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Please note: There are 25 questions out of which Q.No.21-25 are based on the
Case Study.
Subject Code: FM12

Subject Name: Assignment Start

FINANCIAL Date: 10/07/2022

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Assignment End Date:
Component name: 20/07/2022
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Question 1:- If the NPV of a project is negative then which of the given statement is correct?

a)   IRR of the project is > the cost of the project                        

b)   IRR of the project is = the cost of the project                        
c)   IRR of the project is < the cost of the project                        
d)   None of the above                        

Question 2:- If the degree of total leverage is 5 and % change in sales is10, then % change in EPS will be?
a)   20                        
b)   50                        
c)   30                        
d)   40                        

Question 3:- Which of the following is not a source of long -term finance?

a)   Equity shares                        
b)   Debentures                        
c)   Treasury bills                        
d)   None of the above                        

Question 4:- What are the different motives of holding cash in a business?

a)   Precautionary motive                        
b)   Transaction motive                        
c)   Speculative motive                        
d)   All of the above                        

Question 5:- If the current assets and current liabilities are Rs 2,000 lakh and Rs 1,200 lakh respectively. How
much amount can be borrowed on a short-term basis without reducing current ratio below 1.5?

a)   Rs.1,200 lakh                        
b)   Rs.1,000 lakh                        
c)   Rs. 400 lakh                        
d)   Rs.1,400 lakh                        

Question 6:- Which of the given statement is incorrect?

a)   Payback period method does not take in to account time value of money                        
b)   Pay back period method comes modern technique of Capital budgeting                        
c)   Payback period is easy to understand.                        
d)   Both A & C                        
Question 7:- The Inventory turnover ratio A ltd. is 4 times and that of B Ltd. is 5 times then which of the given
statement is incorrect?

a)   A Ltd. is functioning better than B Ltd. in terms of converting its stock in to sales                        
b)   B Ltd. is functioning better than A Ltd. in terms of converting its stock in to sales                        
c)   Both A Ltd. and B Ltd. Are equally good                        
d)   None                        

Question 8:- Which of the following is a/ are money market instrument(s):

a)   Treasury bill                        
b)   Commercial papers                        
c)   Debentures                        
d)   Both A & B                        

Question 9:- What is the objective of Financial Management?

a)   Profit maximisation                        
b)   Maximisation of EPS                        
c)   Wealth Maximisation                        
d)   None of the above                        

Question 10:- If the IRR of a given project is greater than its cost of capital, then:

a)   NPV of the given project will be negative                        

b)   NPV of the given project will be positive                        
c)   NPV of the given project will be equal to zero                        
d)   Can`t say about the NPV as the information is incomplete                        

Question 11:- According to Gordon’s model, the optimal dividend pay-out ratio for a firm whose cost of capital
and return on investment are 15% and 12% respectively is?

a)   40%                        
b)   60%                        
c)   80%                        
d)   100%                        

Question 12:- If the Current assets of a business are less than its current liabilities, then:

a)   Long term funds have been used for financing long term assets.                        
b)   Short term funds have been used for financing long term assets.                        
c)   Long term funds have been used for financing short term assets                        
d)   Long term funds have been used for financing long term assets.                        

Question 13:- Which of the following is an example of diversifiable risk?

a)   Recession in the economy                        

b)   Change in the tax structure                        
c)   Inadequate supply of raw materials                        
d)   None of the above                        

Question 14:- Z Ltd. issues 1,00,000 14% debentures after 5 years at Rs.110 each. The commission payable to
underwriters and brokers is 10% and the applicable tax rate is 45%. Calculate the cost of debt.

a)   12%                        
b)   11.70%                        
c)   13.50%                        
d)   14%                        

Question 15:- Which of the following statements represents the financing decision of a company?

a)   Designing an optimal capital structure by using suitable financial instruments                        

b)   Procuring new machineries for the R & D activities                        
c)   Recruiting the new employees in order to increase the productivity of the company                        
d)   All of the above                        

Question 16:- A finance manager needs to take all the given decisions except:

a)   Financing                        
b)   Investing                        
c)   Dividend                        
d)   Operating                        

Question 17:- As per Walter`s model of dividend policy if the rate of return on investment is greater than the
cost of equity, then:

a)   D/P ratio will be 100%                        

b)   D/P ratio will be zero                        
c)   D/P ratio will be 50%                        
d)   None of the above                        

Question 18:- Mr. Aman borrowed Rs.1,25,000 was borrowed at an effective interest rate of 10 percent per
annum. The amount has to be repaid with interest in ten equal annual instalments. Each instalment is payable at
the end of every year. What will be amount of each instalment?
a)   Rs.20,342                        
b)   Rs.10,852                        
c)   Rs.40,342                        
d)   Rs.22,442                        

Question 19:- The dividend pay-out ratio of a firm is 40%. The firm follows traditional approach to dividend
policy with a multiplier of 6. The P/E ratio of the firm is:

a)   5.4                        
b)   6.2                        
c)   4.4                        
d)   3.4                        

Question 20:- The risk-free rate is 10% and the market return is 15%. Stock A has a beta of 1.2 and is
currently selling at Rs.30. If the expected dividend on the stock is Rs.4, then what will be the growth rate of the
company?

a)   3.67%                        
b)   4.57%                        
c)   8.77%                        
d)   2.67%                        

Case Study
Mr. Binit, Finance manager of S Ltd. is evaluating the present credit policy of his company. Under the present
policy the company is offering 3% discount for payment within 10 days. The analysis of accounts receivable
shows an average collection period of 30 days. Mr. Binit is of the opinion that the discount should be discounted
as it is affecting the profitability of the company in the present scenario of rising manufacturing cost. It is
estimated that if the discount is discontinued the average collection period would increase to 35 days. Presently
30% of the total customers are availing discount and if the discount is withdrawn, these customers can also be
expected to pay along with the other customers. The marketing manager informed him that as a result sales
might drop 2,10,000 units to 2,00,000 units per year. The selling price per unit is Rs.45. The average cost per
unit is Rs.50 and variable cost to sales ratio is 75%. The required rate of return on the company`s investment is
20%.

Question 21:- Which of the following statement is true?

a)   As change in profit is negative, Mr. Binit should not go for withdrawing discount                        
b)   As change in profit is negative, Mr. Binit should go for withdrawing discount                        
c)   As there is no change in profit change in profit is negative, Mr. Binit should go for withdrawing
discount                        
d)   As change in profit is positive , Mr. Binit should go for withdrawing discount                        

Question 22:- Increase in investment receivables is:

a)   Rs.1,12,500                        
b)   Rs.1,12,550                        
c)   Rs.1,13,500                        
d)   Rs.1,31,250                        

Question 23:- The loss of contribution due to increase in sales is_______.

a)   Rs.1,13,500                        
b)   Rs.1,14,500                        
c)   Rs.1,12,500                        
d)   Rs.1,15,500                        

Question 24:- Savings in receivables investment due to decrease in sales will be_______.

a)   Rs.32,480.50                        
b)   Rs.32,812.50                        
c)   Rs.31,812.50                        
d)   Rs.32,012.50                        

Question 25:- The cost of financing the increased investment in receivables will be________.

a)   Rs.29,687.50                        
b)   Rs.9,687.50                        
c)   Rs.19,687.50                        
d)   Rs.11,687.50