What will be impact on the operating leverage of a firm, if it proceeds for additional borrowings? Answer Choices It will increase It will decrease It will remain unchanged It will increase or decrease depends in the cost of borrowings. Incremental cash flows in relation to capital budgeting decisions refer to the Answer Choices Cash flows which are increasing over a period of time. Incremental change in cash flows if the project is extended one year beyond its life period. Cash flows which are directly attributable to the investment Difference between cash inflow streams and the initial outflow. Which of the following is not a leverage ratios? Answer Choices Debt-asset ratio Debt-equity Ratio Fixed charge coverage ratio Bank finance to working capital gap ratio Which of the following is a technique for monitoring the status of the receivables? Answer Choices Ageing schedule Outstanding creditors selection matrix Fund flow analysis Process of capital budgeting involves Answer Choices Identifying potential investments Analyzing the set of investment opportunities, and identifying those that will create shareholder value Implementing and monitoring the selected investment projects All of the above Given the maturity, an increase in bond''s yield causes a price decrease that is ___________ the price increase caused by an equal size decrease in yield. Answer Choices Higher than Smaller than Equal to Greater than or equal to Yield to maturity of a perpetual bond is equal to Answer Choices Interest/face value Interest/Market price Interest/Average of face value and market price (Interest + Annual redemption) / Average Investment Which of the following is not true if the credit terms are liberalized by increasing the discount? Answer Choices It may increase sales. It may increase the bad debts losses. It may reduce the average collection period. It may increase the cost of discount. Undertrading means Answer Choices Having low amount of working capital High turnover of working capital Sales are less compared to sales generated. Assets are less compared to sales generated. Ignoring the time value of money, how much does a firm lose on a rs. 1000 sale that has a 25% profit margin if the 20% probability of default occures? Answer Choices Rs. 150 Rs. 600 Rs. 650 Rs. 750 The credit term "2/45 net 90" indicates Answer Choices There is no cost of funds up to 90 days. There is no cost of funds up to 45 days. The cost of funds up to 45 days is 2% The cost of funds up to 90 days is 2% The constant growth model of equity valuation assumes that Answer Choices The dividends paid by the company remain constant The dividends paid by the company grow at a constant rate of growth The cost of equity may be less than or equal to the growth rate. The growth rate is greater than the cost of equity At operating break even point, which of the following is true? Answer Choices Sales revenue just covers the fixed cost. Sales revenue is just equal to the variable cost. Fixed cost is same as that of the variable costs. EBIT is zero. A change in YTM affects those bonds with higher YTM ________ it affects bonds with a lower YTM. Answer Choices More than Less than Same as Either (b) or (c) above When compounding of interests is done at intervals which are less than a year Answer Choices The effective rate of interest will be same as the nomial rate of intereat The effective rate of interest will be lesser than the nomial rate. The nomial rate of interest will be lesser than the effective rate. There is no difference between the effective and nominal rates in the first year. Current assets are characterized by Answer Choices long life span Quick transformation into other forms of assets A greater significance of time value of money None of the above Given two suppliers A & B with the terms of sale 2/10 net 60; 2/15 net 30 respectively, which of the following is/are true? Answer Choices The company would be better off if it choose supplier A, because it has a longer credit period. The cost of trade credit is higher for supplier B than that of supplier A. If the opportunity cost of cash is equal to cost of trade credit of supplier B, it is better to choose supplier A and avail casd discount. If the credit period nof supplier A is reduced to 30 then the company is indifferent in choosing the supplier with respect to cost of trade credit. Which of the following is false with respect to the IRR? Answer Choices It considers the cash flow stream throughout the life of the project. It is uniquely defined for every type of project. It considers the time value of the money. It is appealing to the businessman who prefer to think in terms of the rate of return from the project. Which of the following statements is correct for a project with a positive NPV? Answer Choices IRR exceeds the cost of capital Accepting the project has an indeterminate effect on shareholders The discount rate exceeds the IRR The profitability index equals one. The Degree of Financial Leverage measures financial risk of the firm is zero at financial break even point Increases as EBIT increases Is undefined below financial break even point level Which of the following approaches advocates that the costs of equity capital and debt capital remain unaltered when the degree of leverage varies? Answer Choices Net Income Approach Net operating Income approach Traditional Approach Modigliani-Miller Approach Which of the