Fundamentals of Financial Management (FIBA201)-Semester II
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1st Module Assessment
Question 1. is concerned with the acquisition, financing, and management of assets with some overall goal in mind.
Select one:
a. Financial management
b. Profit maximization
c. Agency theory
d. Social responsibility
Clear my choice
Question 2. Interest paid (earned) on both the original principal borrowed (lent) and previous interest earned is often referred to as _.
Select one:
a. Simple interest
b. Future value
c. Present value
d. Compound interest
Clear my choice
Question 3. The long-run objective of financial management is to __.
Select one:
a. Maximize earnings per share
b. Maximize the value of the firm’s common stock
c. Maximize return on investment
d. Maximize market share
Clear my choice
Question 4. Which of the following items would most likely be classified as an operating activity?
Select one:
a. Issuance of debt
b. Acquisition of a competitor
c. Sale of automobiles by an automobile dealer
d. None of the above
Clear my choice
Question 5. Financial structure refers to ____.
Select one:
a. Short-term resources.
b. Long-term resources
c. All the financial resources
d. None of these
Clear my choice
Question 6. Which of the following are not among the daily activities of financial management?
Select one:
a. Sale of shares and bonds
b. Credit management
c. Inventory control
d. The receipt and disbursement of funds
Clear my choice
Question 7. The market value of the firm is the result of__________.
Select one:
a. Dividend decisions
b. Working capital decisions
c. Capital budgeting decisions
d. Trade-off between risk and return
Clear my choice
Question 8. Which ratio would a company most likely use to measure its ability to meet short – term obligations?
Select one:
a. Current ratio
b. Payables turnover
c. Gross profit margin
d. None of the above
Clear my choice
Question 9. Basic objective of Financial Management is ____.
Select one:
a. Maximization of profit
b. Maximization of share holder’s wealth
c. Ensuring Financial discipline in the firm.
d. All of these
Clear my choice
Question 10. _ is concerned with the maximization of a firm’s earnings after taxes
Select one:
a. Shareholder wealth maximization
b. Profit maximization
c. Stakeholder maximization
d. EPS maximization
Clear my choice
Question 11. ______ is the most appropriate goal of the firm.
Select one:
a. Shareholder wealth maximization
b. Profit maximization
c. Stakeholder maximization
d. EPS maximization
Clear my choice
Question 12. When capital market is booming, firms can take market route to _. Select one: a. Raise capital b. Decrease capital c. Stop growing d. Stagnate Clear my choice Question 13. If a company issues bonus shares, the debt equity ratio .
Select one:
a. Remain unaffected
b. Will be affected
c. Will improve
d. None of the above
Clear my choice
Question 14. Comparison of a company ’ s financial results to other peer companies for the same time period is called
Select one:
a. horizontal analysis.
b. time – series analysis.
c. cross – sectional analysis.
d. None of the above
Clear my choice
Question 15. The present value of €100 that will be received two years from today is:
Select one:
a. less than €100.
b. equal to €100
c. more than €100.
d. more than €100.
Clear my choice
Question 16. The present value of an annuity of INR. 80 a years for 20 years at 5% p.a is
Select one:
a. 997 (appx.)
b. 900
c. 1000
d. none of these
Clear my choice
Question 17. What does the P/E ratio measure?
Select one:
a. The “ multiple ” that the stock market places on a company ’ s EPS.
b. The relationship between dividends and market prices.
c. The earnings for one common share of stock.
d. None of the above
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2nd Module Assessment
Capital budgeting is done for
Select one:
a. Evaluating short term investment decisions.
b. Evaluating medium term investment decisions
c. Evaluating long term investment decisions
d. None of the above
Question 1. Capital rationing refers to a situation where
Select one:
a. Funds are restricted and the management has to choose from amongst available alternative investments:
b. Funds are unlimited and the management has to decide how to allocate them to suitable projects investments
c. Very few feasible investment proposals are available with the management
d. None of the above
Clear my choice
Question 2. __ is a long term planning for financing proposed capital outlay.
