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Financial Management MCQs [set-16]
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376. If risk free rate of return is 8%, Return on market portfolio is 12%, beta
= 1.5, then the expected rate of return according to CAPM is equal to

A. 10%

B. 14%

C. 18%

D. 24%

Answer: B

377. Net salvage value of a fixed asset is

A. Excess of salvage value over book value

B. Excess of book value over salvage value

C. Scrape value

D. Salvage value of fixed assets less any income tax payable on the excess of salvage value over
book value

Answer: D

378. The discount rate which equates the present value of cash inflows
with the present value of cash out flows is called -------

A. Opportunity cost

B. Sunk cost

C. explicit cost

D. Direct cost

Answer: C

379. A company can increase its value and reduce the overall cost of
capital by increasing the proportion of debt in its capital structure

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according to ----- approach
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A. Net income approach

B. Net operating income approach

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C. Traditional approach

D. None of these

Answer: A

380. Net income approach was suggested by

A. Modigliani and Miller

B. Durand

C. Walter

D. None of these

Answer: B

381. To judge the comparative risk of projects having same cost and same
NPV which method is used

A. Certainty equivalent method

B. Sensitivity technique

C. Standard deviation method

D. Coefficient of variation method

Answer: C

382. While evaluating capital investment proposals, the time value of

money is considered in case of

A. Pay back method

B. NPV

C. Accounting rate of return

D. None of these

Answer: B

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383. Depreciation is includedc
in cost in case of

A. Pay back method

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B. NPV

C. Accounting rate of return

D. Present value index

Answer: C

384. Which of the following is/ are the assumptions of net income
approach?

A. The cost of debt is less than the cost of equity

B. There are no taxes

C. The risk perception of investors is not changed by the use of debt

D. All of the above

Answer: D

385. Capital gearing refers to the relationship between equity capital

and-----

A. Long term debt

B. Short term debt

C. Preference capital

D. None of these

Answer: A

386. A company should follow the policy of ----- gear during inflation or
boom period

A. High gear

B. Low gear

C. Medium gear

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D. Any of the above
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Answer: A c
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387. Which of the following factors is/ are considered when a capital
structure decision is taken?

A. Cost of capital

B. Dilution control

C. Floatation cost

D. All of the above

Answer: D

388. Which of the following is not a source of long term finance?

A. Equity capital

B. Preference capital

C. Commercial paper

D. Debenture capital

Answer: C

389. A cumulative preference share is one

A. In which all the unpaid dividends are carried forward and payable.

B. Which can be converted into equity shares

C. Which can be redeemed

D. Which entitle the preference shareholders to participate in surplus profits and assets.

Answer: A

390. Which of the following g is a determinant of working capital of a firm?

A. Depreciation policy

B. Taxes payable by the company

C. Production policy

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D. All of the above
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Answer: D c
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391. Under trading means

A. Having low amount of working capital

B. High turnover of working capital

C. Sales are less compared to assets employed

D. Assets are less compared to sales generated

Answer: C

392. which of the following was set up based on the recommendations of

Vaghul Committee?

A. National Stock Exchange

B. Stock Holding Corporation of India Ltd

C. Discount and Finance House of India Ltd

D. National Securities Depository Ltd

Answer: C

393. Shelf stock refers to

A. Perishable goods

B. Items that are to be packaged and sold

C. Stocks which is to be stored in the shelf

D. Items that are stored by the firm and sold with little or no modification

Answer: D

394. Which of the following is not an assumption of EOQ model?

A. Cost of carrying is a fixed proportion of the average value of inventory

B. The demand is even throughout the year

C. The usage for one year can be anticipated

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D. Cost per order is proportional to the size of the order

Answer: D c
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395. Which of the following costs is not associated with inventories?

A. Material cost

B. Ordering cost

C. Carrying cost

D. Cost of long term debt locked in inventories

Answer: D

396. When a company liberalizes its cash discount policy

A. It increases the cost of discount

B. It leads to an increase in the average collection period

C. The discount period may be lengthened

D. All of the above

Answer: D

397. Which of the following is not associated with cash management of a

firm?

A. Stretching accounts payable without affecting the credit of the firm

B. Speedy collection of receivables

C. Investing surplus funds in long term securities

D. Maintaining liquidity

Answer: C

398. Which of the following is not a motive for holding cash?

A. Transaction purpose

B. Precaution against unexpected expenses

C. Extending loans to group companies

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D. Speculation purpose
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Answer: C c
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399. Cash management does not call for

A. Lengthening creditor’s period

B. Lengthening debtor’s period

C. Investing surplus funds

D. Nullifying idle funds

Answer: B

400. Which of the following is not a function of a finance manager?

A. Mobilization of funds

B. Manipulate share price of the company

C. Deployment of funds

D. Control over use of funds

Answer: B

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