fm2 3

 Question 1
4 out of 4 points
If you borrow $150,000 for a house at 8% simple annual interest rate for 15 years, what is
your monthly payment?
Selected Answer: $1,433
Answers: $1,433
$1,533
$1,633
$1,733
 Question 2
4 out of 4 points
What would you estimate to be the required rate of return for equity investors if a stock sells
for $40 and will pay a $4.40 dividend that is expected to grow at a constant rate of 5%?
Selected Answer: 0.16
Answers: 0.076
0.12
0.126
0.16
 Question 3
4 out of 4 points
How much is added to a firm's weighted average cost of capital for 45% debt financing with
a required rate of return of 10% and a tax rate of 35%?
Answers: 0.0129
0.0293
0.035
0.045
 Question 4
4 out of 4 points
How much would you pay for an investment which will be worth $16,000 in three years?
Assume interest is 5%.
Selected Answer: $13821
Answers: $14821
$13821
$15821
$12821
 Question 5
1 out of 1 points
Receiving a required inventory item at the exact time needed is
Selected Answer: JIT
Answers: ABC
JIT
FOB
PERT
 Question 6
1 out of 1 points
The decision function of financial management can be broken down into the financing and
investment decisions.
Selected Answer: False
Answers: True
False
 Question 7
1 out of 1 points
Deferral period refers to the credit period allowed by:
Selected Answer: Creditors
Answers: Creditors
Debtors
Bank holders
Shareholders
 Question 8
1 out of 1 points
Permanent Working Capital is also known as:
Selected Answer: None of the above
Answers: Gross working capital

Net working capital
Total current assets
None of the above
 Question 9
1 out of 1 points
Indifference level of EBIT is one at which EPS under two or more financial plans would be
same.
Selected Answer: True
Answers: True
False
 Question 10
1 out of 1 points
In proper capital budgeting analysis we evaluate incremental
Selected Answer: cash flow
Answers: accounting income

cash flow
earnings
operating profit
 Question 11
1 out of 1 points
Working Capital is defined as excess of:
Selected Answer: Current assets over current liabilities
Answers: Current assets over capital

Current liabilities over capital
Current assets over current liabilities
Share capital over resources
 Question 12
1 out of 1 points
The Traditional Approach to Value of the firm m that
Selected Answer: Value can be increased by judicious use of leverage
Answers: There is no optimal capital structure
Value can be increased by judicious use of leverage
Cost of Capital and Capital structure are m dent
Risk of the firm is independent of capital structure
 Question 13
1 out of 1 points
Which of the following is generally untrue for manufacturing firm?
Selected Answer: High level of cash balance
Answers: High level of raw material

