Question 1

The ideal situation is to have high financial leverage and low operating leverage.&#10;A)False&#10;B)True&#10;C)none&#10;D)all

Accepted Answer

True&#10;

Question 2

Composite leverage explains change in taxable income on account of change in sales&#10;A)True&#10;B)False&#10;C)none&#10;D)all

Accepted Answer

Composite leverage measures the sensitivity of taxable income to changes in sales, combining both operating and financial leverage effects.

Question 3

Dividend on preference share capital is ignored while calculating operating leverage.&#10;A)True&#10;B)False&#10;C)none&#10;D)all

Accepted Answer

False&#10;

Question 4

Trading on equity implies having a ------ debt-equity ratio.&#10;A)Low&#10;B)Medium&#10;C)High&#10;D)Normal

Accepted Answer

Trading on equity implies utilizing a high proportion of debt to finance the operations of a business, aiming to increase the returns to equity shareholders. This strategy is based on the premise that if the firm can earn a higher rate of return on its investments than the interest rate on its debt, the excess will benefit the shareholders. Therefore, it involves having a high debt-equity ratio.

Question 5

&#8230;&#8230;&#8230;. on capital is called cost of capital.&#10;A)Minimum expected return&#10;B)Normally expected return&#10;C)Higher expected return&#10;D)None of these

Accepted Answer

The cost of capital refers to the minimum expected return on capital that is required to make a capital investment worthwhile. This is essentially the return that investors expect for providing capital to the company.

Question 6

Which among the following method is based on time value of money?&#10;A)Pay-back period&#10;B)Post pay-back profitability&#10;C)Discounted cash flow method&#10;D)ARR method

Accepted Answer

The Discounted Cash Flow (DCF) method considers the time value of money by discounting future cash flows to their present value.

Question 7

Under net present value criteria, a project is approved if &#8230;&#8230;&#10;A)NPV is positive&#10;B)The funds are unlimited&#10;C)Both A & B&#10;D)None of these

Accepted Answer

A positive NPV indicates that the project's returns exceed its costs, making it financially viable.

Question 8

The return available from the project after the pay-back period is not considered in the case of &#8230;&#8230;&#10;A)Net present value&#10;B)Profitability index&#10;C)Internal rate of return&#10;D)Pay-back period method

Accepted Answer

The pay-back period method focuses solely on the time it takes for a project to recoup its initial investment, ignoring any returns that occur after this period.

Question 9

Internal rate of return and net present value are synonymous terms.&#10;A)True&#10;B)False&#10;C)none&#10;D)all

Accepted Answer

Internal rate of return (IRR) and net present value (NPV) are not synonymous; they are distinct financial metrics used to evaluate the profitability of investments. IRR is the discount rate that makes the NPV of all cash flows from a particular project equal to zero, while NPV calculates the difference between the present value of cash inflows and outflows over a period of time.

Question 10

Ind AS deals with Lease finance is ____&#10;A)Ind AS 17&#10;B)Ind AS 117&#10;C)Ind AS 102&#10;D)Ind AS 115

Accepted Answer

The answer of Ind AS deals with Lease finance is...

Question 11

&#8230;&#8230;..is a long term lease and the lessee will be paying much more than the cost of the property or equipment to the lessor in the form of lease charges.&#10;A)Operating lease&#10;B)Financial lease&#10;C)Leveraged lease&#10;D)Direct lease

Accepted Answer

The answer of &#8230;&#8230;..is a long term lease and the...

Question 12

&#8230;&#8230;&#8230;is also known as dividend capitalisation model&#10;A)Walter's model&#10;B)Gordon's model&#10;C)Modiglani & Millers model&#10;D)None of these

Accepted Answer

The answer of &#8230;&#8230;&#8230;is also known as dividend capitalisation model&#10;A)Walter's...

Question 13

SVA stands for&#8230;.&#10;A)Share value accounted&#10;B)Statutory value addition&#10;C)Shareholder value added&#10;D)None of the above

Accepted Answer

The answer of SVA stands for&#8230;.&#10;A)Share value accounted&#10;B)Statutory value addition&#10;C)Shareholder...

Question 14

Financial risk arises when there is an involvement of &#8230;&#8230;in the capital structure&#10;A)Debt&#10;B)Equity&#10;C)Right issue&#10;D)Bonus issue

Accepted Answer

The answer of Financial risk arises when there is an...

Question 15

The concept of EVA has been developed by &#8230;&#8230;.&#10;A)Alfred marshal&#10;B)Benjamin Fleming&#10;C)Stern Steward&#10;D)Charles H Dow

Accepted Answer

The answer of The concept of EVA has been developed...

Question 16

Use of more debt capital rather than equity capital is called&#8230;&#8230;&#10;A)Risk taking&#10;B)Operating leverage&#10;C)Combined leverage&#10;D)Financial leverage

Accepted Answer

The answer of Use of more debt capital rather than...

Question 17

The policy on quantum of dividend to be distributed as dividend is termed as &#8230;&#8230;&#10;A)Profit sharing policy&#10;B)Appropriation&#10;C)Dividend policy&#10;D)Distribution policy

Accepted Answer

The answer of The policy on quantum of dividend to...

Question 18

Operating leverage is not favourable when &#8230;&#8230;&#8230;&#10;A)Fixed costs are more than contribution&#10;B)Fixed cost is less than variable cost&#10;C)Fixed cost and variable cost are equal&#10;D)None of the above cases

Accepted Answer

The answer of Operating leverage is not favourable when &#8230;&#8230;&#8230;&#10;A)Fixed...

Question 19

Stock dividend and bonus shares are synonymous terms.&#10;A)True&#10;B)False&#10;C)none&#10;D)all

Accepted Answer

The answer of Stock dividend and bonus shares are synonymous...

Deck 6: Financial Leverage, Operating Leverage, and Investment Appraisal