Note: Attempt all questions The question paper contains 80 MC0 type questions.

Each question carries

1% marks. Select the answer and fill the appropriate circle corresponding to that question in the
attached OMR sheet.

1 The duration of the net operating cycle is equal 4. The assets held by a business which can
to the sum of the duration of various operating be converted in the form of cash, without
stages of a manufacturing fim less disturbing the normal operations of a
businessare
(A debtors collection period
(A) Tangible assets
(B) finished goods storage period
(B) Intangible assets

(C) creditors payment period Fixed assets

(C)

O) raw material storage period (D) Current assets

5. In deciding the appropriate level of current

2 The formula used to calculate current ratio
assets for the firm, management is
S

confronted with
(A) Curent assets I Current liabilities
(A) a trade-off between profitability and
risk
(B) Curent liabilities/ Current assets
(B) a trade-off between liquidity and
(C) Inventory/ Current liabilities
marketability

) Current liabilities/Inventory a trade-off between equity and debt

3 For a healthy business the current ratio lies (D) a trade-off between short-term

between versus long-term borrowing

6. varies inversely with profitability.
(A) 0 to 1

(A) Solvency
(B) 1 to 3
(B) Risk
(C) 3 to 4.5
C ) Marketability
D) 4.5 to 6
(D) None of the above

[190830) [KMBFM041 Page 3]

 7. Permanent working capital 11. ABC Ltd. has a Current Ratio of 1.5: 1 and Net working capitalrefers to 18. Use of safety stock by a firm would:
4.
Current Assets of Rs. 3,00,000. What are the
(A) varies with seasonal needs
total assets minus fixed assets Increase Inventory Cost
Current liabilities? (A) (A)
(B) includes fixed assets
(A) 2,00,000 current assets minus current Decrease Inventory Cost
(8) (B)
C) is the amount of current assets
liabilities
(B) 3.00,000
required to meet a fim's long-tem
No effect on cost
minimum needs (C) 4,50,000 assets minus inventories
(C)
current

(D) includes accounts payable () 6.00,000 () None of the above

current assets
12. Which of the
(D)
8. There is deterioration in the management of following would be consistent
In the EOQ Model
working capital of XYZ Ltd. What does it with a more aggressive approach to 15. EOQ is the quantity that minimizes 19.
referto? financing working capital ?
Total Ordering Cost (A) EOQ will increase if order cost
(A) Financing short-term needs with (A)
A That the Capital Employed has increases
reduced short-term funds Total Inventory Cost
(B)
(B) inancing permanent inventory EOQ will decrease if holding cost
(B) That the Proftability has gone up
Total Interest Cost
(B)
buildup with long-term debt (C) decreases
(C) That debtors collection period has
(C)
increased
Financing seasonal needs with (P) Safety Stock Level
EOQ will decrease if annual usage
short-term funds (C)
increases
() That Sales has decreased 6. ABC Analysis is used in
(O) Financing some part of pemanent
. Current assets are also referred to as wOrking capital needs with short- None of the above
(A) Inventory Management (P)
term funds
(A) Working capital
Receivables Management cost
13. Which of the 20. ABC Ltd. is engaged in sale of bats. Its
) Investments following illustrates the use of
a
hedging (or matching) approach to per order is Rs.400 and its carrying cost
(C) (C) Accounting Policies Rs.10. The annual
Inventory financing? per unit per annum is
demand for the company's product is 20,000
D) Livestock (A) Short-term assets fin anced with () Corporate Governance
units. Calculate the economic order quantity.
0. Working Capital Turnover measures the long-term liabilities
17. Inventory holding cost may include:
relationship of working capital with (B) Permanent working capital financed 1,200 units per order
with long-term liabilities Material Purchase Cost
(A) Fixed assets (A)
(C) Short-term (B) 1,265 units per order
(B) Sales assets financed with
equity (B) Penalty charge for default

