Financial Management II

Multiple Choice Questions 7 Pages

University of Mumbai

Financial Management

Contributed by

Prajwal Hallale

Class:TYBAF SEM5 ATKT Subject: Financial Management II

1
Profitability index method is an extension of _____
a. Net present value
b. Internal rate of return
c. Payback period
d. Accounting rate of return
Ans: a
2
In case of mutually exclusive proposals
a. Only the best project is selected
b. All projects with positive NPV is are selected
c. Even negative NPV project may be selected
d. At least two proposals are selected
Ans: a
3
Which of the following variables is not known in internal rate of return?
a. Initial cash flow
b. Discount rates
c. Terminal inflows
d. Life of the project
Ans: b
4
Payback period technique is based on__
a. All cash flows
b. Only higher cash flows
c. Earlier cash flows
d. Selected cash flows
Ans: c
5
PI of a project is the ratio of present value of inflows to
a. Initial cost
b. PV of outflows
c. Total cash inflows
d. Total outflows
Ans: b
6
NPV of a proposal indicates__
a. Net incremental profit
b. Net addition to wealth
c. Total value of the proposal
d. Total outflow
Ans: b
7
Birds in hand argument is given by ___
a. Walter’s model
b. Gordon’s model
c. MM model
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d. Residual theory
Ans: b
8
Residual’s theory argues that dividend is as ___
a. Relevant decision
b. Active decision
c. Passive decision
d. Irrelevant decision
Ans: c
9
Dividend irrelevance argument of MM model is based on __
a. Issue of debentures
b. Issue of bonus share
c. Arbitrage
d. Hedging
Ans: c
10
Which of the following stresses on inventor’s preference for current dividend than higher future
capital gain?
a. Walter’s model
b. Residual’s theory
c. Gordon’s model
d. MM model
Ans: c
11
MM model of dividend irrelevance uses arbitrage between___
a. Dividend and bonus
b. Dividend and capital issue
c. Profit and investment
d. Dividend
Ans: b
12
If ke=r, then under walter’s model, which of the following is irrelevant?
a. Earning per share
b. Dividend per share
c. DP ratio
d. Price-earning ratio
Ans: c
13
Gordon’s model of dividend relevance is same as ___
a. No-growth model of equity valuation
b. Constant growth model of equity valuation
c. Price-earning ratio
d. Inverse of price earning ratio
Ans: b
14
Mutual fund is a __ that pools together the funds of many investors to make investment in
assets.
a. Company
b. Trust
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c. Bank
d. Partnership
Ans: b
15
The maximum expense that an equity scheme charge to an investor is___
a. 2%
b. 2.25%
c. 2.5%
d. 1.75%
Ans: c
16
A ____ is referred to the commission that is charges on the sale or purchase of a mutual fund.
a. Brokerage
b. Expenses
c. Fees
d. Load
Ans: d
17
All listed and traded securities are valued at ___
a. Cost
b. Book value
c. Closing market price
d. Cost plus profit
Ans: c
18
Investor’s subscriptions are accounted as ___
a. Liabilities
b. Unit capital
c. Deposits
d. Cash
Ans: b
19
____ can be traded throughout the trading day at market price.
a. MMMF
b. Equity fund
c. Debt fund
d. ETF
Ans: d
20
___ offer tax benefits under section 80 C of income tax act, 1961.
a. ELSS
b. MMMF
c. Gilt fund
d. Income fund
Ans: a
21
____ is defined by O.M. joy as’ debt owned to the firm by customers arising from sale of goods
or services in the ordinary course of business.
a. Accounts receivables
b. Accounts payables
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c. Stocks
d. Partnership
Ans: a
22
Relaxed or liberal credit implies __ credit to customers.
a. Higher and lower
b. Less
c. Add
d. More
Ans: a
23
Evaluation of firm’s credit policy can be done by computing expected ___ from it.
a. Net cost
b. Net profit
c. Net benefit
d. Net loss
Ans: c
24
___ policy refers to the procedures followed to collect accounts receivables after the expiry of
the credit period.
a. Management
b. Collection
c. Risk
d. Net cost
Ans: b
25
Accounting rate of return is based on ____
a. Average expected profit.
b. Average past profit
c. Average cash profit
d. Life of the project
Ans: a
26
Which of the following method of evaluation of capital budgeting proposals focuses on
liquidity?
a. Internal rate of return
