Q NO QUESTIO OPTIONS Correct Correct

N(2 Answer Answer

marks per
question)
A B C D
1 Which one Net Present Internal Accounting Profitabilit Accounting C
of the Value Rate of Rate of y Index Rate of
following Return Return Return
is not a
Discount
Cash Flow
(DSF)
Criteria
2 The IRR equal IRR greater IRR less IRR is IRR greater B
internal to the cost than the than the twice of than the
Rate of of capital cost of cost of cost of cost of
Return capital capital capital capital
(IRR)
criterion
for project
acceptance,
under
theoreticall
y infinite
funds is:
accept all
projects
which have
3 Which of If the NPV If the IRR If the IRR If the PI of If the PI of D
the of a project of a project of a project a project a project
following is greater is 8%, its is greater equals 0, equals 0,
statements than 0, then NPV, using than the then the then the
is incorrect its PI will a discount discount project's project's
regarding a exceed 1. rate, k, rate, k, then initial cash initial cash
normal greater its PI will outflow outflow
project? than 8%, be greater equals the equals the
will be less than 1. PV of its PV of its
than 0. cash flows. cash flows.
4 Assume ? 250 ? 225 ? 325 ? 275 ? 225 B
that Project
X costs ?
2,500 now
and is
expected to
generate
year-end
 cash
inflows
of ? 900, ?
800, ?
700, ? 600
and ? 500
in years 1
through 5.
The
opportunity
cost of the
capital may
be assumed
to be 10
per cent.
Calculate
the NPV?
5 Suppose 3 years and 4 years and 3 years and 3 years and 3 years and D
that a 8 months 3 months 6 months 4 months 4 months
project
requires a
cash outlay
of ?
20,000, and
generates
cash
inflows
of ?
8,000; ?
7,000; ?
4,000;
and ? 3,000
during the
next 4
years.
What is the
project’s
payback?
6 The Accounting Discounted Payback Standard Discounted B
_________ Rate of Payback Period Payback Payback
_________ Return Period Period
is the
number of
periods
taken in
recovering
the
 investment
outlay on
the present
value basis.
7 Which of Shares Debentures Commercia Public Commercia C
the l Banks deposits l Banks
following
is not the
Permanent
(Fixed)
Working
Capital
Finance
Sources
8 The permanent net gross temporary permanent A
amount of
current
assets
required to
meet a
firm's long-
term
minimum
needs is
referred to
as
_________
_ working
capital
9 Which of Short-term All assets Permanent Short-term Permanent C
the assets financed working assets working
following financed with a 50 capital financed capital
illustrates with long- percent financed with equity. financed
the use of a term equity, 50 with long- with long-
hedging (or liabilities. percent term term
matching) long-term liabilities. liabilities.
approach to debt
financing? mixture.
10 Which of Cost of Administra Collection Manufactur Manufactur D
the Financing tive costs. costs ing cost ing cost
following Receivable
is not cost s
of
maintainin
g
receivable
11 Capital Long-term Short-term Both (a) Neither (a) Long-term A
Budgeting Decisions Decisions and (b) nor (b) Decisions
deals with:
12 Capital Reversible irreversible Unimporta not irreversible B
Budgeting nt required
Decisions
are:
13 Which of Expansion Merger Replaceme Inventory Inventory D
the Programme nt of an Level Level
following Asset
is not a
capital
budgeting
decision?
14 Capital Incrementa Incrementa Incrementa Incrementa Incrementa B
Budgeting l Profit l Cash l Assets l Capital l Cash
Decisions Flows Flows
are based
on:
15 Depreciatio Is Is a cash Reduces Involves an Reduces C
n is unavoidabl flow Tax outflow Tax
incorporate e cost liability liability
d in cash
flows
because it:
16 A proposal is related to brings brings has very brings C
is NOT a Fixed long-term short-term large short-term
Capital Assets benefits benefits investment. benefits
Budgeting only only
proposal if
it:
17 In Net Net Present Both (a) None of (a) Both (a) C
Sensitivity Economic Value and (b) and (b) and (b)
Analysis, Life
the
emphasis is
on
assessment
of
sensitivity
of
18 Decision Profitabilit Profitabilit Profitabilit Profitabilit Profitabilit C
criterion y index is y index is y index is y index is y index is
with equal to or greater less than or greater less than or
respect to less than 1 than 1 equal to 1 than 10 equal to 1
 profitabilit
y index to
accept
project if?