C) Purchases 1,365 units per order

() All assets financed with a 50 (C)
percent (C) Interest on loan
(D) Stock equity, 50 percent long-term debt
order
mixture None of the above (D) 1,300 units per
D)
190830] Page- S
[KMBFMO4] [Page - 4] [KMBFMO04]
[190830]
 (security) used for
21. Which of the following is not a standard 25. The type of collateral Which of the following is not a spontaneous 32. Which one of the following credit terms is
short-lerm loan is
29
method of inventory valuation ? funds? most apt to produce the shortest accounts
source of short-term
receivable period ?
(A) First in First out (A) Real estate
Trade credit
(A) A) 3/5, net 10
) Standard Cost (B) Plant&Machinery
(B) Accrued expenses B) net 10

C)Weighted Average C)Stock of good Provision for dividend (C) 2/10, net 30
()
OY Realizable Vaiue Equity share capital 2/20, net 45

(D) All ofthe above

22. System of procuring goods when required, In India, Commercial Papers are issued as Which of the following is not shown in Cash
26. 33
is known as: Budget ?
per the guidelines issued by i s a financial
30.
Free on Board transaction and a type of debtor finance in Proposed Issue of Capital
A (FOB) A) Securties and Exchange Board of (A)
which a business sells its accounts
India Loan Repayment
B) Always Better Control (ABC) receivable (i.e., invoices) to a third party at ()
() Just in Time (JIT) (B) Reserve Bank of India a discount. (C) Interest on loan

) Economic Order Quantity (C) Forward Market Commission (D) Depreciation

(A) Trade credit

23 Which of the following is not

applicable to
(D) None of the above 34. Working capital is also known as
B) Government bonds
commercial paper ?
27. Which of the following is a (A) Curent capital or circulating capital
liability of a bank?
A Unsecured promissory notes (C) Equity share capital
) Work in progress capital
(A) Treasury Bills
Short term (D) Factoring C) Day-to-day capital
Commercial papers
Sold at a discount from face D) Trading capital
value C) 31. All else equal, which one of the following
Certficate of Deposits
) None of the above will decrease the cash cycle? 35. Inventory is listed as a part of curent assets
D) Junk Bonds Stock or inventory in an organization means
24. Commercial paper are
generally issued at 28. (A) increasing the operating cycle
a price Concept of Maximum Permissible Bank (A) Goods that is readily available for
financewas introduced by increasing the inventory turnover sale
A) Equal to face value
(A) rate All the assets available for sale
Kannan Committee B)
(B) More than face value
(B) Chore Committee C) decreasing the accounts receivable CAll the raw material, Semi finished
(C) Less than face value turnover rate andthe finshed goods in the
C) Nayak Committee organizaton
(D) Equal to redemption value decreasing the accounts payable
, Tandon Commitee Goods that can be sold within a

90830] period short span of time

[KMBFMO4)
[Page-61 [190830] [KMBFM04] fPage-71
 Profit forgone by capital investment in
following is not a categoy Which of the following statements is true? 45.
Which one of the 42. inventory rather than investment of capital
'A' class consist of
items 39 to be shown
on the
36. In ABC analysis of cash flows required Accepting the credit offered by a
(A) to somewhere else is classified as
having- flows? of cash
statement of cash supplier is a source
relevant purchase order costs
activities debt
(A)
Accurate records Cash flows from operating Cash is decreased when new
-A) (A) ) merchandise (B) relevant inventory carrying costs
is issued to purchase
activities
Good records Cash flows from financing irrelevant inventory carying costs
(B) Increasing the use of trade credit (C)
of relevant opportunity cost of capital
Minimal records C) Cashflows from taxation offered by a supplier is a use )
activities cash Decision model to calculate optimal quantitly
Cash flows from investing 46.
called
No records
Collecting an accounts eceivable is of inventory to be ordered is
30
D
40. lfa company changes from ofering days' a use of cash
The symptom of large inventory (A) efficient order quantity
37. credit to customers to offering 50 days
accumulation in anticipation of price rise in net cash inflow on a cash budget
Credit, which of the following statements
is 43. A negative economic order quantity
(B)
future will be indicated by indicates that a firm
Correct?
C) rational order quantily
those
has cash outiows other than
(A) Asset turnover ratio
(A) Cash generated from operations will (A optimized order quantity
related to accounts payable (D)
increase
(B) Working Capital tunover ratio has projected cash disbursements 47. Activities related to coordinating, controlling
Cash generated from operations will 8)
(B) that exceed the projected cash and planning activities of flow
of stock are

