McqMate
These multiple-choice questions (MCQs) are designed to enhance your knowledge and understanding in the following areas: Bachelor of Business Administration (BBA) , Master of Commerce (M.com) , Bachelor of Accounting and Finance (BAF) , Bachelor of Business Administration in Finance (BBA Finance) , Cost Accounting .
| 351. |
The cost of each component of capital is known as |
| A. | Specific cost |
| B. | Combined cost |
| C. | Average cost |
| D. | Implicit cost |
| Answer» A. Specific cost | |
| 352. |
------ refers to that EBIT level at which EPS remains the same irrespective of the debt- equity mix. |
| A. | Profit point |
| B. | Cut off point |
| C. | Point of indifference |
| D. | None of these |
| Answer» C. Point of indifference | |
| 353. |
The use of long term fixed interest bearing debt and preference share capital along with equity shares is called |
| A. | Operating leverage |
| B. | Financial leverage |
| C. | Trading on equity |
| D. | Both b and c |
| Answer» D. Both b and c | |
| 354. |
Which of the following factors are considered when a capital structure decision is taken? |
| A. | Cost of capital |
| B. | Dilution of control |
| C. | Floatation cost |
| D. | All of the above |
| Answer» D. All of the above | |
| 355. |
The combination of debt and equity that leads to the maximum value of the firm is called |
| A. | Financial structure |
| B. | Capital structure |
| C. | Optimal capital structure |
| D. | None of these |
| Answer» C. Optimal capital structure | |
| 356. |
In optimal capital structure the company’s cost of capital will be |
| A. | Minimum |
| B. | Maximum |
| C. | Medium |
| D. | None of these |
| Answer» A. Minimum | |
| 357. |
The value of a firm on the basis of net operating income approach can be determined by dividing the earnings before interest and taxes by |
| A. | Cost of equity |
| B. | Cost of debt |
| C. | Overall cost of capital |
| D. | None of the above |
| Answer» C. Overall cost of capital | |
| 358. |
A company should follow the policy of ----- gear during deflation or depression period |
| A. | High gear |
| B. | Low gear |
| C. | Medium gear |
| D. | Any of the above |
| Answer» B. Low gear | |
| 359. |
Which of the following is not a disadvantage of rate of return method of capital budgeting? |
| A. | It ignores the time value of money |
| B. | It uses the earnings of a project up to the payback period only |
| C. | It does not take into consideration cash flows |
| D. | This method can not be applied to a situation where investment in a project is to be made in parts. |
| Answer» B. It uses the earnings of a project up to the payback period only | |
| 360. |
A project having a profitability index of ------ is accepted |
| A. | PI<1 |
| B. | PI>1 |
| C. | PI=1 |
| D. | None of these |
| Answer» B. PI>1 | |
| 361. |
The type of debt whose rate of interest changes according to the changes in the rate of interest payable on gilt edged securities or the prime lending rate of the bank is called |
| A. | Floating rate debt |
| B. | Variable rate debt |
| C. | Fixed rate debt |
| D. | Both a or b |
| Answer» D. Both a or b | |
| 362. |
.Earnings yield method is applied when the dividend pay out ratio is |
| A. | Zero per cent |
| B. | 100 per cent |
| C. | 50 per cent |
| D. | 20 percent |
| Answer» B. 100 per cent | |
| 363. |
----- is the rate of return that the company must earn on the net funds raised, in order to satisfy the equity shareholders’ demand for return |
| A. | Cost of retained earnings |
| B. | Cost of external equity |
| C. | Weighted average cost of capital |
| D. | Marginal cost of capital |
| Answer» B. Cost of external equity | |
| 364. |
A project requires an investment of Rs500000and has scrape value of Rs.20000 after five years. It is expected to yield profits after depreciation and taxes during the five years amounting to Rs.40000,Rs60000, Rs.50000,Rs70000 and Rs20000.What is the average rate of return on the investment? |
| A. | 10% |
| B. | 11% |
| C. | 12% |
| D. | 13% |
| Answer» A. 10% | |
| 365. |
Which of the following quantitative aspect of financial planning? |
| A. | Capitalization |
| B. | Capital structure |
| C. | Organization structure |
| D. | None of these |
| Answer» A. Capitalization | |
| 366. |
Which of the following qualitative aspect of financial planning? |
| A. | Capitalization |
| B. | Capital structure |
| C. | Organization structure |
| D. | None of these |
| Answer» B. Capital structure | |
| 367. |
Which of the following is/ are the assumptions of net income approach? |
| A. | The cost of debt is less than the cost of equity |
| B. | There are no taxes |
| C. | The risk perception of investors is not changes by the use of the debt. |
