Professional Documents
Culture Documents
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21. When a company uses increased fixed cost for production, this is an example of what type of leverage
A. operating leverage
B. financial leverage
C. variable cost leverage
D. combined leverage
ANSWER: A
22. When a company uses debt fund in its financial structure, it will lead to a change in
A. Operating leverage
B. Financial leverage
C. Money market leverage
D. Stock market leverage
ANSWER: B
23. The objective of break even analysis is to determine the break-even quantity of output by studying the
relationships among
A. the firms cost structure, volume of output and profit
B. the firms dividend policy and cost of capital
C. the firms working capital and its components
D. the firms capital structure
ANSWER: A
24. Fixed cost per unit _______
A. changes according to volume of production
B. be flexible according to the rate of interest
C. does not change with volume of production
D. not remains constant
ANSWER: C
25. Variable cost in an organization
A. changes with the volume of production
B. be fixed according to the rate of growth
C. does not change with volume of production
D. remains constant
ANSWER: B
26. Variable cost per unit
A. varies with the level of output
B. remains constant irrespective of the level of output
C. changes with the growth of the firm
D. does not change with volume of production
ANSWER: A
27. Financial leverage measures
A. sensitivity of EBIT with respect of 1% change with respect to output
B. 1% variation in the level of production
C. sensitivity of EPS with respect to 1% change in level of EBIT
D. no change with EBIT and EPS
ANSWER: A
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B. debt-capital mix
C. equity expenses mix
D. debt-interest mix
ANSWER: D
36. The formula of EBIT = ________
A. Sales - Variable cost
B. Contribution - Fixed cost
C. Sales - Fixed cost
D. All the above
ANSWER: B
37. Shares having no face value are known as
A. no par stock
B. at par stock
C. equal stock
D. debt equity stock
ANSWER: D
38. A fixed rate of ------------------is payable on debentures
A. dividend
B. Commission
C. Interest
D. Brokerage
ANSWER: D
39. Effective cost of debentures is_____________as compared to shares
A. higher
B. lower
C. equal
D. medium
ANSWER: C
40. Ownership securities are represented by _______
A. securities
B. equities
C. debt
D. debentures
ANSWER: A
41. Corporation is not a part of_________finance
A. Public
B. Private
C. Public & private
D. Organization
ANSWER: C
42. _______________management is the important task of the finance manager
A. Debt
B. Equity
C. Cash
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D. Profit
ANSWER: C
43. Finance function is one of the most important functions of________ management
A. business
B. marketing
C. financial.
D. debt
ANSWER: C
44. Nominal rate is the rate compounded
A. One time in 2 years
B. Twice in 2 years
C. More than once in an year
D. More than two years
ANSWER: D
45. The expansion of EAR is
A. equivalent annual rate
B. equivalent annuity rate
C. equally applied rate
D. equal advance rate
ANSWER: B
46. Traditional theorists believe that
A. there exists an optimal capital structure
B. no optimal capital structure
C. equal optimal capital structure
D. 100% debt financial organizations
ANSWER: B
47. Modigilani and Miller believe that
A. there exists an optimal capital structure
B. there is no optimal capital structure in a firm as such.
C. there exists 100% debt financial organizations
D. minimum capital utilization exists
ANSWER: C
48. Altering the leverage ratio does not influence the market value of the firm. This is the basic premise of
A. net income approach
B. traditional approach
C. modern approach
D. net operating income approach.
ANSWER: D
49. By inducting debt component in the capital structure one is able to bring down the overall cost of
capital. This is the preposition of
A. net income approach
B. traditional approach
C. operating income approach
