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DEPARTMENT OF COMPUTER APPLICATION

St. Josephs College (Autonomous)


Tiruchirappalli 620 002
Course M Com CA
Sem I Paper Code 16PCC1102 Units IV
Title of the
FINANCIAL MANAGEMENT
Paper
Staff Name MS S PUNITHAVATHI

UNIT - I
1. The basic objectives of financial management is
a) Maximizing of profit b) Maximizing of shareholder's wealth
c) Ensuring financial discipline d) All of these
Answer: B)Maximizing of shareholder's wealth
2. The only vital goal of financial management is
a) profit maximization b) wealth
c) sales d) assets
Answer: B)wealth
3. Financial management is mainly concerned with
a) Arrangement of funds b) all aspects acquiring and utilizing
means of financial resources for
firm's activities
c) Efficient management of every d) all of the above
business
Answer: B)all aspects acquiring and utilizing means of financial resources for firm's
activities
4. Primary market is also called as
a) rights issue b) new issue market
c) long term issue d) capital market of India
Answer: B)new issue market
5. The guidelines issues under the SEBI ACT
a) 1956 b) 1995
c) 1992 d) 2001
Answer: 1992
6. The in Indian is one of the emerging and promising capital markets of the world
a) capital market b) primary market
c) secondary market d) efficient market
Answer: B)primary market
7. .......... is the model agency to regulate the capital market and other related issue in
India
a) primary market b) Indian capital market
c) securities and exchange board of d) secondary market
India
Answer: C)securities and exchange board of India
8. The ............ market refers to the up which helps the industry to raise funds by issuing
different types of securities
a) primary market b) private market
c) Indian capital d) secondary market
Answer: A)primary market
9. If a call option is out -of-the-money its intrinsic value is
a) positive b) Zero
c) Infinity d) none of these
Answer: B)zero
10. . has introduced various guidelines and regulatory measures for healthy
functioning of capital market in India
a) NSE b) FSE
c) DSEBI d) TCEI
Answer:D)TCEI
11. The most of important year of SEBI is ..
a) 1992 b) 2000
c) 1956 d) 2001
Answer: B)2000
12. The SBI directed to the.. stock exchange
a) Singapore b) Mumbai
c) Kerala d) London
Answer: B)Mumbai
13. Time value of money explains that
a) unit of money received today worth b) a unit of money received today is than
more a unit received in future in future
c) a unit of money received today and d) none of these
at some other time in future is
equal
Answer: A)unit of money received today worth more a unit received in future
14. Time value of money facilitates comparison of cash flow occurring at different time
period by
a) Compounding all cash flows to a b) discounting all cash flow
common points of time
c) using either (A)or(B) d) neither (A)or(B)
Answer: C)using either (A)or(B)
15. ...............is an agreement to transact an assets on the terms and conditions agreed
today
a) Derivative b) financing
c) Forward d) Future
Answer: C)forward
16. The guidelines 2000 deal with
a) bonus of issue b) guidelines on advertisement
c) green shoe option d) all of these
Answer: D)all of these
17. The structure of the capital market where the firm exchange their financial assets for
long term financing called
a) primary market b) secondary market
c) capital market in India d) finance market
18. The derivatives in currencies, securities and shares indices are known as
a) financial derivatives b) complex derivatives
c) commodity derivatives d) basic derivatives
Answer: A)financial derivatives
19. Inter rate swap is an exchange of inter rate trade credit is offered by
a) supplier to buyers b) buyers to supplier
c) principal to agent d) banker to customer
Answer: A)supplier to buyers
20. The issuer company is making an issue of derivatives to the public through book
building is called
a) Endorsement b) bond
c) Underwriting d) Portfolio
Answer: C) underwriting
21. The risk which can be eliminated or minimized through diversification is termed as---
----
a) Diversifiable risk b) Financial risk
c) operating risk d) non-divisible risk
Answer: A) Diversifiable risk
22. Divisible risk is also known as --------
a) Systematic risk b) controllable risk
c) un -systematic risk d) none of the above
Answer: C) un- systematic risk
23. To increase a given future value, the discount rate should be adjusted-------
a) upward b) Downward
c) first upward then downward d) None of the above
Answer: A)upward
24. Interest paid on the original principal borrowed is often referred to as
a) present value b) simple interest
c) future value d) compound interest
Answer: B)simple interest
25. Interest earned on both the original principal and previous interest earned is often
referred to as------
a) present value b) simple interest
c) future value d) compound interest
Answer: D) compound interest
26. Which of the following investment alternatives would provide the greatest ending
wealth for your investment?
a) 10% compounded daily b) 10.5% compounded annually
c) 10.25% compounded quarterly d) 9% compounded annually