| D. | All of these |
| Answer» D. All of these | |
| 368. |
The overall cost of capital, according to which theory, decreases up to a certain point, remains more or less unchanged for moderate increase in debt thereafter and increases a certain point |
| A. | Net income approach |
| B. | Net operating income approach |
| C. | Traditional theory |
| D. | MM approach |
| Answer» C. Traditional theory | |
| 369. |
According to which theory two identical firms in all respect except their capital structure can not have different market value or cost of capital because of arbitrage process |
| A. | Net income approach |
| B. | Net operating income approach |
| C. | Traditional theory |
| D. | MM approach |
| Answer» D. MM approach | |
| 370. |
XLtd has taken a term loan of Rs12 lakhs at an interest rate of 15% p.a. If the tax rate applicable to the company is 40%, the cost of term loan is |
| A. | 4.8% |
| B. | 6% |
| C. | 7.2% |
| D. | 9% |
| Answer» D. 9% | |
| 371. |
Agency cost arises due to |
| A. | Cost over run in implementing new projects |
| B. | Failure of budget cost |
| C. | Restrictions imposed by the supplier of debt capital |
| D. | Rise in the cost of production |
| Answer» C. Restrictions imposed by the supplier of debt capital | |
| 372. |
What do you mean by NPV? |
| A. | Excess of cash inflows over cash outflows |
| B. | Excess of cash outflows over cash inflows |
| C. | Excess of the present value of cash out flows over the present value of cash inflows |
| D. | Excess of the present value of cash inflows over the present value of cash outflows |
| Answer» D. Excess of the present value of cash inflows over the present value of cash outflows | |
| 373. |
Under NPV method, cash flows are assured to be reinvested at |
| A. | Risk free rate of return |
| B. | Cost of debt |
| C. | IRR |
| D. | Discount rate at which NPV is computed |
| Answer» D. Discount rate at which NPV is computed | |
| 374. |
The pay back period shows |
| A. | Recovery period of original investment outlay |
| B. | The time value of money |
| C. | The cash inflows |
| D. | None of the above |
| Answer» A. Recovery period of original investment outlay | |
| 375. |
Capital rationing is applied in a situation where |
| A. | It is difficult to bring in required amount of capital |
| B. | Financial institutions are doubtful or not sure of the validity of the project |
| C. | A large number of investment proposals compete for limited funds |
| D. | The dividend is converted into capital for completion of a new project |
| Answer» C. A large number of investment proposals compete for limited funds | |
| 376. |
If risk free rate of return is 8%, Return on market portfolio is 12%, beta = 1.5, then the expected rate of return according to CAPM is equal to |
| A. | 10% |
| B. | 14% |
| C. | 18% |
| D. | 24% |
| Answer» B. 14% | |
| 377. |
Net salvage value of a fixed asset is |
| A. | Excess of salvage value over book value |
| B. | Excess of book value over salvage value |
| C. | Scrape value |
| D. | Salvage value of fixed assets less any income tax payable on the excess of salvage value over book value |
| Answer» D. Salvage value of fixed assets less any income tax payable on the excess of salvage value over book value | |
| 378. |
The discount rate which equates the present value of cash inflows with the present value of cash out flows is called ------- |
| A. | Opportunity cost |
| B. | Sunk cost |
| C. | explicit cost |
| D. | Direct cost |
| Answer» C. explicit cost | |
| 379. |
A company can increase its value and reduce the overall cost of capital by increasing the proportion of debt in its capital structure according to ----- approach |
| A. | Net income approach |
| B. | Net operating income approach |
| C. | Traditional approach |
| D. | None of these |
| Answer» A. Net income approach | |
| 380. |
Net income approach was suggested by |
| A. | Modigliani and Miller |
| B. | Durand |
| C. | Walter |
| D. | None of these |
| Answer» B. Durand | |
| 381. |
To judge the comparative risk of projects having same cost and same NPV which method is used |
| A. | Certainty equivalent method |
| B. | Sensitivity technique |
| C. | Standard deviation method |
| D. | Coefficient of variation method |
| Answer» C. Standard deviation method | |
| 382. |
While evaluating capital investment proposals, the time value of money is considered in case of |
| A. | Pay back method |
| B. | NPV |
| C. | Accounting rate of return |
| D. | None of these |
| Answer» B. NPV | |
| 383. |
Depreciation is included in cost in case of |
| A. | Pay back method |
| B. | NPV |
| C. | Accounting rate of return |
| D. | Present value index |
| Answer» C. Accounting rate of return | |
| 384. |
