The conservative approach is a risk-free strategy of working capital financing that helps in maintaining a higher level of current assets and higher working capital. Which of the following is consistent with a conservative approach to financing working capital?
A. Financing short-term needs with short-term funds
B. Financing short-term needs with long-term debt
C. Financing seasonal needs with short-term funds
D. Financing some long-term needs with short-term funds
Select an option to see the answer and solution.
Funds required for purchasing current assets is an example of
A. fixed capital requirement
B. lease financing
C. working capital requirement
D. ploughing back of profits
Select an option to see the answer and solution.
Which of the followingis not a clear difference between debenture holders and shareholders of a company?
A. Voting rights in the company
B. Ownership of the company
C. Interest and dividends as a form of financial return
D. Impact on the company's working capital
Select an option to see the answer and solution.
Which of the following is not used to estimate cost of equity capital?
A. External yield criterion
B. Dividend plus growth rate
C. Equity capitalisation approach
D. Capital asset pricing model
Select an option to see the answer and solution.
Dividend capitalization model was developed by
A. Ezra Solomon
B. Myron J. Gordon
C. James E. Walter
D. Merton H. Miller and Franco Modigliani
Select an option to see the answer and solution.
Finance leases are accounted for in a similar manner to
A. credit transactions
B. cash transactions
C. sale and leaseback agreements
D. loan forgiveness
Select an option to see the answer and solution.
Assertion (A): Weighted average cost of capital should be used as a hurdle rate for accepting or rejecting a capital budgeting proposal.Reason (R): It is because by financing in the proportions specified and accepting the project, yielding more than the weighted average required return, the firm is able to increase the market price of its stock.
A. Both (A) and (R) are false
B. Both (A) and (R) are true
C. (A) is true, while (R) is false
D. (A) is false, while (R) is true
Select an option to see the answer and solution.
Which of the following can be defined as the example of direct finance?
A. Debenture and equity
B. Term finance
C. Short-term financing
D. Any debt instrument
Select an option to see the answer and solution.
Which of the following is a long-term lease that is not cancelable and its life often matches the useful life of the asset?
A. Financial lease
B. Operating lease
C. Net lease
D. None of the above
Select an option to see the answer and solution.
Which capital investors are long-term investors who are prepared to take the risk that the entrepreneurial projectcan fail?
A. Mega
B. Progress
C. Multiple
D. Venture
Select an option to see the answer and solution.
The profit made by the Government (or Central Bank) by issuing currency, especially the difference between the face value of coins and their production costs is called
A. Seigniorage
B. Profit booking
C. Government revenue
D. Central bank securitization
Select an option to see the answer and solution.
Securitised assets carry a unique form of risk called
A. default risk
B. inflation risk
C. interest rate risk
D. pre-payment risk
Select an option to see the answer and solution.
Match the following.
List-I List-II
a. Fixed capital
1. . . . . . . . . refers to make-up of a firm's capitalisation
b. Normal rate of return
2. . . . . . . . . is the cause of over-capitalisation
c. Liberal dividend policy
3. Earnings per share ÷ Market price per share = . . . . . . . .
d. Capital structure
4. . . . . . . . . is the funds required for a acquisition of assets that are to be used over and over a long period
A. a-4, b-3, c-2, d-1
B. a-2, b-1, c-3, d-4
C. a-3, b-2, c-1, d-4
D. a-2, b-3, c-1, d-4
Select an option to see the answer and solution.
Examine the following statements.
A. (i), (ii) and (iii) are correct
B. (ii) and (iii) are correct
C. Only (iii) is correct
D. All (i), (ii), (iii) and (iv) are false
Select an option to see the answer and solution.
Which of the following is not one of the steps for currency exposure management?
A. Forecast the degree of exposure
B. Develop a reporting system to monitor exposure and exchange rate movements
C. Buying additional foreign subsidiaries
D. Assign responsibility for hedging exposure
Select an option to see the answer and solution.
Which of the following is the most appropriate non-spontaneous form for financing the excess seasonal current assets needs?
A. Trade credit
B. Six months bank notes
C. Account payable
D. Common stock equity
Select an option to see the answer and solution.
Financial signaling has been raised as an argument in the battle over the relevancy of dividends. Which of the following statements indicate financial signaling argument?
A. The decrease of dividends should be viewed by investors as positive news, as it indicates the company has better opportunities for the earnings
B. The reported accounting earnings of a company, not dividends, are a proper reflection of the economic earnings
C. The price of a firm's stock may react unfavourably to an increase in dividends
D. The cash dividends speak louder than words to convey more information management's expectations of the future
Select an option to see the answer and solution.
Preference shares
A. Have specific maturity dates
B. Offer investors the same level of risk of ordinary shares
C. Have voting rights
D. Pay a specific return to investors
Select an option to see the answer and solution.
When an enterprise has an unhedged receivableor payable denominated in a foreign currency, and the settlement of the obligation has not yet taken place, that firm is said to have
A. Transaction exposure
B. Infinite exposure
C. Tax exposure
D. Operating exposure
Select an option to see the answer and solution.
Retained earning is . . . . . . . . a cost free source of capital.
A. not
B. sometimes
C. compulsorily
D. consistently
Select an option to see the answer and solution.
