Financial Management

381. In case of divisible projects, which of the following can be used to attain maximum NPV?

  1. Feasibility Set Approach
  2. Internal Rate of Return
  3. Profitability Index Approach
  4. Any of the above
Correct answer: (C)
Profitability Index Approach

382. If the Real rate of return is 10% and Inflation s Money Discount Rate is:

  1. 14.4%
  2. 2.5%
  3. 25%
  4. 14%
Correct answer: (A)
14.4%

383. Risk of a Capital budgeting can be incorporated

  1. Adjusting the Cash flows
  2. Adjusting the Discount Rate
  3. Adjusting the life
  4. All of the above
Correct answer: (D)
All of the above

384. Which of the following cost of capital require tax adjustment?

  1. Cost of Equity Shares
  2. Cost of Preference Shares
  3. Cost of Debentures
  4. Cost of Retained Earnings
Correct answer: (C)
Cost of Debentures

385. Firm's Cost of Capital is the average cost of:

  1. All sources
  2. All borrowings
  3. Share capital
  4. Share Bonds & Debentures
Correct answer: (A)
All sources

386. In order to calculate the proportion of equity financing used by the company, the following should be used:

  1. Authorised Share Capital
  2. Equity Share Capital plus Reserves and Surplus
  3. Equity Share Capital plus Preference Share Capital
  4. Equity Share Capital plus Long-term Debt
Correct answer: (B)
Equity Share Capital plus Reserves and Surplus

387. Operating leverage helps in analysis of:

  1. Business Risk
  2. Financing Risk
  3. Production Risk
  4. Credit Risk
Correct answer: (A)
Business Risk

388. Combined leverage can be used to measure the relationship between:

  1. EBIT and EPS
  2. PAT and EPS
  3. Sales and EPS
  4. Sales and EBIT
Correct answer: (C)
Sales and EPS

389. Use of Preference Share Capital in Capital structure

  1. Increases OL
  2. Increases FL
  3. Decreases OL
  4. Decreases FL
Correct answer: (B)
Increases FL

390. If a company issues new share capital to redeem debentures, then:

  1. OL will increase
  2. FL will increase
  3. OL will decrease
  4. FL will decrease
Correct answer: (D)
FL will decrease
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