19 A sound Cash Flows Accounting Interest Last Divide Cash Flows A
Capital Profit Rate on
Budgeting Borrowings
technique
is based on:
20 What is the the future the present the future the present the present D
net present value of a value of a value of a value of a value of a
value? project’s project’s project’s project’s project’s
cash flows cash flows cash flows cash flows cash flows
plus its plus its minus its minus its minus its
initial cost initial cost initial cost initial cost initial cost
21 Why are Returns Returns Returns Returns Returns A
projects lower than with with lower than lower than
with the cost of negative negative the cost of the cost of
negative capital NPVs NPVs are capital capital
net present result in cause an acceptable result in result in
values firm equal profit to a firm. higher firm
(NPVs) failure. ratio. profit failure.
unacceptab ratios.
le to a
firm?
22 The the the the ROE the ROE the B
Internal discount discount when the associated discount
Rate of rate which rate which NPV with rate which
Return is causes the causes the equals 0 project causes the
defined as payback to NPV to maximizati NPV to
equal one equal zero. on equal zero.
year.
23 When a Internal Annual rate Required Present Required C
capital rate of of return. rate of value index rate of
budgeting return. return. return.
project
generates a
positive net
present
value, this
means that
the project
earns a
return
higher than
the
24 There is That the That the That That Sales That C
deterioratio Capital Profitabilit debtors’ has debtors’
n in the Employed y has gone collection decreased. collection
manageme has up period has period has
nt of reduced increased increased
working
capital of
XYZ Ltd.
What does
it refer to?
25 Which of Financing Financing Financing Financing Financing D
the short-term permanent seasonal some long- some long-
following needs with inventory needs with term needs term needs
would be short-term buildup short-term with short- with short-
consistent funds. with long- funds. term funds. term funds.
with an term debt.
aggressive
approach to
financing
working
capital?
26 Working Fixed Sales Purchases Stock Fixed A
Capital Assets Assets
Turnover
measures
the
relationship
of Working
Capital
with:
27 Which of Rate of Required Time Value Tax-Effect. Rate of A
the Cash Rate of of Money. Cash
following Discount. Return. Discount.
is not
incorporate
d in Capital
Budgeting?
28 Which of Initial Cash Discount Terminal Life of the Discount B
the Flows Rate Inflows Project Rate
following
variables is
not known
in Internal
Rate of
Return?
29 Which of Accounting Internal Cash Net Present Accounting A
 the /Simple rate of payback Value /Simple
following rate of return period rate of
capital- return return
budgeting
techniques
takes into
account the
incremental
accounting
income
rather than
cash flows:
30 Which of Internal Discounted Net present Simple Simple D
the rate of cash value cash cash
following return payback method payback payback
techniques method method method method
does not
take into
account the
time value
of money?
31 Consider 5 years 3 years 4 years 0.25 years 4 years C
the
following
data on a
proposed
investment:
Investment
required:
$160,000,
Annual
cash
inflows:
$40,000,
Life of the
investment:
6 years,
Salvage
value: 0,
Discount
rate: 10%
Based on
the above
data, what
is the
payback
period of
 the
proposed
investment
project?
32 If the the NPV of the the project the NPV of the project C
profitabilit the project project's returns 75 the project returns 75
y index of is greater cost is less rupees is greater rupees
a project is than zero than the present than 1 present
0.75, it present value for value for
means: value of its each 100 each 100
cash flows rupees rupees
invested in invested in
it it
33 What is PV Rs 125 Rs 25 Rs 250 Rs 80 Rs 80 D
of Rs 100
one year
hence with
discounting
factor
25% ?
34 A project 12% 10% 15% 14% 10.00% B
requires an
investment
of Rs.5,
00,000 and
has a scrap
value of
Rs.20,000
after 5
years. It is
expected to
yield
profits after
depreciatio
n and taxes
during the
next 5
years
amounting
to Rs.
40,000, Rs
60,000, Rs
70,000, Rs
50,000 and
Rs20,000.
The
average
 rate of
return(AR
R) on the
original
investment
is
35 The annual 1000 1500 2000 5000 2000 C
demand for
a product is
10,000
units. The
cost per
item is
Rs.20 and
inventory
carrying
cost per
unit per
annum is
5%. If the
cost of
order is Rs.
200 per
order,
determine:
Economic
Order
Quantity
(EOQ)
36 The XYZ Rs 35000 Rs 1500 Rs 7500 Rs 5000 Rs 1500 B
purchases a
new
equipment.
The
selected
data is
given
below:
Cost of
equipment:
Rs 25,000,
Useful life
of
equipment:
5 years,
Tax rate:
30% If
 equipment
is
depreciated
using
straight
line
method,
what is the
depreciatio
n tax
benefit
associated
with the
new
equipment?
