Accounting and Finance

Question 1

Creditor may be types

Correct answer: 4

Question 2

________ is an increase in economic benefits during the accounting period in the

form of inflows or enhancements of assets or a decrease in liabilities, thereby
increases equity and net worth.
Correct answer: Income

Question 3

Which of the following implies that a business unit is separate and distinct from the
person who owns or controls it?
Correct answer: Business Entity

Question 4

Inflation accounting is also called _______

Correct answer: Replacement

Question 5

Which of the following is a concept that implies each transaction and event must be
expressible in monetary terms ?
Correct answer: Money measurement

Question 6

The conventions, concepts, rules and procedures that together make up accepted
accounting practice at any given time are called _______
Correct answer: GAAP
Question 7

Prepaid Insurance A/c is ________A/c

Correct answer: Personal

Question 8

Which of the following is the after-tax cash flow generated by a business minus the
cost of the capital it has deployed to generate that cash flow?
Correct answer: EVA

Question 9

Outstanding wages A/c is________A/c

Correct answer: Personal

Question 10

Which of the following concept tells that to recognize revenue it has to be realized?
Correct answer: Realisation concept

Question 11

Bad Debts A/c is_______A/c

Correct answer: Nominal

Question 12

Which of the following is a residual interest in the assets after deducting liabilities?
Correct answer: Equity

Question 13

A process of accounting where revenue and expense recognition would occur when
cash is received and disbursed is called_______
Correct answer: Cash

Question 14
 ________basis is a process of accounting that recognizes the impact of
transactions on the financial statements in the time periods when revenues and
expenses occur instead of when cash is received.
Correct answer: Accrual

Question 15

________accounting is a form of accounting which enables a business to be

conducted more efficiently.
Correct answer: Management

Question 16

Which of the following is the art of recording, classifying and summarising in a

significant manner, and in terms of money transactions and events which are in part
at least, of a financial character and interpreting the results thereof.
Correct answer: Accounting

Question 17

Debt may be of types

Correct answer: 3

Question 18

It means that cash is received by the business from the proprietor. It results in the
immediate receipt of cash.
Correct answer: Bought goods for cash ` 2,000

Question 19

Which of the following accounting system provides a system of checks and

balances?
Correct answer: Double Entry

Question 20
________ they are the present obligations arising from past events. It also arises
when an asset is created or acquired.
Correct answer: Liabilities

Question 21

When debit balance is equal to credit balance, then the trial balance means
Correct answer: Mathematically, Capital + Liabilities = Assets

Question 22

A manufacturer is considering the point at which a transaction can be recognized

within its profit and loss account. At which of the following stages is this permitted?
Correct answer: Order placed for the goods

Question 23

Which one the following documents is prepared for documentary evidence by

business?
Correct answer: Invoice, Receipt, Voucher, All of these

Question 24

In the books of account, if a transaction is completely deleted, will it affect the trial
balance?
Correct answer: No

Question 25

The basic sequence in the accounting process can best be described as

Correct answer: Transaction, source document, journal entry, ledger account, trial
balance

Question 26

Indicate all the following statements that correctly describe the net income. Net
income
Correct answer: Increases owners’ equity.
Question 27

Which of the following accounts with normal balance is shown at the debit side of a
trial balance?
Correct answer: Cash account

Question 28

Which items influence the trial balance agreement?

Correct answer: Partial omission of a transaction

Question 29

Accrual-basis of accounting
Correct answer: Leads to the reporting of more complete information than cash-
basis

Question 30

Accounting to the rules of debit and credit for balance sheet accounts:
Correct answer: Decrease in liability and owners’ equity accounts are recorded by
debits.

Question 31

Revenue is generally recognized being earned at the point of time when

Correct answer: Billed to customers

Question 32

Which one of the following systems of recording transactions has a dual aspect
concept of accounting?
Correct answer: Double entry system

Question 33

The documents relating to purchase of asset must be authorized by

Correct answer: Senior management
Question 34

Trial balance is used to check the accuracy of

Correct answer: Ledger accounts balances

Question 35

Double entry bookkeeping means

Correct answer: Entry for two aspects of transaction

Question 36

When is trial balance prepared?

Correct answer: At the end of an accounting period

Question 37

The accounting system, in which accounting entries are made on the basis of
amount, having become due for payment or receipt, is known as?
Correct answer: Accrual system of accounting

Question 38

Bookkeeping is mainly concerned with

Correct answer: Recording the economic activities

Question 39

What is used in preparing trial balance?