Select one:
a. Capital Budgeting
b. Budgeting
c. Cash Budget
d. Sales Budget
Clear my choice
Question 3. In case a company considers a discounting factor higher than the cost of capital for arriving at present values, the present values of cash inflows will be
Select one:
a. Less than those computed on the basis of cost of capital
b. More than those computed on the basis of cost of capital
c. Equal to those computed on the basis of the cost of capital
d. None of the above
Clear my choice
Question 4. Which of the following is the first step in capital budgeting process?
Select one:
a. Final approval
b. Screening the proposal
c. Identification of investment proposal
d. Implementing proposal
Clear my choice
Question 5. The term mutually exclusive investments mean:
Select one:
a. Choose only the best investments.
b. Selection of one investment precludes the selection of an alternative
c. The elite investment opportunities will get chosen
d. There are no investment options available
Clear my choice
Question 6. The project can be selected if its profitability index is more than . Select one: a. 1% b. 2% c. 5% d. 6% Clear my choice Question 7. In proper capital budgeting analysis we evaluate incremental Select one: a. Operating profit b. Accounting income c. Cash flow d. Earnings Clear my choice Question 8. The pay back technique is specially useful during times Select one: a. When the value of money is turbulent b. When there is no inflation c. When the economy is growing at a steady rate coupled with minimal inflation. d. None of the above Clear my choice Question 9. Which of the following features is not associated with capital budgeting decision? Select one: a. Long term b. Large Capital Outlay c. Reversibility d. High Risk Clear my choice Question 10. The term ___________ refers to the period in which the project will generate the necessary cash flow to recoup the initial investment.
Select one:
a. Internal return
b. Payback period
c. Discounting return
d. Accounting return
Clear my choice
Question 11. Multiple IRRs are obtained when,
Select one:
a. Cash flows in the early stages of the project exceed cash flows during the later stages
b. Cash flows reverse their signs during the project
c. Cash flows are uneven
d. None of the above
Clear my choice
In a single projects situation, results of internal rate of return and net present value lead to
Select one:
a. cash flow decision
b. cost decision
c. same decisions
d. different decisions
Question 12. In mutually exclusive projects, projects which are selected for comparison must have
Select one:
a. positive net present value
b. negative net present value
c. zero net present value
d. none of the above
Clear my choice
Question 13. With respect to NPV, which of the following is incorrect?
Select one:
a. When NPV is zero, PI will be 1
b. When NPV is zero, IRR = Cost of Capital
c. When NPV is zero, we get the PBP
d. When NPV is zero, we get Discounted PBP
Clear my choice
Question 14. Payback period in which an expected cash flows are discounted with help of project cost of capital is classified as
Select one:
a. discounted payback period
b. discounted rate of return
c. discounted cash flows
d. discounted project cost
Clear my choice
Question 15. Initial outlay 50,000, life of the asset 5 yrs, estimated annual cash flow 12,500, IRR =_.
Select one:
a. 5%
b. 6%
c. 10%
d. 8%
Clear my choice
Question 16. Cost of the project is 6,00,000 , life of the project is 5 years annual cash flow is 2,00,000 cut off rate is 10% the discounted pay back period is ___.
Select one:
a. 2 yrs.
b. 2 yrs 6 months
c. 3 yrs.
d. 3 yrs 9 months.
Clear my choice
Question 17. A project costs Rs, 1,00,000 annual cash flow of Rs. 20,000 for 8 years. Its payback period is …………..
Select one:
a. 1 year
b. 2 years
c. 5 years
d. 7 years
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3rd Module Assessment
Question 1. security is known as variable income security.
