Financial Management Practice Session

7/28/2019 Financial Management Practice Session

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FINANCIAL MANAGEMENT

UNIT1

Question: The distant cash flows are discounted at:

a higher discount rateA lower discount rate

The coupon rate

The Market rate

Question: What does finance management aim at ?

Procurement of funds at least cost.

Overall functions of the management

Effective deployment of fundsBoth A and C

Question: Wealth maximization is based on __________

Profits earned

Cash flows

Assets procured

Intangible assets the company holds

Question:The cardinal rule of efficient financial management is to aim at:

Profit maximization

Shareholder's value maximization

Creating real assets

Both A and B

Question: Time value factor takes into consideration both risk free rate and _______________

Coupon rate

Dividend rate

Risk premium

Residual rate




Question: ___________ involve adding of new products, entering new markets, adopting new technology,

restructing etc

Financing decision

Investment decision

Dividend decision

Liquidity decision

Question: The time value of money uses the ___________ to translate the cash flows occurring at different

periods into a comparable value at zero period.

required rate of return

Coupon rate

Treasury bill rate

Bank rate

Question: __________ fails to consider the fluctuations in the profits earned. The fluctuations in the profits

arise due to business risk

Business plan

Demand

Wealth maximization

Profit maximization

Question: The maximization of shareholder's wealth is achieved through selecting _____________

Positive Net Present Value projects

Positive Pay Back Period projects

Positive Accounting Rate of Return projects

Popular projects

Question: ____________ process involve decisions to expand, diversify, invest in buildings, machinery etc and

execution of it.

Investment decisions






Mid term

None

Question: Long term investments should be normally created out of

Short term funds

Medium term funds

Long term funds

None

Question: How is the surplus cash effectively deployed? The surplus cash is:

Investment in assets

Held as cash reserve

Investment in fixed deposits

Investment in treasury management

Question: What source of finance should be used to the maximise productivity of resources?

Long term

Medium term

Spontaneous

All of the above

Question: What is excluded is long-range plan?

Fund requirement to execute the planned course of action

Fulfillment of legal and regulatory requirement.

Procurement of funds from long term source

Procurement of funds for working capital management

Question: What is considered as the core of value creation process?




Financial plan

Expansions & diversification

Mergers & Acquisition

Management development program

UNIT 3

Question: Compute the present value of Rs 2,000 cash inflow one year from now using a discount rate of 13

percent

2000

1769.91

1566.29

2772.20

Question:Compute the present value of Rs. 4,000 cash outflow three years from now using a discount rate of 13

percent

2000

1769.91

1566.29

2772.20

Question: Compute the future value of Rs. 4000 cash inflow at the end of each of the next five years using a

discount rate of 13 percent

4839.66

2171.04

7369.74

2772.20

Question:




Ans - a

Question:Time value of money is the value of:

Money received one year from now

A unit of money at different time internals

Asset including cash at different time internals

Real money (inflation adjusted)

Question: Sriram invested in a project which would give him a cash flow of Rs. 10,000, Rs. 15,000 & Rs.

8,000 respectively at the end of each of 3 years. He intends to know the present value of the cash flows, if the

discount rate is 12%.

26581

25680

39276

36276

Question:Sriram is 30 years now. He plans to open a PPF account and deposit Rs.15,000 every year for thenext 30 years. If the interest rate is 8% , what will be the accumulated savings in his PPF account ?

14,16,915

16,99,245

20,44,620

15,85,962

Question:Sriram takes a car loan of the Rs.5,00,000 to be repaid in 5 equal annual installments. If the loancarries a rate of 12% p.a. What is the amount of each installment?

146690.24

152608.21

138696.26




148390.26

Question:Sriram plans to invest in a project which would give him cash flows of Rs. 3,000 at the end of eachyear for next 4 years and Rs 7,000 in the fifth year and Rs. 1,000 in the sixth year, Since this project risky he

intends to keep the hurdle / discount rate at 14%. Determine the present value of all the future cash flows.

12,822

12,812

12,831

12,842

Question:Sriram found that the end of third year, he has Rs. 1158 in his bank account. The interest rate paid by

the bank is 5% compounded annually. What is the amount deposited?

Rs. 1600

Rs. 1000

Rs. 1050

Rs. 1500

Question:Sriram seeks your assistance in providing him some illustrations for a one day workshop on time

value of money. You select the following questions and verify their arithmetical accuracy. Assume 9 % as thehurdle rate. (i) A client wants to know what is the future value of Rs.15,000 invested now for a period of four

years. (ii) A client wants to buy a house after 3 years, when it is expected to cost Rs.40,00,000. How much

should he save annually if his savings earn a compound interest of 8% ? (iii) A chit fund company advertises

that it will pay a lumpsum of Rs. 8,000 at the end of 6 years to the investors who deposit annually Rs.1000 for six years. You as an alert investor is curious to find the implied interest rate offered by the chit fund company?