Correct answer: Ledger accounts

Question 40

What is the trial balance used for?

Correct answer: It records balances of accounts

Question 41
According to straight line method of providing depreciation, the depreciation
Correct answer: Remains constant

Question 42

Which of the following methods of depreciation is not recognized by Income Tax

Law?
Correct answer: Straight line Method

Question 43

Which of the following is the example of capital reserve?

Correct answer: Premium received on issue of shares or debentures

Question 44

Which of the following is the example of revenue reserve?

Correct answer: Investment fluctuation fund

Question 45

Dividend equalisation reserve is:

Correct answer: Specific reserve

Question 46

Depreciation is calculated under diminishing balance method, based on

Correct answer: Book value

Question 47

According to fixed instalment method, depreciation is calculated on

Correct answer: Original cost

Question 48

Asset Disposal A/c is prepared when:

Correct answer: Provision for depreciation a/c is prepared

Question 49

At the end of the year, depreciation account is transferred to:

Correct answer: Profit and loss account

Question 50

Depreciation is charged on:

Correct answer: Fixed tangible assets

Question 51

Depreciation is generated due to

Correct answer: Wear and tear

Question 52

According to Companies Act, 1956, secret reserves can be created by:

Correct answer: Banking and insurance companies

Question 53

Total amount of depreciation of an asset cannot exceed its

Correct answer: Depreciable value

Question 54

Salvage value means

Correct answer: Estimated disposal value

Question 55

The main objective of depreciation is

Correct answer: To calculate net profit
Question 56

In accounting, becoming out of date or obsolete is known as

Correct answer: Obsolescence

Question 57

General reserves are shown in:

Correct answer: Balance sheet

Question 58

The loss on sale of an asset is debited to:

Correct answer: Profit and loss account

Question 59

What is the purpose of making a provision for depreciation in the accounts?

Correct answer: To charge the cost of fixed assets against profits

Question 60

Depreciation amount charged on a machinery will be debited to:

Correct answer: Depreciation account

Question 61

As per Schedule III of the Companies Act, 2013, which of the following represents
fixed assets?
Correct answer: Capital work in progress, Tangible and intangible, Intangible assets
under development, All of these

Question 62

_______ is the balance in the statement of profit and loss disclosing allocations and
appropriations, such as dividend paid, bonus shares and transfer to/from reserves.
Correct answer: Surplus
Question 63

In a profit and loss account, all indirect revenue expenses are shown in
the ______ side and the indirect revenue incomes are shown in the ______ side.
Correct answer: debit; credit

Question 64

Which of these is NOT included in current liabilities?

Correct answer: Capital work-in-progress

Question 65

In a balance sheet, the _______ balances are reflected by assets.

Correct answer: debit

Question 66

In order to achieve _______ , organisations prepare financial statements by

following a uniform pattern or standards as instructed by the local Accounting
Standards Board (ASB) and the relevant Act.
Correct answer: comparability

Question 67

_______ is the final process for any accounting year.

Correct answer: Preparation of financial statements

Question 68

Capital work-in-progress is a _______ .

Correct answer: fixed asset

Question 69

Repairs to building and machinery are categorised under which of the following
heads?
Correct answer: Miscellaneous expenditures
Question 70

Profit and loss statement is also called_______ . Choose the correct option.
Correct answer: Statement of income

Question 71

The format of financial statements prescribed in Schedule III of the Companies Act,
2013 was voluntarily applicable from _______ .
Correct answer: April 2015

Question 72

Which among the following are the forms of the balance sheet?
Correct answer: Horizontal or vertical

Question 73

The _______ refers to a statement that summarises and presents the financial
position of a company on any given date.
Correct answer: balance sheet

Question 74

Schedule III of the Companies Act, 2013 provides general instructions for the
preparation of _______ .
Correct answer: balance sheet only

Question 75

Preparation of the financial statement is the _______ step of the accounting cycle.
Correct answer: final

Question 76

If the turnover of the corporate body is below one hundred crore rupees, then which
of the following rounding off methods shall apply?
Correct answer: Rounded off to the nearest hundreds, thousands, rupees lakhs or
millions, or decimals thereof