D. modern approach
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ANSWER: D
50. The effect of bank rupture and agency cost
A. Reduces the cost of capital
B. Tends to increase the cost of capital
C. Balance the cost of capital.
D. Higher the cost of capital
ANSWER: C
51. Arbitrage is the level processing technique introduced in
A. Net income approach
B. MM approach
C. Operating approach
D. Traditional approach
ANSWER: A
52. Operating incomes and the discount rate of a particular risk class are the 2 factors determining
A. Dependence hypothesis
B. Traditional view.
C. Modern view
D. Independence hypothesis
ANSWER: D
53. Induction of debt component into a capital structure is advantageous if taxes are applicable to corporate
income. The following is the reasons for such action
A. Dividend and retained earnings are not deductible for tax purpose
B. Interest on debt is a tax deductible expense
C. Both a & b
D. Only on interest on debts
ANSWER: D
54. The probability of bankrupt is higher
A. for a levered firm than an unlevered firm
B. for a unlevered firm than an levered firm
C. only levered firm
D. only unlevered firm
ANSWER: C
55. The decision to invest a substantial sum in any business venture expecting to earn a minimum return is
called
A. a working capital decision
B. an investment decision
C. a production decision
D. a sales decision
ANSWER: D
56. The available capital funds are to be carefully allocated among competing projects by careful
prioritization. This is called as
A. capital positioning
B. capital structuring
C. capital rationing
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D. capital budgeting.
ANSWER: D
57. Capital budgeting decisions in India cannot be reversed due to
A. leaviness of the project
B. ill organized market for second hand capital goods
C. government regulations
D. policy of the management
ANSWER: C
58. Payback period is superior to other methods, if the objective of the investor is to
A. consider cash flow in its entirety
B. consider the present value of future cash flows
C. consider the liquidity
D. consider the inflows in its entirety
ANSWER: A
59. If the pay back is a bad rule, the average returns on book value is
A. worse
B. better
C. the best
D. equal.
ANSWER: C
60. Net present value is a popular method which falls
A. With in non- discount cash flow method
B. With in discount cash flow method
C. Equal With in non- discount cash flow method
D. No discount cash flow
ANSWER: C
61. A demerit of IRR method is that it does not distinguish between
A. lending & borrowing
B. discounting & non- discounting
C. cash flow & non- cash flow
D. inflow & out flow
ANSWER: C
62. Net working capital is the excess of current asset over
A. Current liability
B. Net liability
C. Total payable
D. Total liability
ANSWER: C
63. Working capital is also known as_________ capital
A. circulating
B. fluctuating
C. fixed.
D. going
ANSWER: B
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A. allowed time
B. lead time
C. accepted time
D. fixed time
ANSWER: D
72. Ordering cost is the cost of _________ materials
A. selling.
B. purchasing
C. stocking
D. financing
ANSWER: A
73. The policy concerning quarters of profit to be distributed as dividend is termed as
A. Profit policy
B. Dividend policy
C. Credit policy
D. Reserving policy
ANSWER: C
74. The company must implement the bonus issues the decision within __________ of the director approval
A. 6 mts
B. 3 mts
C. 2 mts
D. 1 mts
ANSWER: B
75. The most appropriate dividend policy is the payment of _________dividend per share
A. consent
B. variable
C. higher.
D. lower.
ANSWER: B
76. A company having easy access to the capital markets can follow a________ dividend policy
A. liberal.
B. formal
C. strict.
D. Varying
ANSWER: C
77. ________________dividend promises to pay shareholders at future date
A. Scrip
B. Cash
C. Stock
D. Property
ANSWER: B
78. ___________ dividend is the usual method of paying dividend
A. Scrip.
B. Cash.
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C. Stock.
