Financial Management

3 of 8 sets

201. Which of the following appearing in the balance! generates tax advantage and
hence affects the c, structure decision ?
A. Reserves and Surplus
B. Long-term debt
C. Preference Share Capital
D. Equity Share Capital
Answer:B

202. In MM Model with taxes, where 'r' is the interest rate, ‘D’ is the total debt and
m
't' is tax rate, then present valued shields would be:
o
A. r×D×t
. c
B. r×D
te
C. D×t
a
D. (D× r)/(l-t).

q M
Answer:C
c
Mis given by
203. ‘Bird in hand' argument
A. Walker's Model
B. Gordon's Model
C. MM Mode
D. Residuals Theory
Answer:B

204. Residuals Theory argues that dividend is a

A. Relevant Decision
B. Active Decision
C. Passive Decision
D. Irrelevant Decision
Answer:C

205. Dividend irrelevance argument of MM Model is based on:

 A. Issue of Debentures
B. Issue of Bonus Share,
C. Arbitrage
D. Hedging
Answer:C

206. Which of the following is not true for MM Model?

A. Share price goes up if dividend is paid
B. Share price goes down if dividend is not paid,
C. Market value is unaffected by Dividend policy,
D. All of the above
Answer:C

207. Which of the following stresses on investor's preference reorient dividend than
higher future capital gains ?
A. Walter's Model
B. Residuals Theory
C. Gordon's Model
D. MM Model
Answer:C

208. MM Model of Dividend irrelevance uses arbitrage between

A. Dividend and Bonus
B. Dividend and Capital Issue
C. Profit and Investment
D. None of the above
Answer:B

209. If ke = r, then under Walter's Model, which of the following is irrelevant?

A. Earnings per share
B. Dividend per share
C. DP Ratio
D. None of the above
Answer:C

210. MM Model argues that dividend is irrelevant as

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 A. the value of the firm depends upon earning power
B. the investors buy shares for capital gain,
C. dividend is payable after deciding the retained earnings,
D. dividend is a small amount
Answer:A

211. Which of the following represents passive dividend policy ?

A. that dividend is paid as a % of EPS,
B. that dividend is paid as a constant amount,
C. that dividend is paid after retaining profits for reinvestment,
D. all of the above
Answer:C

212. In case of Gordon's Model, the MP for zero payout is zero. It means that
A. Shares are not traded
B. Shares available free of cost
C. Investors are not ready to offer any price
D. None of the above
Answer:C

213. Gordon's Model of dividend relevance is same as

A. No-growth Model of equity valuation,
B. Constant growth Model of equity valuation,
C. Price-Earning Ratio
D. Inverse of Price Earnings Ratio
Answer:B

214. If 'r' = 'ke', than MP by Walter's Model and Gordon's Model for different
payout ratios would be
A. Unequal
B. Zero
C. Equal
D. Negative
Answer:C

215. Dividend declared by a company must be paid in

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 A. 20 days
B. 30 days
C. 32 days
D. 42 days
Answer:B

216. Dividend Distribution Tax is payable by

A. Shareholders to Government
B. Shareholders to Company,
C. Company to Government,
D. Holding to Subsidiary Company
Answer:C

217. Shares of face value of 10 are 80% paid up. The company declares a dividend
of 50%. Amount of dividend per share is
A. 5
B. 4
C. 80
D. 50
Answer:B

218. Which of the following generally not result in increase in total dividend
liability ?
A. Share-split
B. Right Issue
C. Bonus Issue
D. All of the above
Answer:A

219. Dividends are paid out of

A. Accumulated Profits
B. Gross Profit
C. Profit after Tax
D. General Reserve
Answer:C

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220. In India, Dividend Distribution tax is paid on
A. Equity Share
B. Preference Share
C. Debenture
D. Both (a) and (b)
Answer:D

221. Every company should follow

A. High Dividend Payment
B. Low Dividend Payment
C. Stable Dividend Payment
D. Fixed Dividend Payment
Answer:C

222. 'Constant Dividend Per Share' Policy is considered as:

A. Increasing Dividend Policy
B. Decreasing Dividend Policy
C. Stable Dividend Policy
D. None of the above
Answer:C

223. Which of the following is not a type of dividend payment?

A. Bonus Issue
B. Right Issue
C. Share Split
D. Both (b) and (c)
Answer:C

224. If the following is an element of dividend policy?

A. Production capacity,
B. Change in Management,
C. Informational content,
D. Debt service capacity
Answer:C

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225. Stock split is a form of
A. Dividend Payment,
B. Bonus Issue,
C. Financial restructuring,
D. Dividend in kind
Answer:C