Question 77

As per the reverse order of liquidity format of the balance sheet, which of the
following comes under the heading of a fixed asset?
Correct answer: Capital work-in-progress, Tangible assets, Intangible assets, All of
these

Question 78

Schedule III of the Companies Act, 2013 provides instructions for the preparation of
the _______ of Indian corporations.
Correct answer: Balance sheet and the profit and loss statement

Question 79

As per general instructions for the preparation of profit and loss account, in respect
of a finance company, revenue from operations shall include revenue from _______ .
Correct answer: Interest, Other financial services

Question 80

The Profit and Loss account is prepared to ascertain _______ by the business over
an accounting period. Choose the correct option.
Correct answer: The net profit earned, The net loss suffered

Question 81

In a cash book, the favourable balance indicates

Correct answer: Debit Balance

Question82

Bank reconciliation statement compares a bank statement with_____________ .

Correct answer: Cashbook
Question 83

What is “Deposit in transit” in bank reconciliation?

Correct answer: Added to Bank Balance

Question 84

Bank reconciliation description is composed of

Correct answer: Business Accountant

Question 85

Unpresented cheques also referred to as

Correct answer: Outstanding cheques

Question 86

What type of cheques is that which is issued by a firm but not yet presented to the
bank?
Correct answer: Outstanding cheques

Question 87

In a cash book, bank charges of `5,000 was not recorded. Name the correct cash
book adjustment
Correct answer: It will be credited in cash book

Question 88

On the bank statement, cash deposited by the company is known as

Correct answer: Credit
Question 89

An unadjusted balance in a cash book is because of the result of which error?

Correct answer: The omission of Bank charges

Question 90

‘NSF’ marked in cheque sent back by the bank indicates

Correct answer: Not sufficient funds

Question 91

Quick assets divided by current liabilities is:

Correct answer: Liquid ratio

Question 92

Current ratio is also known as

Correct answer: Working capital ratio

Question 93

Solvency ratios include:

Correct answer: Debt-equity ratio, Proprietary ratio, Total assets to debt ratio. All of
these

Question 94

Which of the following ratios is used to compare an organisation’s total loans

against its shareholders’ investments in an organisation?
Correct answer: Debt-Equity ratio

Question 95

___________ measures an organisation’s ability to meet its long-term obligations.

Correct answer: Solvency Ratio

Question 96

Accounting ratios are divided into four main categories. Which one of the following
was not included in it?
Correct answer: Control ratios

Question 97

Liquidity ratios include:

Correct answer: Current ratio, Quick or Liquid or acid test ration, Absolute liquid
ratio. All of these

Question 98

Activity ratios are also known as:

Correct answer: Performance ratio, Turnover ratio, Efficiency ratio. All of these

Question 99

In which of the following measures is the operating liquidity available to an

organisation?
Correct answer: Working capital turnover ratio

Question 100
Which of the following ratios measures short-term solvency?
Correct answer: Liquidity ratios

Question 101

Which ones are also referred to as management ratios?

Correct answer: Activity ratios

Question 102

When the concept of ratio is defined in respected to the items shown in the financial
statements, it is termed as
Correct answer: Accounting ratio

Question 103

Operating Ratio is used to examine the profitability from ___________ .

Correct answer: sale of core products

Question 104

Activity ratios include:

Correct answer: Stock turnover ratio, Trade receivables turnover ratio, Trade
payables turnover ratio. All of these

Question 105

Ratio analysis:
Correct answer: Is an arithmetical relationship between two accounting variables?,
Provide quantitative relationship between two variables, It is one of the mean of
financial analysis. All of these

Question 106
 Which one is the ratio of cost of goods sold by an organisation to its average
inventory during a given accounting period?
Correct answer: Inventory Turnover Ratio

Question 107

Which of the following is not true about ratio analysis?

Correct answer: It is not useful in inter-firm and intra firm comparison.

Question 108

Liquid ratio is also known as:

Correct answer: Quick ratio

Question 109

Which of the following is not a limitation of ratio analysis?

Correct answer: It cannot be used in forecasting.

Question 110

Quick Ratio is also referred to as the___________ . Which one is correct?

