regulations
D. Policy of the management
ANSWER: C
58. Policy of the management is _______

A. Consider cashflow in its entirety
B. Consider the present value of future cashflows
C. Consider the liquidity
D. Consider the inflows in its entirety
ANSWER: A
59. If the pay back is a bad rule, the average returns on book value is _____
A. Worse
B. Better
C. The best
D. Equal
ANSWER: C
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60. Net present value is a popular method which falls _______

A. With in non- discount cash flow method
B. With in discount cash flow method
C. Equal With in non- discount cash flow method
D. No discount cash flow
ANSWER: C
61. A demerit of IRR method is that it does not distinguish between ______
A. Lending & borrowing
B. Discounting & non- discounting
C. Cash flow & non- cash flow
D. Inflow & out flow
ANSWER: C
62. Net working capital is the excess of current asset over ______
A. Current liability
B. Net liability
C. Total payable
D. Total liability
ANSWER: C
63. Working capital is also known as ______ capital

A. Circulating
B. Fluctuating
C. Fixed
D. Going
ANSWER: B
64. The gross working capital is a _____ concern concept

A. Going
B. Money measurement
C. Revenue concept
D. Cost concept
ANSWER: B
65. The rate of return on investment _____ with the shortage of working capital
A. Falls
B. Going
C. Constant
D. Change
ANSWER: A
66. Greater the size of a business unit ____ will be the requirements of working capital
A. Larger
B. Lower
C. No change
D. Fixed
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ANSWER: B
67. The fixed proportion of working capital should be generally financed from the ____ capital sources
A. Fixed
B. Variable
C. Semi-variable
D. Borrowed
ANSWER: D
68. The volume of sales is influenced by ____ of a firm

A. Finance policy
B. Credit policy
C. Profit policy
D. Fund policy
ANSWER: D
69. Factoring is a form of financing _____

A. Payable
B. Receivables
C. Borrowings
D. Debts
ANSWER: C
70. Inventory management is essential because investments in stock are _____

A. High
B. Low
C. Medium
D. Fixed
ANSWER: B
71. The time required to process and execute an order is called _______
A. Allowed time
B. Lead time
C. Accepted time
D. Fixed time
ANSWER: D
72. Ordering cost is the cost of _______ materials

A. Selling
B. Purchasing
C. Stocking
D. Financing
ANSWER: A
73. The policy concerning quarters of profit to be distributed as dividend is termed as _____
A. Profit policy
B. Dividend policy
C. Credit policy
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D. Reserving policy
ANSWER: C
74. The company must implement the bonus issues the decision with in _______ of the director approval
A. 6 mts
B. 3 mts
C. 2 mts
D. 1 mts
ANSWER: B
75. The most appropriate dividend policy is the payment of _______ dividend per share
A. Consent
B. Variable
C. Higher
D. Lower
ANSWER: B
76. A company having easy access to the capital markets can follow a ________ dividend policy
A. Liberal
B. Formal
C. Strict
D. Varying
ANSWER: C
77. . _________ dividend promises to pay shareholders at future date

A. Scrip
B. Cash
C. Stock
D. Property
ANSWER: B
78. _______ dividend is the usual method of paying dividend

A. Scrip
B. Cash
C. Stock
D. Property
ANSWER: B
79. According to the _____ model, the dividend decision is irrelevant

A. MM
B. Garden
C. Walter
D. XY
ANSWER: D
80. The cash management refers to management of _______

A. Cash only
B. Cash and bank balances
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C. Cash and near cash assets

D. Fixed assets
ANSWER: B
81. Miller- Orr Model is suitable in those circumstances when the _______
A. Demand for cash is steady
B. Demand for cash is not steady
C. Carry cost and transaction cost are to be kept at minimum
D. Demand for cash is variable
ANSWER: A
82. Offering cash discount to customers result is _______

A. Reducing the average collection period
B. Increasing the average collection period
C. Increasing sales
D. Decreasing sales
ANSWER: D
83. A higher accounts receivable turnover ratio means ______

A. Lower debt collection period
B. Higher debt collection period
C. Lower sales
D. Higher sales
ANSWER: B
84. Good inventory management is good _____ management

A. Financial
B. Marketing
C. Stock
D. Purchasing
ANSWER: D
85. Setup cost is a type of ____ cost

A. Fixed
B. Variable
C. Semi variable
D. Carrying
ANSWER: D
86. Re-order level is _______ than safety cash level

A. Higher
B. Lower
C. Medium
D. Fixed
ANSWER: D
87. MM approach assumes that ______ markets are perfect

A. Receivable
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B. Capital
C. Stock
D. Exchange
ANSWER: D
88. The amount of the temporary working capital ________