(iv) Sriram deposits his VRS amount of Rs. 9,00,000 in a bank account which pays him 8% interest. How much

can he withdraw annually for a period of 15 years?

Rs. 20,000, Rs.1,22,329 , 12% appox , Rs.1,00,152

Rs. 21,180 , Rs.1,23,229 , 12% appox , Rs.1,05,152

Rs. 21,180 , Rs.1,22,222 , 11% appox , Rs.1,05,125

Rs. 20,080 , Rs.1,23.229 , 11% appox , Rs.1,00, 552




Question: You have Rs. 6,000 to invest. How much would it take you to double your money if the interest rate

is (a) 6%, (b) 10%, (c) 20%, and (d) 30%? Assume annual compounding.

11.90yrs, 7.27 yrs, 3.80yrs, 2.44yrs

11.90yrs, 7.25 yrs, 3.80yrs, 2.64yrs

11.90yrs, 7.27 yrs, 3.80yrs, 2.64yrs

11.92yrs, 7.27 yrs, 3.80yrs, 2.62yrs

UNIT4

Question: ___________ is the rate earned by an investor when he purchases a bond and holds it till its maturity

Coupon rate

Yield to maturity (IRR)

NPV

ARR

Question: Valuation is the process of linking risk with results to determine the worth of

An asset

A liability

The network

The capital

Question:Current Yield =

Coupon interest

Coupon interest / Face value of the bond

Coupon interest / Current market price

Instristic value of the bond

Question: The maturity period of a perpetual bond is

Short

Medium

Long




Infinite

Question:A security is defined as the :

Future value of the present cash stream

Present value of the future cash stream

Present value of the future cash outflows

Book value of the assets

Question:The difference between the book value of assets and liabilities is equal to.

Capital (Equity + Preference)

Net worth (capital + Reserve)

Replacement value

Market value

Question:IDBI issued deep discount bonds in 1996. that had a face value of Rs. 2,00,000 with maturity period

of 25 years the bond was issued at Rs. 5,300. What is the effective interest rate earned by an investor from this bond.

15%

15.36%

15.63%

16.53%

Question:Amrutha is considering Rs. 1,000 par value bond carrying a coupon rate of 9% and maturing after 8years. The bond is currently selling at Rs. 800. What is the value of the bond? Should she purchase the bond

Rs.959




Rs.895

Rs.851

Rs.755

Question: Consider a eight-year , 12% coupon bond with a per value of Rs. 1,000on. Which interest is payablesemi-annually. Find the value of the bond if the required rate on this bond is 14%.

955.82

905.82

855.82

900.55

Question:The Bright ways Company has a perpetual bond that pay Rs. 140 interest annually. The current yield

on this type of bond is 13 per cent. (a) At what price will it sell? (b) If the required yield rises to 15 per cent,

what will be the new price?

1076.92 , 922.33

1076.92 , 911.33

1076.92 , 933.33

1076.92 , 900.33

Question: An investor is looking for a four-year investment. The share of Skylark Company is selling for Rs.

75. They have plans to pay a divided of Rs. 7.50 per share each at the end of first and second years and Rs. 9and Rs. 15 respectively at the end of third and fourth years. If the investor's capitalization rate is 12 percent andthe share's price at the end of fourth year is Rs. 70, what is the value of the share? world it be a desirable

investment?

72.15

73.15

74.15

73.55




Question: The share of Premier Limited will pay a dividend of Rs. 3 per share after a year. It is currently

selling at Rs. 50, and it is estimated that after a year the price will be Rs. 53. What is the present value of theshare if the required rate of return is 10 percent?

51.91

50.94

54.91

50.91

Question:ABC Limited has a ten-year debenture that pays Rs. 140 annual interest Rs. 1,000 will be paid on

maturity. What will be the value of the debenture if the required rate of interest is (a) 12% , (b) 14 per cent and

(c ) 16 per cent?

Rs.1113 , Rs.1000 ,Rs.904

Rs.1103 , Rs.1,000 ,Rs.914

Rs.1003 ,Rs. 1,000 ,Rs.941

Rs.1113 ,Rs.1,080 , Rs.940

UNIT5

Question:Capital structure is the mix of

Long term source of funds and retained earnings

Short term source of funds and retained earnings

Medium term source of fund and retained earnings

Short medium long term source of funds retained earnings

Question: The CAPM is based on certain assumption. select the odd assumption

Investors are risk-averse

Investors make their investment decisions on a multi period horizon

period horizon & not on multi period horizon

Transaction costs are low

All investors agree on the nature of return and risk associated with each investment

Question:The company is not legally bound to pay dividends and hence equity capital is free of cost . Comment

on the validity of the statement

True

False




May be true

True , sometimes

Question: While designing an ideal capital structure what factors are irrelevant?