Correct answer: Acid test ratio

Question 111

A higher value of Debtors Turnover Ratio can ___________ the average collection
period of the organisation.
Correct answer: lower

Question 112
The ideal level of current ratio is:
Correct answer: 2:1

Question 113

The ideal level of liquid ratio is:

Correct answer: 1:1

Question 114

Which of the following liabilities are taken into account for the quick ratio?
Correct answer: Trade Creditors, Outstanding expenses, Bank overdraft. All of
these

Question 115

Where the cost under two alternatives is equal, the break-even point is calculated
with the help of:
Correct answer: Cost BEP

Question 116

Which one of the following is not an advantage of P/V ratio?

Correct answer: Providing information on variations in capital invested

Question 117

MOS is known as:

Correct answer: Difference between total sales and sales at bep
Question 118

The CVP analysis, break-even analysis, and MOS are the tools used for:
Correct answer: Financial business analysis

Question 119

If the P/V ratio is 30% of sales, then what is the remaining 70% of sales?
Correct answer: Variable cost

Question 120

The CVP analysis helps a finance manager in framing:

Correct answer: Budget

Question 121

The relationship between profit and volume can be represented

through __________ ratio.
Correct answer: P/V

Question 122

The break-even analysis is done by finding __________ of an organisation.

Correct answer: BEP

Question 123

If an organisation deals with several products, its break-even point can be

calculated with the help of:
Correct answer: Composite BEP
Question 124

Contribution is equal to:

Correct answer: Selling price – Variable cost

Question 125

__________ is the change in the total cost of production when an additional unit of
product is produced.
Correct answer: Marginal cost

Question 126

P/V ratio establishes the relationship between:

Correct answer: Contribution and sales value

Question 127

The CVP analysis is used for finding __________ of a project.

Correct answer: Profitability

Question 128

Marginal cost is equal to :

Correct answer: Total cost – Fixed cost

Question 129

Profit is equal to:

Correct answer: Contribution – Fixed cost

Question 130

Marginal cost is equal to:

Correct answer: Variable cost

Question 131

The Profit and Loss account is prepared to ascertain __________ by the business
over an accounting period. Choose the correct option.
Correct answer: The net profit earned, the net loss suffered

Question 132

__________ can be defined as the difference between net total sales and cost of
goods sales.
Correct answer: Gross loss

Question 133

Which among the following is also known as the statement of sources of funds and
application of funds?
Correct answer: Balance sheet

Question 134

Among the following, which is/are the importance of financial statement analysis?
Correct answer: Helps creditors know the creditworthiness of the organisation,
Helps forecasting the financial health of the organisation, Improves the decision
making of investors. All of these

Question 135
Which of the following is/are types of financial statement analysis?
Correct answer: Vertical Analysis, Horizontal Analysis, External Analysis, All of the
above

Question 136

Which among the following are the forms of the balance sheet?
Correct answer: Horizontal or vertical

Question 137

The profit and loss account or the income statement shows which types of expenses
are incurred by the organisation during a particular period?
Correct answer: Revenues and expenses

Question 138

The cash inflows and outflows of any organisation can further be classified into how
many activities?
Correct answer: Three

Question 139

Which of the following factors highlights the reliability of information?

Correct answer: Free from errors, especially material errors , Complete, Free form
bias, All of these

Question 140

Which among the following expenses is/are indirect expense(s)?

Correct answer: Financial expense, Office expense, Selling expense, All of these
Question 141

Profit and loss statement is also called __________ . Choose the correct option.
Correct answer: Statement of income

Question 142

Which among the following measures the actual cash generated by the organisation
within a particular period?
Correct answer: Cash flow statement

Question 143

Which one is the expense that a business entity has to bear in day-to-day business
operations?
Correct answer: Operating expense

Question 144

Which among the following refers to the ability of financial statements to stand
useful over time against financial information obtained from other sources?
Correct answer: Comparability

Question 145

Preparation of the financial statement is the __________ step of the accounting

cycle.
Correct answer: final

Question 146
Which of the following statements are correct?
A. Financial statements are also referred to as annual records.
B. Financial statements are historical.
C. Financial statements are only interim reports of accounts.
Correct answer: Both A and B

Question 147

Which among the following are the activities that are related to the purchase or sale
of long-term investments and assets?
Correct answer: Investing activities

Question 148

Among the following, which one refers to the total amount of money received by a
business entity after selling its products or services?
Correct answer: Revenue

Question 149

__________ part of financial statements reflects the financial performance of the

organisation.
Correct answer: Profit and loss

Question 150

__________ refers to the analysis of the percentage increase or decrease in

corresponding items in comparative financial statements.
Correct answer: Horizontal Analysis

Question 151
 In order to achieve __________ , organisations prepare financial statements by
following a uniform pattern or standards as instructed by the international or local
accounting standards board.
Correct answer: transparency, comparability

Question 152

Corporate wealth maximisation is the value maximisation for ________ .