Answer: C)10.25% compounded quarterly


27. A market where new securities are bought and sold for the first time is known as ------
--
a) Primary b) Secondary
c) Tertiary d) Capital
Answer: A) primary
28. A market for existing securities such as the NYSE or AMEX, rather than new issue is
known as the -------market.
a) Primary b) Secondary
c) Tertiary d) Capital
Answer: B)Secondary
29. Which securities law requires the public offerings be registered with the federal
government before they are sold--------
a) underwritten rule 144a b) blue sky laws
c) securities exchange act1933 d) security exchange act of 1934
Answer: C) securities exchange act1933
30. The new York exchange (NYSE) can be considered as being a part of the ------are the
secondary market for long term securities.
a) capital market b) money market
c) OTC market d) secondary market
Answer: C) OTC market
31. A firm decisions involve capital expenditures
a) Divident decisions b) Financing decisions
c) Investment decisions d) Liquidity decisions
Answer: Investment decisions
32. Reasons for time preference for money
a) Uncertainity b) Preference for consumption
c) Investment oppurtunities d) All the above
Answer: D) All the above
33. 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
a) 1 b) 2
c) 3 d) None of the above
Answer: B)2
34. Financial management process deals with
a) Investors b) Financing decisions
c) Both a and b d) None of the above
Answer: B) Financing decisions
35. The private sector companies also issue bonds which are also called
a) Debentures b) Pre shares
c) Loans d) Equity shares
Answer:A) Debentures
36. Which one is a long term debt instrument or security
a) Stock b) Bond
c) Loans d) None of these
Answer:B) Bond
37. Investment decisions also called
a) Capital budgeting b) Working capital

c) Financial decisions d) None of these


Answer:A) Capital budgeting
38. Role of the financial management
a) Liquidity b) Profitability
c) Management d) All of the above
Answer:D) All of the above
39. These appreciation in the price of the assets commonly called the
a) Capital gains b) Yield capital
c) Rate of return d) Retained capital
Answer: D) Retained capital
40. .. is the variability between the expected and actual returns
a) Return b) Risk