Select one:
a. None of these
b. Preference shares
c. Equity shares
d. Debentures
Clear my choice
Question 2. Expand ADR
Select one:
a. American Domestic Receipts
b. All-India Domestic Receipts
c. All-India Depository Receipts
d. American Depository Receipts
Clear my choice
Question 3. Debt capital refers to:
Select one:
a. Funds raised by borrowing that must be repaid
b. Money raised through the sale of shares
c. Inventory loans
d. Factoring accounts receivable
Clear my choice
Question 4. External sources of finance do not include
Select one:
a. Leasing
b. Retained earnings
c. Debentures
d. Overdrafts
Clear my choice
Question 5. A debenture
Select one:
a. Is a short-term loan
b. Does not require security
c. Receives dividend payments
d. Is a long-term loan
Clear my choice
Question 6. Expand GDR
Select one:
a. Global Depository Receipts
b. General Depository Receipts
c. Global Domestic Reports
d. None of the above
Clear my choice
Question 7. Long term finance is required for ___.
Select one:
a. Current assets
b. Intangible assets
c. None of these
d. Fixed assets
Clear my choice
Question 8. The most popular source of short-term funding is:
Select one:
a. Trade credit
b. Family and friends
c. Commercial banks
d. Factoring
Clear my choice
Question 9. Quick asset does not include _.
Select one:
a. Advance for supply of raw materials
b. Government bonds
c. Inventories
d. Book debts.
Clear my choice
Question 10. Equity shares:
Select one:
a. Have an unlimited life, and voting rights but receive no dividends
b. Have a limited life, and voting rights and receive dividends
c. Have an unlimited life, and voting rights and receive dividends
d. Have a limited life, with no voting rights but receive dividends
Clear my choice
Question 11. ADRs are issued in
Select one:
a. USA
b. China
c. Canada
d. India
Clear my choice
Question 12. Under the lease agreement, the lessee gets the right to
Select one:
a. Use the asset for a specified period
b. Participate in the management of the organisation
c. Sell the assets
d. Share profits earned by the lessor
Clear my choice
Question 13. Public deposits are the deposits that are raised directly from
Select one:
a. The owners
b. The public
c. The auditors
d. The directors
Clear my choice
Question 14. Under the factoring arrangement, the factor
Select one:
a. Produces and distributes the goods or services
b. Transfer the goods from one place to another
c. Collects the client’s debt or account receivables
d. Makes the payment on behalf of the client
Clear my choice
Question 15. The maturity period of a commercial paper usually ranges from
Select one:
a. 90 to 364 days
b. 20 to 40 days
c. 60 to 90 days
d. 120 to 365 days
Clear my choice
Question 16. Lease which includes a third party (a lender) is known as
Select one:
a. Sale and leaseback
b. Leveraged Lease
c. Inverse Lease
d. Direct Lease
Clear my choice
Question 17. Commercial paper are generally issued at a price
Select one:
a. Equal to redemption value
b. Less than face value
c. Equal to face value
d. More than face value
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4th Module Assessment
Question 1. Which of the following is the danger of too high amount of working capital?
Select one:
a. It results in overall inefficiency.
b. It results in unnecessary accumulation of inventories and gives chance to inventory mishandling, wastage, pilferage, theft, etc., and losses increase.
c. All of the above.
d. Excess working capital means idle funds which earns no profits for the business
Clear my choice
Question 2. Which of the following is not a technique for cash management?
Select one:
a. Decentralized disbursements
b. Avoidance of early payments
c. Decentralized collection
d. Early conversion of payments into cash
Clear my choice
Question 3. Which of the following is not a cost involved in credit management?
Select one:
a. Collection cost.
b. Capital cost
c. Delinquency cost
d. Repayment cost
Clear my choice
Question 4. Baumol’s Model of Cash Management attempts to:
Select one:
a. Minimization of transaction cost
b. Minimization of cash balance
c. Minimization of total cost
d. Minimise the holding cost
Clear my choice
Question 5. Net working capital refers to .
Select one:
a. current assets minus inventories
b. current assets minus current liabilities
c. total assets minus fixed assets
d. current assets
Clear my choice
Question 6. In finance, “working capital” means the same thing as _.
Select one:
a. Current assets minus current liabilities
b. Current assets
c. Fixed assets
d. Total assets
Clear my choice
Question 7. A firm following an aggressive working capital strategy would:
Select one:
a. Finance fluctuating assets with long term financing.
b. Minimize the amount of short term borrowing.
c. Minimize the amount of fund in very liquid assets.
d. Hold substantial amount of fixed assets.