D. Property.
ANSWER: B
79. According to the ___ model, the dividend decision is irrelevant.
A. MM
B. Garden.
C. Walter.
D. XY.
ANSWER: D
80. The cash management refers to management of ___
A. cash only.
B. cash and bank balances.
C. cash and near cash assets.
D. fixed assets.
ANSWER: B
81. Miller- Orr Model is suitable in those circumstances when the_______
A. demand for cash is steady.
B. demand for cash is not steady.
C. carry cost and transaction cost are to be kept at minimum.
D. demand for cash is variable.
ANSWER: A
82. Offering cash discount to customers result is _______
A. reducing the average collection period.
B. increasing the average collection period.
C. increasing sales.
D. decreasing sales .
ANSWER: D
83. A higher accounts receivable turnover ratio means________
A. lower debt collection period.
B. higher debt collection period.
C. lower sales.
D. higher sales
ANSWER: B
84. Good inventory management is good _____ management
A. financial.
B. Marketing.
C. stock.
D. purchasing.
ANSWER: D
85. Setup cost is a type of ____ cost
A. fixed.
B. variable.
C. semi variable.
D. carrying.
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ANSWER: D
86. Re-order level is ----------------than safety cash level
A. higher
B. lower
C. medium
D. fixed
ANSWER: D
87. MM approach assumes that -------------------------markets are perfect
A. Receivable
B. Capital
C. Stock
D. Exchange
ANSWER: D
88. The amount of the temporary working capital ---A. keeps on fluctuating from time to time.
B. remains constant for all times.
C. financed through long term services .
D. financed short term sources .
ANSWER: C
89. While evaluating capital investment proposal the time value of money is considered in case of ---A. Pay back method.
B. Accounting rate.
C. Internal rate.
D. Discounted cash flow.
ANSWER: C
90. The return after the pay off period is not considered in case of ---A. Pay back period method .
B. Interest rate method.
C. Present value method.
D. Discounted cash flow method .
ANSWER: C
91. Depreciation is include in costs in case of ---A. Pay back method.
B. Accounting rate.
C. Discounted cash flow.
D. Present value method.
ANSWER: A
92. The arbitrary process is the behavioral foundation for the ---A. MM approach.
B. XX approach.
C. Gorder approach.
D. Miller approach.
ANSWER: B
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93. The notice to Accept right share should not be less than -------- days
A. 15.
B. 20.
C. 10.
D. 30.
ANSWER: D
94. The residual reserve after the proposal capitalization% of the increased paid up capital of the company
---A. 40%.
B. 50%.
C. 60% .
D. 20% .
ANSWER: A
95. The bonus issue is permitted to be made out of ----------- and premium collected in cash
A. free reserves.
B. free interest.
C. free bonus.
D. free cash dividend.
ANSWER: A
96. The bonus issue is made to make the nominal value and the ---------------- value of the shares of the
company
A. Face
B. Market
C. Stock
D. Real
ANSWER: B
97. Premium received in cash is a source of ------------------ issue
A. Right
B. Bonus
C. Cash
D.
ANSWER: C
98. Bonus share are not permitted unless the ------------------- paid shares ,if any made fully paid
A. partly
B. semi
C. fully
D. not
ANSWER: B
99. Dividend policy of a firm affects both the long time financing and----------------wealth
A. Owners
B. Creditors
C. Debtor
D. Shareholders
ANSWER: C
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100. ----------------------- is the distribution of the profits of a company among its shareholders