c) Capital gain d) Liquidity


Answer: Risk

UNIT II
41. We looked at the impact of alternative financing plans on _____
a) EPS b) EBIT
c) Leverage d) EAT
Answer: a) EPS
42. _____ leverage arise from the existence of fixed operating expenses.
a) Financial b) Combined
c) Operating d) a and c
Answer: C) Operating
43. _____ leverage derive from the existence of fixed interest expenses.
a) Financial b) Combined
c) Operating d) b and c
Answer: A) Financial
44. Combined (or) total leverage , arise from the existence of _____ and _____
a) Operating cost & Interest expense b) Fixed operating cost & Interest
expense
c) Current operating cost & Interest d) Variable cost and profit
expense
Answer: b) Fixed operating cost & Interest expense
45. Weighted average cost of capital is the dominant discount rate used in _____
analysis.
a) EBIT-EPS b) DCF
c) Leverage d) BEP
Answer: B) DCF
46. The corporate tax rate has a direct impact on the cost of dept as used in the
_____
a) Weighted average cost of capital b) Earnings Before Income and Tax
c) Earnings Before Interest and Tax d) All of the above
Answer: C) Earnings Before Interest and Tax
47. EBIT is more beneficial employment of debt capital in____ structure.
a) Share b) Capital
c) Debt d) Profit
Answer: B) Capital
48. When establishing their optimal capital structure a firm should strive to ____
a) Minimize the weighted average b) Minimize the amount of debt
cost of capital financing used
c) Maximize the profit of the firm d) None of the above
Answer: a) Minimize the weighted average cost of capital
49. EBIT explains
a) Earnings Before Interest and Tax b) Earnings Before Income and Tax
c) Earnings Before Interest and Tax d) All of the above
Answer: C) Earnings Before Interest and Tax
50. Capital structure multiplied by its weights in the capital structure is called____
a) Marginal cost of capital b) The cost of capital
c) Leverage d) Weighted average cost of capital
Answer:D) Weighted average cost of capital
51. The term capital denotes that ____ funds of firm
a) Funds b) Short term debt
c) Long term debt d) Long term
Answer: D) Long term
52. _____ includes debentures and long term loans
a) Ownership capital b) Debt capital
c) Share capital d) Working capital
Answer: B) Debt capital
53. The capital structure of a firm is represented by long term funds can be
raised by _____
a) Shares b) Debentures
c) Loans d) All the above
Answer: D) All the above
54. The cost of capital is an important consideration in _____
a) Capital structure decision b) Capital budgeting decision
c) Working capital management d) None of the above
Answer: A) Capital structure decision
55. EBIT there is a corresponding rise in the price of the ____
a) Share capital b) Preference share
c) Equity share d) Debentures
Answer: C) Equity share
56. _____ leverage explain the degree of operating risk
a) Financial b) Combined
c) a and b d) Operating
Answer: D) Operating
57. _____ leverage result in a more than proportionate changes in EPS even a
small change in EBIT
a) Financial b) Combined
c) Operating d) None of these
Answer: A) Financial
58. Financial leverage is considered to be superior to the operating leverage as
focuses the attention on the _____ of the share
a) Interest b) Market price
c) cost price d) All the above
Answer: B) Market price
59. EFL=EBIT [EBIT-I] when ______ is used
a) Debt b) Cost
c) Capital d) None of these
Answer: A) Debt
60. Working capital refers to the ______
a) Current asset less Current b) Fixed asset less Current liabilities
liabilities
c) Current asset less Fixed liabilities d) Assets less liabilities
Answer: A) Current asset less Current liabilities
61. Cost of capital may refer to----
a) minimum rate of return b) cut off rate
c) minimum accepted rate d) all of the above
Answer: D) all of the above
62. The cost which has already been incurred for financing a particular project is known
as----
a) Future cost b) historical cost
c) specific cost d) composite cost
Answer: B) historical cost
63. The weights which are assigned to each sources of funds, in proportion of financing
inputs the firm intends to employ or raise is known as-------
a) historical weights b) book value weights
c) marginal weights d) market value weights
Answer: C) marginal weights
64. Overall cost of capital can be denoted as -------
a) weighted average cost of capital b) composite cost of capital
c) both a and b d) None
Answer: C) both a and b
65. The cost of retained earnings is slightly lower than
a) cost of debt b) cost of preference capital
c) cost of equity d) overall cost of capital
Answer: C) cost of equity
66. leverage is associated with investment activities
a) financial leverage b) operating leverage
c) combined leverage d) None
Answer: B) operating leverage
67. The operating leverage exists when
a) DOL is equal to one b) DOL is Less than one
c) DOL is greater than one d) None
Answer: C) DOL is greater than one
68. when a firm has high operating leverage then it is a
a) very risky situation b) no risky situation
c) less risky situation d) systematic risk
Answer: A)very risky situation
69. The use of debt by the investor for arbitrage is called..
a) financial leverage b) operating leverage
c) home-made leverage d) combined leverage
Answer: C) home-made leverage
70. Operating priority means-----------
a) EAT b) EBIT
c) NP d) None
Answer: B) EBIT

71. Cost of capital refers to the oppurtuity cost of making a specific


a) Investment b) Market
c) Capital d) Bonds
Answer:A)Investment
72. Cost of capital is determined by the market and represents the degree of perceived
risk by
a) Creditors b) Share Holders
c) Investors d) Stock Holders
Answer: C)Investors
73. EPS Stands for
a) Earning Per Stock b) Earning Per Share
c) Equity Preference Share d) Equity Preference Stock
Answer: B) Earning Per Share
74. Companies can use .. to see if the investment projects available to them are
worthwhile to undertake
a) Weighted Average Cost Of Capital b) Operating Leverage
c) Financial Leverage d) Combined Leverage
Answer: A)Weighted Average Cost Of Capital
75. Ke represents
a) Cost of debt b) Value of debt
c) Cost of equity d) Rate of return
Answer:C) Cost of equity
76. Companies raise money from a number of sources like
a) Common Stocks b) Warrents
c) Straight debt d) All of the above
Answer: D) All of the above

