1. Given the following information, calculate EPS.

EBT                                                                         – ₹ 20,00,000

Equity Share Capital (` 10 each)                  – ₹ 50,00,000

10% Debentures                                              – ₹ 40,00,000

Tax Rate                                                               – 20%

(a) ₹ 3.5                                                                (b) ₹ 3.2

(c) ₹ 2.56                                                              (d) None of the above

Ans:       (b) ₹ 3.2

               

2. The following is true about Fixed capital and Working capital requirements

of a business firm:

1. A business firms operating on large scale will require more fixed capital and less working capital.
2. A business firms operating on large scale will require less fixed capital and more working capital.
3. A business firms operating on large scale will require more fixed capital as well as more working capital.
4. A business firms operating on large scale will require less fixed capital as well as less working capital.

Ans:       (c) A business firms operating on large scale will require more fixed capital as well as more working capital.

3. The only purpose of managing the finance of a company is:

(a) Wealth Maximisation of owners

(b) Profit Maximisation

(c) Sales Maximisation

(d) Assets Maximisation

Ans:       (a) Wealth Maximisation of owners        

4. Which among the following is not an essential ingredient of sound working capital management?

(a) Efficient cash management  (b) Receivables management

(c) Inventory management         (d) Surplus management

Ans:       (d) Surplus management             

5. The financial planning begins with–

(a) Appointment of financial manager

(b) Deciding about requirements of fixed and working capital.

(c) Preparing budgets.

(d) Preparing sales forecast.

Ans:       (d) Preparing sales forecast.      

6. Which financial decision affects the earning capacity of a company in long run?

(a) Capital Budgeting      (b) Financing Decision

(c) Dividend Decision      (d) Working Capital Decision

Ans:       (a) Capital Budgeting

7. A favourable financial leverage means:

(a) ROI is lower than cost of debts

(b) ROI is equal to cost of debts

(c) ROI is higher than cost of debt

(d) Cost of debt is nil

Ans:       (c) ROI is higher than cost of debt

8. Intellect Limited plans to get its securities listed in New York Stock Exchange in order to raise money through ADR’s. Which financial decision is involved here?

(a) Choice of capital structure     (b) Budgeting

(c) Financing                                       (d) All of the above.

Ans:       (c) Financing                      

9. Dividend Decision is not influenced by:

(a) Current Earnings                        (b) Capital Market consideration

(c) Expectation of shareholders (d) Product Pricing Policy

(d) Product Pricing Policy

10. Under what situation EPS of company falls with the increased use of debt?

(a) When company’s ROI is equal to cost of debt.

(b) When company’s ROI is more than cost of debt.

(c) When company’s ROI is less than cost of debt.

 (d) More use of equity than debt.

Ans:       (c) When company’s ROI is less than cost of debt.

11. What is the essential ingredient of sound working capital management?

(a) Efficient management of cash (b) Cash equivalent

(c) Inventory and receivables       (d) All of the above

Ans:       (d) All of the above

12. Trading on Equity takes place when:-

(a) ROI is less than rate of interest on debt.

(b) ROI is more than the rate of interest on debt.

(c) ROI is less than the ROE.

(d) ROI is more than the ROE.

Ans:       (b) ROI is more than the rate of interest on debt.

13. A company wishes to replace the existing machinery to increase its production

capacity.

Identify the financial decision involved.

(a) Capital budgeting decision    (b) Financing Decision

(c) Dividend decision                      (d) Operating Decision

Ans:       (a) Capital budgeting decision   

14. Which of the following is the prime objective of Financial Management?

(a) Safety of Investment                              (b) Maximise Return on Investments

(c) Maximise Cash flow position (d) Maximise Share holder’s wealth

Ans:       (d) Maximise Share holder’s wealth

15. Which of the following factor is not considered while taking decision on declaration of dividend?

(a) Stability of earnings  (b) Shareholder’s preference

(c) Floatation cost            (d) Growth opportunities

Ans:       (c) Floatation cost           

16. Trading on equity takes place:

(a) When capital employed consists of equity capital.

(b) When capital employed consists of owner’s funds and owed funds.

(c) When capital employed consists of borrowed funds only.

(d) When the past profits are ploughed back.

Ans:       (b) When capital employed consists of owner’s funds and owed funds.

17. The decision in financial management which determines the proportion between debt and equity is known as:

(a) Financing decision                     (b) Operating decision

(c) Capital budgeting decision     (d) Dividend decision

Ans:       (a) Financing decision    

18. Borrowing @10% and the tax rate 30% means the a Net tax cost of debt is

 (a) 20%                                (b) 7%

(c) 3%                    (d) 10%

Ans:       (b) 7%

19. A decision to purchase new machinery is a:

(a) Operating Decision   (b) Financing Decision

(c) Investment Decision                (d) Dividend Decision

Ans:       (c) Investment Decision               

20. Which of the following statements is correct about factors affecting working capital requirements?

 (a) Higher is the lead time, lower the quantity of material to be stored and higher is the amount of working capital requirement.

(b) A tight credit policy results in higher amount of debtors, increasing the amount of working capital.

(c) Working Capital requirement is higher in firms with longer processing cycle and lower in firms with shorter processing cycle.

(d) The working capital requirement of a business becomes lower with higher

rate of inflation.

Ans:       (c) Working Capital requirement is higher in firms with longer processing cycle and lower in firms with shorter processing cycle.