A. Shares
B. Interest
C. Dividend
D. Commission
ANSWER: C
101. Which of the following is not an objective of financial management?
A. Maximization of wealth of shareholders.
B. Maximization of profits.
C. Mobilization of funds at an acceptable cost..
D. Ensuring discipline in the organization..
ANSWER: D
102. Which of the following is not a function of a finance manager?
A. Mobilization of funds.
B. Deployment of funds.
C. Control over use of funds.
D. Manipulate share price of the company.
ANSWER: D
103. The market value of the firm is the result of ---A. dividend decisions.
B. working capital decisions.
C. capital budgeting decisions.
D. trade-off between cost and risk.
ANSWER: D
104. Which of the following is related to the control function of the financial manager?
A. Interaction with the bankers for arranging a short-term loan.
B. Comparing the costs and benefits of different sources of finance.
C. Analysis of variance between the targeted costs and actual costs incurred.
D. Assessing the costs and benefits of a project under consideration.
ANSWER: C
105. The objective of financial management is to
A. generate the maximum net profit.
B. generate the maximum retained earnings.
C. generate the maximum wealth for its shareholders.
D. generate maximum funds for the firm at the least cost.
ANSWER: C
106. Which of the following statements represents the financing decision of a company?
A. Procuring new machineries for the R&D activities.
B. Spending heavily for the advertisement of the product of the company.
C. Adopting state of the art technology to reduce the cost of production.
D. Purchasing a new building at Delhi to open a regional office.
ANSWER: D
107. Designing an optimal capital structure by using suitable financial The objective of financial
management to increase the wealth of the shareholders mean to
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ANSWER: A
122. Which of the following is the expression for operating leverage?
A. Contribution/EBIT.
B. EBT/Contribution.
C. Contribution/EAT.
D. Contribution/Quantity.
ANSWER: A
123. Operating Leverage is the response of changes in ---A. EBIT to the changes in sales.
B. EPS to the changes in EBIT.
C. Production to the changes in sales.
D. None of the above.
ANSWER: A
124. Operating Leverage
A. Measures the responsiveness of earnings per share to variability in earnings before interest and taxes.
B. Is undefined at the operating break even point.
C. All of the above.
D. None of the above.
ANSWER: C
125. The use of preference share capital as against debt finance
A. Reduces DFL.
B. Increases DFL.
C. Increases financial risk.
D. Both a and b.
ANSWER: B
126. The Degree of Financial Leverage (DFL)
A. Measures financial risk of the firm.
B. Is zero at financial break even point.
C. Increases as EBIT increases.
D. Both a and b.
ANSWER: A
127. Operating leverage measures the sensitivity of the ___________ to changes in quantity.
A. Earnings per share.
B. Earnings before interest and taxes.
C. Profit before tax.
D. Dividend per share.
ANSWER: C
128. The objective of financial management is to
A. Maximize the return on investment.
B. Minimize the risk.
C. Maximize the wealth of the owners by increasing the value of the firm.
D. All the above.
ANSWER: D
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change in leverage?
A. Net income approach.
B. Modigliani and Miller approach.
C. Net operating income approach.
D. Traditional approach.
ANSWER: A
164. Which of the following ratios is not affected by the financial structure and the tax rate of a company?
A. Net profit margin.
B. Earning power.
C. Earnings per share.
D. Capitalization rate.
ANSWER: C
165. Which of the following is/are false regarding capital structure theory as stated by Miller and
Modigliani? 1)If agency costs are considered, the expected agency costs increases as the debt-equity ratio
decreases. 2)With the given assumptions, there is no optimal capital structure. 3) In the presence of taxes,
the market value of the firm decreases by the tax shield of debt.
A. Only 1st statement.
B. Only 2nd statement..
C. Both 1st and 3rd statements.
D. All the three statements.
ANSWER: D
166. Which of the following assumption(s) is/are correct with respect to the definition of cost of capital
under capital expenditure decisions? 1) The risk profile of the new project to be implemented is
significantly higher than the risk profile of the earlier capital investments made by the firm. 2) The
management of the firm will not change for the new project 3) The firm will continue to adopt the same
debt to equity ratio
A. Only 1st statement.
B. Only 3rd statement.
C. Both 1st and 2nd statement.
D. Both 2nd and 3rd statement.
ANSWER: D
167. Which of the following factors influence(s) the capital structure of a business entity?
A. Bargaining power with the suppliers.
B. Demand for the product of the company.
C. Technology adopted.
D. Adequate of the assets to meet any sudden spurt in demand.
ANSWER: C
168. Which of the following is false about equity capital as a source of finance?
A. Using equity capital to finance working capital will never lead to technical insolvency.
B. Assessing the cost of equity capital is an easy task.
C. Cost of equity capital is generally more than the cost of debt.
D. The more a company depends on equity capital the less will be the financial risk.
ANSWER: B
169. In the calculation of the weighted average cost of capital, why are the weights based on the market
values preferred?