A. Keeps on fluctuating from time t o time
B. Remains constant for all times
C. Financed through long term services
D. Financed short term sources
ANSWER: C
89. While evaluating capital investment proposal the time value of money is considered in case of
________
A. . Pay back method
B. Accounting rate
C. Internal rate
D. Discounted cash flow
ANSWER: C
90. The return after the pay off period is not considered in case of _______
A. Pay back period method
B. Interest rate method
C. Present value method
D. Discounted cash flow method
ANSWER: D
91. Depreciation is include in costs in case of ________

A. Pay back method
B. Accounting rate
C. Discounted cash flow
D. Present value method
ANSWER: A
92. . The arbitrary process is the behavioral foundation for the ________
A. MM approach
B. XX approach
C. Gorder approach
D. Miller approach
ANSWER: B
93. The notice to Accept right share should not be less than _______ days
A. 15
B. 20
C. 10
D. 30
ANSWER: D
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94. The residual reserve after the proposal capitalization% of the increased paid up capital of the company
is _______
A. 40%
B. 50%
C. 60%
D. 20%
ANSWER: A
95. The bonus issue is permitted to be made out of _______ and premium collected in cash
A. Free reserves
B. Free interest
C. Free bonus
D. Free cash dividend
ANSWER: A
96. The bonus issue is made to make the nominal value and the _______ value of the shares of the
company
A. Face
B. Market
C. Stock
D. Real
ANSWER: B
97. Premium received in cash is a source of ________ issue

A. Right
B. Bonus
C. Cash
D. Resumes
ANSWER: C
98. Bonus share are not permitted unless the ________ paid shares ,if any made fully paid
A. Partly
B. Semi
C. Fully
D. Not
ANSWER: B
99. Dividend policy of a firm affects both the longtime financing and wealth to ________
A. Owners
B. Creditors
C. Debtor
D. Shareholders
ANSWER: C
100. . _________ is the distribution of the profits of a company among its shareholders
A. Shares
B. Interest
C. Dividend
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D. Commission
ANSWER: C
101. Which of the following is not an objective of financial management?

A. Maximization of wealth of shareholders
B. Maximization of profits.
C. Mobilization of funds at an acceptable cost.
D. Ensuring discipline in the organization.
ANSWER: D
102. Which of the following is not a function of a finance manager?

A. Mobilization of funds.
B. Deployment of funds.
C. Control over use of funds.
D. Manipulate share price of the company.
ANSWER: D
103. The market value of the firm is the result of _________

A. Dividend decisions
B. Working capital decisions
C. Capital budgeting decisions
D. Trade-off between cost and risk.
ANSWER: D
104. Which of the following is related to the control function of the financial manager?
A. Interaction with the bankers for arranging a short-term loan.
B. Comparing the costs and benefits of different sources of finance.
C. Analysis of variance between the targeted costs and actual costs incurred.
D. Assessing the costs and benefits of a project under consideration.
ANSWER: C
105. The objective of financial management is to ________

A. Generate the maximum net profit
B. Generate the maximum retained earnings
C. Generate the maximum wealth for its shareholders
D. Generate maximum funds for the firm at the least cost
ANSWER: C
106. Which of the following statements represents the financing decision of a company?
A. Procuring new machineries for the R&D activities.
B. Spending heavily for the advertisement of the product of the company.
C. Adopting state of the art technology to reduce the cost of production
D. Purchasing a new building at Delhi to open a regional office.
ANSWER: D
107. Designing an optimal capital structure by using suitable financial The objective of financial
management to increase the wealth of the shareholders mean to _______
A. Increase the physical assets owned by the firm.
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B. Increase the market value of the shares of the firm.

C. Increase the cash balance of the company.
D. Increase the total number of outstanding shares of the company.
ANSWER: D
108. Which of the following is a function of the finance manager?

A. Mobilizing funds.
B. Risk returns trade off.
C. Deployment of funds.
D. Control over the uses of funds.
ANSWER: D
109. Which of the following are feature(s) of Gilt-edged securities?

A. Only repayment of principal is secured.
B. They are issued by non-governmental service organizations.
C. They are issued by government entities.
D. The repayments of both principal and interest are secured.
ANSWER: D
110. Which of the following is not a function performed by a financial system?

A. Savings function.
B. Liquidity function.
C. Risk function
D. Social function.
ANSWER: D
111. Financial risk arises due to the ________

A. Variability of returns due to fluctuations in the securities market.
B. Changes in prevailing interest rates in the market
C. Leverage used by the company
D. Liquidity of the assets of the company.
ANSWER: D
112. The risk that arises due to change in the purchasing power is called ________
A. Financial risk
B. Interest rate risk
C. Business risk
D. Inflation risk
ANSWER: D
113. In finance we refer to the market where the existing(already issued. securities are bought and sold for
the first time as the __________ market.
A. Money
B. Capital
C. Primary
D. Secondary
ANSWER: D
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114. Long -term solvency is indicated by ________