Correct answer: Stakeholders

Question 153

Unlisted company can be valued at

Correct answer: Net asset method

Question 154

What is the most important use of the P/E ratio for investors?
Correct answer: It helps investors decide whether a company’s shares are
overpriced or under-priced.

Question 155

Leasing of machinery can be categorised as ________ .

Correct answer: Financing decision

Question 156

Promotion of welfare of human by corporate is called ________ .

Correct answer: Corporate philanthropy
Question 157

Which of the following is not one of the three fundamental methods of firm
valuation?
Correct answer: Market share

Question 158

What does the price/earnings (PE) ratio measure?

Correct answer: The multiple that the stock market places on a company’s earnings

Question 159

Listed companies can be valued at

Correct answer: Market value

Question 160

Shareholder’s wealth increases with the increase in ________ .

Correct answer: Dividend and market value of the firm

Question 161

Book value of assets includes

Correct answer: Fixed assets, current asset, intangible asset

Question 162

Which of the following has net profit as basis for calculation?

Correct answer: Average rate of return
Question 163

What does the price-to-earnings ratio (P/E) tell you?

Correct answer: How much investors are willing to pay per unit of a company’s
earnings.

Question 164

Which of the following defines the market to book value?

Correct answer: The ratio of stock market valuation divided by the value of its NAV.

Question 165

Which of the following valuation methods is based on “Going concern concept”?

Correct answer: Book value method

Question 166

What is the value of the firm usually based on?

Correct answer: The value of equity.

Question 167

What does a high P/E ratio suggest?

Correct answer: A company shares are currently overpriced.

Question 168

How is the P/E ratio calculated?

Correct answer: Market value per share/earnings per share
Question 169

A company has a profit attributable to ordinary shareholders of 100,000. The

number of ordinary shares of £1 in issue during the year was 300,000. The
market value of the company’s shares at the yearend was 6.50. The
price/earnings ratio for this company is:
Correct answer: 19.5 times

Question 170

Internal rate of return is …

Correct answer: Rate at which discounted cash inflow is equal to the discounted
cash outflow

Question 171

A mutually exclusive decision means:

Correct answer: Accepting of an alternative, leads to rejecting of other

Question 172

If R = ` 100, i = 5% and n = 10, then the future value of an annuity is equal to:
Correct answer: ` 1,258

Question 173

If FV = ` 5,200, i = 5% and n = 6 years, then the present value (P) of a cash flow is
equal to:
Correct answer: ` 3,880
Question 174

Time value of money indicates that

Correct answer: A unit of money obtained today is worth more than a unit of money
obtained in future

Question 175

If an investor makes a deposit investment of 2,000 into a bank that pays 5%

interest per year, then he is likely to haveperiod________ at the end of the
second year. Choose the correct answer:
Correct answer: 2,025

Question 176

If P = ` 1,000, i = 5% and n = 4 years, then the future value (FV) of a cash flow is
equal to:
Correct answer: ` 1,215

Question 177

Relationship between annual nominal rate of interest and annual effective rate of
interest, if frequency of compounding is greater than one:
Correct answer: Effective rate > Nominal rate

Question 178

While computing the future value of a single cash flow, in the formula FVn= P0( 1+
i)n stands for:
Correct answer: Interest rate per payment period

Question 179
 If the nominal rate of interest is 10% per annum and there is quarterly compounding,
the effective rate of interest will be:
Correct answer: 10.38% per annum

Question 180

If the nominal rate of return is 10% per annum and annual effective rate of interest is
10.25% per annum, determine the frequency of compounding:
Correct answer: 2

Question 181

In an ordinary annuity, where cash flows arise at the end of each period, the present
value is computed as of one period________ the first cash flow.
Correct answer: before

Question 182

The present value of an annuity of ` 5,000 p.a. at 4% interest compounded annually

for a period of 12 years is:
Correct answer: None of these

Question 183

Mr. X takes a loan of ` 50,000 from HDFC Bank. The rate of interest is 10% per
annum. The first installment will be paid at the end of year 5. Determine the amount
of equal annual installments if Mr. X wishes to repay the amount in five installments.
Correct answer: ` 19310