226. In stock dividend:

A. Authorized capital always increases
B. Paid up capital always increases
C. Face value per share decreases
D. Market price for share decreases
Answer:D

227. Which of the following is not considered in Lintner's Model ?

A. Dividend payout ratio,
B. Current EPS,
C. Speed of Adjustment,
D. Preceding year EPS
Answer:D

228. Which of the following is not relevant for dividend payment for a year ?
A. Cash flow position
B. Profit position,
C. Paid up capital,
D. Retained Earnings
Answer:D

229. Cash Budget does not include

A. Dividend Payable
B. Postal Expenditure,
C. Issue of Capital,
D. Total Sales Figure.
Answer:D

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230. Which of the following is not a motive to hold cash?
A. Transactionary Motive,
B. Pre-scautionary Motive,
C. Captal Investment,
D. None of the above.
Answer:C

231. Cheques deposited in bank may not be available for immediate use due to
A. Payment Float
B. Recceipt Float
C. Net Float,
D. Playing the Float.
Answer:B

232. Difference between between the bank balance as per Cash Book and Pass
Book may be due to:
A. Overdraft,
B. Float,
C. Factoring,
D. None of the above.
Answer:B

233. Concentration Banking helps in

A. Reducing Idle Bank Balance
B. Increasing Collection,
C. Increasing Creditors,
D. Reducing Bank Transactions.
Answer:B

234. The Transaction Motive for holding cash is for

A. Safety Cushion
B. Daily Operations,
C. Purchase of Assets
D. Payment of Dividends.
Answer:B

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235. Miller-Orr Model deals with
A. Optimum Cash Balance,
B. Optimum Finished goods,
C. Optimum Receivables,
D. All of the above.
Answer:A

236. Float management is related to

A. Cash Management,
B. Inventory Management,
C. Receivables Management,
D. Raw Materials Management
Answer:A

237. Which of the following is not an objective of cash management ?

A. Maximization of cash balance
B. Minimization of cash balance
C. Optimization of cash balance
D. Zero cash balance.
Answer:C

238. Which of the following is not true of cash budget ?

A. Cash budget indicates timings of short-term borrowing,
B. Cash budget is based on accrual concept
C. Cash budget is based on cash flow concept
D. Repayment of principal amount of law is shown in cash budget.
Answer:B

239. Baumol's Model of Cash Management attempts to:

A. Minimise the holding cost,
B. Minimization of transaction cost,
C. Minimization of total cost,
D. Minimization of cash balance
Answer:C

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240. Which of the following is not considered by Miller-Orr Model?
A. Variability in cash requirement
B. Cost of transaction,
C. Holding cost,
D. Total annual requirement of cash.
Answer:D

241. Marketable securities are primarily

A. Equity shares,'
B. Preference shares,
C. Fixed deposits with companies
D. Short-term debt investments.
Answer:D

242. 5Cs of the credit does not include

A. Collateral
B. Character,
C. Conditions,
D. None of the above
Answer:D

243. Which of the following is not an element of credit policy?

A. Credit Terms
B. Collection Policy
C. Cash Discount Terms,
D. Sales Price
Answer:D

244. Ageing schedule incorporates the relationship between

A. Creditors and Days Outstanding
B. Debtors and Days Outstanding
C. Average Age of Directors,
D. Average Age of All Employees.
Answer:B

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245. Bad debt cost is not borne by factor in case of
A. Pure Factoring
B. Without Recourse Factoring,
C. With Recourse Factoring
D. None of the above
Answer:C

246. Which of the following is not a technique of receivables Management?

A. Funds Flow Analysis
B. Ageing Schedule,
C. Days sales outstanding
D. Collection Matrix.
Answer:A

247. Which of the following is not a part of credit policy?

A. Collection Effort
B. Cash Discount,
C. Credit Standard
D. Paying Practices of debtors.
Answer:D

248. Which is not a service of a factor?

A. Administrating Sales Ledger
B. Advancing against Credit Sales,
C. Assuming bad debt losses,
D. None of the above.
Answer:D

249. Credit Policy of a firm should involve a trade-off between increased

A. Sales and Increased Profit
B. Profit and Increased Costs of Receivables,
C. Sales and Cost of goods sold,
D. None of the above.
Answer:B

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250. Out of the following, what is not true in respect of factoring?
A. Continuous Arrangement between Factor and Seller,
B. Sale of Receivables to the factor,
C. Factor provides cost free finance to seller
D. None of the above.
Answer:C