77. Operating leverage is a measurement of the degree to which a firm or project incurs
a combination of
a) Fixed cost b) Variable cost
c) Both of the above d) Operating cost
Answer: C)Both of the above
78. Financial leverage is also known as
a) Trading on equity b) Operating expenses
c) Equity share d) All of the above
Answer: A)Trading on equity

79. Financial leverage refers to the use of debt to acquire additional


a) Liability b) Assets
c) Bonds d) none of these
Answer: B)Assets

80. A degree of combined leverage (DCL) is a leverage ratio that summarizes


thecombined effect that the degree of
a) Operating leverage b) Financial leverage
c) Operating and financial leverage d) None of these
Answer:C) Operating and financial leverage
UNIT III
81. Which of the following is not a typical cash flow related to equipment purchase and
replacement decisions?
a) Increased b) Overhaul of equipment
c) Salvage value of equipment when d) Depreciation expense
project is complete
Answer: D) Depreciation expense
82. The capital budgeting decision depends on the
a) Availability of funds b) Relationships among proposed
projects
c) Risk associated with particular d) All of these
projects
Answer: D)All of these
83. If project has a lower pay back period than project may have a
a) Lower NPV and less profitable b) Higher NPV and less profitable
c) Higher NPV and more profitable d) Lower NPV and more profitable
Answer: C) Higher NPV and be more profitable
84. A disadvantage of the cash pay back technique is that it..
a) Ignores obsolescence factors b) Ignores the cost of an investment
c) Is complicated to use d) Ignores the time value of money
Answer: D) Ignores the time value of money
85. Intangible benefits in capital budgeting would include all of the following except
increased
a) Salvage value b) Employee loyalty
c) Product quality d) Product safety
Answer: D ) Product safety
86. The proposals are evaluated by
a) Independent proposals b) Contingent of dependent proposals
c) Partially exclusive proposals d) All of these
Answer: D) All of these
87. The methods of evaluations of traditional methods (or) non-discount methods
a) Payback period methods b) Post pay back methods
c) Account rate of return d) All of these
Answer: D) All of these
88. Calculate the payback period, cash outflow Rs. 1,00,000 annual cash inflow Rs.
25,000(after tax before depreciation) and estimate life 6 years
a) 4 years b) 5 years
c) 1 years d) 6 month
Answer: A ) 4 years
89. Net present value helps to achieve the maximization of
a) Shareholder capital b) Shareholder wealth
c) Shareholders profit d) None of these
Answer: B) Shareholder wealth
90. If a persons required return does not change when risk increase, that person is said to
be
a) Risk-seeking b) Risk-indifferent
c) Risk-average d) Risk-aware
Answer: B) Risk-indifferent
91. Which asset would the risk-adverse financial manager prefer?
a) Asset A b) Asset B
c) Asset C d) Asset D
Answer: D) Asset D
92. ..theory suggesting that for any given issuer long-term interest rate
tends to be higher than short-term rates.
a) Expectation hypothesis b) Liquidity preference theory
c) Market segmentation theory d) None of the above
Answer: B) Liquidity preference theory
93. The yield curve in an economic period where higher future inflation is expected
would most likely be
a) Upward-sloping b) Flat
c) Downward-sloping d) Linear
Answer: C) Downward-sloping
94. If the required return is greater than the coupon rate, a bond will sell at
a) Par b) A discount
c) A premium d) Book value
Answer: B ) A discount
95. The assets which are in operation, and yield a return over a period of time usually
exceeding one year are known as
a) Fluctuation assets b) fictitious assets
c) current assets d) fixed assets
Answer: D) fixed assets
96. .. is concerned with the allocation of the firms scare financial resources
among the available market opportunities
a) working capital management b) capital budgeting
c) current asset management d) None
Answer: B) capital budgeting
97. The rationale underlying the capital budgeting decision is
a) Probability b) Liquidity
c) Efficiency d) None
Answer: C) efficiency
98. When one project is accepted other projects will automatically rejected for
implementation, these are
a) Mutually exclusive proposals b) dependent proposals
c) Independent proposals d) None
Answer: A) Mutually exclusive proposals
99. If the calculated payback period is less than the predetermined period, the proposal is
a) Rejected b) accepted
c) accepted or rejected d) None
Answer: B) accepted
100. The payback method of capital budgeting appraisal method is suitable when
a) a firm suffers from liquidity crisis b) a firm experts long-term growth
c) a firm has stable political d) a firm has favorable market conditions
conditions
Answer: A) a firm suffers from liquidity crisis
101. Under present value method, a proposal is accepted when PV of inflow is----- PV of
outflow
a) is equal to b) less than
c) more than d) None
Answer: C) more than
102. The variability that is likely to occur in future between the estimated and actual
returns is known as
a) Certainty b) risk
c) un certainty d) None
Answer: B)risk
103. Sensitivity analysis provides that the cash flow estimates will be
a) the most pessimistic b) the most likely
c) the most optimistic d) all of the above
Answer: D)all of the above
104. This technique enables the distribution of probable value of NPV for a change in all
the key variables at a time
a) Standard deviation b) Probability
c) Simulation d) Sensitive Analysis
105. It is an absolute measure which can be applied when the projects involve the same
outlays
a) standard deviation b) probability
c) Simulation d) sensitive analysis
Answer: A) standard deviation
106. is a risk evaluation approach
a) risk adjusted discount rate b) certainty-equivalent
c) decision tree d) all of these
Answer: D)all of these
107. . method, the risk is incorporated in capital budgeting by modifying
the expected cash flows instead of adjusting discount rates
a) risk adjusted discount rate b) certainty-equivalent
c) decision tree d) all of the above
Answer: B) certainty-equivalent
108. It shows the sequential cash flows and the NPV of the proposed project under
different circumstances
a) risk adjusted discount rate b) certainty-equivalent
c) decision tree d) all of the above
Answer: C) decision tree
109. The difference between expected return and actual return is known as------
a) EBIT b) EPS
c) EAT d) Risk

