CBT CLASS-XII SUBJECT-BUSINESS STUDIES MONTH-OCTOBER 2023

Q. NO. QUESTIONS MARKS

Q.1 Reliance Ltd. is a company with a decreasing EBIT. The company has a 1
significant amount of debt in the form of debentures, and further borrowing
through debentures could exacerbate the situation. Which factor determining
the Capital Structure is the CFO of Reliance Ltd. primarily concerned about?
(a) cost of debt
(b) return on investment
(c) interest coverage ratio
(d) debt service coverage ratio
Ans.1 (c) Interest Coverage Ratio -It refers to the no. of times a company can cover 1
its interest and repayment obligations (Debt) from the profit.
Q.2 Which of the following statements accurately represents one of the protective 1
functions of SEBI in real-life scenarios?
(a) It is responsible for managing government budgets and allocating funds for
various developmental projects.
(b) It ensures the safety and security of data transmitted during online trading
transactions.
(c) It promotes and regulates the insurance industry to safeguard
policyholders' interests.
(d) It monitors and regulates the securities market to protect investors and
maintain market integrity.
Ans.2 (d) It monitors and regulates the securities market to protect investors and 1
maintain market integrity.-
The protective functions of SEBI in real-life scenarios - It monitors and
regulates the securities market to protect investors and maintain market
integrity.
Q.3 The Board of directors of Lupin Pharma Ltd. decided to issue debentures worth 1
₹40 lakhs in order to finance a major Research and Development project. This
would increase the Debt Equity ratio from 1:1 to 2:1. However, at the same
time it would increase the Earnings per share. The reason that will justify the
above situation is:
(a) Unfavourable financial leverage, as the financial risk will be higher.
(b) Unfavourable financial leverage, as return on investment is lower than the
cost of debt.
(c) Favourable financial leverage as debt is easily available
(d) Favourable financial leverage, as return on investment is higher than cost
of debt
Ans.3 (d) Favourable financial leverage, as return on investment is higher than cost 1
of debt –
If we are using more Debt (debentures) in capital structure up to the level
when Return on Investment is more than rate of interest on Debt. The trading
on equity enjoys by shareholders it would increase the earning of equity
shareholders.
Q.4 The allocative function of Financial market helps in ________ 1
(a) Bringing transparency in trading procedure
(b) Earning higher rate of return to household sector
(c) Better functioning of depository
(d) Determining the prices of securities
Ans.4 (b) Earning higher rate of return to household sector 1
 Householders are investing their savings & mobilising in the most productive
area it would increase the earning of householders.
Q.5 STATEMENT I: Electronic holdings can be converted into physical certificates 1
with the process of dematerialisation.
STATEMENT II: There is no danger of theft, loss or forgery of share certificates
in dematerialisation.
Choose the correct option from the following:
(a) Statement I is true and II is false
(b) Statement II is true and I is false
(c) Both the statements are true
(d) Both the statements are false
Ans.5 (b) Statement II is true and I is false 1
STATEMENT I: Electronic holdings can be converted into physical certificates
with the process of dematerialisation. - No, this is wrong it converts softcopy
of the shares in to physical form Hardcopy) (in Demat Form)
STATEMENT II: There is no danger of theft, loss or forgery of share certificates
in dematerialisation. Yes this is right to convert shares in softcopy to hold any
where without any fear. Of such types of activity.
Q.6 Aman had 55 shares of Vani Ltd. He wanted to sell 30 shares, so he went for a 1
specific market to sell them through online portal. He went for which of
following markets?
(a) Money market
(b) Secondary market
(c) Primary market
(d) None of these
Ans.6 (b) Secondary market -Because it is a market of existing issued security those 1
are already issued in the market.
Q.7 One of the functions of Securities and Exchange Board of India is ‘promotion of 1
fair practices and code of conduct in securities market’. Identify the category
to which this function belongs.
(a) Protective function
(b) Regulatory function
(c) Development function
(d) None of these
Ans.7 (a) Protective function -‘promotion of fair practices and code of conduct in 1
securities market’
Q.8 When the ....................... is greater than the rate of interest, a company can 1
increase its debt to increase its earning per share (EPS).
(a) Return on investment
(b) Return on equity
(c) Tax rate
(d) Cost of equity
Ans.8 (a) Return on investment – When return on Investment is more than the rate 1
of interest, a company can increase its debt to increase its earning per share
(EPS) & Equity shareholders enjoy the trading on equity.
Q.9 Mr. A. Bose is running a successful business. Mr. Bose is the owner of R. K. 1
Cement Ltd. Mr. Bose decided to expand his business by acquiring a Steel
Factory. This required an investment of Rs. 60 crores. To seek advice in this
matter, he called his financial advisor Mr. T. Ghosh who advised him about the
judicious mix of equity (40%) and Debt (60%). Employ more of cheaper debt
may enhance the EPS. Mr. Ghosh also suggested him to take loan from a
 financial institution as the cost of raising funds from financial institutions is
low. Though this will increase the financial risk but will also raise the return to
equity shareholders. He also apprised him that issue of debt will not dilute the
control of equity shareholders. At the same time, the interest on loan is a tax
deductible expense for computation of tax liability. After due deliberations
with Mr. Ghosh, Mr. Bose decided to raise funds from a financial institution.
In the above case Mr. Ghosh suggested to raised more fund from debt. Higher
debt-equity ratio results in:
(a) Lower financial risk
(b) Higher degree of operating risk
(c) Higher degree of financial risk
(d) Higher Earning of profit.
Ans.9 (c) Higher degree of financial risk -It increases the interest obligation as charge 1
against profit and reduce the profit of equity shareholders as dividend.
Q.10 1

Which decisions have been marked by Green and Red

colours in this picture?
(a) Green-Financing , Red-Dividend
(b) Green-Investment, Red-Capital Budgeting
(c) Green-Dividend, Red-Investment
(d) Green-Investment, Red-Financing
Ans.10 (a) Green-Financing -it is indicating that the Financing Decisions how we 1
can raise the funds from Debt or Equity, to maintain Debt Equity Ratio.
(b) Red-Dividend-It indicate how much part of profit retained for future as
retained earnings & how much distributed to shareholders as
dividend.