Which of the following is/ are the assumptions of net income approach? |
| A. | The cost of debt is less than the cost of equity |
| B. | There are no taxes |
| C. | The risk perception of investors is not changed by the use of debt |
| D. | All of the above |
| Answer» D. All of the above | |
| 385. |
Capital gearing refers to the relationship between equity capital and----- |
| A. | Long term debt |
| B. | Short term debt |
| C. | Preference capital |
| D. | None of these |
| Answer» A. Long term debt | |
| 386. |
A company should follow the policy of ----- gear during inflation or boom period |
| A. | High gear |
| B. | Low gear |
| C. | Medium gear |
| D. | Any of the above |
| Answer» A. High gear | |
| 387. |
Which of the following factors is/ are considered when a capital structure decision is taken? |
| A. | Cost of capital |
| B. | Dilution control |
| C. | Floatation cost |
| D. | All of the above |
| Answer» D. All of the above | |
| 388. |
Which of the following is not a source of long term finance? |
| A. | Equity capital |
| B. | Preference capital |
| C. | Commercial paper |
| D. | Debenture capital |
| Answer» C. Commercial paper | |
| 389. |
A cumulative preference share is one |
| A. | In which all the unpaid dividends are carried forward and payable. |
| B. | Which can be converted into equity shares |
| C. | Which can be redeemed |
| D. | Which entitle the preference shareholders to participate in surplus profits and assets. |
| Answer» A. In which all the unpaid dividends are carried forward and payable. | |
| 390. |
Which of the following g is a determinant of working capital of a firm? |
| A. | Depreciation policy |
| B. | Taxes payable by the company |
| C. | Production policy |
| D. | All of the above |
| Answer» D. All of the above | |
| 391. |
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. | Assets are less compared to sales generated |
| Answer» C. Sales are less compared to assets employed | |
| 392. |
which of the following was set up based on the recommendations of Vaghul Committee? |
| A. | National Stock Exchange |
| B. | Stock Holding Corporation of India Ltd |
| C. | Discount and Finance House of India Ltd |
| D. | National Securities Depository Ltd |
| Answer» C. Discount and Finance House of India Ltd | |
| 393. |
Shelf stock refers to |
| A. | Perishable goods |
| B. | Items that are to be packaged and sold |
| C. | Stocks which is to be stored in the shelf |
| D. | Items that are stored by the firm and sold with little or no modification |
| Answer» D. Items that are stored by the firm and sold with little or no modification | |
| 394. |
Which of the following is not an assumption of EOQ model? |
| A. | Cost of carrying is a fixed proportion of the average value of inventory |
| B. | The demand is even throughout the year |
| C. | The usage for one year can be anticipated |
| D. | Cost per order is proportional to the size of the order |
| Answer» D. Cost per order is proportional to the size of the order | |
| 395. |
Which of the following costs is not associated with inventories? |
| A. | Material cost |
| B. | Ordering cost |
| C. | Carrying cost |
| D. | Cost of long term debt locked in inventories |
| Answer» D. Cost of long term debt locked in inventories | |
| 396. |
When a company liberalizes its cash discount policy |
| A. | It increases the cost of discount |
| B. | It leads to an increase in the average collection period |
| C. | The discount period may be lengthened |
| D. | All of the above |
| Answer» D. All of the above | |
| 397. |
Which of the following is not associated with cash management of a firm? |
| A. | Stretching accounts payable without affecting the credit of the firm |
| B. | Speedy collection of receivables |
| C. | Investing surplus funds in long term securities |
| D. | Maintaining liquidity |
| Answer» C. Investing surplus funds in long term securities | |
| 398. |
Which of the following is not a motive for holding cash? |
| A. | Transaction purpose |
| B. | Precaution against unexpected expenses |
| C. | Extending loans to group companies |
| D. | Speculation purpose |
| Answer» C. Extending loans to group companies | |
| 399. |
Cash management does not call for |
| A. | Lengthening creditor’s period |
| B. | Lengthening debtor’s period |
| C. | Investing surplus funds |
| D. | Nullifying idle funds |
| Answer» B. Lengthening debtor’s period | |
| 400. |
Which of the following is not a function of a finance manager? |
| A. | Mobilization of funds |
| B. | Manipulate share price of the company |
| C. | Deployment of funds |
| D. | Control over use of funds |
| Answer» B. Manipulate share price of the company | |
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