TYBMS SEM-6 Finance: Strategic Financial Management (Objective Questions with Solutions)

 Paper/Subject Code: 86011/Finance: Strategic Financial Management

TYBMS SEM-6 

Finance: 

Strategic Financial Management 

(Objective Questions with Solutions)

 

Q.1 (A) Choose the correct Option and rewrite the sentence: (Any Eight)

1. The most common form of dividend payment is,

(a) Stock Dividend

(b) Cash Dividend

(c) Stock Split

(d) Bonus issue

2. XBRL India is formed as one of the following.

(a) Registered Company

(b) Government

(c) Trust Corporation 

(d) Partnership with XBRL. International

3. Estimate of cash flow is affected by

(a) Future Price Trend

(b) Competition.

(c) Sales volume

(d) All of the above

4. _______ ensures that less number of projects are selected by imposing capital restrictions.

(a) Capital structure

(b) Capital Budgeting

(c) Capital Rationing

(d) None of the above

5. EVA is a corporate surplus which is shared by 

(a) Employees and Management

(b) Employees and Shareholders

(c) Shareholders only

(d) Employees, Management and Shareholders

6. Corporate Governance practice includes

(a) Audit Committee

(b) Management Analysis 

(c) Communication

(d) All of the Above

7. In Amalgamation, all the assets and liabilities of the transferor company are pooled into the books of transferee company at

(a) Market Value

(b) Books Value

(c) Fair Value

(d) Realizable Value

8. NPA stands for

(a) Net Performing Assets 

(b) Non Performing Assets

(c) Non Privilege Assets

(d) None of the Above

9. Public deposits are accepted for a maximum of years.

(a) 1

(b) 2

(c) 3

(d) 5

10. In India, Commercial Papers are issued as per the guidelines issued by

(a) SEBI

(b) RBI

(c) Forward Market Commission

(d) None of the Above

B) State whether the following questions are True or False (Any Seven) 

1. The dividend policy of a firm is decided by its Board of Directors.

Ans: TRUE

2. XBRL provides reporting framework that controls risks.

Ans: FALSE

3. In sensitivity analysis, the sensitivity of human factor is identified.

Ans: FALSE

4. Capital rationing is caused by external factors only.

Ans: FALSE

5. Fictitious assets are added to the share capital to get net worth. 

Ans: FALSE

6. Disclosure is the principle of corporate governance.

Ans: TRUE

7 . Preference dividend is added to NPAT for calculation of EPS

Ans: FALSE

8. Standard assets are those assets which do not have any risk.

Ans: FALSE

9. Term loan is an advance given by bank to its customers.

Ans: FALSE

10. Depreciation is an external source of finance.

Ans: FALSE

Q-1) (A) Fill in the blanks by choosing the correct option: (Any eight)    (08 marks)

1. Capital rationing helps in ________ shareholders wealth. (Maximizing, minimizing, doubling)

ANS: Maximizing

2. Dividend is paid in ________. (cash, kind, both)

ANS: Both

3. In a _______ loans it is raised against the personal guarantee of the borrowers. (unsecured, secured. none of these) 

ANS: Secure

4. _______ is the most liquid item of current assets. (Cash, Stock, Debtors)

ANS: Cash

5. High tax rates demands _______ amount of Working Capital. (less, more, none of these)

ANS: Less

6. Bills purchased and discounted is treated as NPA when they remain unpaid for more than _______ days (45, 30,90)

ANS: 90

7. Co-efficient of Variation indicates that _______ the co-efficient, the riskier is the project. (higher, lower, zero)

ANS: Higher

8. _______ is excess of Market Capitalization over net worth, (EVA, MVA, Residual Income.)

ANS: MVA

9 . An asset becomes non-performing when _______ (no income is received, loss is incurred, no profit is received).

ANS: No income is received

10. Earnings per share remains constant is the assumption of ______ model. (Walter, MM. Gordon)

ANS: Gordon

Q-1) (B) State whether the following statements are True or False: (Any seven)    (07 marks)

1. In case of inadequate working capital situation, the firm runs the risk of insolvency.

Ans: True

2. Dividend becomes a liability when it is recommended by directors.

Ans: False. Dividends are not liabilities. They are distributions of a company's profits to its shareholders. However, the board of directors does need to recommend and the shareholders need to approve the dividend before it can be paid.

3. A firm using labour oriented technology will require more working capital to pay labour wages regularly.

Ans: True

4. XBRL provides reporting framework that control risks.

Ans: False. XBRL (eXtensible Business Reporting Language) is a data format for financial reporting, not a risk control framework. While it can improve transparency and data accuracy, it doesn't directly control risks.

5. Marketable Securities are temporary short term investments made out of surplus cash balance.

Ans: True

6. RBI is the Central Bank of India.

Ans: True

7. Zero working capital is when both current assets and current liabilities.

Ans: False. Zero working capital is a theoretical concept where a company's current assets and current liabilities are exactly equal. In reality, most companies will have some level of working capital, either positive (current assets exceed current liabilities) or negative (current liabilities exceed current assets).

8. Disclosure is the principle of corporate governance.

Ans: True

9. Amalgamation is governed by AS 14.

Ans: True

10. NPA stands for Net Performing Asset.

Ans: False. NPA stands for Non-Performing Asset. It refers to a loan or advance where the borrower is in default and has not made the required payments (interest or principal) for a specific period.

Q.1 (A) Choose correct alternative and rewrite the statement: (Any 8)

1. Under Walter dividend policy if r <ke, the firm should have _________ payout ratio

a) Zero dividend

b) 100% dividend

c) Any dividend

d) 50% dividend

2. _________ is a situation where a constraint or budget is placed on the total size of capital expenditures during a particular period.

a) Capital budgeting

b) Capital rationing

c) Cost of capital

d) Leverage

3. The relationship between dividend per share and earning per share is 

a) Dividend yield ratio

b) Dividend payout ratio

c) Book value per share

d) Price Earnings ratio

4. PI of a project is the ratio of present value of inflows to _______

a) Initial cost

b) PV of outflows 

c) Total cash inflows

d) Total outflows

5. ______ represents those funds which are required to manage day-to-day business operations.

a) Long term capital

b) Short term capital 

c) Working capital

d) None of above

6. _______ is a schematic representation of several decisions followed by different chances of the occurrence.

a) Sensitivity analysis

b) Probability techniques

c) Risk Adjusted Discounting Rate

d) Decision Tree

7. Net Profit for calculation of EVA is

a) NPAT

b) NPBT

c) NOPAT

d) NOP

8. If a profit-making company is absorbed into a loss-making company, then this is a case of _______

a) Hostile takeover bid

b) Horizontal merger

c) Reverse Merger

d) Takeover

9. In case of Sub-Standard Asset (unsecured), provision for NPA should be made at

a) 15%

b) 25%

c) 40%

d) 100%

10. Which among the following is short term sources of working capital financing?

a) Bill discounting

b) Letter of credit

c) Commercial paper 

d) All of the above

Q.1 (B) State whether given statements are True or False: (Any 7)

1. MM model deals with irrelevance of dividend decision.

Ans: True

2. Under Walter dividend policy, if r < ke, the firm is indifferent between dividends and investments.

Ans: True

3. Capital budgeting deals with long term decisions.

Ans: True

4 An estimation of the present value of cash for high-risk investments is known as adjusted discounting rate. 

Ans: False. The correct term is "risk-adjusted discount rate." It represents the discount rate adjusted for the level of risk associated with an investment.

5. Corporate governance is the system of rules, practices and processes by which a firm is directed and controlled.

Ans: True

6. In order to protect the earnings available to shareholders, the swap ratio should be based on EPS.

Ans: False. The swap ratio in a merger is typically based on the relative valuation of the merging companies, not solely on earnings per share (EPS)

7. Trade credit is a spontaneous source of finance.

Ans: True

8. In hostile takeover bid, the price of the merger depends upon the mutual consent. 

Ans: False. In a hostile takeover bid, the price of the merger is typically determined by the acquiring company's offer, without the consent of the target company's management.

9. Vertical merger involves a merger between two firms operating and competing in the same kind of business.

Ans: False. A vertical merger involves firms operating at different stages of the production or distribution process, while a horizontal merger involves firms in the same line of business.

10. Working capital represent those funds which are required to manage long term business operations.

Ans: False. Working capital represents funds required for day-to-day operations, not long-term business operations.

Q.1 (A) Choose correct alternative and rewrite the statement: (Any 8)     (8)

1. In case of Loss Asset, provision for NPA should be made ________

a) 15%

b) 25%

c) 40%

d) 100%

2. Relationship between dividend per share and earning per share is _______

a) Price Earnings Ratio

b) Dividend yield ratio

c) Dividend payout ratio

d) intrinsic value per share

3. Net Profit for calculation of EVA is _________

a) NPAT

b) NPBT

c) NOP

d) NOPAT

4. If the firm has Ke <r, the Walter's Model suggests for ________

a) 0% Payout

b) 50% Payout

c) 25% Payout

d) 100% Payout

5. Merger between firms engaged in unrelated types of business activity is ________

a) Horizontal

b) Vertical

c) Conglomerate

d) Reserve

6. Capital Rationing helps in shareholders wealth.

a) Maximizing

b) Minimizing

c) Stabilizing

d) Measuring

7. Pl of a project is the ratio of present value of inflows to ________.

a) Initial cost

b) PV of outflows

c) Total cash inflows

d) Total outflows

8. ________ represents those funds which are required to manage day-to-day business operations.

a) Long term capital

b) Short term capital

c) Working capital

d) None of above

9. Which among the following is short term sources of working capital-financing?

a) Bill discounting

b) Letter of credit

c) Commercial paper

d) All of the above

10. ________ is a schematic representation of several decisions followed by different chances of the occurrence.

a) Sensitivity analysis

b) Probability techniques

c) Risk Adjusted Discounting Rate

d) Decision Tree

Q.1 (B) State whether given statements are True or False: (Any 7)         (7)

1. Corporate governance essentially involves balancing of the interests of only shareholders.

Ans: False

2. Dividend policy is decided by the shareholders.

Ans: False

3 MM model deals with relevance of dividend decisions.

Ans: False

4 Preference dividend is deducted from NPAT for calculation of EPS.

Ans: True

5. Standard assets are those assets which do not have any risk.

Ans: False

6. Capital budgeting decisions involves huge investment outlay.

Ans: True

7. In order to protect the earnings available to shareholders, the swap ratio should be based on MPS.

Ans: False

8. MPBF refers to Maximum Permissible Bank Finance.

Ans: True

9 Discounting of bills is converting the bill into cash.

Ans: True

10. Dividend payout ratio refers to that portion of total earnings which is distributed among shareholders.

Ans:  True