Finance Management (Computer's Eng..) MCQ's




Question 31 :
A sound Capital Budgeting technique is based on:

  1. Cash Flows
  2. Accounting Profit
  3. Interest Rate on Borrowings
  4. Last Divide
  

Question 32 :
Capital Budgeting Decisions are based on:

  1. Incremental Profit
  2. Incremental Cash Flows
  3. Incremental Assets
  4. Incremental Capital
  

Question 33 :
Which of the following would be consistent with a more aggressive approach to inancing working capital?

  1. Financing short-term needs with short-term funds
  2. Financing permanent inventory buildup with long-term debt
  3. Financing seasonal needs with short-term funds
  4. Financing some long-term needs with short-term funds
  

Question 34 :
Which of the following techniques does not reward shareholders for investing in a company?

  1. Repurchasing company shares
  2. Offering non-pecuniary benefits
  3. Making a rights issue
  4. Paying a final dividend
  

Question 35 :
The concept of homemade leverage is most associated with:

  1. MM Proposition I with no tax.
  2. MM Proposition II with no tax.
  3. MM Proposition I with tax.
  4. MM Proposition II with tax.
  

Question 36 :
In Sensitivity Analysis, the emphasis is on assessment of sensitivity of

  1. Net Economic Life
  2. Net Present Value
  3. Both (a) and (b)
  4. None of (a) and (b)
  

Question 37 :
What is the riskier source of finance?

  1. Equity capital
  2. Debt capital
  3. Term loan
  4. Tangible asset redemption
  

Question 38 :
A deposit of Rs 2,000 per year at the beginning of the year in a bank for 5 years with interest rate of 10 percent pa compounded annually. What will be the value of this series of deposits at the end of 5 years in Rs?

  1. 13431
  2. 13000
  3. 14000
  4. 12341
  

Question 39 :
What is the weighted average cost of capital for a firm?

  1. Discount rate which the firm should apply to all of the projects it undertakes.
  2. Maximum rate which the firm should require on any projects it undertakes
  3. Overall rate which the firm must earn on its existing assets to maintain the value of its stock
  4. Rate the firm should expect to pay on its next bond issue
  

Question 40 :
Two firms that are virtually identical except for their capital structure are selling in the market at different values. According to Modigliani and Miller (M-M) approach

  1. this will not continue because arbitrage will eventually cause the firms to sell at the same value.
  2. one will be at greater risk of bankruptcy
  3. the firm with greater financial leverage will have the higher value
  4. this proves that markets cannot be efficient.
  

Question 41 :
You bought a share for Rs. 100 and sold it for Rs. 120 after one year. You received share dividend Rs.10 during the holding period. What was the rate of holding period return?

  1. 0.1
  2. 0.2
  3. 0.3
  4. 0.5
  

Question 42 :
Honeywell International Inc has a market debt-equity ratio of 0.5. Assume its current debt cost of capital is 6.5%, and its equity cost of capital is 14%. What is weighted average cost of capital (WACC)?

  1. 0.15
  2. 0.1
  3. 0.14
  4. 0.12
  

Question 43 :
What is the major cash outflow for a firm?

  1. Increase in deferred tax liability
  2. Payment of taxes
  3. Increase in reserves
  4. Increase in term loans
  

Question 44 :
Which of the following is not true about the long term finance purpose

  1. To finance fixed assets
  2. To finance the inventory
  3. Expansion of companies
  4. Increasing facilities
  

Question 45 :
Which of the following would not be financed from working capital?

  1. Cash float
  2. Accounts receivable
  3. Credit sales
  4. A new personal computer for the office
  

Question 46 :
Acid test ratio is also known as __________

  1. Current ratio
  2. Net profit ratio
  3. Net sales ratio
  4. Quick ratio
  

Question 47 :
Which is the popular method of calculation depreciation?

  1. Units of Production Depreciation
  2. Straight line Depreciation
  3. Sum of the Year’s Depreciation
  4. Declining balance depreciation
  

Question 48 :
Which of the following is not true about Line of credit

  1. The firm can borrow up to that amount of money without asking, since it is pre-approved
  2. Usually informal agreement and may change over time
  3. More often, it is in the form of a lost discount that would be given to firms who pay earlier
  4. Usually covers peak demand times, growth spurts
  

Question 49 :
What is mean by Investments?

  1. Copyrights
  2. Noncurrent assets
  3. Financial securities owned by the firm.
  4. Net book value
  

Question 50 :
Which financial statements include the flow of cash during the financial period?

  1. Cash flow statements
  2. Balance Sheet
  3. Income statements
  4. Statement of changes in equity
  

Question 51 :
A quick approximation of the typical firm's cost of equity may be calculated by

  1. Adding a 5 percent risk premium to the firm's before-tax cost of debt.
  2. Adding a 5 percent risk premium to the firm's after-tax cost of debt.
  3. Subtracting a 5 percent risk discount from the firm's before-tax cost of debt.
  4. Subtracting a 5 percent risk discount from the firm's after-tax cost of debt.
  

Question 52 :
Which one of the following asset would not be normally depreciated?

  1. Land
  2. Machinery
  3. Computer
  4. Patent
  

Question 53 :
A capital investment is one that

  1. has the prospect of long-term benefits
  2. has the prospect of short-term benefits
  3. is only undertaken by large corporations
  4. applies only to investment in fixed assets
  

Question 54 :
While taking into consideration the trade-off between profitability and risk, a firm with low net working capital will have:

  1. Low Risk and Low Profitability
  2. Low Risk and High Profitability
  3. High Risk and Low Profitability
  4. High Risk and High Profitability
  

Question 55 :
Modigliani and Miller suggest that the value of the firm is not affected by the firm’s dividend policy, due to

  1. the relevance of dividends
  2. the clientele effect
  3. the informational content
  4. the optimal capital structure
  

Question 56 :
A series of fixed receipts or payments starting at the beginning of each period for a specified number of period is called

  1. Hire purchase
  2. Perpetuity
  3. Lease
  4. Annuity due
  

Question 57 :
The problem with a constant payout ratio dividend policy from the shareholder’s perspective is that

  1. it bores the shareholders
  2. if the firm’s earnings drop, so does the dividend payment
  3. there is no informational content
  4. even when earnings are low, the company must pay a fixed dividend
  

Question 58 :
Which of the following is not incorporated in Capital Budgeting?

  1. Rate of Cash Discount.
  2. Required Rate of Return.
  3. Time Value of Money.
  4. Tax-Effect.
  

Question 59 :
According to the residual theory of dividends, if the firm’s equity need exceeds the amount of retained earnings, the firm would

  1. borrow to pay the cash dividend
  2. sell additional stock to pay the cash dividend
  3. pay no cash dividends.
  4. not need to consider its dividend policy
  

Question 60 :
Which of the following is not an assumption in the Miller - Modigliani approach?

  1. There are no transaction costs
  2. Securities are infinitely divisible
  3. All the firms pay tax on their income at the same rate
  4. Investors have homogeneous expectations
  
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