Which of the following working capital strategies is the most aggressive?

Making greater use of long term finance and maximizing net short term asset.

Making greater use of short term finance and maximizing net short term asset.

Making greater use of long term finance and minimizing net short term asset.

Making greater use of short term finance and minimizing net short term asset.

Making greater use of long term finance and maximizing net short term asset.

The traditional approach towards the valuation of a company assumes:

that total risk is not altered by changes in the capital structure.

that the overall capitalization rate holds constant with changes in financial leverage.

that there is an optimum capital structure.

that total risk is not altered by changes in the capital structure.

Which of the following would be consistent with a more aggressive approach to financing working capital?

Financing short-term needs with short-term funds.

Financing permanent inventory buildup with long-term debt.

Financing seasonal needs with short-term funds.

Financing some long-term needs with short-term funds.

Financing a long-lived asset with short-term financing would be

an example of the "hedging approach" to financing.

an example of "moderate risk -- moderate (potential) profitability" asset financing.

an example of "low risk -- low (potential) profitability" asset financing.

an example of "high risk -- high (potential) profitability" asset financing.

an example of the "hedging approach" to financing.

Which one of the following activities is outside the purview of financing decision in financial management?

Identification of the source of funds

Measurement of the cost of funds

Deciding on the time of raising the funds

Deciding on the utilization of the funds

There is deterioration in the management of working capital of XYZ Ltd. What does it refer to?

That the Capital Employed has reduced,

That the Profitability has gone up,

That debtors collection period has increased,

A quick approximation of the typical firm's cost of equity may be calculated by

adding a 5 percent risk premium to the firm's after-tax cost of debt.

adding a 5 percent risk premium to the firm's before-tax cost of debt.

adding a 5 percent risk premium to the firm's after-tax cost of debt.

subtracting a 5 percent risk discount from the firm's before-tax cost of debt.

subtracting a 5 percent risk discount from the firm's after-tax cost of debt.

The cost of equity capital is all of the following EXCEPT:

the minimum rate that a firm should earn on the equity-financed part of an investment.

a return on the equity-financed portion of an investment that, at worst, leaves the market price of the stock unchanged.

by far the most difficult component cost to estimate.

generally lower than the before-tax cost of debt.

What is the difference between the current ratio and the quick ratio?

The current ratio does not include inventories and the quick ratio does.

The current ratio includes inventories and the quick ratio does not.

The current ratio does not include inventories and the quick ratio does.

The current ratio includes physical capital and the quick ratio does not.

The current ratio does not include physical capital and the quick ratio does.

Which of the following statement is true according to traditional approach of capital structure?

Cost of declines and cost of debt remains constant with increase in debt.

Cost of capital increases with the use of debt after a certain amount of debt and later falls

Cost of equity and debt more or less remains constant with the use of debt up to a certain amount of debt

Cost of declines and cost of debt remains constant with increase in debt.

Cost of equity declines and cost of debt increases with increase in debt

You are considering two mutually exclusive investment proposals, project A and project B. B's expected value of net present value is $1,000 less than that for A and A has less dispersion. On the basis of risk and return, you would say that

Project A is more risky and should offer greater expected value.

Each project is high on one variable, so the two are basically equal.

The credit policy of Spurling Products is "1.5/10, net 35." At present 30% of the customers take the discount, 62% pay within the net period, and the rest pay within 45 days of invoice. What would receivables be if all customers took the cash discount?

No change from the present level.

Unable to determine without more information.

If the intrinsic value of a share is less than the market price, which of the most reasonable?

That the company is high dividend paying,

That shares have lesser degree of risk

That market is over valuing the shares

That the company is high dividend paying,

That market is undervaluing the share

The term optimal capital structure implies that combination of external equity and internal equity at which

the overall cost of capital is maximised

the overall cost of capital is minimised

the overall cost of capital is maximised

the market value of the firm is minimised

the market value of firm is greater than the overall cost of capital

A critical assumption of the net operating income (NOI) approach to valuation is:

that interest expense and taxes are included in the calculation.

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.