High level of cash balance
High level of fixed assets
Higher level of Debtors and Creditors
 Question 14
0 out of 1 points
"In Capital Budgeting Decisions, a single cost of capital is used because :"
Selected Answer: It avoids calculation of Required Rate for different projects
Answers: Required Rate of Return is same for all projects.
It avoids calculation of Required Rate for different projects
Both (a) and (b)
None of the above
 Question 15
1 out of 1 points
There is a difference of opinion on relationship between dividend payment and value of the
firm.
Answers: True
False
 Question 16
1 out of 1 points
Accrued interest declines with each payment on an amortizing loan.
Answers: True
False
 Question 17
1 out of 1 points
"You just purchased a parcel of land for $10,000. If you expect a 12 percent annual rate of
return on your investment for in 10 years, the land could be sold for $25000."
Answers: True
False
 Question 18
0 out of 1 points
"When money is invested at compound interest, the growth rate is the interest rate."
Answers: True
False
 Question 19
1 out of 1 points
Stability of dividend refers to the fact that the rate of divided must be fixed.
Answers: True
False
 Question 20
1 out of 1 points
The cost of issuing new stock is called:
Selected Answer: flotation costs
Answers: the cost of equity
flotation costs
marginal cost of capital
none of the above
 Question 21
1 out of 1 points
Credit period allowed to customers must be equal to credit period allowed by the supplier to
the firm.
Answers: True
False
 Question 22
1 out of 1 points
Current Liabilities are those obligations which are generally to be discharged in:
Selected Answer: 1 year
Answers: 1 month
1 year
1 week
1 day
 Question 23
1 out of 1 points
"Having defined working capital as current assets, it can be further classified according to
components and time."
Answers: True
False
 Question 24
1 out of 1 points
Which of the following does not usually affect working capital requirement?
Selected Answer: None of (a) and (b)
Answers: Operating leverage
Financial leverage
Both (a) and (b)
None of (a) and (b)
 Question 25
1 out of 1 points
Financing a long-lived asset with short-term financing would be
Selected "an example of ""high risk - high (potential) profitability"" asset financing"
Answer:
Answers: "an example of ""moderate risk - moderate (potential) profitability"" asset
financing"
"an example of ""low risk - low (potential) profitability"" asset financing"
"an example of ""high risk - high (potential) profitability"" asset financing"
"an example of the ""hedging approach"" to financing"
 Question 26
0 out of 1 points
Operating leverage may be defined as Contribution ÷ EPS.
Answers: True
False
 Question 27
1 out of 1 points
The discount factor measures the present value of ₹1 received in year t.
Answers: True
False
 Question 28
0 out of 1 points
Cost of Capital for Equity Share Capital does not imply that :
Selected Answer: Market Price is more than Issue Price
Answers: Market price is equal to Book Value of share
Shareholders are ready to subscribe to right issue
Market Price is more than Issue Price
All of the three above
 Question 29
1 out of 1 points
The largest provider of short-term credit for a business is:
Selected Answer: suppliers to the firm
Answers: banking organizations
suppliers to the firm
commercial paper
Eurodollars
 Question 30
0 out of 1 points
Cash discount should always be availed by the purchasing firm irrespective of the rate of
discount.
Answers: True
False
 Question 31
1 out of 1 points
"Firms raise the funding they need through debt, equity and profits."
Answers: True
False
 Question 32
0 out of 1 points
Market value is unaffected by Dividend policy.
Answers: True
False
 Question 33
1 out of 1 points
Cash dividend and bonus share issue affect the firm in the same way.
Answers: True
False
 Question 34
0 out of 1 points
A high price/earnings ratio usually indicates that a firm is a growth stock.
Answers: True
False
 Question 35
1 out of 1 points
"The trade terms ""2/15, net 30"" indicate that a 2% discount is offered if payment is made
within 15 days."
Answers: True
False
 Question 36
1 out of 1 points
The value of $750 invested at 7.5% compounded quarterly for 4.5 years (round to nearest
$1) would be $808.
Answers: True
False
 Question 37
0 out of 2 points
Dividend will NOT reduce the amount of capital returned to the investors.
Answers: True
False
 Question 38
2 out of 2 points
In deciding the optimal level of current assets for the firm, management is confronted with a
trade-off between profitability and risk.
Answers: True
False
 Question 39
2 out of 2 points
If a company issues new share capital to redeem debentures, then :
Selected Answer: FL will decrease
Answers: OL will increase
FL will increase
OL will decrease
FL will decrease
 Question 40
2 out of 2 points
The annual compounded interest rate of an investment with a stated interest rate of 7%
compounded quarterly for 4 years (round to the nearest .1%) would be 6.7%.
Answers: True
False
 Question 41
2 out of 2 points
In 3 years you are to receive ₹5,000. If the interest rate were to suddenly increase, the
present value of that future amount to you would rise.
Answers: True
False
 Question 42
2 out of 2 points
Combined leverage can be used to measure the relationship between :
Selected Answer: Sales and EPS
Answers: EBIT and EPS
PAT and EPS
Sales and EPS
Sales and EBIT
 Question 43
2 out of 2 points
Which of the following argues that the value of levered firm is higher than that of the
unlevered firm?
Selected Answer: Both (a) and (c)
Answers: Net Income Approach
Net Operating Income Approach
MM Model with taxes
Both (a) and (c)
 Question 44
2 out of 2 points
Which of the following managers would NOT use finance?
Selected Answer: All of these would use finance
Answers: Operational managers
Marketing managers
Human resource managers
All of these would use finance
 Question 45
2 out of 2 points
Liberalizing the discount rate means increasing the discount rate for the same period.
Answers: True
False
 Question 46
2 out of 2 points
If you want to have $90 in four years, you must put $64 in a savings account today. Assume
that the savings account pays 8.5% and it is compounded monthly (round to the nearest $1).
Answers: True
False
 Question 47
2 out of 2 points
Cash flows occurring in different periods should not be compared unless the flows have
been discounted to a common date.
Answers: True
False
 Question 48
2 out of 2 points
Minimizing costs should be the primary objective of a firm as it may actually be the most
beneficial for society in the long run.
Answers: True
False
 Question 49
2 out of 2 points
In case the firm is all-equity financed, WACC would be equal to :
Selected Answer: Cost of Equity
Answers: Cost of Debt