A. Liquidity ratio
B. Debt-equity ratio
C. Return coverage ratio
D. Divident ratio.
ANSWER: B
115. Which of the following is/are the problem(s) encountered in financial statement analysis?
A. Development of benchmarks.
B. Window dressing.
C. Interpretation of results.
D. All of the above.
ANSWER: D
116. Earnings Per Share (EPS) is equal to ________

A. . Profit before tax/No. of outstanding shares
B. Profit after tax/No. of outstanding shares
C. Profit after tax/Amount of equity share capital
D. Profit after tax less equity dividends/No. of outstanding shares
ANSWER: B
117. Degree of total leverage can be applied in measuring change in _______

A. EBIT to a percentage change in quantity
B. EPS to a percentage change in EBIT
C. EPS to a percentage change in quantity
D. Quantity to a percentage change in EBIT.
ANSWER: C
118. The measure of business risk is ________

C. Total leverage
D. Working capital leverage
ANSWER: A
119. The value of EBIT at which EPS is equal to zero is known as ________
A. Break even point
B. Financial break even point
C. Operating break even point
D. Overall break even point
ANSWER: B
120. Degree of financial leverage is a measure of relationship between ___________

A. EPS and EBIT
B. EBIT and quantity produced
C. EPS and quantity produced
D. EPS and sales
ANSWER: A
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121. Operating leverage examines ________

A. The effect of the change in the quantity on EBIT
B. The effect of the change in EBIT on the EPS of the company
C. The effect of the change in output to the EPS of the company
D. The effect of change in EPS on the output of the company
ANSWER: A
122. Which of the following is the expression for operating leverage?

A. Contribution/EBIT
B. EBT/Contribution.
C. Contribution/EAT.
D. Contribution/Quantity.
ANSWER: A
123. Operating Leverage is the response of changes in ________

A. EBIT to the changes in sales
B. EPS to the changes in EBIT
C. Production to the changes in sales
D. None of the above.
ANSWER: A
124. Operating Leverage is ________

A. Measures the responsiveness of earnings per share to variability in earnings before interest and taxes
B. Undefined at the operating break even point
C. All of the above
D. None of the above
ANSWER: C
125. The use of preference share capital as against debt finance _______
A. Reduces DFL
B. Increases DFL
C. Increases financial risk
D. All the above.
ANSWER: B
126. The Degree of Financial Leverage (DFL) _______

A. Measures financial risk of the firm
B. Is zero at financial break even point
C. Increases as EBIT increases
D. All the above.
ANSWER: A
127. Operating leverage measures the sensitivity of the ___________ to changes in quantity.
A. Earnings per share.
B. Earnings before interest and taxes
C. Profit before tax
D. Dividend per share
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ANSWER: C
128. The objective of financial management is to ________

A. Maximize the return on investment
B. Minimize the risk
C. . Maximize the wealth of the owners by increasing the value of the firm.
D. Maximize profit
ANSWER: D
129. Which one of the following is not a source of long-term finance?

A. Equity capital
B. Preference capital
C. Commercial paper
D. Term loan.
ANSWER: D
130. A cumulative preference share is one ________

A. In which all the unpaid dividends are carried forward and payable
B. Which can be converted in to equity shares
C. Which can be redeemed
D. Which entitle the preference shareholders to participate in surplus profits and assets.
ANSWER: A
131. Which of the following characteristics are true, with reference to preference capital?
A. Preference dividend is tax deductible.
B. The claim of preference shareholders is prior to the claim of equity shareholders
C. All of the above
D. Preference dividend is not tax deductible.
ANSWER: C
132. What are the factors which make debentures attractive to investors?
A. They enjoy a high order of priority in the event of liquidation.
B. Stable rate of return.
C. All of the above.
D. They are not enjoy a high order of priority in the event of liquidation.
ANSWER: C
133. The method of raising equity capital from existing members by offering securities on pro rata basis is
referred to as ________
A. Public issue
B. Bonus issue
C. Private placement
D. Bought-Out-Deal
ANSWER: B
134. Which of the following is not a source of long-term finance?

A. Equity shares
B. Preference shares
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C. Commercial papers
D. Reserves and surplus.
ANSWER: D
135. A company is in dire need for funds but lost the confidence of its shareholders due to the inadequate
return on investments. Which of the following methods is/are suitable to that company to raise funds?
A. Rights issue
B. Private placements
C. Bought out deals
D. Both b and c above.
ANSWER: D
136. . For which of the following factors are the debentures more attractive to the investors?
A. The principal is redeemable at maturity.
B. A debenture-holder enjoys prior claim on the assets of the company over its shareholders in the event
of liquidation.
C. A trustee is appointed to preserve the interest of the debenture holders.
D. All the above.
ANSWER: D
137. If debentures are issued by a company,

