• Embed Doc
  • Copy Link
  • Readcast
  • Collections
  • CommentGo Back
Download
 
Question PaperStrategic Financial Management (MB361F) : April 2007
 
Section A : Basic Concepts (30 Marks)
•
 
This section consists of questions with serial number 1 - 30.
•
 
Answer all questions.
•
 
Each question carries one mark.
•
 
Maximum time for answering Section A is 30 Minutes.
1.
Which of the following statements is/are
true
with respect to survival strategies?I. A company might pursue a non-growth strategy if its non-economic objectives are more important than itseconomic objectives.II. A non-growth strategy is bound to be a corrective strategy.III. A company can adopt a negative strategy in pursuit of withdrawing from less profitable areas of business.IV. A corrective strategy cannot be used in conjunction with, or as one component of, a growth strategy.(a) Only (III) above(b) Both (I) and (II) above(c) Both (II) and (III) above(d) (I), (II) and (III) above(e) All (I), (II), (III) and (IV) above.
< Answer >
2.
Which of the following is
not
a part of the internal governance groups of a firm?(a) Shareholders(b) The Board of Directors(c) Media(d) Managerial hierarchy(e) Internal capital markets.
< Answer >
3.
Which of the following factors
does not
figure in when assessing the present value of an investment by the risk adjusted discount rate method?(a) Projected future cash flows from the investment(b) Beta of the investment in question(c) Expected return from the tangency portfolio(d) Expected return from the equity shares of the firm(e) Risk free return.
< Answer >
4.
Which of the following is used by the ratio comparison approach to the valuation of projects or commercial realestate?(a) Ratio of total debt to equity(b) Ratio of total debt to total assets(c) Ratio of price to earnings(d) Ratio of net income to revenues(e) Ratio of revenues to total assets.
< Answer >
 
5.
Which of the following statements with respect to the real options are
not
 
true
?I. Investment timing option allows the firm to delay the project until at a later point of time when moreinformation is available.II Growth options allow the firm to alter operations depending on how the conditions change during the life of the project.III. Abandonment options give the firms an option to abandon a project if not profitable.IV. Flexibility options allow a company to increase its capacity of operation if the market conditions are betterthan expected.(a) Both (I) and (II) above(b) Both (I) and (III) above(c) Both (II) and (III) above(d) Both (II) and (IV) above(e) (I), (II) and (IV) above.
< Answer >
6.
According to the trade-off theory of capital structure, the firm attempts to arrive at a trade-off between which of thefollowing?(a) Between agency cost and bankruptcy cost(b) Between agency cost and financial cost(c) Between bankruptcy cost and financial cost(d) Between size of the tax shield and bankruptcy costs(e) Between size of the tax shield and agency cost.
< Answer >
7.
Consider the following data relating to a company:Degree of leverage Overall capitalization rate0.50 10.00%0.75 9.25%1.00 8.75%1.25 8.25%1.50 8.00%1.75 8.25%2.00 8.75%2.25 9.25%Which approach to capital structure defines the above pattern?(a) Net income approach(b) Net operating income approach(c) Traditional approach(d) M & M approach(e) Walter approach.
< Answer >
8.
The term agency costs in the context of capital structure means(a) The commission payable by a company to its purchasing agents(b) The commission payable by a company to its selling agents(c) The expenses incurred in distribution of the products of the company(d) The cost on account of restrictive covenants imposed on a company by its lenders
 
(e) The dividends paid by a company to its shareholders.
< Answer >
9.
For a firm, if the current ratio remains constant and the quick ratio decreases during the same period, then, which of the following is indicated for the firm(a) The proportion of total debt relative to total assets is decreasing(b) The proportion of total debt relative to net worth is decreasing(c) The proportion of net worth relative to total assets is increasing(d) The liquidity is decreasing(e) The profitability is increasing.
< Answer >
 
10.
Which of the following statements is/are
false
with respect to different model for maximizing shareholders’ value?I. According to Marakon model, a firm’s value is measured by the ratio of its book value to the economic value.II. According to Alcar model, for ascertaining the value generating capability of a strategy, the value of firm’sequity without the strategy is compared to the value of the firm’s equity if the strategy is implemented.III. McKinsey model focuses on the identification of key value drivers at various levels of the organization.(a) Only (I) above(b) Only (II) above(c) Both (I) and (II) above(d) Both (II) and (III) above(e) All (I), (II) and (III) above.
< Answer >
11.
Kohinoor Steel earns 10% on the equity and the growth rate of dividends and earnings is 5%. The book value pershare is Rs.80. If the market price of the shares of Kohinoor Steel is Rs.70,according to the Marakon model, thecost of equity is approximately(a) 9.67%(b) 10.71%(c) 12.45%(d) 13.78%(e) 14.67%.
< Answer >
12.
Which of the following is a ‘value driver’ that affects the value of a firm according to Alcar Model?(a) Dividend payout(b) Value growth duration(c) Sales(d) Growth rate of dividends(e) Book value of the firm.
< Answer >
13.
Which of the following is/are the assumptions of multiple discriminant analysis?I. There are two discrete groups to be analyzed.II. The independent variables can be combined in a linear manner for discriminating between the two groups.III. The values of the variables are distributed lognormally.(a) Only (I) above(b) Only (II) above(c) Only (III) above(d) Both (I) and (II) above(e) All (I), (II) and (III) above.
< Answer >
14.
Which of the following statements is
false
with respect to Dutch Auction Tender Offer for share repurchases?(a) The firm does not fix any predetermined price(b) The firm may indicate a price band, consisting of floor price and a ceiling price, for the tender offer(c) The tender offer is open for all the shareholders of the firm(d) It is a financial hybrid combining some features of open market and fixed price tender offer(e) Dutch auction is more risky to the management than fixed price premium offers.
< Answer >
15.
There are two firms, A Ltd. and B Ltd. They are similar in all respects except that A Ltd. is unlevered, while B Ltd.has Rs.4 crore of 11% debentures outstanding. Both companies have a net operating income of Rs.1 crore each. Thetax rate applicable to both the companies is 35%. The discount rate for both the companies is 10% p.a. The value of firm B, considering Modigliani-Miller position on leverage holds good is(a) Rs.1 crore(b) Rs.3.5 crore(c) Rs.6.5 crore(d) Rs.7.90 crore(e) Rs.8.30 crore.
< Answer >
of 00

Leave a Comment

You must be to leave a comment.
Submit
Characters: ...
You must be to leave a comment.
Submit
Characters: ...