37 ________ Payback Net Present Benefit to Internal Net Present B
of a project period Value Cost Ratio Rate of Value
is the sum Return
of all
present
values of
all cash
inflows
minus
present
value of
outflows?
38 ABC Ltd is 17% 8.50% 8.00% 9.10% 17.00% A
considering
undertakin
g a project
that would
yield
average
annual
profits
(after
depreciatio
n) of Rs.
68,000 for
5 years.
The initial
outlay of
the project
would be
Rs.
800,000.
 What
would be
the
accounting
rate of
return for
this
project?
39 The XYZ About 7% About 10% About 23% About 27% About 23% C
Co. is
considering
the
purchase of
a new
machine
that would
increase
the speed
of
packaging
and save
money. The
net cost of
this
machine is
Rs. 45,000.
The annual
cash flows
have the
following
projections.
Year Cash
Flow 1 Rs.
15,000 2
Rs. 20,000
3 Rs.
25,000 4
Rs. 10,000
5 Rs. 5,000
What is the
internal
rate of
return?
40 Calculate 3.5 years 3.092 years 3.92 years 4 years 3.092 years B
the
discounted
payback
 period for a
project
with an
initial cash
outlay of
Rs. 700
and annual
free flows
of Rs. 420,
Rs. 103,
Rs. 250,
Rs. 350
and Rs.
200 in year
1, year 2,
year 3, year
4, and year
5
respectivel
y. Interest
rate is 8%.
41 The use of Profit Risk Time value Cash flows Cash flows D
NPV rule of money
in
investment
decisions
require
information
about –
42 Which of Payback Discounted Accounting Net Present Discounted B
the payback rate of Value payback
following return
is not a part
of Non-
discounted
cash flow
criteria –
43 Working Total assets Total assets Current Current Current D
capital and total and current assets and assets and assets and
manageme liabilities liabilities total current current
nt is liabilities liabilities liabilities
concerned
with the
inter-
relationship
existing
between
44 When Positive Negative Zero Can’t be Negative B
current calculated
assets are
less than
current
liabilities,
then the net
working
capital is:
45 Which Equity Interest Accrued Accounts Equity A
among the Shares payable Expenses Payable Shares
following
is not a
current
liability?
46 Which Patents Plants & Goodwill Cash Cash D
among the Equipment Balance Balance
following
is a current
asset?
47 While Low Risk Low Risk High Risk High Risk Low Risk A
taking into and Low and High and Low and High and Low
considerati Profitabilit Profitabilit Profitabilit Profitabilit Profitabilit
on the y y y y y
trade-off
between
profitabilit
y and risk,
a firm with
higher net
working
capital will
have
48 While Low Risk Low Risk High Risk High Risk High Risk D
taking into and Low and High and Low and High and High
considerati Profitabilit Profitabilit Profitabilit Profitabilit Profitabilit
on the y y y y y
trade-off
between
profitabilit
y and risk,
a firm with
low net
working
capital will
have:
49 The correct The raw The raw The raw Any of the The raw C
order of the material material material above material
stages of and and and and
operating inventory inventory inventory inventory
cycle is: stores stage stores stage stores stage stores stage
> work-in- > > work-in- > work-in-
progress receivables progress progress
stage > stage> stage > stage >
receivables work-in- finished finished
stage > progress goods goods
finished stage > inventory inventory
goods finished stage> stage>
inventory goods receivables receivables
stage inventory stage stage
stage
50 Gross Total Total Total Current Total C
Working Assets Assets Current Assets Current
Capital is minus Total Assets minus Assets
the capital Liabilities Current
invested in Liabilities
51 EOQ is a Minimum Maximum Optimal Not Optimal C
company’s optimal
________
order
quantity
that
minimizes
its total
inventory
costs.
52 _________ Capitalisati Over- Under- Market Capitalisati A
_________ on capitalisati capitalisati capitalizati on
_ of a firm on on on
refers to
the
compositio
n of its
long-term
funds and
its capital
structure.
53 In Net income Net Traditional Miller and Net income A
_________ operating Modigliani
______ income
approach,
the capital
structure
 decision is
relevant to
the
valuation
of the firm.
54 When Internal Profitabilit Net present Modified Net present C
_________ rate of y index value internal value
_ is greater return rate of
than zero return
the project
should be
accepted.
55 _________ Payback- Inventory Discounted Budget Payback- A
___ is period conversion payback- period period
defined as period period
the length
of time
required to
recover the
initial cash
out-lay
56 _________ Temporary Net Gross Permanent Gross C
______ working working working working working
refers to capital capital capital capital capital
the amount
invested in
various
component
s of current
assets.