A. The interest of the debentures holders is assured by SEBI
B. Debenture redemption reserve should be at least 75 percent of the issue amount prior to the
commencement of the redemption process.
C. Call option on debentures allows the issuer to redeem the debentures at a certain price before
maturity.
D. Put option on debentures allows the issuer to redeem the debentures at a certain price before maturity.
ANSWER: D
138. A company may rise capital from the primary market through ________
A. Public issue
B. Rights issue
C. Bought out deals
D. All of the above
ANSWER: D
139. According to traditional approach, the average cost of capital is ________

A. Remains constant up to a degree of leverage and rises sharply thereafter with every increase in
leverage.
B. Rises constantly with increase in leverage.
C. Decrease up to certain point, remains unchanged for moderate increase in leverage and rises beyond a
certain point.
D. Decrease at an increasing rate with increase in leverage.
ANSWER: C
140. Which of the following approaches advocates that the costs of equity capital and debt capital remain
unaltered when the degree of leverage varies?
A. Net Income Approach
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B. Traditional Approach
C. Modigliani-Miller Approach
D. All the above.
ANSWER: A
141. The cost of capital of a firm is _______

A. The dividend paid on the equity capital
B. The weighted average of the cost of various long-term and short-term sources of finance
C. The average rate of return it must earn on its investments to satisfy the various investors.
D. The minimum rate of return it must earn on its investments to keep its investors satisfied.
ANSWER: C
142. The constant growth model of equity valuation assumes that _______
A. The dividends paid by the company remain constant
B. The dividends paid by the company grow at a constant rate of growth
C. The cost of equity may be less than or equal to the growth rate
D. The growth rate is less than the cost of equity
ANSWER: D
143. Which of the following is true?

A. The cost of retained earnings is always less than the cost of external equity
B. The cost of external equity is always less than the cost of retained earnings
C. The cost of retained earnings is lower than the cost of external equity in the presences of flotation
costs
ANSWER: C
144. Cost of equity capital is ________

A. Lesser than the cost of debt capital
B. Equal to the last dividend paid to the equity share holders
C. Equal to the dividend expectations of equity share holders for the coming year
ANSWER: D
145. Which of the following is not a feature of an optimal capital structure?

A. . Safety
B. Flexibility
C. Control
D. Solvency
ANSWER: B
146. The overall capitalization rate and the cost of debt remain constant for all degrees of leverage. This is
pronounced by ________
A. Traditional approach
B. Net operating income approach
C. Net income approach
D. All the above
ANSWER: C
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147. While calculating weighted average cost of capital is ________

A. Retained earnings are excluded
B. Cost of issues are included
C. Weights are based on market value or on book value
D. Equity shares are given more weights
ANSWER: D
148. Which of the following is not a feature of an optimal capital structure?

A. . The company should make maximum use of leverage at a minimum cost
B. The capital structure should involve minimum dilution of control of the company
C. The company should aim at not using excessive debt in its capital structure
D. The company should make minimum use of leverage at a minimum cost
ANSWER: D
149. Which of the following is not an assumption Miller and Modigliani approach?
A. There are no corporate or personal income tax
B. Investors are assumed to be rational and behave accordingly
C. There is no corporate tax though there are personal income tax
D. Capital markets are perfect
ANSWER: D
150. . Capitalization is the result of ________

A. Underestimating the rate of capitalization
B. Payment of excessive amount of goods will
C. Raising more money than can be profitably raised.
D. All of the above.
ANSWER: D
151. Under capitalization refers to ________

A. Increase in the market value of shares
B. Payment of dividend at a low rate
C. Shareholders defaulting in payment of call monies
D. Actual capitalization being lower than proper capitalization
ANSWER: D
152. What type a debenture can a company cannot issue?

A. Registered debentures
B. Bearer debentures
C. Irredeemable debentures
D. Participating debentures
ANSWER: D
153. A profit which is not likely to contribute to the current profits, should be financed by _______
A. Debentures
B. Public deposits
C. Preference share capital
D. Equity capital
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ANSWER: D
154. Identify the non redeemable security among the following

A. Cumulative preference share
B. Preference share
C. Equity share
D. Debentures
ANSWER: C
155. . Redeemable preference shares could be ________

A. Non cumulative
B. Cumulative
C. Participating
D. All of them
ANSWER: D
156. Preference shares carry a preference right in respect of ________

A. Dividend
B. Repayment of capital
C. Both of the above
ANSWER: C
157. Capital gearing means _________

A. Working capital
B. Trading on equity
C. Watered capital
D. Fixation of proper ratio between two or more type of securities
ANSWER: D
158. The tern capitulation is used to reference of ________

A. Partnership
B. Join stock company
C. Cooperative
ANSWER: D
159. The rate of the interest / dividend is not fixed in ________

A. Public deposits
B. Preference capital
C. Debentures
D. Equity capital
ANSWER: A
160. Share warrants may be issued by ________