Question 184
 When the value of an annuity after 25 years at 5% interest compounded annually is
` 50,000, the annuity’s periodic amount will be:
Correct answer: ` 1,047

Question 185

The present value of an annuity of ` 80 for a period of 20 years at the rate of 5% per
annum is:
Correct answer: ` 997

Question 186

What is the present value of cash flow of ` 40,000 expected to be received at the
end of 4 years if the given interest rate is 10% per annum? Choose the correct
answer:
Correct answer: ` 27,320

Question 187

Time value of money supports the comparison of cash flows recorded at different
time period by

Correct answer: Compounding all cash flows to a common point of time

Question 188

If R = ` 10,000, i = 4% and n = 18 years, then the present value of an annuity is

equal to:
Correct answer: ` 790

Question 189
Heterogeneous cash flows can be made comparable by
Correct answer: Compounding technique

Question 190

An investment should be undertaken by the investor in case the present value of

cash receipts is period________ than the present value of outlay expense made.
Correct answer: higher

Question 191

In an ordinary annuity, where cash flows arise at the end of each period, the future
value is computed as of the period________ cash flow.
Correct answer: last

Question 192

If you had to choose between two projects based on their NPV, which one would
you choose?
Correct answer: Highest NPV

Question 193

_________ is the rate at which an investment is expected to generate earnings

during its useful life.
Correct answer: Internal rate of return

Question 194

Which of the following are factors affecting the evaluation and selection of capital
projects?
Correct answer: Availability of funds, working capital, Structure of capital, All of
these.

Question 195

If you had to choose between two projects based on their NPV, which one would
you choose?
Correct answer: Highest NPV

Question 196

Capital budgeting is known as:

Correct answer: Investment decision making, Planning capital expenditures

Question 197

Projects with _________ are preferred.

Correct answer: Lower payback period

Question 198

_________ on capital is called ‘Cost of capital’.

Correct answer: Normally expected return

Question 199

Capital budgeting describes a firm’s formal planning process for the acquisition and
investment of capital and results in a capital budget, i.e., the firm’s formal plan outlay
for the purchase of ________ .
Correct answer: Fixed assets
Question 200

Which of the following is the criterion for IRR (internal rate of return)?
Correct answer: Accept IRR > Cost of capital

Question 201

Criterion is often preferred _________ .

Correct answer: Internal rate of return

Question 202

Future net income values discounted by the cost of capital are referred to
as _________ .
Correct answer: Net present values

Question 203

_________ are expenditures required to comply with statutory requirements.

Correct answer: Mutually Exclusive Projects

Question 204

_________ methods account for the time value of money when determining the
viability of projects.
Correct answer: Discounted cash flows

Question 205

_________ are expenditures required to comply with statutory requirements.

Correct answer: Mutually Exclusive Projects

Question 206

Projects with _________ are preferred.

Correct answer: Lower payback period

Question 207

_________ is the rate at which an investment is expected to generate earnings

during its useful life.
Correct answer: Internal rate of return

Question 208

Criterion is often preferred _________ .

Correct answer: Internal rate of return

Question 209

_________ on capital is called ‘Cost of capital’.

Correct answer: Normally expected return

Question 210

Capital budgeting is a _________ mechanism.

Correct answer: Decision-Making

Question 211
Capital budgeting is a _________ mechanism.
Correct answer: Decision-Making

Question 212

_________ methods account for the time value of money when determining the
viability of projects.
Correct answer: Discounted cash flows

Question 213

Cash flows are analysed on _________ basis.

Correct answer: After-tax

Question 214

Future net income values discounted by the cost of capital are referred to
as _________ .
Correct answer: Net present values

Question 215

What does CAPM stand for?