Cost of Equity
Neither (a) and (b)
Both (a) and (b)
 Question 50
0 out of 2 points
Short-term financing for a business firm includes mortgages.
Answers: True
False
 Question 51
2 out of 2 points
If the fixed cost of production is zero, which one of the following is correct?
Selected Answer: None of the above
Answers: OL is zero
FL is zero
CL is zero
None of the above
 Question 52
2 out of 2 points
MM model is difficult to be applied in practice.
Answers: True
False
 Question 53
5 out of 5 points
If your company borrows $300,000 at 8% interest and agrees to repay the loan in 10 equal
semiannual payments to include principal plus interest, how much would those payments
be?
Answers: $36987
$36787
$36987
$36897
 Question 54
5 out of 5 points
What are the earnings per share (EPS) for a company that earned $100,000 last year in
after-tax profits, has 200,000 common shares outstanding and $1.2 million in retained
earnings at the year end?
Selected Answer: $0.50
Answers: $100,000
$6.00
$0.50
$6.50
 Question 55
5 out of 5 points
What is the after-tax cost of preferred stock that sells for $10 per share and offers a $1.20
dividend when the tax rate is 35%?
Answers: 0.042
0.078
0.0833
0.12
 Question 56
0 out of 5 points
If Ramesh put $310 in savings account at the beginning of each year for 10 years, how
much money will be in his account at the end of the 10th year? Assume that the account
earns 5.5% and round to the nearest $100.
Answers: $3,800
$3,900
$4,000
$4,200
 Question 1
2 out of 2 points
Walter’s Model suggests for 100% DP Ratio when kc = 0.
Answers: True
False
 Question 2
2 out of 2 points
Operating Leverage is calculated as :
Selected Answer: Contribution ÷ EBIT
Answers: Contribution ÷ EBIT
EBIT ÷ PBT
EBIT ÷ Interest
EBIT ÷ Tax
 Question 3
2 out of 2 points
If interest expenses for a firm rise, we know that firm has taken on more ______________.
Selected Answer: financial leverage
Answers: financial leverage
operating leverage
fixed assets
none of the above
 Question 4
2 out of 2 points
EOQ determines the order size when
Selected Answer: Total inventory costs are minimum
Answers: Total Order cost is Minimum

Total Number of order is least
Total inventory costs are minimum
 Question 5
2 out of 2 points
An increase in a firm's debt ratio will have no effect on the required rate of return for
equityholders.
Answers: True
False
 Question 6
2 out of 2 points
For a given amount, the lower the discount rate, the less the present value.
Answers: True
False
 Question 7
2 out of 2 points
All else equal, the higher the interest rate, the lower the present value of an amount to be
received at some point in the future.
Answers: True
False
 Question 8
2 out of 2 points
Which of the following stresses on investor’s preference for current dividend than higher
future capital gains?
Selected Answer: Gordon’s Model
Answers: Walter’s Model

Gordon’s Model
MM Model
Residuals Theory
 Question 9
2 out of 2 points
The present value of a rupee to be received in the future is more than a rupee.
Answers: True
False
 Question 10
0 out of 2 points
Which of the following is not a standard method of inventory valuation?
Selected Answer: Realizable Value
Answers: First in First out