Return ,Risk

Risk , Flexibility

Capacity , Control

Demand and supply factors

Question:

a.

Question:

d

a.

b.

c




Question: A bond with a six year left to maturity has a coupon rate of 9% and a par value of Rs.1000. How

much is an investor willing to pay for the bond if he requires an annual rate of return of (a) 7% (b) 10% (c) 12%?

1094.94 , 876.99 ,955.95

1094.94 , 955.95 , 876.99

876.99 , 959.99 , 1049.94

876.99 , 955.95 , 1099.99

Question:Select the order of risk-return relationship (1) Equity share (2) Debt (3) Preference shares (4) Risk force security (5) Govt bonds.

5,4,2,3,1

4,5,3,2,1

4,5,2,3,1

1,3,2,5,4

Question:

a.




b.

c.

d.

Question:What will be the price of a 5 year discount bond that pays Rs.1000 at maturity if the interest rate (a) is11% (b) is 9% ?

593.45 , 549.93

593.45 , 649.93

539.45 , 549.93

539.45 , 694.93

Question: Current price of an equity is Rs. 110 , expected dividend Rs. 5 per share with the growth rate of 10% p.a Find the the cost of equity

14.45%

14.40%

14.54%

14%

Question:Par value of debenture Rs. 100, interest rate 15% p.a , redemption after 8 years at 8% premium .

Corporate tax 50 % , new issue is priced at 3% discount , the cost of debenture is:

4.8%

5.1%

5.2%

8.65%

Question:A loan of Rs 10 lakhs at 9% is proposed to be availed . Find the cost of loan if the corporate tax rate

is 40 %

4.5%4%

4.8%

5.4%

Question: The face value of preference share is Rs.100 , dividend rate 12%, and the redemption takes placeafter 8 years at Rs. 5 per share premium . If the company hopes to realize Rs. 98 per share now,What is the

costof preference share?




12.74%

12.68%

12.43%

12.88%

UNIT6

Question:

c

Question:What are the benefits of operating leverage?

Measures the business risk

Measures the future cash flows

Production planning

Measures the business risk & help in production planning

Question: ____________ refers to the mix of debt and equity in the capital structure of the firm. It is also referred astrading on equity.

Operating leverage

Financial Leverage

Combined leverage

Derivative leverage

Question:Which type of leverage measures the effect of EBIT on EPS of the company?

Operating leverage




Financial Leverage 1

Combined leverage

Correlated leverage

Question:Which type of leverage is associated with the asset purchase activity?

Financial leverage

Operating leverage

Derivative

Combined stand alone leverage

Question: Which type of leverage enables the firm to use fixed operating costs to increase the effect of changes in sales

on its EBIT?

Operating leverage

Financial leverage

Combined leverage

Correlation leverage

Question:Leverage is the influence of an independent financial variable on a dependent variable. It generally refers to :

Equity sharePreference Share

Borrowed funds

Reserves

Question:

a

Question:EBIT is calculated as




Q -(S-V)-F

Q (S-V) / F

Q (S-V) - F

None

Question:Which type of cost vary in direct proportion to output and sale?

Semi variable cost

Variable cost

Fixed cost

Sunk cost

Question:Select the source of fund which do not carry any fixed charge.

Debentures

Bonds

Equity shares

Preference share

Question: A company needs Rs.5,00,000 for the construction of a new plant. The following three financial plans arefeasible. (i) The company may issue 50,000 ordinary shares at Rs.10 per share. (ii) The company may issue 25,000

ordinary shares at Rs.10 and 2,500 debentures of Rs.100 bearing 8% interest. (iii) The company may issue 25000 ordinaryshares at Rs.10 per share and 2,500 preference shares of Rs.10 per share bearing 8 % dividend rate. If the company's EBITare Rs.10000, Rs.20000, Rs.40000, Rs.60,000 and Rs.100000, what are the EPS under each of these financial plans?Which alternative would you recommend and why?

All the three financial plans are recommended

Second alternative is recommended

Third alternative is recommended

Second and third alternatives are recommended

Question:If sales is 1000 units, Selling Price is Rs.300 , Variable cost is Rs. 200, fixed expenses is Rs. 20000. find DOLand give the interpretation.

1.52

101.25

1.25

102.5




Question: A firm sells a product for Rs. 10 per unit, variable cost Rs. 5 per unit and fixed expenses Rs. 5000 p.a, find theEBIT sale is 1000 units

8000

10000

5000

Zero

Question:

b




UNIT7

Question:

b

Question:The ideal capital structure has 4 features. Choose the odd feature:

Profitability

Flexibility

Regulatory restrictions

Control

Question: What is trading on equity?