A. Public limited companies
B. Private limited companies
C. Companies limited by guarantee
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D. All of the above

ANSWER: A
161. Premium on issue of shares can be used for ________

A. Distributing profits
B. Issue of bonus shares
C. Paying the amount of directors
D. None of these
ANSWER: B
162. Balance of forfeited share is _________

A. Revenue reserve
B. Capital reserve
C. Reserve
ANSWER: A
163. Profits can be frequently inflated by _________

A. Suppression of sales returns
B. Treating capital expenditure as revenue
C. Overestimation of liabilities
D. Omission of prepaid expenses
ANSWER: C
164. Financial disintermediation results in large _______

A. Access to financial institution
B. Participation of financial institution
C. Free based income
D. Securities related income
ANSWER: C
165. Identify the source of finance that does not pose a burden on a companys finances
A. Debentures
B. Public deposit
C. Loan from financial institutions
D. Retained earnings
ANSWER: D
166. Working capital management is concerned with the problems that arise in attempting to
manage________
A. Current assets and fixed liabilities
B. Fixed assets and current liabilities
C. Current assets ,current liabilities and interrelationship between them
D. Fixed assets and fixed liability
ANSWER: C
167. Operating cycles refers to ______

A. Acquisition of resources such as raw materials , labour fuel etc
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B. The time duration to convert sales into cash

C. Sales of product either for cash or credit
D. Collection of debtors and making payment to creditors
ANSWER: B
168. Which of the factors do not influence the levels of working capital ?
A. Nature of business
B. Operating capital
C. Sales
D. Profit
ANSWER: B
169. Financing can not be _______

A. Spontaneous
B. Continuous
C. Intermitted
ANSWER: C
170. Which of the following can not be consideration in forming a dividend policy?
A. Shareholders expectation
B. Access to capital market
C. Stable dividend
D. profit ratio
ANSWER: C
171. Capital budgeting refers to ______

A. Demand and supply of capital
B. Managerial technique of planning capital expenditures of the company
C. Overall cost of capital
D. Raising of capital
ANSWER: B
172. Discounted cash flow techniques involves____

A. Net present value
B. Payback method
C. Accounting rate of return
ANSWER: C
173. Operating leverage results from _____

A. Fixed cost
B. Variable cost
C. Operating expenses
D. Operating profit
ANSWER: C
174. Financial average is related ton _______
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A. Financing activities of the firm

B. Fixed financing charges
C. Operating expenses
D. Operating losses
ANSWER: A
175. Trading on equity refers to _______

A. Using debt capital along with own capital
B. Smaller borrowings and larger profits
C. 100% dividend payout ratio
D. Selling of equity shares
ANSWER: A
176. Which of the following is not a theory of capital structure ?

B. Net operating income approach
C. Weighted average cost of capital
ANSWER: C
177. None of the above

A. Fixed percentage
B. Variable percentage
C. Variable percentage
D. Zero percentage
ANSWER: A
178. The average of all the cost of each source of funds employed by the firm is known as ______
A. Average cost of production
B. Average cost of capital
C. Average cost of sales
ANSWER: B
179. The distribution of capital in favor of more acceptable proposals is known as ______
A. Capital rationing
B. Capital budgeting
C. Cost of capital
D. Capital raising
ANSWER: A
180. What is the rate which equates the present value of expected future cash flow with the cost of
investment?
A. Internal rate of return
B. External rate of return
C. Return on investment
D. Average rate of return
ANSWER: A
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181. The ratio between stock and the shares and the fixed interest bearing securities are known as ______
A. Stock turnover ratio
B. Capital gearing ratio
C. Interest coverage ratio
D. Interest coverage ratio
ANSWER: B
182. The minimum amount of current assets needed to conduct a business even during the dullest seasons
of that year is known as ______
A. Gross working capital
B. Gross working capital
C. Fixed working capital
D. Fixed working capital
ANSWER: D
183. Under which theory, the optional capital structure of a firm occurs at the point at which it can no
longer take advantage of a favorable financial leverage?
A. Fixed cost of equity capital theory
B. Fixed cost of equity capital theory
C. Combined cost of equity capital theory
ANSWER: B
184. According to MM approach , the dividend decision and retained earning decision do not influence
________ of the shares
A. Book value
B. Market value
C. Earning per share
ANSWER: B
185. Which among the following capital structure theories say that the firm can increase its value by
increasing its proportion of debt in the net capital structure?
C. Net operating income approach
D. None of these
ANSWER: A
186. The net income approach supports the view _______

A. Capital does not matter
B. Capital structure matters for the value of the firm
C. Perfect capital market
ANSWER: A
187. The third stage of change in capital structure shows the ______
28 of 38 8/2/2014 3:50 PM
A. Increasing value
B. Optimum value
C. Declining value
D. Declining value
ANSWER: B
188. The net income approach was suggested by_______

A. Modigliani-miller
B. Modigliani-miller
C. Ezra Solomon
D. Walter
ANSWER: B
189. Financial leverage is zero when ______

A. A firm uses non debt
B. A firm uses debt
C. A firm uses equity
D. None of these
ANSWER: A
190. Which of the following is not an assumption of net income approach?