b. Net present value
c. Accounting rate of return
d. Payback period
27
In case of selection of mutually exclusive projects, the rule is___
a. Only the best one
b. All the good ones
c. All positive NPV projects
d. Initial cost
28
Which method of capital budgeting assumes that the cash flow are reinvested at project’s rate
of return ?
a. Terminal value
b. Net present value
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c. Internal rate of return
d. Accounting rate of return
29
In case of risky projects, the required rate of return would generally be__
a. Higher
b. Lower
c. Same for the others
d. Different
30
Which of the following is likely to increase the NPV of a projects?
a. Increase in cost of capital
b. Decrease in working capital
c. Spreading cash flow over a longer period
d. Decreasing the net revenues.
31
If IRR of a project is equal to opportunity cost of capital, then
a. Project should be repeated
b. NPV will be zero
c. Project has no cash flows
d. NPV will be positive
32
Number of IRR for a project is equal to
a. Number of cash flows
b. Number of cash outflows
c. Life of the projects
d. Changes in the signs of cash flows
33
The presence of taxes in capital budgeting analysis will cause__
a. The NPV to increase
b. The IRR to decrease
c. The ARR to remain same
d. No change
34
In IRR method, the cash inflows from the project are assumed to be reinvested at rate equal to _
a. IRR
b. Risk free rate
c. Cost of capital
d. Rate of interest
35
What is the value of a levered firm L if it has the same EBIT as an unlevered firm U, (with
value of Rs.700 lakhs), has a debt of 200 lakh, tax rate is 35% under MM approach?
a. 770lakh
b. 500lakh
c. 630lakh
d. 900lakh
36
According to the traditional approach, what is the effect of increase in degree of leverage on the
valuation of the firm?
a. Increase
b. Decrease
c. Remains unaffected
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d. Increase first and then decreases
37
According to NOI approach , with increase in debt/equity ratio the financial risk of equity
holders.
a. Decrease
b. Increase
c. No change
d. Depends on degree of leverage
38
Walter’s model suggests for 100% DP ratio when__
a. Ke=r
b. Ke<r
c. Ke>r
d. Ke=0
39
If a firm has Ke< r, the walter’s model suggest for___
a. 0% pay out
b. 100% pay out
c. 50% pay out
d. 25% pay out
40
MM model argues that dividend is irrelevant as
a. The value of the firm depends upon earning power.
b. The inventors buy shares for capital gain
c. Dividend is payable after deciding the retained earnings
d. Dividend is a small amount
41
Which of the following represents passive dividend policy?
a. That dividend is paid as a % of EPS
b. That dividend is paid as a constant amount
c. That dividend is paid after retaining profits for reinvestment
d. Dividend is small amount
42
In case of gordon’s model, the MP for zero pay out is zero. It means that
a. Shares are not traded
b. Shares available free of cost
c. Investors are not ready to offer any price
d. No investment
43
When interest are declining, investors have to reinvest their interest income and any return of
principal, at lower prevailing rates, it is called___
a. Reinvestment risk
b. Liquidity risk
c. Legislative risk
d. Default risk
44
When the required rate of return is less than the coupon rate, the premium in the bond__
As maturity approaches.
a. Increases
b. Declines
c. Remains same
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d. Change
45
The bonds with shorter maturity will have ____ duration.
a. Higher
b. Lower
c. Same
d. Change
46
Face value is the value stated on the face of the bond and is also known as____
a. Par value
b. Market value
c. Redemption value
d. Intrinsic value
47
The bonds with shorter maturity will have ___ duration.
a. Higher
b. Lower
c. Decrease
d. Increase
48
Intrinsic value of a bond is____ value of all the future cash flow.
a. Present
b. Past
c. Market value
d. No value
49
___ option enables issuers to reduce their interest costs if rates as the bond is issued.
a. Call
b. Put
c. Par
d. No change
50
Face value is the value stated on the face of the bond and is also known as ___ value
a. Bonus value
b. Par
c. Premium
d. Market value
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