Equity capital is raised by issue of shares

Equity capital is used as a basis for raising debt

Debt capital is used as a basis for raising equity capital

Debt and preference capital are used as a basis for capital structure decisions

Question:What approach refers to a situation where change in the financial leverage will have a corresponding change inthe overall cost of capital ?

Net income approach

Net operating income approach

Miller & Modigliani approach

Traditional approach




Question:What is optimum capital structure?

It is the optimal mix of debt and equity to maximise the shareholder value of the firm

It is the optimal level at which equity is raised to maximise return on investment

It is the level at which a firm can raise equity capital

It is the level at which a firm can raise debt capital

Question:According to which approach any change in leverage will not lead to change in the total value of the firm,market price of share & overall cost of capital?

Net income approach

Net operating income approach

Traditional approach

M M approach

Question:The market value of the firm is equal to the total market value of equity and total market value of debt and is

independent of the degree of leverage. This relates to :

Proposition I

Proposition IIProposition III

None

Question:What is the meant by arbitrage?

It is the process of buying a security at a lower price in one market and selling it in another market at ahigher price.

It is the market mechanism to prevent hoarding and price variation

It is the switching process of goods, bullion, currency in order to gain entry into different markets

None of the above

Question:The assumption that investment and financing decisions are independent refers to__________.

Proposition I

Proposition II

Proposition III

None of the above




Question:In which approach K e raises gradually until a certain degree of leverage and thereafter raises very sharply?

Miller and Modigliani Approach

Walter's Approach

Traditional Approach

Gordon Approach

Question:EBIT is Rs. 10000, ko is 18%, the total market value is Rs.

55000

55500

55555

55565

Question:EBIT is Rs. 10000, interest on debt is Rs. 1000, market value of equity is Rs.46464, the equity capitalizationrate is.

19.33%

19.36%

16.93%

16.36%

Question:MM Proposition I : There are two firms- Firm U an unlevered firm and Firm L, a levered firm having identicalassets and expected Net operating income of Rs.10000. The cost of equity for Firm U ( all equity) is 10 percent. Firm L

has a debt of Rs.50000 the cost of debt being 6 percent. Find the market value of both the firms.

Firm U =Rs.100000, Firm L =Rs.100000

Firm U = Rs.100000, Firm L = Rs.110000

Firm U = Rs.110000, Firm L = 110000

Firm U = Rs.110000, Firm L = 100000

Question:MM Proposition II : Technocomp Ltd is an all equity firm having 10000 shares. The market value of theseshares is Rs.120000. The expected operating income is Rs.18000 and the EPS is Rs.1.80. The firm is considering to

borrow Rs.60000 at 6% and buy back 5000 shares at the market value of Rs.60000. What is the expected EPS. Will the

borrowing affect the cost of equity?




EPS = Rs.1.80 and Ke = 24%

EPS = Rs.2.88 and Ke = 24%

EPS = Rs.2.88 and Ke = 15%

EPS = Rs.2.88 and Ke = 14%

UNIT8

Question: Capital budgeting decisions involve investment of current funds in anticipation of cash flows

occurring over a series of years in future : This decision are:

Dynamic in nature

Strategic in natureTactical in nature

Routine in nature

Question:The pit fall of capital budgeting decisions are: Choose the odd answer.

Excess capacity

Change in demand, consumer preference

Change in risk profile which may not go well with the management

It involve three strategic elements such as cost quality & timing

Question:Capital budgeting decision commit a firm to invest its current fund to generate

Future capital appreciation

A series of cash flows in future

A series of cash flows immediately after the launch of the project

Current income & assets

Question:What is capital budgeting? It is the process of evaluating and selecting

long term investments that lead to wealth maximization.

all investments that lead to wealth maximization.

short term & long term that lead to profit maximation

Budgets for fixed cost and variable cost

Question: ___________ decision involve evaluation of specific investment decisions.




Capital structure

Capital budgeting

Working capital

Operating

Question:Capital budgeting decision involve evaluation of specific

Operating decision

Investment decision

Working capital decisionOperating & Investment decision

Question: Discounted cash flow method does not includes

NPV

IRR

PI

ARR

Question:Capital budgeting decisions involve certain phases. These phases has been jumbled. Identify thecorrect phase. 1. Identificaiton of investment opportunities. 2. Evaluation of each investment proposal. 3.

Examination of investment required for each investment proposal. 4. Estimation and comparison of net presentvalues of investment. 5. Preparation of the statement of costs and benefits. 6. Examination of the government

policies and regulatory guidelines. 7. Implementation. 8. Budgeting for capital expenditure for approval by the

management. 9. Post-completion audit.