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A. The weights based on the book values are difficult to estimate while calculating the weighted average
cost of capital
B. Weights based on the market values are fairly constant in nature.
C. Weights based on the book values have a high degree of volatility.
D. All the above.
ANSWER: D
170. Which of the following statements related to the capital structure theories is true?
A. According to net income approach, the costs of equity and debt remain constant irrespective of the
degree of leverage.
B. As per the traditional approach, the overall cost of capital for a firm remains same for all degree of
leverage.
C. A firm should choose the debt-equity ratio in such a way that it will minimize the tax liability.
D. According to the net operating income approach, the overall cost of capital increases as the degree of
leverage increases.
ANSWER: A
171. Which of the following statements is an assumption under Miller and Modigliani approach to capital
structure?
A. Investors are assumed to be greedy.
B. The average expected future operating earnings of any firm are certain and same as that of the others
belonging to the same class of business risk.
C. Individuals and business firms are liable to pay taxes.
D. The securities are traded in marketable lots only.
ANSWER: C
172. Which of the following factors does not affect the capital structure of a company?
A. Cost of capital
B. Composition of the current assets.
C. Size of the company.
D. Expected nature of cash flows.
ANSWER: B
173. In order to maximize the value of a firm according to Walter Model, when the return on investment is
more than the cost of equity capital, the firm should
A. Adopt 100% dividend pay-out policy.
B. Not pay dividends at all.
C. Be indifferent as to the dividend policy.
D. Leave the decision of dividend payment to the discretion of Board of Directors.
ANSWER: B
174.
A. If the firm declares dividends, the share price goes up.
B. If the firm declares dividends, the share price comes down since retained earnings decrease.
C. The share price goes up only when the dividends grow at a fixed rate.
D. Share price is influenced not only by dividend policy, but by a host of other factor too.
ANSWER: C
175. Which of the following methods does a firm resort to avoid dividend payments?
A. Share splitting.
B. Declaring bonus shares.
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C. Rights issue.
D. New issue.
ANSWER: B
176. Which of the following is the assumption of the MM model on dividend policy?
A. The firm is an all-equity firm.
B. The investments of the firm are financed solely by retained earnings.
C. The firm has an infinite life.
D. None of the above.
ANSWER: C
177. The rational expectations model of dividend policy says that
A. Since the expectations of the investors are always rational, there will be no effect of dividend policy
on the valuation of the firm.
B. If the investors have rational expectations, they will value a dividend paying firm higher than a
non-dividend paying firm.
C. If the declared dividend is in line with expectations of the investors, there will be no effect on the
valuation of the firm.
D. If the declared dividend is in accordance with the expectations, the change in the firms value will be
minimal.
ANSWER: D
178. According to the Walter Model, a firm should have 100% dividend pay-out ratio when
A. r = k e .
B. r < k e.
C. r > k e .
D. g > k e .
ANSWER: B
179. Which approach of dividend policy states that the stock value responds positively to higher dividends
and negatively when there are low dividends?
A. Traditional position.
B. Walter model.
C. Miller and Modigliani position.
D. Rational expectations model.
ANSWER: A
180. The Debt-Equity ratio of a Company
A. Affects its financial leverage.
B. Does not affect the Earnings Per Share.
C. Affects the dividend decision of the company.
D. None of the above.
ANSWER: D
181. Dividend changes are perceived important than the absolute level of dividends because
A. management change dividends to protect their seats.
B. dividend changes have signal value for future.
C. MM state that absolute level of dividends is irrelevant.
D. changes determine the level of borrowing.
ANSWER: C
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182. Which of the following statement(s) is /are true, as per the basic Gordon Model?
A. The price per share increases as the dividend pay-out increases, when the rate of return is greater than
the discount rate.
B. When the rate of return is less than the discount rate, the price per share increases as the dividend
pay-out ratio increases.
C. When the rate of return is greater than the discount rate, the price per share increases as the dividend
pay-out decreases.
