Question 1

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

Accepted Answer

Cash is more important than profit for evaluating capital budgeting proposals because cash flows provide a more accurate reflection of a project's ability to generate value and ensure liquidity, whereas profit figures can be influenced by non-cash accounting practices.

Question 2

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

Accepted Answer

A

Question 3

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

Accepted Answer

Savings in respect of a cost in capital budgeting are treated as an inflow because they represent a reduction in expenses, effectively increasing the project's cash flow.

Question 4

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

Accepted Answer

The answer of Which of the following is not a...

Question 5

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

Accepted Answer

The answer of NPV of a proposal, as calculated by...

Question 6

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

Accepted Answer

An increase in interest rates leads to an increase in the cost of debt because the interest payments on new debt will be higher.

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?

Accepted Answer

The answer of National Ltd. Has 12,000 equity shares of...

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?

Accepted Answer

The answer of Black & White Ltd. Has a cost...

Question 9

The term "capital structure" refers to:

Accepted Answer

Capital structure refers to the mix of long-term debt, preferred stock, and common equity that a company uses to finance its operations and growth. This includes the various sources of funding a company uses to finance its activities and growth, not just its current assets or liabilities, total assets minus liabilities, or shareholders' equity alone.

Question 10

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

Accepted Answer

The answer of The manner in which an organization's assets...

Question 11

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

Accepted Answer

In the Net Income approach, the capital structure decision is considered relevant to the valuation of the firm, as it suggests that changes in the capital structure can affect the firm's overall value.

Question 12

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

Accepted Answer

The payback period is the time it takes for a business to recoup its initial investment in a project, making it the correct answer. This financial metric is commonly used to assess the risk and efficiency of an investment.

Question 13

The term capital structure refers to

Accepted Answer

Capital structure refers to the mix of long-term debt, preferred stock, and common stock equity that a company uses to finance its operations and growth.

Question 14

In walter model formula D stands for

Accepted Answer

In the Walter model formula, D stands for Dividend per share. The Walter model is a model of dividend policy and its impact on a company's value.

Question 15

Financing methods for merger and acquisition exclude:

Accepted Answer

Overdraft is not typically considered a method of financing for mergers and acquisitions. It is a short-term financing option used to cover insufficient account funds, not suitable for the significant capital required for M&A activities. Financing methods like cash, convertible bonds, and vendor placing are commonly used in mergers and acquisitions to provide the necessary capital.

Question 16

Convertible bonds are not :

Accepted Answer

Convertible bonds are hybrid securities that combine features of bonds and stocks; they can be converted into a predetermined number of the issuer's shares. They are not straight bonds, which are traditional bonds without conversion options.

Question 17

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

Accepted Answer

A finance lease is a type of lease arrangement that is primarily used as a form of financing, where the lessee has use of the asset for most of its useful life and the lease payments are designed to cover the full cost of the asset, often including interest.

Question 18

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

Accepted Answer

Economic Value Added (EVA) is based on the concept of residual wealth, which measures the value created above the required return of a company's shareholders.

Question 19

MVA stands for

Accepted Answer

Market Value Added (MVA) is a measure of a company's value, representing the difference between the market value of a firm and the capital contributed by investors. It indicates how much value a company has added or destroyed for its shareholders.

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 __________.

Accepted Answer

A financial acquisition is when a firm acquires another firm primarily for financial reasons, such as selling off its assets, cutting costs, and operating the remaining assets more efficiently, rather than for strategic reasons related to the firm's core business operations.

Quiz 3: Capital Budgeting and Financing Strategies