following assumes paramount importance for investing surplus cash by a firm? Answer Choices Yield Liquidity tax Shelter security A DOL of +2 would mean Answer Choices If there is an increase of 10% in quantity EBIT will increase by 20% If there is an increase of 10% in fixed costs the EBIT will increase by 20% The business risk of the firm is -2%. The effect on EBIT will be very great for a given % change in quantity. Which of the following is not a function of a finance manager? Answer Choices Mobilization of funds Deployment of funds Mainupulation of share price of a company Maintain balance between risk and return Which of the following factors does not influence the composition of working capital? Answer Choices Nature of business Nature of raw material used. Nature of finished goods. Financial leverage o the firm In the ever changing scenerio of interest rates in the bond market, if discount bonds and premium bonds are sold at the same price, it indicates that Answer Choices The bonds have approached maturity The YTM = Coupon rate The bond are having the same coupon rate, same maturity value and same face value. The investor cost of funds are approximately equal. While calculating weighted average cost of capital Answer Choices Retained earnings are excluded Bank borrowings for working capital are included Cost of issues are included Weights are based on market value or on book value. The value of EBIT at which EPS is equal to zero is known as Answer Choices Break Even Point Financial Break Even Point Operating Break Even Point Overall Break Even Point Kelley Industries has 100 million shares of common stock outstanding with a current market price of Rs. 50. The firm is contemplating to take an investment project which requires an initial cash outflow of Rs. 10crores. The IRR of the project is equal to the firm's cost of capital. What will be the firm's stock price if capital markets fully reflect the value of undertaking the project? Answer Choices Rs. 50 Rs. 49 Rs. 51 Can't tell from the given information. When the required rate of return is equal to the coupon rate, value of the redeemable bond is equal to its Answer Choices Market value Face value Present value of the stream of interest inflows Average of par value and matyrity value. The return on investement of a firm is 14% and cost of equity capital is 12%. In order to maximize the value of a firm according to Walter Model, the firm should, Answer Choices Adopt 100% dividend pay-out policy. Not pay dividends at all. Be indifferent as to the dividend policy. Plough back 50% of profits and pay the rest as dividend. If net present value of a project is negative, then Answer Choices IRR = Cost of Capital IRR > Cost of Capital IRR < Cost of Capital BCR > 1 The nominal rate of interest is equal to Answer Choices Real Rate + Risk Premium - Inflation Real Rate + Risk Premium + Inflation Real Rate - Risk Premium + Inflation Real Rate - Risk Premium - Inflation Which of the following can be considered as the limitations of using average rate of return for investment appraisal? Answer Choices It is simple to calculate It considers benefits over the entire life of the project. It is some what akin to the break-even point It is based upon accounting profit, and not cash flows. If the degree of the financial leverage of a firm is zero, then which of the following statements is true? Answer Choices The firm has no interest expense. No preference dividend is payable by the firm. The EBIT of the firm is zero. No tax is payable by the firm. If the net working capital is negative then it indicates that Answer Choices Long-term funds have been used for financing short-term assets. Long-term funds have been used for financing long-term assets. short-term funds have been used for financing long-term assets. short-term funds have been used for financing short-term assets. Which of the following is not considered for cost-benefit analysis of capital investment decisions? Answer Choices Opportunity costs Incremental costs Sunk Cost Variable cost The coupon rate on a bond is set equal to Answer Choices A percentage of its par value A percentage of its maturity value A percentage of its market price A percentageof its issue price. Which of the following is not an assumption under CAPM? Answer Choices The investor is not limited by his wealth and price of the asset. Investors make their investment decisions ona single period horizon. If the perceived risk is high, a risk-averse investor expects higher return. Assets can be bought at the going market price. Which of the following investments has/have no default risk? Answer Choices Inter-corporate Deposits Treasury Bills Commercial Papers Money market Mutual Funds Flaws of the accounting rate of return method include: Answer Choices The choice of accounting g hurdle return rate is essentially arbitrary Depreciation method has a large impact on the accounting rate of return This method makes no adjustment for project risk or for the time value of money All of the above Operating cycle can be shortened by increasing Answer Choices Manufacturing time Duration of credit availed Credit period to the customer Stock held in stores Which of the following is not a feature of an optimal capital structure? Answer Choices Profitability Liquidity Flexibility Solvency Which of the following is not a merit of using book values as weights for calculating the weighted average cost