Answer: D)Risk
110. . represents the relationship between risk less cash flows and
uncertain cash flows
a) certainty-equivalent co-efficient b) probability distance
c) simulation d) sensitivity analysis
Answer:A) certainty-equivalent co-efficient
111. Types of investment decision classified into
a) Expansion of existing business b) Expansion of new business
c) Replacement And modernization d) All the above
Answer:D) All the above
112. Objectives of modernization classify investment of replacement and modernization
a) Mutually exclusive investments b) Independent investment
c) Contingent investment d) All the above
Answer: D) All the above
113. It is a DCF technique that explicitly recognizes the ..
a) Net present value b) Value of debentures
c) Time value of money d) Cost of value
Answer: C) Time value of mone

114. The is the compound average annual rate that is caluculated with a
investment rate different then the projects IRR
a) Net present value b) Modified internal rate of return
c) Cost of capital d) Scale of investment
Answer: B) Modified internal rate of return
115. Risk exists because of the liability of the to mske perfect forecasts
a) Risk taking b) Controlling
c) Decision maker d) Motivator
Answer:C) Decision maker
116. The future cash flows the next step is to find out
a) Net presented value b) Payback period
c) Net operating value d) Expected net present value
Answer: D) Expected net present value
117. A commonly used measure of risk is the
a) Standard deviation b) Variance

c) Both A and B d) None of the above


Answer: C) Both A and B
118. Composite discount rate is called
a) Risk adjusted discount rate b) Interest rate risk
c) Foreign exchange risk d) Financial risk
Answer: A) Risk adjusted discount rate
119. .. is a way of analyzing change in the projects NPV for a given change
in one of the variables
a) Standed analysis b) Sensitivity analysis
c) Both A and B d) none of these
Answer: B)Sensitivity analysis
120. The projects NPV for each forecast under these assumptions
a) Pessimistic b) Expected