1,2,3,4,5,6,7,8,9

1,2,3,5,4,6,8,7,9

1,3,2,5,4,6,7,8,91,2,3,4,5,7,6,9,8

Question: Capital budgeting process excludes

Financial appraisal

Performance appraisal

Technical appraisal

Economic appraisal




Question: Capital budgeting decisions make or mar a business organization. Some of these exclude:

Decision to replace the equipments, machineries etc

Decision on expenditure for increasing the present operating levels

Decision on penetrating int a new geographical area

Decision on mergers & acquisitions

Question:Why are capital budgeting decisions strategic in nature?

They evaluate the profitability of the project & hence the profile of the organization.

They evaluate the profitability of the products & services

They evaluating the budgeting of fixed cost.

They create wealth for the management employees.

Question:

b




Question: Pentagon Ltd., is evaluating a project that has the following cash flow stream associated with it. The

cash flow for year 0,1,2,3,4,5,6 are -120, -80,20,60,80,100 & 120. The cost of capital is 15% find MIRR.

15.2%

16.2%

12.5%

14.5%

Question: Cash outflow Rs. 4,00,000 ,cash inflows for 4 years Rs. 2,00,000, Rs. 1,75,000, Rs. 25,000 and Rs.

2,00,000, the pay back period is;

3 years

2 years

1 year

4 Years

Question:Assume that Project X costs Rs.2500 now and is expected to generate year-end cash inflows of

Rs.900, Rs.800, Rs.700, Rs.600 and Rs.500 in years 1 through 5. The opportunity cost of capital may beassumed to be 10 percent. Find the NPV of the project.

Rs.750

Rs.500

Rs.225

Rs.250

UNIT 9

Question: What is Portfolio risk?

It is a risk which measure the volatility of the market

It measures the project risk of the firm

It measure the risk profile of the firm when new project is added to the existing ones.

It measures the the variability of the expected return of the project in isolation

Question:which type of risk measures the variability of expected return of the project in isolation ?

market risk




Portfolio risk

International risk

Stand-alone risk

Question: What are the limitations of DCF technique?

Future cash flows are under estimated

Future cash flows are aggregated

Estimating the future cash flows with certain degree of certainty is difficult

It ignores time value of money

Question:Which type of risk is affected by factors such as inflation and charges in interest rate ?

Project - specific risk

Competition risk

Market risk

Industry -specific risk

Question:Expected return and risk are

Directly proportional

Inversely proportional

Not related to each other

Mutually exclusive

Question:The variation of actual cash flow from the expected cash flows is termed as

risk

return

reward

Discounted cash flow

Question: Which conventional technique of capital budgeting emphasis on the liquidity of the firm through

recovery of the capital?

NPV

IRR

ARR

PBP




Question:Risk adjusted discount rate =

Risk free rate + Coupon rate

Risk free rate + Risk premium

IRR - Risk free rate

Interest rate

Question:Which type of risk is association with managerial deficiencies, error in estimation of cash flow etc?

Portfolio risk

Competition risk

Project specific risk

Market risk

Question:What is the type of risk does not involve firm to diversify the risk in the normal course of business?

Market risk

Industry - specific risk

Competition risk

International risk

Question: Change in import export policy of the government of India have led to the closure of some firms.

This risk relates to:

Project - specific risk

Competition risk

Industry - specific risk

Internati

Question: Kejriwal company is considering two mutually exclusive investments A and B. Investment A

requires an outlay of Rs. 10,000 and generates a net cash flow of Rs. 3,000 for six years. Investment B requiresan outlay of Rs. 30,000 and generates a net cash flow of Rs. 11,000 for five years. The required rates of return

on these investments are 12 percent (for A) and 14 percent ( for B). Which of the two should the firm choose?




B is the best choice

A is the best choice

Both A & B can be considered

Neither A nor B considered

Question:Vajra Hydraulic Ltd, is considering an investment proposal involving an outlay of Rs. 4,500,000. The

expected cash flow are : 1,000,000 ; Rs. 1,500,000, Rs. 2,000,000 and Rs. 2,500,000 for year 1, 2, 3, 4. The

certainty equivalent coefficient are 0.90, 0.85, 0.82 and 0.78 respectively. The risk free rate is 5% calculate the

NPV of the proposal.

Rs. 5,43,570

Rs. 5,34,570

Rs. 5,34,750Rs. 5,43,750

Question:

b




UNIT 10

Question: What factors affect.

All profitable project

All investment projects

All prospective projects

None

Question:Under capital rationing , investment proposal are ranked on __________

Subjective judgment

Urgency

Profitability

Management whims & fancies

Question: Imperfections in capital market due to deficiencies in market information & rigid policies relate to.