Correct answer: Capital asset pricing model

Question 216

Profits that are held by companies instead of distributing them as dividends are
called ___________ earnings.
Correct answer: Retained
Question 217

___________ is derived by first calculating the cost of capital of each source

depending on the capital’s market value.
Correct answer: Marginal cost of capital

Question 218

A project that has some risk which is being considered by diversified shareholders.
What type of risk is present?
Correct answer: Beta risk

Question 219

Which of the following is not required while calculating the cost of equity under
CAPM method?
Correct answer: Market price of equity share

Question 220

Which of the following approaches is not used to estimate the cost of equity capital?
Correct answer: External yield method

Question 221

Choose the most appropriate option with respect to a firm’s overall cost of capital?
Correct answer: Cost of capital is the required return on the total assets of a firm

Question 222
 The cost of preference capital is the amount of dividend paid and expenses incurred
for raising ___________.
Correct answer: Preference shares

Question 223

The difference between the actual return and inflation is known as ___________.
Correct answer: Real income

Question 224

The cost of capital is the highest in case of ___________ .

Correct answer: Equity

Question 225

While calculating the cost of debt using formula KD = [(1-T) ×R] ×100; T stands
for ___________.
Correct answer: Tax rate

Question 226

In the formula of weighted average cost of capital = (KE × E) + (KP × P) + (KD × D)

+ (KR × R), what does D stand for?
Correct answer: Dividend

Question 227

The cost of equity is 13% and bond risk premium is 5%. Select the bond yield from
the given options.
Correct answer: 0.08
Question 228

Weighted average cost of capital (WACC) represents which of the following options.
Correct answer: Required return on all new projects with similar risk to the firm.

Question 229

A beta greater than 1 signifies that the ___________.

Correct answer: Stock is more volatile than the market

Question 230

The rate of return a corporation pays to shareholders is known as the ___________

Correct answer: Cost of equity

Question 231

The cost of equity capital can be determined using the realised yield technique by
applying the formula ___________.
Correct answer: Ke = [{(D-P)/p} – 1] x 100

Question 232

With respect to a company, which of the following statements is correct?

Correct answer: None of the above

Question 233

Corporate tax rate must be known for calculating the ___________.

Correct answer: Cost of debt
Question 234

With the ___________ approach, an investor aims to earn the same amount of
dividend as the company has paid in the previous few years.
Correct answer: Realised yield

Question 235

Which of the following would be consistent with an aggressive approach to financing

working capital?
Correct answer: Financing some long-term needs with short-term funds.

Question 236

The tools of treasury management does not include:

Correct answer: Risk management

Question 237

Factoring involves:
Correct answer: Management of receivables of borrower

Question 238

_______ function includes a firm’s attempts to balance cash inflows and outflows.
Correct answer: Liquidity

Question 239

Which of the following is not an advantages of trade credit?

Correct answer: Buyout financing

Question 240

What is not a form of dividend?

Correct answer: Split reverse

Question 241

Which of the following are theories for dividend relevance?

Correct answer: Walter’s model

Question 242

The percentage of earnings paid as dividends is called _______.

Correct answer: Pay out ration

Question 243

Money market financial services not include:

Correct answer: Merchant banking

Question 244

What are the different types of underlying assets?

Correct answer: Stock indices

Question 245
 The art of managing, within the acceptable level of risk, the consolidated funds
optimally and profitably are called _______.
Correct answer: Treasury management

Question 246

The factors that affect dividend policy are:

Correct answer: Tax consideration

Question 247

Which of the following is a technique that helps the exporter to sell the receivables
to any bank or financial institution without recourse?
Correct answer: Derivatives

Question 248

To financial analysts, “working capital” means the same thing as _______.

Correct answer: Current assets

Question 249

What are the various methods of estimating cash?

Correct answer: Receipts and payment method, Adjusted profit & loss method,
Balance sheet method, All of these

Question 250

Hirer is entitled to claim _______.

Correct answer: Depreciation
Question 251

Under which type of bank borrowing can a borrower obtain credit from a bank
against its bills?
Correct answer: Purchase or discounting of bills

Question 252

What are people who buy or sell in the market to make profits called?
Correct answer: Speculators

Question 253

What are the aspects of working capital management?

Correct answer: Inventory management, Receivable management, cash
management, All of these

Question 254

Firms which are capital intensive rely on _______.

Correct answer: Debt

Question 255

Which of the following uses fixed interest securities in the capital structure?
Correct answer: Financial leverage

Question 256

Which of the following formula is used to measure the degree of financial leverage?
Correct answer: EBIT/EBT

Question 257

Which of the following is an assumption of the Net Income Approach?

Correct answer: ko falls as the degree of leverage is increased, There are no taxes,
ke is to be same and constant, All of these

Question 258

Which of the following statements is not true about capital structure?