D. All the above.
ANSWER: D
183. According to Modigliani and Miller theory on dividends, which of the following is true?
A. As dividend pay-out ratio increases, value of the share decreases if it is a growth firm.
B. Dividend pay-out ratio is irrelevant if it is a normal firm.
C. Dividend pay-out ratio is irrelevant for all firm.
D. Irrespective of nature of firm, as dividend increases the value of the share increases.
ANSWER: D
184. Walters model on dividend policy assumes that
A. the firm offers an increasing amount of dividend per share at a given level of price per share.
B. the firm has a finite life.
C. the cost of capital of the firm is variable.
D. equal to current assets plus current liabilities including bank borrowings.
ANSWER: D
185. Which of the following statement is/are true in respect of working capital?
A. Gross Working Capital is the sum of the total current assets.
B. Net working capital represents the margin on working capital supported by long-term funds.
C. Net working capital can be negative.
D. All the above.
ANSWER: D
186. Under trading means
A. Having low amount of working capital.
B. High turnover of working capital.
C. Sales are less compared to assets employed.
D. Low turnover of working capital.
ANSWER: D
187. Working capital gap is
A. equal to current assets plus current liabilities including bank borrowings.
B. equal to current assets less current liabilities excluding bank borrowings.
C. equal to current assets plus current liabilities other than bank borrowings.
D. none of the above.
ANSWER: C
188. Which of the following techniques of project appraisal does not consider the time value of money?
A. Benefit cost ratio.
B. Net present value.
C. Internal rate of return.
D. Annual capital charge.
ANSWER: C
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189. Which of the following statement is true if the Net Present Value (NPV) of a positive?
A. Internal Rate of Return(IRR) is more than the cost of capital.
B. The pay-back period of the project is less than one year.
C. Benefit cost ratio is less than unity.
D. Accepting the project has an indeterminate effect on shareholders.
ANSWER: D
190. If two projects are mutually exclusive and differ substantially in terms of the initial outlays and
subsequent expenses, which of the following criteria of evaluation is best suited?
A. Pay-back period.
B. Annual capital charge.
C. NPV.
D. IRR
ANSWER: A
191. Which of the following is false with respect to the IRR?
A. It considers the cash flow stream throughout the life of the project.
B. It is appealing to the businessmen who prefer to think in terms of the rate of return from the project.
C. It considers the time value of money.
D. It is uniquely defined for every type of project.
ANSWER: B
192. Financial management is indispensable in any organization as it helps in
A. taking sound financial decisions.
B. proper use and allocation.
C. improving the profitability of funds.
D. all the above.
ANSWER: D
193. ________ decision relates to the determination of total amount of assets to be held in the firm
A. Financing
B. Investment
C. Dividend
D. Controlling
ANSWER: D
194. Cost of capital is the ______ rate of return expected by the investor
A. minimum
B. maximum.
C. average
D. marginal
ANSWER: B
195. Effective cost of debentures is_________as compared to shares
A. higher
B. lower
C. equal
D. medium.
ANSWER: C
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203. Which of the following illustrates the use of a hedging approach to financing assets?
A. Temporary current assets financed with long-term liabilities.
B. Permanent Working capital financed with long-term liabilities.
C. Short-term assets financed With equity .
D. All assets financed with a mixture of 50% equity and 50% long- Term debt.
ANSWER: B
204. In deciding the optimal level of current assets for the firm, management is confronted with
A. trade-off between profitability and risk.
B. trade-off between liquidity and risk.
C. trade-off between equity and debt.
D. trade-off between short-term versus long-term borrowing
ANSWER: A
205. Which of the following statements is most correct?
A. For small companies, long-term debt is the principal source of external financing
B. Current assets of the typical manufacturing firm account for over half of its total assets.
C. Strict adherence to the maturity matching approach to financing would call for all current assets to be
financed solely with current liabilities.