c) Optimistic d) All of the above


Answer:D) All of the above

UNIT-IV

121. The firms ratio of debt to total financing 80% in this Mr. x is referred to as the firms
_________
a) Asset b) leverage
c) Corporation d) All of the above
Answer: B) leverage
122. The big companies use a certain amount of the profit for _________
a) social causes b) mid-term
c) primary causes d) political causes
Answer: a) Social causes
123. ________ is one of the most important objectives of many firms
a) Cash dividend b) dividend
c) Goodwill d) social response
Answer: D) social response
124. Modern approach is about the idea of________
a) wealth maximization b) profit maximization
c) share maximization d) a&b
Answer: A) wealth maximization
125. The capital assets pricing model is used to determine a theoretically appropriate
required________
a) Share returns b) interest
c) Dividend d) rate of return
Answer: d) rate of return
126. The capital asset pricing model was introduced by________ in 1961
a) Jack treynor b) Hendry Murray
c) Adam smith d) John Ferry
Answer: a) Jack treynor
127. The capital asset pricing model takes into account the assets sensitivity to__________
a) Risk b) controllable risk
c) diversifiable risk d) non-diversifiable risk
Answer: D)non-diversifiable risk
128. Capital assets pricing model suggests that an investors cost of_________ is
determined by delta
a) Equity capital b) capital
c) Share d) b&c
Answer: a)Equity capital
129. Net income is a distinct account concept from _______
a) Loss b) profit or loss same
c) Profit d) none of the above
Answer: c)profit
130. Due to not so much ________
a) Successful business b) business
c) Loss business d) a&b
Answer: a) Successful business
131. If the intrinsic value of a share of common stock is less than its market value, which
of the following is the most reasonable conclusions
a) the stock has a low level risk b) the stock offers a high dividend
payout ratio
c) the market is undervaluing the d) the market is overvaluing the stock
stock
Answer: D) the market is overvaluing the stock
132. When the market required rate of return for a particular bond is less than its coupon
rate, the bond referred to as a
a) premium bond b) discount bond
c) par bond d) face bond
Answer: A) premium bond
133. If an investor may have to sell a bond to maturity and interest rates have risen since
the bond was purchased, the investor is exposed to----
a) the coupon effect b) interest rate risk
c) a perpetuity d) an indefinite maturity
Answer: B) interest rate risk
134. Which of the following examples best represents a passive dividend policy?
a) Dividend paid from net income b) Pass dividend with what remains of
remains constant net income after taking acceptable
investment projects
c) the quantity of dividend paid from d) all of the above
net income remains constant
Answer: B) pass dividend with what remains of net income after taking acceptable
investment projects
135. Investors may be willing to pay a premium for stable dividend because of the
informational content of---- ------- the desire of investor for ----------and certain
a) institutional b) dividend,current income,institutional
consideration,dividend, current consideration
income
c) current d) institutional consideration , current
income,dividend,institutional income, dividend
consideration
Answer: B) dividend, current income, institutional consideration
136. A ----- is a payouts of a additional shares to share holding in lieu of cash
a) Stock split b) stock dividend
c) extra dividend d) regular dividend
137. The --- is the proportion of earnings that are paid to common share holders in the
form of cash dividend
a) Retention rate b) 1 plus the retention rate
c) Growth rate d) dividend payout ratio
Answer: D) dividend payout ratio
138. Large percentage stock dividend is typically ---- percent or higher of previously
outstanding common stock