A. There was no taxes
B. Cost of debt is more than the capitalization rate
C. Use of debt does not change the risk perception of investors
D. None of these
ANSWER: B
191. According to net operating income approach(NOI) the capital structure decision of the firms is
________
A. Relevant
B. Irrelevant
C. Neutral
D. Sometimes relevant otherwise non relevant
ANSWER: B
192. Which among the following is an assumption of the NOI approach

A. The value of equity is not a residual value
B. The cost of capital is dynamic
C. The capitalization rate is constant
D. All of these
ANSWER: C
193. The only difference between NOI and M M hypothesis is that ______
A. MM approach provides behavioral justification for constant overall cost of capital
B. Both supports irrelevance of capital structure theory
C. Both the above
D. Net operating income approach
ANSWER: C
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194. The Aritrage process in M-M hypothesis refers to ____

A. An act of buying assets / securities
B. An act of buying assets at lower price and selling it in another price
C. An act of selling securities
D. An act of buying liabilities
ANSWER: B
195. The term leverage refers to ________

A. Use of debts capital to purchase assets
B. Operating profits
C. The employment of an assets or source of funds for which the firms has to pay a fixed cost
D. All the above
ANSWER: C
196. Operating leverage depicts the firms ability to use the fixed operating cost to magnify the effect of
changes in sales on _________
A. Its earning before interest and taxes
B. The creditors
C. The earnings after interest and taxes
ANSWER: A
197. Operating cost of the firm includes ________

A. Fixed costs
B. Variable cost
C. Semi-variable cost
D. All the above
ANSWER: D
198. Financial leverage implies _________

A. Use of fixed financial charges to magnify the effect of changes in EBIT
B. Use of non fixed charges source of funds to purchase assets
C. Use of not fixed financial charges to magnify the effect of changes in EBIT
ANSWER: A
199. High operating leverage is bad when ________

A. Sales revenue are rising
B. EBIT is rising
C. Sales revenue are falling
ANSWER: C
200. The difference point for financial leverage is the point at which_______
A. The EBIT does not changes
B. The EPS / market price is the same for all financial plans
C. The EPS is different for all financial plans
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D. All the above

ANSWER: B
201. The total leverage is combination of ______________

A. Various costs
B. Financial leverage and EPS
C. Financial and operating leverages
D. Capital and equity shares
ANSWER: C
202. The DCL or Degree of combined leverage measures the ________

A. The DCL or Degree of combined leverage measures the ________
B. Changes in EPS due to changes in sales
C. Change in EPS due to change in debt funds
D. All the above
ANSWER: B
203. Financial leverage can be measured in ___________

A. Stock term
B. Flow term
C. Both A and B
D. Cash term
ANSWER: C
204. In the flow terms, the financial leverage can be measured _______
A. By the ratio of EBIT to interest payment
B. By the ratio of cash flow to interest payment
C. Either (a) or (b)
ANSWER: C
205. Cost of capital means _______

A. The minimum rate of return that a firm must earn on its investment
B. The present value of a past investment
C. The expected cash inflows
D. Earning per share
ANSWER: A
206. The cost of capital can be _______

A. Explicit
B. Implicit
C. Both the above
ANSWER: C
207. The explicit cost of capital is associated with _______

A. Raising of funds
B. Internal financing
31 of 38 8/2/2014 3:50 PM
C. Opportunity cost
ANSWER: A
208. Which among these is not a specific cost?

A. Cost of debt
B. Cost of retained earning
C. Cost of an assets
D. All the above
ANSWER: C
209. The measurement of cost of debt depends on ________

A. The redeemable nature of debt
B. The irredeemable nature of debt
C. Both the above
ANSWER: C
210. The two approaches to the measurement of cost of equity capital are ________
A. CAPM and dividend valuation model
B. PERT and CPM
C. NOI and NI approach
D. All the above
ANSWER: A
211. Which of these is not a determinant of dividend policy?