182 + Mcqs in Financial Management in Bachelor of Business Administration (BBA) Page 4 McqOptions

151.	In calculating the costs of the individual components of a firm's financing, the corporate tax rate is important to which of the following component cost formulas?
A.	common stock.
B.	debt.
C.	preferred stock.
D.	none of the above.
Answer» C. preferred stock.

Discussion

152.	Which of the following working capital strategies is the most aggressive?
A.	Making greater use of short term finance and maximizing net short term asset.
B.	Making greater use of long term finance and minimizing net short term asset.
C.	Making greater use of short term finance and minimizing net short term asset.
D.	Making greater use of long term finance and maximizing net short term asset.
Answer» D. Making greater use of long term finance and maximizing net short term asset.

Discussion

153.	Current ratio of a concern is 1,its net working capital will be
A.	Positive
B.	Negative
C.	Nil
D.	None of the above
Answer» D. None of the above

Discussion

154.	The traditional approach towards the valuation of a company assumes:
A.	that the overall capitalization rate holds constant with changes in financial leverage.
B.	that there is an optimum capital structure.
C.	that total risk is not altered by changes in the capital structure.
D.	that markets are perfect.
Answer» C. that total risk is not altered by changes in the capital structure.

Discussion

155.	Authorised capital of a company is Rs.5 lac, 40% of it is paid up. Loss incurred during the year is Rs.50,000. Accumulated loss carried from last year is Rs.2 lac. The company has a Tangible Net Worth of
A.	Nil
B.	Rs.2.50 lac
C.	(-)Rs.50,000
D.	Rs.1 lac.
Answer» D. Rs.1 lac.

Discussion

156.	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» E.

Discussion

157.	Financing a long-lived asset with short-term financing would be
A.	an example of "moderate risk -- moderate (potential) profitability" asset financing.
B.	an example of "low risk -- low (potential) profitability" asset financing.
C.	an example of "high risk -- high (potential) profitability" asset financing.
D.	an example of the "hedging approach" to financing.
Answer» D. an example of the "hedging approach" to financing.

Discussion

158.	Which one of the following activities is outside the purview of financing decision in financial management?
A.	Identification of the source of funds
B.	Measurement of the cost of funds
C.	Deciding on the time of raising the funds
D.	Deciding on the utilization of the funds
Answer» E.

Discussion

159.	There is deterioration in the management of working capital of XYZ Ltd. What does it refer to?
A.	That the Capital Employed has reduced,
B.	That the Profitability has gone up,
C.	That debtors collection period has increased,
D.	That Sales has decreased.
Answer» D. That Sales has decreased.

Discussion

160.	Working Capital Management refers to a Trade-off between _____________and Profitability.
A.	Liquidity
B.	Risk
C.	Both of the above
D.	None of the above
Answer» D. None of the above

Discussion

161.	The ideal quick ratio is
A.	2:1
B.	1:1
C.	5:1
D.	None of the above
Answer» C. 5:1

Discussion

162.	A quick approximation of the typical firm's cost of equity may be calculated by
A.	adding a 5 percent risk premium to the firm's before-tax cost of debt.
B.	adding a 5 percent risk premium to the firm's after-tax cost of debt.
C.	subtracting a 5 percent risk discount from the firm's before-tax cost of debt.
D.	subtracting a 5 percent risk discount from the firm's after-tax cost of debt.
Answer» B. adding a 5 percent risk premium to the firm's after-tax cost of debt.

Discussion

163.	XYZ is an oil based business company, which does not have adequate working capital. It fails to meet its current obligation, which leads to bankruptcy. Identify the type of decision involved to prevent risk of bankruptcy.
A.	Investment decision
B.	Dividend decision
C.	Liquidity decision
D.	Finance decision
Answer» D. Finance decision

Discussion

164.	What are the earnings per share (EPS) for a company that earned Rs. 100,000 last year in after-tax profits, has 200,000 common shares outstanding and Rs. 1.2 million in retained earning at the year end?
A.	Rs. 100,000
B.	Rs. 6.00
C.	Rs. 0.50
D.	Rs. 6.50
Answer» D. Rs. 6.50

Discussion

165.	The cost of equity capital is all of the following EXCEPT:
A.	the minimum rate that a firm should earn on the equity-financed part of an investment.
B.	a return on the equity-financed portion of an investment that, at worst, leaves the market price of the stock unchanged.
C.	by far the most difficult component cost to estimate.
D.	generally lower than the before-tax cost of debt.
Answer» E.