Standard Cost
Average Pricing
Realizable Value
 Question 11
2 out of 2 points
Which of the following is not a technique of receivables Management?
Selected Answer: Funds Flow Analysis
Answers: Funds Flow Analysis
Ageing Schedule
Days sales outstanding
Collection Matrix
 Question 12
2 out of 2 points
When determining a form of business organization, physical location of the business is not
considered.
Answers: True
False
 Question 13
2 out of 2 points
For corporations, maximizing the value of owner's equity can also be stated as maximizing
the stock price.
Answers: True
False
 Question 14
2 out of 2 points
Risk of a Capital budgeting can be incorporated
Selected Answer: All of the above
Answers: Adjusting the Cash flows
Adjusting the Discount Rate
Adjusting the life
All of the above
 Question 15
2 out of 2 points
MM model is difficult to be applied in practice.
Answers: True
False
 Question 16
2 out of 2 points
If ke = r, then under Walter's Model, which of the following is irrelevant?
Selected Answer: DP Ratio
Answers: Earnings per share
Dividend per share
DP Ratio
None of the above
 Question 17
5 out of 5 points
What is the present value of an annuity of $100 received at the end of each year for seven
years? The first payment will be received one year from today (round to nearest $10). The
discount rate is 13%.
Answers: $440
$43
$500
$1,040
 Question 18
5 out of 5 points
$7,000 dollars 10 years from now at 7% is worth how much today?
Answers: $3,558
$4,558
$5,558
$2,558
 Question 19
5 out of 5 points
What will be the approximate future value of a sum, if its current value is 280 million grows
at a compound rate of 2% annually for 25 years?
Selected Answer: 460 million
Answers: 413 million
430 million
460 million
488 million
 Question 20
0 out of 5 points
How much would you have to deposit today to have $10,000 in five years at 6% interest
compounded semiannually?
Selected Answer: $7740.94
Answers: $7740.94
$4440.94
$7440.94
$770.94
 Question 21
4 out of 4 points
For $1,000 you can purchase a 5-year ordinary annuity that will pay you a yearly payment of
$263.80 for 5 years. The compound annual interest rate implied by this arrangement is
closest to
Answers: 0.08
0.09
0.1
0.11
 Question 22
4 out of 4 points
You have $1000 you want to save. If four different banks offer four different compounding
methods for interest, which method should you choose to maximize your $1000?
Selected Answer: compounded daily
Answers: compounded daily
compounded quarterly
compounded semi-annually
compounded annually
 Question 23
4 out of 4 points
What would you estimate to be the required rate of return for equity investors if a stock sells
for $40 and will pay a $4.40 dividend that is expected to grow at a constant rate of 5%?
Answers: 0.076
0.12
0.126
0.16
 Question 24
4 out of 4 points
If you borrow $150,000 for a house at 8% simple annual interest rate for 15 years, what is
your monthly payment?
Answers: $1,433
$1,533
$1,633
$1,733
 Question 25
1 out of 1 points
Dividend is compulsorily payable to preference shareholders.
Answers: True
False
 Question 26
1 out of 1 points
ABC analysis helps to ascertain the minimum level of stock of raw material.
Answers: True
False
 Question 27
0 out of 1 points
The concepts of present value and future value are:
Selected Answer: proportionately related to each other
Answers: directly related to each other
not related to each other
proportionately related to each other
inversely related to each other
 Question 28
1 out of 1 points
Marketable securities are primarily:
Selected Answer: Short-term debt investments
Answers: Equity shares
Preference shares
Fixed deposits with companies
Short-term debt investments
 Question 29
0 out of 1 points
There is no difference of opinion on the relationship between capital structure and value of
the firm.
Answers: True
False
 Question 30
1 out of 1 points
The discount factor measures the present value of ₹1 received in year t.
Answers: True
False
 Question 31
1 out of 1 points
"When money is invested at compound interest, the growth rate is the interest rate."
Answers: True
False
 Question 32
1 out of 1 points
___________ refers to meeting the needs of the present without compromising the ability of
future generations to meet their own needs
Selected Answer: Sustainability
Answers: Corporate Social Responsibility (CSR)
Sustainability
Convergence
Green Economics
 Question 33
0 out of 1 points
Equity financing includes both securing trade credit and issuing new ownership shares.
Answers: True
False
 Question 34
0 out of 1 points
Operating leverage may be defined as Contribution ÷ EPS.
Answers: True
False
 Question 35
1 out of 1 points
Capital market securities fall into two categories: bonds and stocks.
Answers: True
False
 Question 36
0 out of 1 points
Cash discount should always be availed by the purchasing firm irrespective of the rate of
discount.
Answers: True
False
 Question 37
1 out of 1 points
"For small companies, long-term debt is the principal source of external financing."
Answers: True
False
 Question 38
0 out of 1 points
Not all cash a company generates will be returned to the investors. Which of the following
will NOT reduce the amount of capital returned to the investors?
Selected Answer: None of these will reduce the amount of capital returned to the investors
Answers: retained earnings