A. Stability of dividends
B. Capital market situations
C. Inflation
D. Inflation
ANSWER: D
212. What is CRR?

A. Cash Reserve Ratio
B. Current Ratio Rate
C. Review Report
D. Credit Rating Record
ANSWER: A
213. Interest rates? being charged by Banks in India has shown ________ trend in recent year.
A. Falling
B. Rising
C. Stable
D. Volatile
ANSWER: A
214. The first development financial institution in India that has got merged with a bank is ______
A. IDBI
32 of 38 8/2/2014 3:50 PM
B. ICICI
C. IDFC
D. IDFC
ANSWER: B
215. Which of the following NBFC converted itself into a commercial Bank?
A. Tata Finance
B. Reliance Capital Trust
C. Birla Mutual
D. Kotak Mahindra
ANSWER: B
216. The rate of which discounting the bills of first class banks is done by RBI is called ________
A. Bank Rate
B. Prime Lending Rate
C. . Loan Rate
D. Discounting Rate
ANSWER: A
217. Which finance company has been given banking licence by RBI recently
A. Kotak Mahindra
B. Ashok Leyland & Finance
C. TVS Finance
D. Tata Finance
ANSWER: A
218. Gilt edged securities refer to ________

A. Government Securities
B. Securities issued by municipal corporations
C. Securities issued by first class companies
D. Securities issued by NBFCs
ANSWER: C
219. Indian Banks Association (IBa. has a common net working system for sharing the ATM facilities in
Mumbai, which is known as ________
A. ATM Network
B. Shared Payment Network System
C. Cash Network
D. None of these
ANSWER: D
220. Arbitrage is _______

A. Buying and selling in two markets simultaneously
B. A rate of interest
C. A Fee
D. Arbitrage is a dispute
ANSWER: B
33 of 38 8/2/2014 3:50 PM
221. Exchange risk in case of foreign currency Non Resident (Banks) scheme (FCNB). is borne by
________
A. RBI
B. Depositor
C. Govt. of India
D. Concerned Bank
ANSWER: D
222. Which of these is not a credit rating agency?

A. Moodys
B. Standard & Poors
C. Price water house
D. ICRA
ANSWER: C
223. Consortium Advances refer to ________

A. Concurrent borrowings
B. Multiple financing
C. Joint Financing by more than one bank
D. . Financing of consignment business
ANSWER: C
224. Pari Passu charge refers to a charge is _______

A. Ranking in priority regardless of quantum of advances
B. Merely notional in nature
C. Ranking equally in priority in proportion to the lenders share of advance
D. none of the above
ANSWER: C
225. NABARD refinance for financing Self Help Groups is to the extent of ________
A. 25%
B. 50%
C. 75%
D. 100%
ANSWER: C
226. As per section 16 of the Banking Regulation Act, 1949 a person can be appointed as a director of how
many banking companies?
A. Three
B. Two
C. One
D. Four
ANSWER: D
227. Nayak Committee Recommendations are applicable for sanction of Fund Based Working Capital
Limit up to _________
A. Rs.25 lacs
B. Rs.1 crores
34 of 38 8/2/2014 3:50 PM
C. Rs. 2 crores
D. Rs. 5 crores
ANSWER: D
228. Banking ombudsman means _________

A. Person appointed to recover dues from defaulting borrowers
B. A person to whom customer can approach for redress of his grievances
C. A person appointed to settle dispute between employees and management
D. A person appointed by RBI to oversee the functioning of Foreign Banks
ANSWER: B
229. Full form of SLR is ___________

A. Statutory Liquidity Ratio
B. State Level Recovery
C. Sundry Leverage Ratio
D. State Liquity Reserve
ANSWER: A
230. C.R.A. in banking parlance stands for __________

A. Credit Rating Association
B. Credit Rating Agency
C. Credit Risk Assessment
D. None of these
ANSWER: C
231. E.P.S. in share market stands for ___________

A. Earning per share
B. Electronic Payment System
C. Employee Pension Scroll
D. Equated Payment System
ANSWER: A
232. The currency Euro has been introduced w.e.f. in _________

A. 01.01.99
B. 01.01.2000
C. 01.08.99
D. 01.07.2000
ANSWER: B
233. The Securitisation and Reconstruction of Financial Asset and enforce of Security Interest Act came
into force from _________
A. 21.08.02
B. 21.06.02
C. 21.07.02
D. 21.12.02
ANSWER: B
234. A bond that is registered in the owner's name by the issuing company is called a ____________ bond.
35 of 38 8/2/2014 3:50 PM
A. Certified
B. Coupon
C. Registered
D. Zero-coupon
ANSWER: C
235. To be categorized as a schedule Bank the minimum capital & reserve required is ________
A. Rs. 10 lacks
B. Rs. 5 lacks
C. Rs. 20 lacks
D. Rs. 7 lacks
ANSWER: B
236. Who is authorized to issue coin in India?

