Financial Management

421. Capital Budgeting is a part of:

  1. Investment Decision
  2. Working Capital Management
  3. Marketing Management
  4. Capital Structure
Correct answer: (A)
Investment Decision

422. Cash Inflows from a project include:

  1. Tax Shield of Depreciation
  2. After-tax Operating Profits
  3. Raising of Funds
  4. Both (a) and (b)
Correct answer: (D)
Both (a) and (b)

423. In Capital Budgeting, Sunk cost is excluded because it is:

  1. of small amount
  2. not incremental
  3. not reversible
  4. All of the above
Correct answer: (B)
not incremental

424. In Certainty-equivalent approach, adjusted cash flows are discounted at:

  1. Accounting Rate of Return
  2. Internal Rate of Return
  3. Hurdle Rate
  4. Risk-free Rate
Correct answer: (D)
Risk-free Rate

425. Cost of Capital refers to:

  1. Flotation Cost
  2. Dividend
  3. Required Rate of Return
  4. None of the above
Correct answer: (C)
Required Rate of Return

426. Weighted Average Cost of Capital is generally denoted by:

  1. kA
  2. kw
  3. k0
  4. kc
Correct answer: (C)
k0

427. An implicit cost of increasing proportion of debt is:

  1. Tax should would not be available on new debt
  2. P.E. Ratio would increase
  3. Equity shareholders would demand higher return
  4. Rate of Return of the company would decrease
Correct answer: (C)
Equity shareholders would demand higher return

428. Minimum Rate of Return that a firm must earn in order to satisfy its investors, is also known as:

  1. Average Return on Investment
  2. Weighted Average Cost of Capital
  3. Net Profit Ratio
  4. Average Cost of borrowing
Correct answer: (B)
Weighted Average Cost of Capital

429. Cost of issuing new shares to the public is known as:

  1. Cost of Equity
  2. Cost of Capital
  3. Flotation Cost
  4. Marginal Cost of Capital
Correct answer: (C)
Flotation Cost

430. High degree of financial leverage means:

  1. High debt proportion
  2. Lower debt proportion
  3. Equal debt and equity
  4. No debt
Correct answer: (A)
High debt proportion
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