57 _________ Net Cash Working Gross Net A
___ is the operating conversion capital operating operating
length of cycle cycle cycle cycle cycle
time
between
the firm’s
actual cash
expenditure
and its own
cash
receipt.
58 _________ Speculative Transaction Precautiona Compensat Transaction B
______ motive motive ry motive ing motive motive
refers to a
firm
holding
 some cash
to meet its
routine
expenses
that are
incurred in
the
ordinary
course of
business.
59 _________ Holding Pay-back Average Credit Credit D
______ period period collection period period
refers to period
the length
of time
allowed by
a firm for
its
customers
to make
payment
for their
purchases.
60 Amounts Trade Trade Trade Trade off Trade B
due from balance debits discount debits
customers
when
goods are
sold on
credit are
called
_________
____.
61 _________ Profit Production Sales Value Profit A
_________ maximisati maximisati maximisati maximisati maximisati
__ and on, Wealth on, Sales on, Profit on, Wealth on, Wealth
_________ maximizati maximisati maximizati maximisati maximizati
_________ on on on on on
________
are the two
versions of
goals of the
financial
manageme
nt of the
firm
62 The gross cost of sales Govt. dividends Govt. C
 profit goods sold increased increased were increased
margin is increased relative to the tax rate decreased. the tax rate
unchanged, relative to expenses
but the net sales.
profit
margin
declined
over the
same
period.
This could
have
happened if
63 Which of A low The lower An The higher The lower B
the receivables the total increase in the tax rate the total
following turnover is debt-to- net profit for a firm, debt-to-
statements desirable equity margin the lower equity
(in general) ratio, the with no the interest ratio, the
is correct? lower the change in coverage lower the
financial sales or ratio financial
risk for a assets risk for a
firm. means a firm.
poor ROI.
64 A firm's plus its minus its plus its minus its plus its A
operating receivable RTD RTD minus RTD minus receivable
cycle is turnover in its payable its PTD. turnover in
equal to its days turnover in days
inventory (RTD). days (RTD).
turnover in (PTD).
days (ITD)
65 Which of a decrease a decrease an increase an increase an increase D
the in accounts in cash. in account in cash in cash
following receivable payable
would be
considered
a
application
of funds?
66 All of the accelerated salvage tax rate method of method of D
following depreciatio value changes. project project
influence n. financing financing
capital used used
budgeting
cash flows
EXCEPT:
67 The it is simpler it is cash, this is this is it is cash, B
 estimated to calculate not required by required by not
benefits cash flows accounting the Internal the accounting
from a than income, Revenue Securities income,
project are income that is Service and that is
expressed flows central to Exchange central to
as cash the firm's Commissio the firm's
flows capital n capital
instead of budgeting budgeting
income decision decision
flows
because:
68 A capital has the has the is only applies has the A
investment prospect of prospect of undertaken only to prospect of
is one that long-term short-term by large investment long-term
benefits benefits corporation in fixed benefits
s assets
69 A PI of .75 he present he project's the project he payback the project C
for a value of NPV is returns 75 period is returns 75
project benefits is greater cents in less than cents in
means that: 75% than zero present one year present
greater value for value for
than the each each
project's current current
costs dollar dollar
invested invested
70 Which of If the NPV If the IRR If the PI of If the IRR If the PI of C
the of a project of a project a project is of a project a project is
following is greater is 0%, its less than 1, is greater less than 1,
statements than 0, its NPV, using its NPV than the its NPV
is correct? PI will a discount should be discount should be
equal 0 rate, k, less than 0 rate, k, its less than 0
greater PI will be
than 0, will less than 1
be 0 and its
NPV will
be greater
than 0
71 A project's present net present present net present present A
profitabilit value; value; value; value; value;
y index is initial cash initial cash depreciable depreciable initial cash
equal to the outlay outlay basis basis outlay
ratio of the
of a
project's
future cash
lows to the
project's
72 The present net present IRRs profitabilit net present B
discount values values y indexes values
rate at
which two
projects
have
identical is
referred to
as Fisher's
rate of
intersection
73 Two will never will always may will may C
mutually generally
exclusive
investment
proposals
have "scale
differences
" (i.e., the
cost of the
projects
differ).
Ranking
these
projects on
the basis of
IRR, NPV,
and PI
methods__
_________
give
contradicto
ry results
74 You are Project A Project B Project A is Each Project A A
considering dominates dominates more risky project is dominates
two project B project A and should high on one project B
mutually offer variable, so
exclusive greater the two are
investment expected basically
proposals, value equal
project A
and project
B. B's
expected
value of net
present
value is Rs.