Internal capital rationing

External capital rationing

Profitability index

Programming techniques

Question:Projects are to be ___________ under capital rationing

Ranked

Listed

Selected

Prioritized

Question:Profitability index =

PV cash outflow - PV cash inflow

PV of cash inflow / PV of cash outflow

PV of cash outflow / PV of cash inflow

Gross present value

Question:Ranking is done under capital rationing on basic of

Profitability

Certainty equivalent

IRR

NPV




Question:When project are not divisible _________can be employed to avoid the change of accepting fraction of a project.

Linear programming

Integers

Integer programming

Capital budgeting

Question:What factors are irrelevant to the external capital rationing?

Investors confidence is lowHigh volatile market

Inability of the firm to satisfy regulatory norms

Low issue cost for securities

Question:Which approach to capital rationing tries to achieve maximum NPV subject to many constraints.

Profitability index

Linear programming

Integer programming

Capital budgeting

Question:When a firm imposes constraints on the total size of its capital budget, it is know as ___________.

Capital planning

Capital rationing

Capital budgeting

Capital expenditure

Question: A company is considering an investment proposal to install new milling controls at a cost of Rs. 50,000. The facility has alife expectancy of 5 years. The cash flow after tax is Rs. 10,000 , 10,450, 11,800, 12,250, Rs. 16750. Find the profitability index at

10% discount rate.

.10

.907

.807

.997

Question:Based on NPV, project A has 16,320, B = 10,800, C = 9,820 the ranking of project is:




ABC

ACB

CBA

BAC

Question:Profitability index of project A is 1.1637 ; B is 1.216 and C is 1.1964. The ranking are:

A, B, C

B, A, C

B, C, A

A, C, B

UNIT 11

Question: Working capital management is concerned with managing the different components of

Current liabilities

Current asset

Both Current liabilities & Current asset

Both fixed & current component of assets & liabilities

Question: __________ is the minimum amount of investment required to be made in current assets.

Permanent working capital

Temporary working capital

Non- core current asset

Net working capital

Question: ____________ is the excess of current asset over current liabilities



Net working capital

Gross working capital

Question: What role does internet play in the field of working capital management for an organization?

Firms can link manufactures with their suppliers and dealers using internet.

Firms can procure additional working capital through internet

Firms can outsource various functions of W.C management




Firms can take decision on financing working capital requirement.

Question:Advances for purchase of raw materials, components and consumable stores, prepaid expenses are the components of .

Current liabilities

Current asset

Miscellaneous asset

Outstanding expenses

Question:What is working capital?

It is a portion of asset that is used for future operations

It is a portion of asset that is used for current operations

it is a portion of asset that is uses for both future and current operations

It is the fund required to raise capital

Question:What is the role played by finance manager in filling the time gap? Finance manager is require to.

Take are of investment opportunities during this time gap

Finance the operations during this time gap

Finance the projects during this time gap

Finance the subsidiaries working capital requirement during this time gap

Question:Permanent working capital is also known as ____________ working capital

Variable

Fixed 1

Semi-fixed

Semi-variable

Question: Cash conversion cycle is :

CCC = ICP - RCP - PDP

CCC = ICP + RCP + PDP

CCC = ICP + RCP - PDP

CCC = ICP - RCP + PDP

Question:In operating cycle which appear first & what follows?




Cash out flows occur before the occurrence of cash flows

Cash inflows occur before the occurrence of cash outflow

Both cash inflow & outflow appear simultaneously

Because of the time gap, cash outflows are staggered.

Question:Operating cycle of a firm has the following phases . Choose the right phase in operating cycle. 1. Acquisition of resourcesfrom suppliers. 2. Making payments to suppliers. 3. Conversion of raw materials into finished goods. 4. Sale of finished products to

customers. 5. Collection of cash from customers.

Step 1, 3, 4, 5

Step 1, 2, 3, 5

Step 1, 2, 3, 4, 5

Step 1, 2, 3, 4

Question: What is the impact of holding large current assets on the firm?

It will instigate its competitor to hold large current asset

It will adversely affect the market demand

It will adversely affect the firm's return on its investment

It will reduce cost of capital

Question: ___________ requirement vary depending on seasonal and cyclic changes



Net working capital

Current liabilities

Question:




b

Question:

b

Question:




c

Question: If the average inventory is Rs. 10,500, Annual cost of goods sold is Rs. 56,000 find the inventory conversion period?

Assume 365 days in a year.

67.5 days

65.17 days

88.4 days

76.6 days

UNIT 12

Question: The difference between collector float and payment float is known as.

Gross float

Net float

Cash float

Credit float

Question:Which type of motive necessaries a firm to hold cash to meet some exigencies.

Speculative motive

Transactive motive




Precautionary motive

Compensating motive

Question: Customers are bound to maintain a minimum balance in their accounts in order to avail services such a transfer of funds,

purchase of DD, MT etc. Such balance are known as :

Speculative motive

Transactive motive


Compensating motive

Question:What type of motive of holding cash , enables a firm to meet its routine expenses which are incurred in the ordinary course

of business?