251. Payment to creditors is a manifestation of cash held for:

A. Transactionery Motive,
B. Precautionary Motive,
C. Speculative Motive,
D. All of the above.
Answer:A

252. If the closing balance of receivables is less than the opening balance for a
month then which one is true out of
A. Collections>Current Purchases,
B. Collections>Current Sales,
C. Collections<Current Purchases,
D. Collections < Current Sales.
Answer:B

253. If the average balance of debtors has increased, which of the following might
not show a change in general?
A. Total Sales,
B. Average Payables
C. Current Ratio
D. Bad Debt loss
Answer:B

254. Securitization is related to conversion of

A. Receivables,
B. Stock,
C. Investments,
D. Creditors.

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Answer:A

255. 80% of sales of 10,00,000 of a firm are on credit. It has a Receivable Turnover
of 8. What is the Average collection period (360 days a year) and Average Debtors
of the firm?
A. 45 days and 1,00,000
B. 360 days and 1,00,000,
C. 45 days and 8,00,000
D. 360 days and 1,25,000
Answer:A

256. In response to market expectations, the credit pence r j been increased from
45 days to 60 days. This would result in
A. Decrease in Sales,
B. Decrease in Debtors,
C. Increase in Bad Debts,
D. Increase in Average Collection Period.
Answer:D

257. If a company sells its receivable to another party to raise funds, it is known as
A. Securitization
B. Factoring,
C. Pledging
D. None of the above.
Answer:B

258. Cash Discount term 3/15, net 40 means

A. 3% Discount if payment in 15 days, otherwise full payment in 40 days,
B. 15% Discount if payment in 3 days, otherwise full payment 40 days,
C. 3% Interest if payment made in 40 days and 15%,interest thereafter,
D. None of the above.
Answer:A

259. If the sales of the firm are . 60,00,000 and the average debtors are . 15,00,000
then the receivables turnover is
A. 4 times

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 B. 25%
C. 400%
D. 0.25 times
Answer:A

260. If cash discount is offered to customers, then which of the following would
increase?
A. Sales
B. Debtors
C. Debt collection period
D. All of the above
Answer:A

261. Receivables Management deals with

A. Receipts of raw materials
B. Debtors collection,
C. Creditors Management
D. Inventory Management
Answer:B

262. Which of the following is related to Receivables Management?

A. Cash Budget
B. Economic Order Quantity,
C. Ageing schedule
D. All of the above.
Answer:C

263. EOQ is the quantity that minimizes

A. Total Ordering Cost
B. Total Inventory Cost,
C. Total Interest Cost
D. Safety Stock Level
Answer:A

264. ABC Analysis is used in

A. Inventory Management

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 B. Receivables Management
C. Accounting Policies,
D. Corporate Governance.
Answer:A

265. If no information is available, the General Rule for valuation of stock for
balance sheet is
A. Replacement Cost
B. Realizable Value,
C. Historical Cost
D. Standard Cost
Answer:C

266. In ABC inventory management system, class A items may require

A. Higher Safety Stock
B. Frequent Deliveries
C. Periodic Inventory system
D. Updating of inventory records.
Answer:A

267. Inventory holding cost may include

A. Material Purchase Cost
B. Penalty charge for default,
C. Interest on loan,
D. None of the above
Answer:D

268. Use of safety stock by a firm would

A. Increase Inventory Cost
B. Decrease Inventory Cost,
C. No effect on cost
D. None of the above
Answer:A

269. Which of the following is true for a company which uses continuous review
inventory system

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 A. Order Interval is fixed
B. Order Interval varies,
C. Order Quantity is fixed
D. Both (a) and (c)
Answer:C

270. ABC Analysis is useful for analyzing the inventories:

A. Based on their Quality
B. Based on their Usage and value
C. Based on Physical Volume
D. All of the above
Answer:B

271. If A = Annual Requirement, O = Order Cost and C = Carrying Cost per unit
per annum, then EOQ
A. (2AO/C) 2
B. 2AO/C
C. 2A÷OC
D. 2AOC
Answer:B

272. Inventory is generally valued as lower of

A. Market Price and Replacement Cost
B. Cost and Net Realizable Value
C. Cost and Sales Value
D. Sales Value and Profit.
Answer:B

273. Which of the following is not included in cost of inventory?

A. Purchase cost
B. Transport in Cost,
C. Import Duty,
D. Selling Costs.
Answer:D

274. Cost of not carrying sufficient inventory is known as

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 A. Carrying Cost
B. Holding Cost
C. Total Cost
D. Stock-out Cost
Answer:D