a) 25 b) 35
c) 51 d) 70
Answer: A)25
139. -----is a non recurring dividend paid to share holders in addition to the
a) stock split b) stock dividend
c) extra dividend d) regular dividend
Answer: C) extra dividend
140. A------ is the expected dividend that is normally paid to share holders
a) Stock split b) stock dividend
c) extra dividend d) regular dividend
Answer: D) regular dividend
141. It is the permanent financing of the company represented by long-term debt and
shareholders funds
a) Capitalization b) capital structure
c) financial structure d) None of these
Answer: B) capital structure
142. An optimum capital structure may be
a) combination of equity and b) Equity shares and debenture
preference shares
c) Equity shares, preference shares d) combination of debt,equity and
and debt preference capital that leads to the
maximum value of the firm
Answer: D) combination of debt,equity and preference capital that leads to the
maximum value of the firm
143. The operational justification for the proposition i.e, the capital structure is irrelevant
to the value of the firm, is given in
a) Net Income approach b) Net Operating Income approach
c) MM approach d) None of the above
Answer: C)MM approach
144. The use of debt by the investor for arbitrage is called the
a) Financial leverage b) Operating leverage
c) Home-made leverage d) Combined leverage
Answer: C)Home-made leverage
145. When a company is able to raise debt at lower rate than cost of equity, it is said to be
a) Corporate leverage b) Trading on equity
c) Home made leverage d) None of the above
Answer: B)Trading on equity
146. The structure which includes both long-term as well as short-term sources of funds
a) Optimum capital structure b) capital structure
c) financial structure d) none of the above
Answer: C)financial structure
147. The following factor determine capital structure
a) Trading on equity b) Nature of enterprise
c) Government policy d) All of the above
Answer: D)All of the above
148. According to MM Theory, the firms can be classified into ----------------- risk classes
a) Homogeneous b) Heterogeneous
c) Financial d) Operating
Answer: A) Homogeneous
149. An appropriate capital structure should have the following features:
a) Profitability b) Solvency
c) Flexibility d) All of the above
Answer: D)All of the above
150. It is very difficult to find out
a) Capital structure b) Optimum capital structure
c) Financial structure d) None of the above
Answer: B)Optimum capital structure
151. Capital composition of a company including long term ,medium term and short
term finance
a) Capital gearing b) Capitalization
c) Capital structure d) Financial structure
Answer :D) Financial structure
152. The theory that a company can increase its value by increasing the volume of
debt in the capital composition
a) Net operating income b) Net income
c) MM theory d) Walters theory
Answer: B) Net income
153. According to NO 1 theory, increasing EBIT will
a) Increase the value of the firm b) Decrease the value of the firm
c) Not affect value d) Increase when debt is increased
Answer: a) Increase the value of the firm
154. .. theory provides that it is possible to increase the value of a firm by
increasing the volume of debt in the capital structure of the firm
a) Net income b) MM theory
c) Net operating income d) Fixed ko theory
Answer:a)net income
155. ..theory says that the value of a firm will be different stages of growth
a) Net income b) NOI
c) Traditional theory d) MM theory
Answer:c)traditional theory
156. ..theory of capitalization says that the amount of capital must be
equal to the sum total of all the costs of the firm
a) Earning theory b) Mm theory
c) Cost theory d) Net income theory
Answer:B) Mm theory
157. According to .. approach, cash in flow from assets should match with the
cash outflow required to acquire them
a) Aggressive approach b) Hedging approach