Discussion

166.	80% of sales of 10,00,000 of a firm are on credit. It has a Receivable Turnover of 8. What is the Average collection period (360 days a year) and Average Debtors of the firm?
A.	45 days and 1,00,000
B.	360 days and 1,00,000,
C.	45 days and 8,00,000
D.	360 days and 1,25,000
Answer» B. 360 days and 1,00,000,

Discussion

167.	Which of the following argues that the value of levered firm is higher than that of the unlevered firm?
A.	Net Income Approach
B.	Net Operating Income Approach
C.	MM Model with taxes
D.	Both (a) and (c)
Answer» E.

Discussion

168.	A company has earnings before interest and taxes of Rs1,00,000. It expects a return on investment at a rate of 12.5%. What is the total value of the firm according to MM Theory?
A.	Rs6,00,000
B.	Rs7,00,000
C.	Rs8,00,000
D.	Rs9,00,000
Answer» D. Rs9,00,000

Discussion

169.	What is the difference between the current ratio and the quick ratio?
A.	The current ratio includes inventories and the quick ratio does not.
B.	The current ratio does not include inventories and the quick ratio does.
C.	The current ratio includes physical capital and the quick ratio does not.
D.	The current ratio does not include physical capital and the quick ratio does.
Answer» B. The current ratio does not include inventories and the quick ratio does.

Discussion

170.	What is the value of the tax shield if the value of the firm is $5 million, its value if unlevered would be $4.78 million, and the present value of bankruptcy and agency costs is $360,000?
A.	$140,000
B.	$220,000
C.	$360,000
D.	$580,000
Answer» E.

Discussion

171.	PAT of a company Rs. 100 lakhs and number of equity shares of Rs. 10 each with a capital of Rs. 50 lakhs, then EPS is:
A.	Rs. 2
B.	Rs. 1
C.	Rs. 10
D.	None of these
Answer» E.

Discussion

172.	Which of the following statement is true according to traditional approach of capital structure?
A.	Cost of capital increases with the use of debt after a certain amount of debt and later falls
B.	Cost of equity and debt more or less remains constant with the use of debt up to a certain amount of debt
C.	Cost of declines and cost of debt remains constant with increase in debt.
D.	Cost of equity declines and cost of debt increases with increase in debt
Answer» C. Cost of declines and cost of debt remains constant with increase in debt.

Discussion

173.	You are considering two mutually exclusive investment proposals, project A and project B. B's expected value of net present value is $1,000 less than that for A and A has less dispersion. On the basis of risk and return, you would say that
A.	Project A dominates project B.
B.	Project B dominates project A.
C.	Project A is more risky and should offer greater expected value.
D.	Each project is high on one variable, so the two are basically equal.
Answer» B. Project B dominates project A.

Discussion

174.	Equity shares of phonex Ltd are quoted in the market at Rs17. The dividend expected a year hence is Rs1.50. The expected rate of dividend growth is 8%. The cost of equity capital to the company is
A.	11.08%
B.	13.88%
C.	15.46%
D.	16.82%
Answer» E.

Discussion

175.	The credit policy of Spurling Products is "1.5/10, net 35." At present 30% of the customers take the discount, 62% pay within the net period, and the rest pay within 45 days of invoice. What would receivables be if all customers took the cash discount?
A.	Lower than the present level.
B.	No change from the present level.
C.	Higher than the present level.
D.	Unable to determine without more information.
Answer» B. No change from the present level.

