Financial Management

Financial Management
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QUESTION 1. Which of the following is true for Net Income Approach?
Higher Equity is better
Higher Debt is better
Debt Ratio is irrelevant
None of the above.

QUESTION 2. “A firm has EBIT of Rs. 50,000. Market value of debt is Rs. 80,000 and overall capitalization rate is 20%. Market value of firm under NOI Approach is:”
“Rs. 2,50,000”
“Rs. 1,70,000”
“Rs. 30,000”
“Rs. 1,30,000.”

QUESTION 3. The Traditional Approach to Value of the firm in that:
There is no optimal capital structure
Value can be increased by judicious use of leverage
Cost of Capital and Capital structure are m dent
Risk of the firm is independent of capital structure

QUESTION 4. “In case of Net Income Approach, the Cost of equity is:”
Constant
Increasing
Decreasing
None of the above.

QUESTION 5. Which of the following is true?
“Under Traditional Approach, overall cost of capital remains same”
“Under NI Approach, overall cost of capital remains same”
“Under NOI Approach, overall cost of capital remains same”
None of the above.

QUESTION 6. A critical assumption of the net operating income (NOI) approach to valuation is:
that debt and equity levels remain unchanged
that dividends increase at a constant rate
that ko remains constant regardless of changes in leverage
that interest expense and taxes are included in the calculation.

QUESTION 7. Risk in Capital budgeting implies that the decision-maker knows___________of the cash flows.
Variability
Probability
Certainty
None of the above

QUESTION 8. “In Certainty-equivalent approach, adjusted cash flows are discounted at:”
Accounting Rate of Return
Internal Rate of Return
Hurdle Rate
Risk-free Rate

QUESTION 9. ___________________ of a firm refers to the composition of its long-term funds and its capital structure.
Capitalisation
Over-capitalisation
Under-capitalisation
Market capitalization

QUESTION 10. “In MM-Model, irrelevance of capital structure is based on:”
Cost of Debt and Equity
Arbitrage Process
Decreasing k0
All of the above.
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QUESTION 11. Risk in Capital budgeting is same as:
Uncertainty of Cash flows
Probability of Cash flows
Certainty of Cash flows
Variability of Cash flows

QUESTION 12. Which of the following is a risk factor in capital budgeting?
Industry specific risk factors
Competition risk factors
Project specific risk factors
All of the above

QUESTION 13. “In Risk-Adjusted Discount Rate method, the normal rate of discount is:”
Increased
Decreased
Unchanged
None of the above

QUESTION 14. _______________ refers to the length of time allowed by a firm for its customers to make payment for their purchases.
Holding period
Pay-back period
Average collection period
Credit period

QUESTION 15. Which of the following is incorrect for value of the firm?
“In the initial preposition, MM Model argues that value is independent of the financing mix”
Total value of levered and unlevered firms is otherwise arbitrage will take place.
Total value incorporates borrowings by firm but excludes personal borrowing.
Total value does not change because underlying does not change with financing mix.

QUESTION 16. In Playback Period approach to risk the target payback period is
Not adjusted
Adjusted upward
Adjusted downward
b or c

QUESTION 17. Which of the following is incorrect for NOI?
k0 is constant
kd is constant
ke is constant
kd & k0 are constant.

QUESTION 18. “In _______________ approach, the capital structure decision is relevant to the valuation of the firm.”
Net income
Net operating income
Traditional
Miller and Modigliani

QUESTION 19. That there is no corporate tax is assumed by:
Net Income Approach
Net Operating Income Approach
Traditional Approach
All of these.

QUESTION 20. Which of the following assumes constant kd and ke?
Net Income Approach
Net Operating Income Approach
Traditional Approach
MM Model.
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