c) Conservative approach d) Optimization

Answer:B) Hedging approach


158. According to MM theory the total value of a firm is ..

a) Static b) Flexible
c) Dynamic d) None of the above
Answer: A) Static
159. The Traditional approach of capital structure was propounded by ..

a) David Durand b) Solomon ezra

c) Modigilani-mille d) None of these

Answer: B) Solomon ezra


160. Net operating income (NOI) approach was propounded by .

a) Solomon ezra b) David Durand

c) Modigilani-mille d) None of these

Answer:C) Modigilani-mille

UNIT V
161. The working capital concept deals with the various aspects concerning
and short term investment
a) working capital management b) financial management
c) marketing management d) a&b
Answer: A)working capital management
162. A business investment is such as cash accounts receivable and short
term investment
a) fixed assets b) Capital
c) current liabilities d) Current assets
Answer: D) Current assets
163. The company will not be in a position to sustain the sales science it may not be in a
position to...................
a) Sales b) Purchase
c) purchase return d) sales return
Answer: b)purchase
164. Amount of percent remains in the business in one from two other.
a) current assets b) working capital management
c) Current liabilities d) b &c
Answer: B)working capital management
165. Suppliers to temporary can expect its return on during off season
when it is not required by the firm.
a) current assets b) working capital management
c) Current liabilities d) None of these
Answer:B)working capital management
166. While lowers levels of working capital decrease the risk and decrease the
..
a) Loss b) Purchases
c) Sales d) Profitability
Answer: D) Profitability
167. The amount of such working capital keeps of fluctuating from time to time required
of ..
a) Business activity b) sales activity
c) Current activity d) a&c
Answer: A) Business activity
168. Working capital is generally financed from short sources of financial such as
..
a) Bank credit b) bank debit
c) Provision d) Reserves
Answer: A) Bank credit
169. Excessive working capital means the firm has.which earn no profits for
the firm.
a) Current fund b) provident fund
c) Idle funds d) reserve fund
Answer: C)Idle funds
170. ...is based on the following assumptions.
a) Management b) Principle
c) Science d) All the above
Answer: B) principle
171. To financial analysts, working capital means the same thing as---------
a) total assets b) fixed assets
c) current assets d) CA-CL
Answer: C) current assets
172. The amount of current assets required to meet a firms long term minimum needs is
referred to as ---- working capital
a) Permanent b) Temporary
c) net d) Gross
Answer: A) permanent
173. These assets are normally converted into cash within a year
a) Fixed assets b) Fictitious assets
c) Current assets d) None of the above
Answer: C)Current assets
174. Current assets usually have
a) Long life span b) Short life span
c) Medium life span d) None of these
175. Permanent working capital is also termed as
a) Core working capital b) Variable working capital
c) Fluctuating working capital d) None of these
Answer: A)Core working capital
176. When a concern has high investment in current assets, this policy is known as
a) restrictive policy b) Conservative policy
c) aggressive policy d) None of these
Answer: B)Conservative policy
177. The credit extended by the suppliers of goods and services the normal course of
transaction of the firm is known as
a) short-term credit b) medium-term credit
c) long-term credit d) trade credit
Answer: D)trade credit
178. A commercial paper, when issued by a company directly to the investor is called a
a) Direct paper b) Dealer paper
c) Agent paper d) None of these
Answer: A) direct paper
179. Following is not a current asset
a) Inventory b) Machinery
c) Cash d) Marketable securities
Answer: B)Machinery
180. Profitability and liquidity are inversely related to the working capital financial plan
must ensure sufficient amount of
a) Net Income b) Cost of capital
c) Dividend d) Investment
Answer: D)Investment
181. The amount of such profit it is largely depend upon the magnitude of ..
a) Purchases b) Good will
c) Sales d) Working capital
Answer: C)Sales
182. The excess of current assets over current liabilities is
a) Permanent working capital b) Net working capital
c) Temporary working capital d) Gross working capital
Answer: B)Net working capital
183. The amount funds invested in total current asset is
a) Permanent working capital b) Net working capital
c) Temporary working capital d) Gross working capital
Answer: D)Gross working capital
184. Under ..method of working capital determination, cash inflows and cash
outflows are matched each other.
a) Conventional b) Operating cycle
c) Balance sheet d) Regression analysis
Answer: A) conventional
185. . is primary required due to non-synchronous nature of
expected cash inflows and required cash out flow.
a) Fixed Capital b) Working capital
c) Long term finance d) Variable capital
Answer: B)Working capital
186. The amount of such profit largely depends upon the magnitude of .
a) Purchases b) Share capital
c) Sales d) Fixed assets
Answer: C) sales
187. Important forced point of financial working capital plan is the best of
through various sources.
a) Leasing b) Investment
c) Financial structure d) fund raising
Answer: D)fund raising
188. Minimum current assets require more attention that .
a) managing plan b) capital structure
c) working capital d) Liabilities
Answer: A)managing plan
189. Minimum cost made possible through planning considering in advance the various
and trends to capital market.
a) Working capital b) Fixed capital
c) Cost factor d) a and b
Answer: C) cost factor
190. A judicious balance between is one of the fundamental and
principle of successful finance planning.
a) profitability and liquidity b) Profitability and working capital
c) liquidity and fixed assets d) None of the above

Answer: A)profitability & liquidity

191. Working capital are classified into . Types


a) Three b) Four
c) Two d) None of the above
Answer :C)Two
192. No business can be run successfully without adequate amount of
a) Working capital b) Assets
c) Reserve & surplus d) Goodwill
Answer: A) Working capital
193. Working capital refers to excess of current assets over
a) Capital b) Bad debts
c) Shares & Debentures d) Current liabilities
Answer: D) Current liabilities
194. include bank loan, commercial paper, instalment credit, etc.
a) Long term sources b) Short term sources
c) Fixed assets d) None of these
Answer: B) Short term sources
195. Permanent working capital is over a period of time
a) Fixed b) Flexible
c) Temporary d) All of the above
Answer:A) fixed
196. In working capital the time gap is technically termed as . Of the business.
a) Operating cycle b) Budgeting
c) Auditing period d) Financial period
Answer: A)Operating cycle
197. When the current assets exceeds current liabilities the working capital is
a) Negative b) Nil

c) Positive d) Balanced
Answer: C)Positive
198. A firm that maintains . Rate of cash dividend irrespective of its generation
of profits needs more working capital
a) Low b) Medium
c) High d) All of the above
Answer: C)High
199. The level of taxes paid depends on law
a) Business b) Taxation
c) Company d) Consumer act
Answer: B)Taxation
200. ........ is a certificate issued by the company under its common seal acknowledging its
debt to its holders
a) Debentures b) Shares

c) Investors d) Good will


Answer:A)Debebtures

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