Discussion

176.	A process through which loans and other receivables are underwritten and sold in a form of asset is known as:
A.	Factoring
B.	Forfeiting
C.	Securitisation
D.	Bill Discounting
Answer» D. Bill Discounting

Discussion

177.	If the intrinsic value of a share is less than the market price, which of the most reasonable?
A.	That shares have lesser degree of risk
B.	That market is over valuing the shares
C.	That the company is high dividend paying,
D.	That market is undervaluing the share
Answer» C. That the company is high dividend paying,

Discussion

178.	The term optimal capital structure implies that combination of external equity and internal equity at which
A.	the overall cost of capital is minimised
B.	the overall cost of capital is maximised
C.	the market value of the firm is minimised
D.	the market value of firm is greater than the overall cost of capital
Answer» B. the overall cost of capital is maximised

Discussion

179.	If the closing balance of receivables is less than the opening balance for a month then which one is true out of
A.	Collections>Current Purchases,
B.	Collections>Current Sales,
C.	Collections<Current Purchases,
D.	Collections < Current Sales.
Answer» C. Collections<Current Purchases,

Discussion

180.	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» B. Net operating income approach

Discussion

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

Discussion

182.	A firm has EBIT of . 50,000. Market value of debt is . 80,000 and overall capitalization rate is 20%. Market value of firm under NOI Approach is:
A.	2,50,000
B.	1,70,000
C.	30,000
D.	1,30,000.
Answer» C. 30,000

Discussion

Explore topic-wise MCQs in Bachelor of Business Administration (BBA).

In calculating the costs of the individual components of a firm's financing, the corporate tax rate is important to which of the following component cost formulas?

Which of the following working capital strategies is the most aggressive?

Current ratio of a concern is 1,its net working capital will be

The traditional approach towards the valuation of a company assumes:

Authorised capital of a company is Rs.5 lac, 40% of it is paid up. Loss incurred during the year is Rs.50,000. Accumulated loss carried from last year is Rs.2 lac. The company has a Tangible Net Worth of

Which of the following would be consistent with a more aggressive approach to financing working capital?

Financing a long-lived asset with short-term financing would be

Which one of the following activities is outside the purview of financing decision in financial management?

There is deterioration in the management of working capital of XYZ Ltd. What does it refer to?

Working Capital Management refers to a Trade-off between _____________and Profitability.

The ideal quick ratio is

A quick approximation of the typical firm's cost of equity may be calculated by

XYZ is an oil based business company, which does not have adequate working capital. It fails to meet its current obligation, which leads to bankruptcy. Identify the type of decision involved to prevent risk of bankruptcy.

What are the earnings per share (EPS) for a company that earned Rs. 100,000 last year in after-tax profits, has 200,000 common shares outstanding and Rs. 1.2 million in retained earning at the year end?

The cost of equity capital is all of the following EXCEPT:

80% of sales of 10,00,000 of a firm are on credit. It has a Receivable Turnover of 8. What is the Average collection period (360 days a year) and Average Debtors of the firm?

Which of the following argues that the value of levered firm is higher than that of the unlevered firm?

A company has earnings before interest and taxes of Rs1,00,000. It expects a return on investment at a rate of 12.5%. What is the total value of the firm according to MM Theory?

What is the difference between the current ratio and the quick ratio?

What is the value of the tax shield if the value of the firm is $5 million, its value if unlevered would be $4.78 million, and the present value of bankruptcy and agency costs is $360,000?

PAT of a company Rs. 100 lakhs and number of equity shares of Rs. 10 each with a capital of Rs. 50 lakhs, then EPS is:

Which of the following statement is true according to traditional approach of capital structure?

You are considering two mutually exclusive investment proposals, project A and project B. B's expected value of net present value is $1,000 less than that for A and A has less dispersion. On the basis of risk and return, you would say that

Equity shares of phonex Ltd are quoted in the market at Rs17. The dividend expected a year hence is Rs1.50. The expected rate of dividend growth is 8%. The cost of equity capital to the company is

The credit policy of Spurling Products is "1.5/10, net 35." At present 30% of the customers take the discount, 62% pay within the net period, and the rest pay within 45 days of invoice. What would receivables be if all customers took the cash discount?

A process through which loans and other receivables are underwritten and sold in a form of asset is known as:

If the intrinsic value of a share is less than the market price, which of the most reasonable?

The term optimal capital structure implies that combination of external equity and internal equity at which

If the closing balance of receivables is less than the opening balance for a month then which one is true out of

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 critical assumption of the net operating income (NOI) approach to valuation is:

A firm has EBIT of . 50,000. Market value of debt is . 80,000 and overall capitalization rate is 20%. Market value of firm under NOI Approach is: