Financial Management

361. Gross Profit Ratio for a firm remains same but the Net Profit Ratio is decreasing. The reason for such behavior could be:

  1. Increase in Costs of Goods Sold
  2. If Increase in Expense
  3. Increase in Dividend
  4. Decrease in Sales
Correct answer: (B)
If Increase in Expense

362. Financial planning starts with the preparation of:

  1. Master Budget
  2. Cash Budget
  3. Balance Sheet
  4. None of the above
Correct answer: (D)
None of the above

363. Which of the following is not a capital budgeting decision?

  1. Expansion Programme
  2. Merger
  3. Replacement of an Asset
  4. Inventory Level
Correct answer: (D)
Inventory Level

364. Which of the following is not true with reference capital budgeting?

  1. Capital budgeting is related to asset replacement decisions
  2. Cost of capital is equal to minimum required return
  3. Existing investment in a project is not treated as sunk cost
  4. Timing of cash flows is relevant
Correct answer: (C)
Existing investment in a project is not treated as sunk cost

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

  1. Opportunity Costs
  2. Sunk Costs
  3. Change in Working Capital
  4. Inflation effect
Correct answer: (B)
Sunk Costs

366. In case of the indivisible projects, which of the following may not give the optimum result?

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

367. Two mutually exclusive projects with different economic lives can be compared on the basis of

  1. Internal Rate of Return
  2. Profitability Index
  3. Net Present Value
  4. Equivalent Annuity Value
Correct answer: (D)
Equivalent Annuity Value

368. In Risk-Adjusted Discount Rate method, which one is adjusted?

  1. Cash flows
  2. Life of the proposal
  3. Rate of discount
  4. Salvage value
Correct answer: (C)
Rate of discount

369. Cost of Capital for Government securities is also known as:

  1. Risk-free Rate of Interest
  2. Maximum Rate of Return
  3. Rate of Interest on Fixed Deposits
  4. None of the above
Correct answer: (A)
Risk-free Rate of Interest

370. In case of partially debt-financed firm, k0 is less

  1. Kd
  2. Ke
  3. Both (a) and (b)
  4. None of the above
Correct answer: (B)
Ke
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