Sensitive motive

Transactive motive


Compensating motive

Question:Cash management excludes :

Management of cash inflows and outflows of the firm

Cash management with in the firm

Management of cash balances

Management of inventory

Question: When a firm deposits a cheque in a bank immediate credit is not given by the bank. Give reason .

Cheque is sent for authentication to the head office

Cheque is sent for clearance

Cheque is sent to payers bank for collection

Administrative delay

Question:

What is optimum cash balance?

Maintained of appropriate balance between cash & marketable securities.

Maintaining minimum cash but high marketable securities that leads to higher profile

Maintaining high cash balance to have storing liquidity position




Minimum cost that is required to convert securities into cash

Question:Which model take care of fluctuators in cash flow and the cash needs for expansive modernization etc?

Miller-orr model

Modigliani & Miller model

Baumol model

Gordon model

Question:Which model helps in determining the minimum cost that is required to convert securities into cash?

Miller-orr model

M M model

Baumol model

Gordon model

Question:The Boumol model has the following assumption. Choose the incorrect assumption .

The firm is able to forecast its cash requirement in an accurate way

The firm's pay-out are not uniform over a period of time.

The firm's payout are uniform over a period of time

The opportunity cost of holding cash is known and does not change with time

Question:

d

Question:




a

Question:

c

UNIT 13

Question:Direct inventories excludes :

Raw materials

Work in progress

Lubricants, grease

Finished goods




Question:Which among the following is carrying cost?

Requisitioning

Purchase ordering or set-up

Receiving inspecting and receiving at the warehouse

Insurance premium

Question:Raw materials policies in inventory management are decided by

Production department & finance department

Purchase department & production department

Purchase department & marketing department

Production department & marketing department

Question:Which type of firm will have to maintain very high level of finished goods investor alone?

A manufacturing unit

A retail firm

A service firm

All of the above

Question:The major objectives of inventory management excludes:

Maximizing customer satisfaction

Minimum investment inventoryAchieving low cost plant operation

Minimum investment in receivables

Question:Inventories constitute an important component of.

Fixed asset

Working capital

Total assets

Receivable

Question: Identify the correct answer with reference to EOQ: assertion (a): EOQ refers to the optional order size. reasoning( r) : EOQ

results in the lowest ordering & carrying cost for an item of inventory.

(a) is true ( r) is false




(a) is true (r) is true

(a) is false (r) is true

(a) is false (r) is false

Question:Cost incurred for maintaining the inventory the inventory in warehouse are called _______

Ordering cost

Carrying cost

Shortage/ stock to cost

Material cost

Question: ____________ is defined as the order quantity that minimizes the total cost associated with inventory management.

Carrying cost

Storage cost

Economic order quantity

ABC system

Question:Which among the following is the ordering cost ?

Receiving, Inspecting & Receiving at the warehouse

Insurance

Taxes

Obsolescence

Question:The purpose of holding inventory is to achieve ______________ through cost reduction and increased sales volume.

Shortage of stock or longer waiting period affect _____________. Firms may order large quantity to avail _____________. Due to

uncertainty in supply and longer lead time firms should maintain ____________levels of inventory.

1. Proficiency 2. Inventory level 3. Commission 4. Lower

1. Talent 2. Purchase 3. Free gifts 4. Medium

1. Efficiency 2. Sales 3. Discounts 4. High

1. Smartness 2. Working capital 3. Royalty 4. very low

Question: Match the Following




Match User answer

Material costs include Maintaining the inventory in warehouse.

Ordering cost include Cost of goods & related costs

Carrying cost Requisition, Transportation, Receiving, Inspecting at the warehouse.

Shortage cost Extra cost associated with urgent replenishment purchase

Question:Identify the True (T) and False (F) statement. 1. Trains active motive of holding inventory is to facilitate smooth production

and sales. 2. Speculative motive of holding investor is to guard against the risk of unexpected change in demand and supply. 3.

Ordering cost include requisitioning , purchase ordering the finishing goods transportation & receiving inspecting at the ware house. 4.

One of the assumptions of EOQ is the per unit price of material does not change and is constant irrespective of the order size.

1T, 2T, 3T, 4T

1F, 2T, 3F, 4T

1T, 2F, 3T, 4T

1F, 2F, 3F, 4

UNIT 14

Question:What costs are involved in maintaining receivables?choose the odd answer

Capital cost

Sunk cost

Administration cost

Delinquency costs

Question:When a customer fails to pay the amount on the expiry of credit period the cost associated to the firm is known as:

Capital cost

Administrative cost

Delinquency cost

Opportunity cost

Question:The features of receivables arising out of trade credit excludes:

It involves an element of risk It is based on economic value

It has an element of hedge against uncertain lead times

It has an element of futurity

Question:What is the implications of credit sales?