C) Inventory turmover ratio decrease

classified as
collections

All of the above C) Cash generated from financing short-term (A) decisional management
has funds available for
activities will decrease
investing (B) throughput management
The following is (are) thelimitation of debt
Economic Order Quantity assumption(s) (D) There will be no effect on the utilizes both short and long-term (C).inventory management
statement of cash flows
(D) manufacturing management
A) Demand may vary throughout the 44. A fim should establish receivables policies
41. Which one of the following courses of action considering both benefits and an order
year after carefully 48. The time period between placing
will increase the bank balance of a costs of diferent policies. These policies
and its receipt in stock is known as

It assumes that the company

storage space relateto
is unlimited (A) Lead time
A) Paying suppliers more promptly (A) Credit Standards
Carying time
B)
(C) Prices of materials change (8) Repaying a loan (B) Credit Terms
Shortage time
throughout the year
ollection Procedures
(C)
(C) Taking longer to pay suppliers (C)
(D) Over time
(P) All of the above
Increasing the inventory levels held (D)All of the above

[190830] [Page-9
KMBFM04] KMBFMO4]
[Page-8 [190830]
 Marketable securities are primarily 61 Which would be an appropriate investment
level of stock. 57
53. 'Buffer stock is the
A9 Re-ordeing level is
calculated as . for temporarily idle corporate cash that ill
Half of the actual stock (A) short-term debt instruments
Minimum consumption rate x (A) be used to pay quarterly dividends three
(A) At which the ordering
process
months from now?
Minimum re-order peri00 () (B short-term equity securities
should start
A long-term AAA-rated corporate
) Maximum consumption rate x
which C long-term debt instruments (A)
Minimum stock level below
Maximum re-order period (C) bond with a current annual yield of
actual stock should not fall long-term equity securities
9.4 percent
C) Maximum consumption rate x
(D)Maximum stockin inventory Time consumed in clearing a check through
Minimum re-order period 58. A 30-year Treasury bond with a
is
54. The order cost per order of an inventory is
Minimum consumption rate x
the banking system current annual yield of 8.7 percent
) Rs. 400 with an annual carying cost of Rs.
Maximum re-order period 10 per unit. The Economic Order Quantity (A) Processingfloat (C Ninety-day commercial paper with
demand of 2000 units a current annual yield of 6.2 percent
0 Average stock level can be calculated as
EOQ) for an annual Deposit float
B)
Minimum stock level+ % of Re- IS Common stock that has been
(A) Collection float ()
order level (A)400
C) appreciating in price 8 percent
440 D) Availability float annually, on average, and paying a
(B) Maximum stock level + % of Re- B)
order level C) 480 A deficit in a bank account caused by quarterly dividend that is the
59.
(C) Minimum stock level+ 1/3 500 equivalent of a 5 percent annual
of Re drawing more money than the account holds
order level 55. The basic objective of Tandon Committee is called
yield
Maximum stock level +1/3 of Re recommendations is that the dependence 62. The most basic requirement(s) for a firm's
(A) Letter of credit
order level of industry on bank should gradually marketable securities is/are
(B) Overdraft
51. Which of the following is not an inventory7 A)Increase (A) Safety
) Remain Stable Trade credit
A Consumable tools C) (B) Yield
C) Decrease
(B) Raw malerial
0) Bill discounting
None of the above (C) Marketability
C) Finished products
56. Increasing the credit period from 30 to 60 60. Concentration banking (D)All ofthe above
Machines days, in response to a similar action taken
(A)increasesidle balances 63. A non-negotiable check payable to a