275. Which of the following is not a benefit of carrying inventories

A. Reduction in ordering cost,
B. Avoiding lost sales,
C. Reducing carrying cost,
D. Avoiding Production Shortages.
Answer:C

276. Which of the following is not a standard method of inventory valuation?

A. First in First out
B. Standard Cost
C. Average Pricing
D. Realizable Value
Answer:C

277. System of procuring goods when required, is known as,

A. Free on Board (FOB) (b)always Butter Control
B. ,
C. Jest in Time (JIT)
D. Economic Order Quantity.
Answer:C

278. A firm has inventory turnover of 6 and cost of goods sold is 7,50,000. With
better inventory management, the inventory turnover is increased to 10. This
would result in:
A. Increase in inventory by 50,000,
B. Decrease in inventory by . 50,000,
C. Decrease in cost of goods sold,
D. Increase in cost of goods sold.
Answer:B

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279. What is Economic Order Quantity?
A. Cost of an Order
B. Cost of Stock
C. Reorder level
D. Optimum order size.
Answer:D

280. The type of collateral (security) used for short-term loan is

A. Real estate,
B. Plant & Machinery,
C. Stock of good
D. Equity share capital
Answer:C

281. Which of the following is a liability of a bank?

A. Treasury Bills,
B. Commercial papers,
C. Certificate of Deposits,
D. Junk Bonds.
Answer:C

282. Commercial paper is a type of

A. Fixed coupon Bond
B. Unsecured short-term debt
C. Equity share capital,
D. Government Bond
Answer:B

283. Which of the following is not a spontaneous source of short-term funds ?

A. Trade credit,
B. Accrued expenses,
C. Provision for dividend,
D. All of the above.
Answer:C

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284. Concept of Maximum Permissible Bank finance was introduced by
A. Kannan Committee
B. Chore Committee,
C. Nayak Committee,
D. Tandon Committee.
Answer:D

285. In India, Commercial Papers are issued as per the guidelines issued by
A. Securities and Exchange Board of India,
B. Reserve Bank of India,
C. Forward Market Commission,
D. None of the above.
Answer:B

286. Commercial paper are generally issued at a pries

A. Equal to face value,
B. More than face value,
C. Less than face value,
D. Equal to redemption value
Answer:C

287. Which of the following is not applicable to commercial paper

A. Face Value
B. Issue Price
C. Coupon Rate
D. None of the above.
Answer:D

288. The basic objective of Tandon Committee recommendations is that the

dependence of industry on bank should gradually
A. Increase,
B. Remain Stable
C. Decrease
D. None of the above
Answer:C

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289. Cash discount terms offered by trade creditors never be accepted because
A. Benefit in very small
B. Cost is very high
C. No sense to pay earlier
D. None of the above.
Answer:D

290. In lease system, interest is calculated on

A. Cash down payment
B. Cash price outstanding
C. Hire purchase price
D. None of the above
Answer:B

291. A short-term lease which is often cancellable is known as

A. Finance Lease
B. Net Lease,
C. Operating Lease
D. Leverage Lease
Answer:C

292. Which of the following is not a usual type of lease arrangement?

A. Sale & leaseback,
B. Goods on Approval,
C. Leverage Lease,
D. Direct Lease
Answer:B

293. Under income-tax provisions, depreciation on lease asset is allowed to

A. Lessor
B. Lessee
C. Any of the two
D. None of the two
Answer:A

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294. Under the provisions of AS-19 'Leases', a leased asset is shown is the balance
sheet of
A. Manufacturer
B. Lessor
C. Lessee
D. Financing bank
Answer:C

295. A lease which is generally not cancellable and covers full economic life of the
asset is known as
A. Sale and leaseback,
B. Operating Lease
C. Finance Lease,
D. Economic Lease
Answer:C

296. Lease which includes a third party (a lender) is known as

A. Sale and leaseback
B. Direct Lease,
C. Inverse Lease,
D. Leveraged Lease
Answer:D

297. One difference between Operating and Financial lease is:

A. There is often an option to buy in operating lease
B. There is often a call option in financial lease.
C. An operating lease is generally cancelable by lease
D. A financial lease in generally cancelable by lease.
Answer:C

298. From the point of view of the lessee, a lease is a:

A. Working capital decision,
B. Financing decision,
C. Buy or make decision,
D. Investment decision

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Answer:B

299. For a lesser, a lease is a

A. Investment decision,
B. Financing decision,
C. Dividend decision
D. None of the above.
Answer:A

300. Which of the following is not true for a "Lease decision for the lessee?
A. Helps in project selection
B. Helps in project financing
C. Helps in project location
D. All of the above.
Answer:B

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