taxes
dividends
None of these will reduce the amount of capital returned to the investors
 Question 39
0 out of 1 points
Unsecured loans are those:
Selected that are backed up by mortgaged assets
Answer:
Answers: that do not have to be repaid for over one year
that appear to be too risky for most lenders to consider
given not on the basis of the firm's credit standing and the lender's previous
experience with the firm
that are backed up by mortgaged assets
 Question 40
1 out of 1 points
Which of the following is not applicable to IRR?
Selected Answer: Common for all projects
Answers: Considers all Cash Flows
Based on Time Value of Money
Common for all projects
Stated in % Return
 Question 41
0 out of 1 points
"For a levered firm, the cost of equity, RE, is equal to the required return on the firm's
assets, RA."
Answers: True
False
 Question 42
1 out of 1 points
Strict adherence to the maturity matching approach to financing would call for all current
assets to be financed solely with current liabilities.
Answers: True
False
 Question 43
1 out of 1 points
Stability of dividend refers to the fact that the rate of divided must be fixed.
Answers: True
False
 Question 44
1 out of 1 points
"Most investments, whether they involve real assets or financial assets, can be analyzed
using the discounted cash flow (DCF) approach."
Answers: True
False
 Question 45
1 out of 1 points
"You have $1000 you want to save. If four different banks offer four different compounding
methods for interest, you should choose compounded annually to maximize your $1000."
Answers: True
False
 Question 46
1 out of 1 points
"Risk, as it relates to working capital, means that there is jeopardy to the firm for not
maintaining sufficient current assets to meet its cash obligations as they occur and take
advantage of prompt payment discounts."
Answers: True
False
 Question 47
1 out of 1 points
"Firms raise the funding they need through debt, equity and profits."
Answers: True
False
 Question 48
0 out of 1 points
The financing decision affects the total operating profits of the firm.
Answers: True
False
 Question 49
1 out of 1 points
"To financial analysts, ""net working capital"" means the same thing as __________."
Selected Answer: current assets minus current liabilities.
Answers: total assets

fixed assets
current assets
current assets minus current liabilities.
 Question 50
0 out of 1 points
CFOs examine the firm's accounting systems and comment on whether financial statements
fairly represent the firm's financial position.
Answers: True
False
 Question 51
1 out of 1 points
CFO is the firm's highest-level financial manager.
Answers: True
False
 Question 52
0 out of 1 points
Permanent Working Capital is also known as:
Selected Answer: Total current assets
Answers: Gross working capital
Net working capital
Total current assets
None of the above
 Question 53
1 out of 1 points
A perpetuity is a special form of an annuity.
Answers: True
False
 Question 54
0 out of 1 points
"In Capital Budgeting Decisions, a single cost of capital is used because :"
Selected Answer: Required Rate of Return is same for all projects.
Answers: Required Rate of Return is same for all projects.
It avoids calculation of Required Rate for different projects
Both (a) and (b)
None of the above
 Question 55
1 out of 1 points
Most preferred stock has dividends that are cumulative.
Answers: True
False
 Question 56
1 out of 1 points
There is a difference of opinion on relationship between dividend payment and value of the
firm.
Answers: True
False

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 Question 1

Answers: Gross working capital

Answers: accounting income

Answers: Current assets over capital

Answers: High level of raw material

Answers: Cost of Debt

Answers: Total Order cost is Minimum

Answers: Walter’s Model

Answers: First in First out

Answers: retained earnings

Answers: total assets

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