of capital? Answer Choices The book value weights are not affected by fluctuations in market prices. The book vale weights are suitable when the firm is not listed. The book value weights are suitable when the securities of the firm are not actively traded. The book values of various sources of finance bear very close relationship to their present economic values. Core current assets Answer Choices refer to that portion of the current assets normally financed through long-term sources. refer to the raw material component of current assets without which production cannot go on refer to the current asset requirement of core sectore industries like steel or current industry. refer to excess of current assets over current liabilities for a particular period. Operating leverage measures the sensitivity of the ___________ to changes in quantity. Answer Choices Earning per share Profit after tax Earning before interest and taxes Profit before interest The market value of the firm is the result of Answer Choices Working capital decisions Capital budgeting decisions Trade-off between cost and risk Trade-off between risk and return Lead time refers to Answer Choices Work-in-progress time The time gap between placing of the order and procuring the material The period in which a whole lot of inventory is consumed. The time finished goods lie as inventories. Two most important issues in formulating working capital policy are Answer Choices Nature of business and operating cycle trade credit and permissible bank finance The ratios of current assets to sales and short-term financing to long-term financing the level of current ratio and quick ratio Should a firm invest in projects with NPV = $0? Answer Choices Yes No The firm is indifferent between accepting or rejecting projects with zero NPVs The firm should look at the PI and IRR of the projects If The coupon rate of bond X is greater than bond Y with the same YTM and maturity Answer Choices The bond X's price will change more than Y for a change in YTM The market price of bond Y is more than that of X The current yield of both th bonds would be same. The bond Y's price would change more than that of X for a change in YTM Letter of credit means Answer Choices Credit agreement between a bank and a company Credit agreement between a company and its supplier Bank undertaking responsibility on behalf of its customer, in case the customer fails to pay to his supplier Agreement that facilitates a company to stretch the credit period extended by its supplier. The average collection period is determined by Answer Choices Daily credit sales divided by average balance in receivable account Balance in receivable account divided by average daily credit sales. Total credit sales divided by average balance in receivable account Balance in the receivables account divided by average total credit sales. If maturity of bond lenghtens, what happens to the volatility of bond? Answer Choices Volatility increases Volatility decreases Volatility sometimes increases, sometimes decreases. Volatility remains unchanged Operating cycle can be delayed by Answer Choices Increase in WIP period Decrease in raw materials storage period Decrease in WIP period All of the above Question Reference SamurSports sells 1500 cricket bats each year. The average cost of purchasing each bat is Rs. 250. The cost for Samur to place an order for bats is Rs. 50 and it incurr 5% of the average cost to carry them in inventory. Question - 1/5 The total number of orders it should place each year is ____________________. Answer Choices 11.55 12.8 14 15 SamurSports sells 1500 cricket bats each year. The average cost of purchasing each bat is Rs. 250. The cost for Samur to place an order for bats is Rs. 50 and it incurr 5% of the average cost to carry them in inventory. Question - 2/5 The economic order quantity of cricket bats is ________________- Answer Choices 110 Units 120 Units 131.5 Units 100 Units SamurSports sells 1500 cricket bats each year. The average cost of purchasing each bat is Rs. 250. The cost for Samur to place an order for bats is Rs. 50 and it incurr 5% of the average cost to carry them in inventory. Question - 3/5 The average inventory value of cricket bats is _______________. Answer Choices Rs. 12,500 Rs. 13,750 Rs. 11,000 Rs. 16,300 Evan Soft Ltd. has assets of Rs. 2,80,000 which have been financed with Rs. 64,000 of debts and Rs. 1,10,000 of equity and a general reserve of Rs. 18,000. The firm's total profits after interest and taxes for the year ended 31st March 2015 were Rs. 25,700. It pays 13% interest on borrowed funds and is in the 60% tax bracket. it has 1,000 equity shares of Rs. 100 each selling at a market price of Rs. 125 per share. The firm pays 60% of its earning as dividend. Question - 4/5 The cost of debt capital is ________________. Answer Choices 6.70% 5.20% 4.80% 5.50% Evan Soft Ltd. has assets of Rs. 2,80,000 which have been financed with Rs. 64,000 of debts and Rs. 1,10,000 of equity and a general reserve of Rs. 18,000. The firm's total profits after interest and taxes for the year ended 31st March 2015 were Rs. 25,700. It pays 13% interest on borrowed funds and is in the 60% tax bracket. it has 1,000 equity shares of Rs. 100 each selling at a market price of Rs. 125 per share. The firm pays 60% of its earning as dividend. Question - 5/5 The earning per share is Rs. ______________. Answer Choices 31.2 22.44 12.78 25.7