52. The following classes of costs are usually by all of our competitors, would likely result bank
involved in inventory decisions except in moves excess funds from a company account at a concentration
concentration bank to regional is
(A) Cost of ordering (A)'an increasein the average
collection period banks (A) Payable through draft (PTD)
6) Carrying cost
(B) a decrease in bad debt losses C is less important during periods of
(B) Depository transfer check (DTC)
(C) Cost of shortages
an increase in sales rising interest rates
ACH transfer
() Machining cost
D)
C)
higher profits improves control over corporate
(D) Repo
[190830] cash
K.MBFM04] Page-11]
Page-10] [190830] [KMBFM04]
 nature cash flows
are
72. Cheques deposited in bank may not be C) Optimum Receivables
Only revenue
Method 'of available for immediate use due to
64. In Regression Analysis (D) All of the above
shown
the
preparaton of projected working capital, Payment Float
Proceeds from issue
of share Trade credit represents the credit extended
projection is on the basis of 7.
infiow Receipt Float
capital in shown as
an the
by
relationship between sales and
not affect cash C) Net Float Banks
working capital 68. Which of the following does A)
relationship between sales and flows of a proposal ? (D) Playing the Float Private lenders
()
profit Concentration Banking helps in
(A)SalvageValue 73. (C) Customers of goods and services
relationship between profit and
Increasing Collection
(B) Depreciation Amount (A) (D) Supplier of goods and services
working capital
(B) Reducing ldle Bank Balance
relationship between sales and C) Tax Rate Change 78. Float management is related to
(D)
Increasing Creditors
purchases
(D) Method of Project Financing C) (A) Cash Management
65. In % of Sales' method, various items of Reducing Bank Transactions
Cash Inflows from a project include : (D) Inventory Management
balance sheet are estimated on the basis
69. (B)
74 The Transaction Motive for holding cash is
of (A)Tax Shield of Depreciation (C) Receivables Management
for
(A) % of Share Capital After-tax Operating Profits
() Safety Cushion (D) Raw Materials Management
(6) % of Sales in curent year (A
(C) Raising of Funds Baumol's Model of Cash Management
% of Fixed Assets B) Daily Operations 79
0)Both (A) and (B) Purchase of Assets attemptsto
D).% o Sales in preceding year C)
70. Cash Budget does not include Minimise the holding cost
66. Which of the following is not considered Payment of Dividends A)
)
while preparing cash budget ? Minimization of transaction cost
(A) Dividend Payable (5. Some methods for accomplishing delay in B)
A) Accual Principle
(B) Total Sales Figure making payments include ) Minimization of total cost

(B) Diference in Capital, and Revenue (A) mailing checks far away from those Minimization of cash balance
(C) Issue of Capital (D)
items waiting to receive payment
30 Cash Discount term 3/15, net 40 means
C) Conservation Principle (D)Postal Expenditure disbursing checks from a remote
71 Which of the following is not a motive to hold (A) 3% Discountif payment in 15 days,
(D) All of the above bank
cash? otherwise full payment in 40 days
67. Which of the following is not true for cash purchasing with credit cards
Budget ? (A) Transactionary Motive (B) 159% Discount if payment in 3 days,
O) all of the above
A) That shortage or excess of cash otherwise full payment in 40 days
(B) Precautionary Motive
would appear in a particular 76 Miller-Orr Model deals with:
period
C)Capital Investment 39% terest Fpayment made in 40
(B)All inflows would arise before (A) Optimum Cash Balance days and 15% interestthereafter
outflows for those periods (D) None of the above
Optimum Finished goods None of the above

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