A. RBI
B. Ministry of Finance
C. SBI
D. None of these
ANSWER: B
237. The minimum Capital Adequacy Ratio currently fixed by RBI for Banks is _______
A. 12%
B. 10%
C. 9%
D. 11%
ANSWER: C
238. The full form of RBS is ________

A. Risk Based Supervision
B. Rating by System
C. Role Based Supervision
D. Rating Bank Security
ANSWER: A
239. RBI has recently permitted which Bank to participate in the Government Securities Repo Market?
A. SBI
B. UTI
C. ICICI
D. PNB
ANSWER: B
240. The ceiling for Banks daily borrowings in Call Money should not exceed ______% of owned funds
A. 100%
B. 50%
C. 75%
D. 150%
ANSWER: A
36 of 38 8/2/2014 3:50 PM
241. At what frequency can Banks pay interest on Saving Bank Account as per RBI guidelines?
A. Monthly
B. Quarterly
C. Half Yearly
D. Yearly
ANSWER: C
242. Who can fix the interest rates of NRE & FCNB deposits ?
A. RBI
B. Banks, as per the directive of RBI
C. Govt. of India
D. IBA
ANSWER: B
243. Which kind of bills should not be discounted by banks as per RBI regulation ?
A. Customs duty
B. Installation charges
C. Sale of goods
D. Purchase of books
ANSWER: A
244. What should be the method of valuation for advances against shares/debentures/ bonds ?
A. Face value
B. Market price
C. Book Value
D. Average Value
ANSWER: B
245. Plastic Cards implanted with computer chip to the data is know as _______
A. Credit Card
B. ATM Card
C. Smart Card
D. SME Card
ANSWER: C
246. The relationship between the Banker and hirer of Bank Locker is that of _________
A. Debtor-Creditor
B. Bailor- Bailee
C. Licensor- Licensee
D. Principal-Agent
ANSWER: C
247. The VSAT communication network for banks and financial institutions launched by RBI is known as
_________
A. SWIFT
B. SBI NET
C. BANK NET
D. INFINET
37 of 38 8/2/2014 3:50 PM
ANSWER: A
248. In finance we refer to the market for short-term government and corporate debt securities as the
__________ market.
A. Money
B. Capital
C. Primary
D. Secondary
ANSWER: A
249. In finance we refer to the market where long term securities are bought and sold as the __________
market.
A. Money
B. Capital
C. Primary
D. Secondary
ANSWER: B
250. In finance we refer to the market where new securities are bought and sold for the first time as the
__________ market.
A. Money
B. Capital
C. Primary
D. Secondary
ANSWER: C
Staff Name
Hemalatha G .
38 of 38 8/2/2014 3:50 PM

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http://172.16.2.20/printqp.php?heading= III B.Com(CS) [2012-2014], S...

Dr.G.R.Damodaran College of Science

III B.Com(CS) [2012-2014]

1. Financial Management is mainly concerned with _____

2. In his traditional role the finance manager is responsible for _____

3. The primary goal of the financial management is _____

4. Capital budgeting is related to _____

5. Working capital management is _____ managing.

7. Future value interest factor takes _____ a. Compounding rate

8. Present value takes _____

9. Financial decisions involve _____

10. Traditional approach cofines finance function only to _____ of funds

11. The companys cost of capital is called _____

12. Market value of the cost of capital is decided by _____

13. Cost of retained earnings is equal to _____

14. Beta measures the _____

15. The expansion of CAMP is _____

16. The companys average cost of capital is _____

17. The cost of capital of a long term debt is generally _____

19. The most difficult to calculate is _____

D. The cost of equity and preference capital.

24. Fixed cost per unit _____

25. Variable cost in an organization _____

26. Variable cost per unit _____

B. Remains constant irrespective of the level of output.

27. Financial leverage measures ______

28. Operating leverage measures ______

29. Financial leverage helps one to estimate _____

30. Financial leverage is also known as ______

32. Operating leverage * financial leverage= _____

33. Operating leverage = ______

35. According to the traditional approach cost of capital affected by _____

36. L= r0 + ___ + ____

37. Shares having no face value are known as ____

38. A fixed rate of _____ is payable on debentures

39. Effective cost of debentures is ______ as compared to shares

40. Ownership securities are represented by _____

41. Corporation is not a part of _____ finance

42. . ______ management is the important task of the finance manager

44. Nominal rate is the rate compounded ______

45. The expansion of EAR is ____

46. Traditional theorists believe that ______

47. Modigliani and Miller believe that ______

50. The effect of bank rupture and agency cost _____

51. Arbitrage is the level processing technique introduced in

B. Interest on debt is a tax deductible expense

54. The probability of bankrupt is higher ______

57. Capital budgeting decisions in India cannot be reversed due to ____

58. Policy of the management is _______

60. Net present value is a popular method which falls _______

63. Working capital is also known as ______ capital

64. The gross working capital is a _____ concern concept

68. The volume of sales is influenced by ____ of a firm

69. Factoring is a form of financing _____

70. Inventory management is essential because investments in stock are _____

72. Ordering cost is the cost of _______ materials

77. . _________ dividend promises to pay shareholders at future date

78. _______ dividend is the usual method of paying dividend

79. According to the _____ model, the dividend decision is irrelevant

80. The cash management refers to management of _______

36. L= r0 + _ + __