Affect the cash sales

Blocking of funds in accounts receivables




Increase in current liabilities

Increase in inventories

Question:The main objective of selling goods on credit is to promote ______

brand

share price

sales

production

Question:The two types of administration costs are:

(1)Credit investigation &supervision cost (2) Sunk cost

(1)Credit investigation & supervision cost (2) Collection cost

(1) Collection cost (2) Default cost(1) Collection cost (2) Capital cost

Question:If a firm allows to its customers 20 days of credit with no inducement for early payment it is stated as :

'net 30'

'net 20'

'net 2/10'

'Gross 20'

Question:The bases for setting credit standards are:

Credit rating

References

Average payment period

All of the above

Question:The collection programme excludes;

Monitoring the receivables

Reminding customer about due date of payment

Online interaction through electronic media abound the payment due around the due date.

Offering cash discounts

Question:The credit policy variables excludes _______




Credit standards

Credit period

Credit policy

Cash discounts

Question: A relaxation credit policy is considered which would result in the sales increase by Rs 1,50,00,000. Contribution margin is

20%. The incremental contribution is Rs_________.

20,00,000

15,00,000

10,00,000

30,00,000

Question:Relaxation of credit policy yield an increase in sales by Rs.1,50,00,000 the anticipated bad debts would be 10%. The bad

debts on new sales is Rs ________.

51,00,000

15,00,000

15,60,000

10,00,000

Question:A period of "net 30" means that it allows to its customers 30 days of credit with __________ for early payments

Inducements

No inducements

Derailment

None

Question: Investment in sales is Rs.1,50,00,000. Average collection period is 40 days, marginal contribution 20%, assume 360-day

year, the incremental investment in Receivables is Rs _______

13,33,333

31,33,333

33,33,311

33,33,331

Question:Anticipated sales Rs.110,000,000, variable cost 0.8, anticipated relaxation in discount 2/10, net 30, the discount cost is Rs

________.

16,00,000




12,60,000

10,20,000

10,60,000

UNIT 15

Question: What is the relationship between dividend payout and retained earnings?

Higher the dividend payout, higher the retained earnings

Higher the dividend payout, lower the retained earnings

Lower the dividend payout , higher the retained earnings

Lower the dividend payout, lower the retained earnings

Question:Dividends are that portion of a firm's __________ paid to the shareholders

Capital reserves

Resources & surplus

Net earnings

Net worth

Question:What are the components of shareholder's return?

Interest on investment, capital appreciation

Dividends on equities & preference capitalCapital gains or capital loss

Dividends and capital gains

Question:Under Walter's approach , if the firm's rate of return r is greater than its cost of capital k , the firm's has

The obligation to pay higher dividend

The option to retain the earnings for better & profitable investment opportunities

Right to retain all the earnings

Right to distribute all the earnings as dividend

Question:




b

Question: Which approach of dividend policy emphasis the relationship between the dividends and the stock market.

Walter model

Gordon model

Graham & Dodd model

Miller & Modigliani model

Question: What is the rational behind holding higher retained earnings?

To maintain large cash balance

To fund growth opportunities

To meet exigencies

To maximize profit

Question:Under traditional approach the stock value responds positively to high dividends and negatively to low dividends. The

market price p is represented by .

= [ m (D + E)/3)]

= [ m (D + E/3)]

= [ m +(D + E/3)]

= [ m - (D + E/3)]

Question:In MM theory formula 'ke' refers to ________

Cost of debt

Cost of preference

Cost of equity




Cost of capital

Question:The assumptions of Miller and Modigliani model does not include:

Existences of perfect capital mar

There are no taxes

The investment policy of the company does not change

There exist risk & uncertainty about future investment

Question: Gordon's dividend capitalization model has the following assumption. Choose the irrelevant assumption:

The firm is an all equity firm with no debt

The capital structure of the firm is equally divided into equity capital and debt capital

The life of the firm a indefinite

The cost of capital is greater than growth rate (br)

Question: ROI is 15%, ke is 11% , EPS Rs. 10, DP ratio 100%, DP is Rs.

99.09

90.91

91.90

90.00

Question: ROI is 15%, ke is 11%, EPS Rs. 10, DP ratio is 25%, the DP is Rs.

115.37

151.73

115.73

117.53

Question: ROI is 8%,ke is 11%, EPS Rs. 10, DP is zero, DP is Rs.

117.88

118.78

178.18

187.78

Question: ROI is 15% , ke is 11%, EPS Rs. 10, DP ratio zero, the DP is Rs.




132.97

123.79

123.97

129.37

Financial Management Practice Session

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