Clear my choice
Question 8. Current ratio of a concern is 1, its net working capital will be .
Select one:
a. Neutral.
b. None of the above
c. Positive.
d. Negative
Clear my choice
Question 9. Permanent working capital .
Select one:
a. Varies with seasonal needs
b. Is the amount of current assets required to meet a firm’s long-term minimum needs
c. Includes fixed assets
d. Includes accounts payable
Clear my choice
Question 10. To financial analysts, “net working capital” means the same thing as _.
Select one:
a. total assets
b. current assets
c. current assets minus current liabilities.
d. fixed assets
Clear my choice
Question 11. Which is the source of mid-term finance?
Select one:
a. Discounting the Bills Receivable
b. Specialized Financial Institution
c. Collect Advances from Purchasers
d. Micro Credit
Clear my choice
Question 12. Under the lease agreement, the lessee gets the right to
Select one:
a. Participate in the management of the organisation
b. Share profits earned by the lessor
c. Use the asset for a specified period
d. Sell the assets
Clear my choice
Question 13. Under the factoring arrangement, the factor
Select one:
a. Collects the client’s debt or account receivables
b. Makes the payment on behalf of the client
c. Transfer the goods from one place to another
d. Produces and distributes the goods or services
Clear my choice
Question 14. ADRs are issued in
Select one:
a. Canada
b. India
c. China
d. USA
Clear my choice
Question 15. The proprietors fund is INR. 45,00,000 and ratio of fixed assets to proprietors fund is 0.75. What will be the amount of Net Working Capital?
Select one:
a. 11,25,000
b. 1,25,000
c. 5,25,000
d. 12,00,000
Clear my choice
Question 16. Average collection period is 2 months. Cash sales and average receivables are INR. 5,00,000 and INR. 6,50,000 respectively. What will be the amount of total sales?
Select one:
a. 22,00,000
b. 39,00,000
c. 44,00,000
d. 6,50,000
Clear my choice
Question 17. Baumol’s Model of Cash Management attempts to:
Select one:
a. Minimization of total cost
b. Minimization of cash balance
c. Minimise the holding cost
d. Minimization of transaction cost
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5th Module Assessment
Question 1. ___ is a specific risk factor.
Select one:
a. Interest rate risk
b. Inflation risk
c. Market risk.
d. Financial risk.
Clear my choice
Question 2. Operating Leverage is calculated as
Select one:
a. Contribution ÷ EBIT
b. EBIT ÷ PBT
c. EBIT ÷ Interest
d. EBIT ÷ Tax
Clear my choice
Question 3. Which of the following cost of capital require tax adjustment?
Select one:
a. Cost of Equity Shares
b. Cost of Debentures
c. Cost of Preference Shares
d. Cost of Retained Earnings
Clear my choice
Question 4. Financial leverage can be measured in _______.
Select one:
a. Flow term
b. Stock term
c. None of these
d. Both (a) and (b).
Clear my choice
Question 5. Risk-return trade off implies_____________
Select one:
a. Taking decision in such a way which optimizes the balance between risk and return.
b. Not taking any loans which increases the risk
c. granting credit to risky customers
d. Increasing the portfolio of the firm through increased production
Clear my choice
Question 6. Firm’s Cost of Capital is the average cost of
Select one:
a. All sources of finance
b. All Bonds & Debentures
c. All Borrowings
d. All share capital
Clear my choice
Question 7. Financial Leverage is calculated as
Select one:
a. EBIT ÷ Sales
b. EBIT ÷ PBT
c. EBIT ÷ Contribution
d. EBIT ÷ Variables Cost
Clear my choice
Question 8. There is a reciprocal relationship between ……………….
Select one:
a. DFL and margin of safety ratio
b. DOL and DFL
c. DOL and break-even-point
d. DOL and margin of safety ratio.
Clear my choice
Question 9. Cost of capital is ______.