D. Similar to the capital structure management, working capital management requires the financial
manager to make a decision and not address the issue again for several months.
ANSWER: A
206. The amount of current assets required to meet a firm's long-term minimum needs is referred to as
__________ working capital.
A. permanent
B. temporary
C. net
D. gross
ANSWER: D
207. The amount of current assets that varies with seasonal requirements is referred to as __________
working capital.
A. Permanent
B. Net
C. Temporary
D. Gross
ANSWER: C
208. Having defined working capital as current assets, it can be further classified according to __________.
A. Financing method and time
B. rate of return and financing method
C. time and rate of return
D. components and time.
ANSWER: B
209. Your firm has a philosophy that is analogous to the hedging (maturity matching) approach. Which of
the following is the most appropriate form for financing a new capital investment in plant and equipment?
A. Trade credit
B. 6-month bank notes.
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C. Accounts payable.
D. Common stock equity.
ANSWER: D
210. __________ is concerned with the acquisition, financing, and management of assets with some overall
goal in mind.
A. Financial management.
B. Profit maximization.
C. Agency theory.
D. Social responsibility.
ANSWER: A
211. __________ is concerned with the maximization of a firm's earnings after taxes.
A. Shareholder wealth maximization.
B. Profit maximization.
C. Stakeholder maximization.
D. EPS maximization.
ANSWER: B
212. What is the most appropriate goal of the firm?
A. Shareholder wealth maximization.
B. Profit maximization.
C. Stakeholder maximization.
D. EPS maximization.
ANSWER: A
213. Which of the following statements is correct regarding profit maximization as the primary goal of the
firm?
A. Profit maximization considers the firm's risk level.
B. Profit maximization will not lead to increasing short-term profits at the expense of lowering expected
future profits.
C. Profit maximization does consider the impact on individual shareholder's EPS.
D. Profit maximization is concerned more with maximizing net income than the stock price.
ANSWER: B
214. Which of the following is not normally a responsibility of the treasurer of the modern corporation but
rather the controller?
A. Budgets and forecasts.
B. Asset management.
C. Investment management.
D. Financing management.
ANSWER: D
215. To whom does the Treasurer most likely report?
A. Chief Financial Officer.
B. Vice President of Operations.
C. Chief Executive Officer.
D. Board of Directors.
ANSWER: A
216. The __________ decision involves efficiently managing the assets on the balance sheet on a
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A. accelerated depreciation.
B. salvage value.
C. tax rate changes.
D. method of project financing used.
ANSWER: D
231. In proper capital budgeting analysis we evaluate incremental
A. accounting income.
B. cash flow.
C. earnings.
D. operating profit.
ANSWER: B
232. In finance, "working capital" means the same thing as
A. total assets.
B. fixed assets.
C. current assets.
D. current assets minus current liabilities.
ANSWER: C
233. Which of the following would be consistent with a more aggressive approach to financing working
capital?
A. Financing short-term needs with short-term funds.
B. Financing permanent inventory buildup with long-term debt.
C. Financing seasonal needs with short-term funds.
D. Financing some long-term needs with short-term funds.
ANSWER: D
234. Which of the following illustrates the use of a hedging (or matching) approach to financing?
A. Short-term assets financed with long-term liabilities.
B. Permanent working capital financed with long-term liabilities.
C. Short-term assets financed with equity.
D. All assets financed with a 50 percent equity, 50 percent long-term debt mixture.
ANSWER: B
235. Retained earning are
A. an indication of a company's liquidity.
B. the same as cash in the bank.
C. not important when determining dividends.
D. the cumulative earnings of the company after dividends.
ANSWER: D
236. Which of the following is an argument for the relevance of dividends?
A. Informational content.
B. Reduction of uncertainty.
C. Some investors' preference for current income.
D. All of the above.
ANSWER: D
237. The dividend-payout ratio is equal to
A. the dividend yield plus the capital gains yield.
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Staff Name
KARTHIKA D .
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