Correct answer: Proportion of various types of securities is known as capital
structure.

Question 259

Which of the following formula is used to measure the degree of operating

leverage?
Correct answer: Contribution/EBIT

Question 260

Which of the following indicate that the company has a high operating leverage?
Correct answer: Low variable cost and High Fixed cost

Question 261

Formula of financial leverage is .

Correct answer: Earnings before interest and tax / (Earnings before interest and tax
– Interest)
Question 262

Formula of operating leverage is .

Correct answer: Contribution / Earnings before interest and tax

Question 263

Which of the following is true for the Net Income Approach?

Correct answer: VF = VE+VD

Question 264

As per the Net Income Approach, the cost of equity is.

Correct answer: Constant

Question 265

In which of the following way the margin of safety is related to a degree of operating
leverage?
Correct answer: Reciprocal

Question 266

Which of the following statements is false?

Correct answer: The ultimate conclusions of NI approach and the NOI approach are
same

Question 267
An organisation uses fixed cost on its cost structure is called:
Correct answer: Operating leverage

Question 268

Formula of earnings per share is .

Correct answer: (Profit after tax – Preference dividend. / Number of Equity shares

Question 269

Which one of the following values remains constant in the NOI Approach?
Correct answer: Overall cost of capital (WACC) and Kd

Question 270

NI and NOI approach has been suggested by which of the following?

Correct answer: David Durand

Question 271

Which of the following is intended to financial leverage?

Correct answer: Increase return on capital employed and net equity

Question 272

The term capital structure refers to the relationship between:

Correct answer: Debentures, preference share and equity share capital
Question 273

Which of the following is true for Net Income Approach?

Correct answer: Higher Debt is better

Question 274

Which of the following statements is not true about the capital structure of a
company?
Correct answer: The financing decision affects the total operating profits of the firm.

Question 275

The clientele effect refers to

Correct answer: the firm’s ability to attract stockholders whose dividend preferences
are similar to the firm’s dividend policy.

Question 276

The advantage of using the low-regular-and-extra dividend policy is that

Correct answer: the firm avoids giving the shareholders false hopes.

Question 277

The purpose of a stock split is to

Correct answer: enhance the trading activity of the stock by lowering the market
price.

Question 278

A stock split has ________ effect on the firm’s capital structure.

Correct answer: no

Question 279

Which one of the following is a payment of either cash or shares of stock that is paid
out of earnings to a firm’s shareholders?
Correct answer: Dividend

Question 280

The residual theory of dividends suggests that dividends are ________ to the value
of the firm.
Correct answer: irrelevant

Question 281

The shareholder receiving a stock dividend receives

Correct answer: nothing of value.

Question 282

Which one of the following is not true about dividend decisions?

Correct answer: Dividends can be paid when there are losses.

Question 283

Modigliani and Miller suggest that the value of the firm is not affected by the firm’s
dividend policy, due to
Correct answer: the clientele effect.
Question 284

According to the residual theory of dividends, if the firm’s equity need is less than
the amount of retained earnings, the firm would
Correct answer: declare a dividend equal to the remaining balance.

Question 285

Modigliani and Miller argue that when the firm has no acceptable investment
opportunities, it should
Correct answer: distribute the unneeded funds to the owners.

Question 286

Stock repurchases are made for all of the following reasons EXCEPT
Correct answer: to decrease the book value of equity.

Question 287

According to the residual theory of dividends, if the firm’s equity need exceeds the
amount of retained earnings, the firm would
Correct answer: pay no cash dividends.

Question 288

The problem with the regular dividend policy from the firm’s perspective is that
Correct answer: even when earnings are low, the company must pay a fixed
dividend.

Question 289
 Modigliani and Miller, recognising that dividends do somehow affect stock prices,
suggest that positive effects of dividend increases are attributable
Correct answer: not to the dividend itself but the informational content of the
dividends concerning future earnings.

Question 290

The purpose of a reverse stock split is to

Correct answer: increase the price of the stock.

Question 291

When common stock is repurchased and retired, the underlying motive is to

Correct answer: distribute the excess cash to the owners.

Question 292

The information content of dividends refers to

Correct answer: dividend changes as indicators of a firm’s future.

Question 293

Which of the following is not very relevant in dividend decisions?

Correct answer: Capital market conditions