Select one:
a. None of the above
b. Equal to the dividend expectations of equity shareholders for the coming year
c. Lesser than the cost of debt capital
d. Equal to the last dividend paid to the equity shareholders
Clear my choice
Question 10. In order to calculate Weighted Average Cost of Capital, weights may be based on:
Select one:
a. Book Values
b. Market Values
c. Anyone
d. Target Values
Clear my choice
A firm is said to be financially unlevered if the firm has ……….
Select one:
a. only external equity in its capital structure.
b. only equity share capital in its capital structure.
c. both external equity and owner‟s equity in its capital structure.
d. only owner‟s equity in its capital structure.
Question 11. Marginal Cost of capital is the cost of:
Select one:
a. Additional Funds
b. Additional Interests
c. Additional Revenue
d. None of the above
Clear my choice
Question 12. Financial leverage refers to the rate of change in earnings per share for a given change inearnings…………
Select one:
a. Before interest and tax
b. Before interest
c. Before tax
d. After interest and tax
Clear my choice
Question 13. _ is the minimum required rate of earnings or the cut off rate of capital expenditure.
Select one:
a. None of the above
b. Working capital
c. Equity capital
d. Cost of capital
Clear my choice
Question 14. Which of the following statements is not correct regarding earnings per share (EPS) maximization as the primary goal of the firm?
Select one:
a. EPS maximization does not specify the timing or duration of expected EPS
b. EPS maximization is concerned with maximizing net income
c. EPS maximization naturally requires all earnings to be retained
d. EPS maximization ignores the firm’s risk level
Clear my choice
Question 15. X ltd issues rupees 50,000 8% debentures at a discount of 5%. The tax rate is 50% the cost of debt capital is __.
Select one:
a. 0.05
b. 0.04
c. 4.2%.
d. 0.046
Clear my choice
Question 16. Which of the following is not a generally accepted approach for Calculation of Cost of Equity?
Select one:
a. Dividend Discount Model
b. CAPM
c. Price-Earnings Ratio
d. Rate of Pref. Dividend Plus Risk
Clear my choice
Question 17. Company X issues 11% bonds of INR. 100 for an amount aggregating INR. 200,000 at 10% premium, redeemable at par after 5 years. Corporate tax rate is 35%. The cost of bonds would be:
Select one:
a. 0.06
b. 0.052
c. 0.05
d. 0.049
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Assignment 2
Case Study:
The expected cash flows of three projects are given below. The cost of capital is 10 percent.
Period Project A (INR.) Project B (INR.) Project C (INR.)
0 (5,000) (5,000) (5,000)
1 900 700 2000
2 900 800 2000
3 900 900 2000
4 900 1000 1000
5 900 1100
6 900 1200
7 900 1300
8 900 1400
9 900 1500
10 900 1600
Question 1. Payback Period for Project A, B & C
Select one:
a. 4.23 years, 5.42 years & 3.5 years
b. 2.23 years, 5.42 years & 4.5 years
c. 5.56 years, 5.42 years & 2.5 years
d. None of the above
Clear my choice
Question 2. Net Present Value (NPV) for Project A, B & C
Select one:
a. 530, 1591 & 655
b. None of the above
c. 732, 1500 & 555
d. 430, 1400 & 610
Clear my choice
Question 3. Internal Rate of Return (IRR) for Project A, B & C
Select one:
a. None of the above
b. 12.42%, 16.72% & 16.52%
c. 11.05%, 15.05% & 18.90%
d. 10.05%, 11% & 15.05%
Clear my choice
Question 4. Accounting Rate of Return for Project A, B & C
Select one:
a. None of the above
b. 12%, 25%, & 17%
c. 13%, 22% & 19%
d. 16% , 26% & 20%
Clear my choice
Question 5. Ranking of all the project based on NPV
Select one:
a. Rank 1-project C, Rank 2-project B & Rank 3-project A
b. Rank 1-project B, Rank 2-project C & Rank 3-project A
c. Rank 1-project A, Rank 2-project B & Rank 3-project C
d. None of the above
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