Deck 3: Capital Budgeting and Financing Strategies

Question 1

Evaluation of Capital Budgeting Proposals is based on Cash flows because:

A)cash flows are easy to calculate
B)cash flows are suggested by sebi
C)cash is more important than profit
D)cash flows are unable to prepared

Answer 1

cash is more important than profit

Question 2

Which of the following is not included in incremental A flows?

A)opportunity costs
B)sunk costs
C)change in working capital
D)inflation effect

Answer 2

opportunity costs

Question 3

Savings in respect of a cost is treated in capital budgeting as:

A)an inflow
B)an outflow
C)nil
D)as one

Answer 3

an inflow

Question 4

Which of the following is not a risk factor in capital budgeting ?

A)industry specific risk factors
B)competition risk factors
C)project specific risk factors
D)interest risk factors

Question 5

NPV of a proposal, as calculated by RADR real CE Approach will be:

A)same
B)unequal
C)zero
D)equal

Question 6

In weighted average cost of capital, rising in interest rate leads to-

A)increase in cost of debt
B)increase the capital structure
C)decrease in cost of debt
D)decrease the capital structure

Question 7

National Ltd. Has 12,000 equity shares of Rs.100 each. Sale price is equity share Rs.115 per share; flotation cost Rs.5 per share. Expected dividend growth rate is 5% and expected dividend at the end of the financial year is Rs.11 per share, What is the cost of equity shares of National Ltd?

A)0.1133
B)0.1278
C)0.1475
D)0.15

Question 8

Black & White Ltd. Has a cost of equity of 11% and a pre-tax cost of debt of 8.5%. The firm's target Weighted average cost of capital is 9% and its tax rate is 35%. What is the firm's target debt-equity ratio?

A)0.6203
B)0.5756
C)0.5572
D)0.5113

Question 9

The term "capital structure" refers to:

A)current assets & current liabilities
B)long-term debt, preferred stock, and common stock equity
C)total assets minus liabilities
D)shareholde rs\ equity

Question 10

The manner in which an organization's assets are financed is referred to as its-

A)capital structure
B)financial structure
C)asset structure
D)owners structure

Question 11

In ……. Approach, the capital structure decision is relevant to the valuation of the firm.

A)Net income
B)miller and modigilani
C)traditional
D)net operating income

Question 12

………… is defined as the length of time required to recover the initial cash outlay.

A)Pay back period
B)inventory conversion period
C)discounted cash back
D)budgeted period.

Question 13

The term capital structure refers to

A)Long term debt, preferred stock and common stock equity
B)Current asset and current liabilities
C)Total asset minus liabilities
D)Shareholder's equity

Question 14

In walter model formula D stands for

A)Dividend per share
B)Direct dividend
C)Dividend earning
D)None of these

Question 15

Financing methods for merger and acquisition exclude:

A)Cash
B)Convertible bond
C)Vendor placing
D)Overdraft

Question 16

Convertible bonds are not :

A)Straight bonds
B)Two stage financial instrument
C)Converted to ordinary shares
D)Hybrid securities

Question 17

A ---------- lease is a way of providing finance

A)Finance
B)Commercial
C)Economic
D)None of these

Question 18

Economic value added is based on the -------?

A)Profit
B)Residual wealth
C)Gross wealth
D)None of these

Question 19

MVA stands for

A)Maximum value added
B)Market value added
C)Minimum value added
D)Most value added

Question 20

A firm that acquires another firm as part of its strategy to sell off assets, cut costs, and operate the remaining assets more efficiently is engaging in __________.

A)Strategic acquisition
B)A financial acquisition
C)Two tier tender offer
D)Shark repellent

Question 21

The ways in which mergers and acquisitions (M&As) occur do not include:

A)conglomerate takeover
B)diversification
C)vertical integration
D)horizontal integration

Question 22

Which of the following capital budgeting methods has the value additive property?

A)NPV
B)IRR
C)Payback period
D)Discounted payback period

Question 23

How is economic value added (EVA) calculated?

A)It is the difference between the market value of the firm and the book value of equity.
B)It is the firm's net operating profit after tax (NOPAT) less a dollar cost of capital charge.
C)It is the net income of the firm less a dollar cost that equals the weighted average cost of capital multiplied by the book value of liabilities and equities.
D)None of the above are

Question 24

Retained earnings are

A)an Indication of a company's liquidity
B)the same as cash in the bank
C)not important when determining dividends
D)the cumulative earnings of the company after dividends

Question 25

Economic value added provides a measure of

A)how much value is added by the economy
B)how much value is added by operations
C)how much a business affects the economy
D)how much wealth a company is creating compared to its cost of capital.