 1,000 less
than that
for A and A
has less
dispersion.
On the
basis of
risk and
return, you
would say
that
75 To increase upward downward No change constant downward B
a given
present
value, the
discount
rate should
be adjusted
76 Which of Financing Financing Financing Financing Financing D
the short-term permanent seasonal some long- some long-
following needs with inventory needs with term needs term needs
would be short-term buildup short-term with short- with short-
consistent funds with long- funds term funds term funds
with a term debt
more
aggressive
approach to
inancing
working
capital?
77 Which Increasing Increasing Reducing Replacing Reducing C
asset- current current current short-term current
liability assets assets assets, debt with assets,
combinatio while while increasing equity increasing
n would lowering incurring current current
most likely current more liabilities, liabilities,
result in the liabilities current and and
firm's liabilities reducing reducing
having the long-term long-term
greatest debt debt
risk of
technical
insolvency
?
78 In deciding a trade-off a trade-off a trade-off a trade-off a trade-off A
the between between between between between
appropriate profitabilit liquidity equity and short-term profitabilit
 level of y and risk and debt versus y and risk
current marketabili long-term
assets for ty borrowing
the firm,
manageme
nt is
confronted
with
79 _________ Liquidity Risk Financing Liabilities Liquidity A
_varies
inversely
with
profitabilit
y
80 Spontaneou accounts accounts short-term a line of accounts B
s financing receivable payable loans credit payable
includes
81 Permanent varies with includes is the includes is the C
working seasonal fixed assets amount of accounts amount of
capital needs current payable current
assets assets
required to required to
meet a meet a
firm's long- firm's long-
term term
minimum minimum
needs needs
82 Financing a an example an example an example an example an example C
long-lived of of "low of "high of the of "high
asset with "moderate risk -- low risk -- high "hedging risk -- high
short-term risk -- (potential) (potential) approach" (potential)
financing moderate profitabilit profitabilit to profitabilit
would be (potential) y" asset y" asset financing y" asset
profitabilit financing financing financing
y" asset
financing
83 Net total assets current current current current B
working minus assets assets assets assets
capital fixed assets minus minus minus
refers to current inventories current
liabilities liabilities
84 Increasing an increase a decrease an increase higher an increase A
the credit in the in bad debt in sales profits in the
period average losses average
from 30 to collection collection
60 days, in period period
 response to
a similar
action
taken by all
of our
competitors
, would
likely
result in:
85 A single, it avoids it is the it it it avoids A
overall cost the only way to acknowled acknowled the
of capital is problem of measure a ges that ges that problem of
often used computing firm's most new most new computing
to evaluate the required investment investment the
projects required return projects projects required
because: rate of have about offer about rate of
return for the same the same return for
each degree of expected each
investment risk return investment
proposal proposal
86 Which of Cash float Accounts Credit sales A new A new D
the receivable personal personal
following computer computer
would not for the for the
be financed office office
from
working
capital?
87 Which of Making Making Making Making Making C
the greater use greater use greater use greater use greater use
following of short of long of short of long of short
working term term term term term
capital finance and finance and finance and finance and finance and
strategies is maximizin minimizing minimizing maximizin minimizing
the most g net short net short net short g net short net short
aggressive? term asset term asset term asset term asset term asset
88 Which of Acid test Accounts Accounts Inventory Acid test A
the days receivable payable days days
following days days
is not a
metric to
use for
measuring
the length
of the cash
cycle?
89 ______is cost Break even Working final Working C
the process manageme analysis Capital accounts Capital
of nt Manageme Manageme
managing nt nt
these short-
term assets
and
liabilities
to ensure
the
company
has
adequate
liquidity to
operate
smoothly.
90 Which one The AAR AAR relies AAR relies AAR is AAR is D
of the method on net on book relatively relatively
following incorporate income and values and easy to easy to
statements s time not cash not market compute compute
accurately value of flows values
describes money
an computatio
advantage ns
of the
average
accounting
return
(AAR)
method of
analysis?
91 A project exceeds the is greater is positive. is less than exceeds the A
should be firm's than 100 the IRR. firm's
accepted required percent. required
according AAR. AAR.
to the
average
accounting
return
(AAR)
whenever
the AAR:
92 A project independen convention mutually short term convention B
that t al exclusive al
requires an
initial cash
outlay and
for which
all
remaining
cash flows
are inflows
is said to
be: