305 Unit Test Series
Financial
system comprises of:
Financial Institutions and Financial Markets
Financial Institutions, Financial Market, Financial Instruments and
Regulators
Financial Markets
Financial Institutions and Markets
Yes, the
answer is correct.
Feedback:
A financial
system is a set of institutions, such as banks, insurance companies, and stock
exchanges, that permit the exchange of funds.
Accepted
Answers:
Financial
Institutions, Financial Market, Financial Instruments and Regulators
Financial
market includes:
Money and Capital Market
Money Market only
Capital Market only
Money, Capital and Foreign exchange market
Yes, the
answer is correct.
Feedback:
Financial
markets refer broadly to any marketplace where the trading of securities
occurs, including the stock market, bond market, forex market, and derivatives
market, among others.
Accepted
Answers:
Money,
Capital and Foreign exchange market
Governing
body of stock exchange is constituted as per directives of:
Government
Company Law Board
S.E.B.I.
R.B.I.
Yes, the
answer is correct.
Feedback:
Public
Interest directors shall be elected by the Governing Board from amongst the
persons in the SEBI constituted panel. A person shall not act as public
interest direct on more than one stock exchange simultaneously.
Accepted
Answers:
S.E.B.I.
The main
objective of SEBI is
Investors' protection
Controlling the Market Index
Designig financial products
Compiliation of data on capital market
Yes, the
answer is correct.
Feedback:
The primary
objective of SEBI is to protect the interest of people in the stock market and
provide a healthy environment for them.
Accepted
Answers:
Investors'
protection
The market
available to the company for raising the long term requirement of funds is
termed as
Finance Market
Money Market
Debt Market
Capital Market
Yes, the
answer is correct.
Feedback:
Capital
market is a market where buyers and sellers engage in trade of financial
securities like bonds, stocks, etc
Accepted
Answers:
Capital
Market
Financial
system provides payment system of exchange of goods and services.
TRUE
FALSE
Yes, the
answer is correct.
Feedback:
A financial
system is a set of institutions, such as banks, that permit the exchange of
funds.
Accepted
Answers:
TRUE
Commercial
paper is capital market instrument.
TRUE
FALSE
Yes, the
answer is correct.
Feedback:
Commercial
paper is a money-market security issued (sold) by large corporations to obtain
funds to meet short-term debt obligations (for example, payroll) and is backed
only by an issuing bank or company promise to pay the face amount on the
maturity date specified on the note.
Accepted
Answers:
FALSE
A
development bank is basically a ____ institution
consulting
bill finance
lease finance
term lending
Yes, the
answer is correct.
Feedback:
Term lending
institution
Accepted
Answers:
term lending
________ is
not a part of money market.
Mutual Funds
RBI
NBFC
SEBI
Yes, the
answer is correct.
Feedback:
SEBI is not
a participant in money market. The Securities and Exchange Board of India
(SEBI) is the regulator for the securities market in India.
Accepted
Answers:
SEBI
EXIM Bank
sanctions _______ , pre-shipment credit and Export marketing finance
Supplier’s credit
Credit cards
Overdraft
Cash Credit
Yes, the
answer is correct.
Feedback:
Supplier's
Credit is a structure of financing import into India. In this structure,
overseas suppliers or financial institutions outside India provide financing to
importer on Libor linked rates against usance letter of credit (LC).J
Accepted Answers:
Supplier’s
credit
The balance
sheet of the firm shows:
the profitability of the firm over time
the holdings and obligations of the firm
the assets of the firm on a current cost basis
the receipt and disbursement of corporate
funds
Yes, the answer
is correct.
Feedback:
A balance
sheet is a financial statement that reports a company's assets, liabilities and
shareholders' equity at a specific point in time.
Accepted
Answers:
the holdings
and obligations of the firm
Which of the
following is not a step in the development of the pro forma income statement?
Establish a sales projection.
Determine a production schedule and associated
expenses to determine gross profit.
Determine the cash receipts.
Determine profit by completing the actual pro
forma statement.
Yes, the
answer is correct.
Feedback:
To determine
the cash receipts.
Accepted
Answers:
Determine
the cash receipts.
The first
step in preparing the pro forma balance sheet is to:
prepare the pro forma income statement
prepare the cash budget
prepare the statement of cash flows
examine the prior period's balance sheet and translate the items
through time
Yes, the
answer is correct.
Feedback:
To examine
the prior period's balance sheet and translate the items through time.
Accepted
Answers:
examine the
prior period's balance sheet and translate the items through time
The least
expensive form of financing for the firm is:
existing common stock
preferred stock
debt
new common stock
Yes, the
answer is correct.
Feedback:
The least
expensive form of financing for the firm is debt.
Accepted
Answers:
debt
Asset
utilization ratios measure the speed at which firm is turning over its assets.
the speed at which the firm is turning over its assets
the ability of the firm to earn on adequate
return on sales, total assets, and invested capital
the firm's ability to pay off short term
obligations as they are due
the debt position of the firm in light of its
assets and earning power
Yes, the
answer is correct.
Feedback:
Asset utilization
ratios measures
Accepted
Answers:
the speed at
which the firm is turning over its assets
ALM is a
coordinated financial management of Balance Sheet
TRUE
FALSE
Yes, the
answer is correct.
Feedback:
TRUE
Accepted
Answers:
TRUE
Liquidity
risk emerges due to the shortage of cash to meet payment obligations.
TRUE
FALSE
Yes, the
answer is correct.
Feedback:
TRUE
Accepted
Answers:
TRUE
In preparing
the pro forma balance sheet, all of the following will normally remain
unchanged from the prior period except__________.
accounts receivable
accounts payable
long term debt
common stock
Yes, the
answer is correct.
Feedback:
Accounts
Receivable (AR) is the proceeds or payment which the company will receive from
its customers who have purchased its goods & services
Accepted
Answers:
accounts
receivable
__________asset-liability
combination would most likely result in the firm's having the greatest risk of
technical insolvency?
Increasing current assets while lowering
current liabilities.
Increasing current assets while incurring more
current liabilities.
Reducing current assets, increasing current liabilities, and reducing
long-term debt.
Replacing short-term debt with equity.
Yes, the
answer is correct.
Feedback:
To reducing
current assets, increasing current liabilities, and reducing long-term debt.
Accepted
Answers:
Reducing
current assets, increasing current liabilities, and reducing long-term debt.
_______varies
inversely with profitability.
Liquidity
Risk
Blue
FALSE
Yes, the
answer is correct.
Feedback:
Liquidity
varies inversely with profitability.
Accepted
Answers:
Liquidity
Du Pont
Analysis deals with
Analysis of current assets
Analysis of profits
Capital budgeting
Analysis of fixed assets
Yes, the
answer is correct.
Feedback:
A DuPont
analysis is used to evaluate the component parts of a company's return on
equity (ROE).
Accepted
Answers:
Analysis of
current assets
In
'Percentage of Sales' method of preparation of Projected Financial Statements,
the Operating Expenses should be projected on the basis of
% of Profit before tax
% of Cost of goods Sold
% of Gross Profit
% of Sales
Yes, the
answer is correct.
Feedback:
The percent
of sales method is a financial forecasting model in which all of a business's
accounts — financial line items like costs of goods sold, inventory, and cash —
are calculated as a percentage of sales.
Accepted
Answers:
% of Profit
before tax
Sensitivity
analysis is a study of
Comparison of profit and loss
Comparison of assets and liabilities
Change in output due to change in input
Economics of cost and benefits of the project
Yes, the
answer is correct.
Feedback:
Sensitivity
analysis is the study of how the uncertainty in the output of a mathematical
model or system (numerical or otherwise) can be divided and allocated to
different sources of uncertainty in its inputs.
Accepted
Answers:
Change in
output due to change in input
In order to
determine cash receipts, the financial manager must know:
projected sales and the profit margin
gross profit and the collection pattern
gross profit and taxes
Economics of cost and benefits of the project
Yes, the
answer is correct.
Feedback:
Projected
sales and the collection pattern.
Accepted
Answers:
projected
sales and the profit margin
Which one of
the following items is not a tool used for financial analysis?
Comparative Statements
Ratio analysis
Common size statements
Statement of dividend distribution
Yes, the
answer is correct.
Feedback:
Cash or
stock dividends distributed to shareholders are not recorded as an expense on a
company's income statement. Instead, dividends impact the shareholders' equity
section of the balance sheet.
Accepted
Answers:
Statement of
dividend distribution
A company's
current liabilities decreased from Rs 8,00,000 to Rs 3,00,000. Whats is the
percentage of change.
25%
33.3%
20%
40%
Yes, the
answer is correct.
Feedback:
25%
Accepted
Answers:
25%
When all the
figures in a balance sheet are stated as percentage of the total, it is termed
as horizontal analysis.
TRUE
FALSE
Yes, the
answer is correct.
Feedback:
TRUE
Accepted
Answers:
TRUE
When ratios
of previous years are compared with current years, they are called trend
ratios.
TRUE
FALSE
Yes, the
answer is correct.
Feedback:
TRUE
Accepted
Answers:
TRUE
In ______
figures of two or more periods are placed side by side to facilitate easy and
meaningful comparisons.
Common‐size statement analysis
Comparative statement analysis
Trend percentage analysis
Ratio analysis
Yes, the
answer is correct.
Feedback:
Preparing
Comparative Financial Statements is the most commonly used technique for
analyzing financial statements. This technique determines the profitability and
financial position of a business by comparing financial statements for two or
more time periods.
Accepted
Answers:
Comparative
statement analysis
In common
size balance sheet analysis, the _______ are taken as cent percent.
Total assets
Fixed assets
Total capital
Total ratios
Yes, the
answer is correct.
Feedback:
A common
size balance sheet is a balance sheet that displays both the numeric value and
relative percentage for total assets, total liabilities, and equity accounts.
Accepted
Answers:
Total assets
Information
that is used by investors for forecasting future earnings is documented in
Annual report
Five years report
Exchange report
Stock report
Yes, the
answer is correct.
Feedback:
An
information uses by investors for expecting future earnings is all recorded in
annual report.
Accepted
Answers:
Annual
report
All direct
& indirect expenses related to business are charged-
Profit and loss account
Trading account
Trading account Profit and Loss account
Directly to Balance sheet
Yes, the
answer is correct.
Feedback:
Indirect
expenses that are not directly associated but related to the business are to be
charged to the profit & loss account to know the net profit.
Accepted
Answers:
Trading
account Profit and Loss account
In cash
flows, when a firm invests in fixed assets and short-term financial investments
results in
Increased Equity
Increased Liabilities
Decreased Cash
Increased Cash
Yes, the
answer is correct.
Feedback:
In a
statement of cash flows, a company investing in short-term financial
investments and in fixed assets results in decreased cash.
Accepted
Answers:
Decreased
Cash
The
statement of cash flow clarifies cash flows according to
Operating and Non-operating Flows
Inflow and Outflow
Investing and Non-operating Flows
Investing and Non-operating Flows
Yes, the
answer is correct.
Feedback:
Investing and
non-operating flows
Accepted
Answers:
Investing
and Non-operating Flows
Which of the
following best describes a trial balance?
It is a list of balances on the books
It is a special account
Shows the financial position of a business
Shows all the entries in the books
Yes, the
answer is correct.
Feedback:
trial
balance is a list of all the general ledger accounts (both revenue and capital)
contained in the ledger of a business.
Accepted
Answers:
It is a list
of balances on the books
Facts and
figures presented in financial statements may be affected by personal bias.
TRUE
FALSE
Yes, the
answer is correct.
Feedback:
FALSE
Accepted
Answers:
FALSE
Financial
statement analysis is an important means of assessing past performance and planning
future performance.
TRUE
FALSE
Yes, the
answer is correct.
Feedback:
It is an
important means of assessing past performance and in forecasting and planning
future performance.
Accepted
Answers:
TRUE
The analysis
of actual movement of money inflow and outflow in an organisation is
called——————— analysis.
fund flow
Cash flow
Stock flow
Goods flow
Yes, the
answer is correct.
Feedback:
Cash flow is
the net amount of cash and cash-equivalents being transferred into and out of a
business
Accepted
Answers:
Cash flow
The
projected financial Statements depict the future business plan in________terms.
Quantitative
Qualitative
Ratio
comparative
Yes, the
answer is correct.
Feedback:
The
projected financial Statements depict the future business plan in quantitative
terms.
Accepted
Answers:
Quantitative
In
projection of statements Average Credit Period on Sales is considered for
_______days.
20
15
10
25
Yes, the
answer is correct.
Feedback:
15 days.
Accepted
Answers:
15
A contract
between a buyer and a seller entered into today regarding a transaction to be
fulfilled at a future point in time is called
Fixed contract
Derivative contract
Forward contract
Future contract
Yes, the
answer is correct.
Feedback:
A derivative
is a contract between two or more parties whose value is based on an
agreed-upon underlying financial asset, index or security.
Accepted
Answers:
Derivative
contract
Over the
life of the derivative contract, the value of the derivative
fluctuates with the price of the so-called “underlying” of the contract
Decreases
Increasess
Remain unchanged
Yes, the
answer is correct.
Feedback:
A futures
contract, for example, is a derivative because its value is affected by the
performance of the underlying asset.
Accepted Answers:
fluctuates
with the price of the so-called “underlying” of the contract
In India,
NIFTY and SENSEX are calculated on the basis of
Market capitalization
Paid up capital
Free float capitalization
Authorized share capital
Yes, the
answer is correct.
Feedback:
The Index is
determined on a daily basis by taking into consideration the current market
value divided by base market capital and then multiplied by the Base Index
Value of 1000.
Accepted
Answers:
Free float
capitalization
Which of the
following derivative is not traded on Indian Stock Market?
Index options
Stock futures
Index futures
Forward rate agreements
Yes, the
answer is correct.
Feedback:
Forward Rate
Agreements (FRA's) are similar to forward contracts where one party agrees to borrow
or lend a certain amount of money at a fixed rate on a pre-specified future
date.
Accepted
Answers:
Forward rate
agreements
Spot
exchange rate is the rate of exchange between two currencies.
For immediate delivery
For future delivery
For delivery at a particular spot in future
To hedge the transaction
Yes, the
answer is correct.
Feedback:
Spot
exchange rate (or FX spot) is the current rate of exchange between two
currencies. It is the rate at which the currencies can be exchanged
immediately.
Accepted
Answers:
For
immediate delivery
Before
expiry date, the time value of a call option is
Strike price - Spot price
Spot price - Striker price
market premium - Intrinsic value
Intrinsic value
Yes, the
answer is correct.
Feedback:
As an
equation, time value is expressed as Option Premium - Intrinsic Value = Time
Value.
Accepted
Answers:
market
premium - Intrinsic value
When you
expect prices to rise, then you take a short position by selling Puts. You are
bullish.
TRUE
FALSE
Yes, the
answer is correct.
Feedback:
TRUE
Accepted
Answers:
TRUE
When you
expect prices to fall, then you take a long position by buying Put Options. You
are bearish.
TRUE
FALSE
Yes, the
answer is correct.
Feedback:
TRUE
Accepted
Answers:
TRUE
______option
not available in India?
Index
Index future
Commodity
Commodity futures
Yes, the
answer is correct.
Feedback:
As per
current regulatory norms, only European style commodity options are available
in India at present.
Accepted
Answers:
Commodity
The price of
underlying asset is added into intrinsic value of option to calculate_______.
forward price of option
exercise price of option
book value of option
spot price of option
Yes, the
answer is correct.
Feedback:
The price of
underlying asset is added into intrinsic value of option to calculate
Accepted
Answers:
exercise
price of option
Share
application and allotment account is a:
Personal account
Real account
Nominal account
broker account
Yes, the
answer is correct.
Feedback:
Share
Application or share allotment or Share capital A/c all are personal accounts
as they represent money from the shareholders and when money is due, these are
to be debited because of the rule "Debit the receiver".
Accepted
Answers:
Personal
account
Which of the
following capital is not shown in company's balance sheet?
Authorised capital
Issued and subscribed capital
Called up and paid capital
Reserve capital
Yes, the
answer is correct.
Feedback:
Reserve
capital is not shown in company's balance sheet.
Accepted
Answers:
Reserve
capital
Government
securities are issued through following place.
Public debt office
SEBI
DFHI
Stock exchange
Yes, the
answer is correct.
Feedback:
Government
securities are issued through public debt office.
Accepted
Answers:
Public debt
office
ESOP stands
for:
Employers Stock Option Plan
Employees Stock Option Plan
Employees Stock Option Premium
Employees Stock Ownership Plan
Yes, the
answer is correct.
Feedback:
Employees
Stock Option Plan
Accepted
Answers:
Employees
Stock Option Plan
Book
building is managed by the:
Lead manager
Register and booked runner
Registrar
Book runner and lead manager
Yes, the
answer is correct.
Feedback:
The book
building process helps determine the value of the security. Once a company
determines it wants to have an IPO, it will then contact a bookrunner or a lead
manager.
Accepted
Answers:
Lead manager
Securities
premium once received cannot be cancelled.
TRUE
FALSE
Yes, the
answer is correct.
Feedback:
TRUE
Accepted
Answers:
TRUE
Only sweat equity
shares can be issued at discount.
TRUE
FALSE
Yes, the
answer is correct.
Feedback:
'Sweat
equity shares' are such equity shares, which are issued by a Company to its
directors or employees at a discount or for consideration, other than cash, for
providing their know-how or making available rights in the nature of
intellectual property rights or value additions, by whatever name called.
Accepted
Answers:
TRUE
_______is
the process of admitting securities for trading on a recognized stock exchange.
Issuing
Investing
Listing
circuit breaker
Yes, the
answer is correct.
Feedback:
Listing is
the process of admitting securities for trading on a recognized stock exchange
Accepted
Answers:
Issuing
Equity
shares and preference shares are ownership securities, also known as_________.
Debt capital
Capital stock
Fixed capital
Capital issue
Yes, the
answer is correct.
Feedback:
Capital
stock is the amount of common and preferred shares that a company is authorized
to issue—recorded on the balance sheet under shareholders' equity.
Accepted
Answers:
Capital
stock
___________are
equity shares issued by the company to employees or directors at a discount or
for consideration other than cash.
Derivatives
Securitized instruments
Fixed capital
detachable warrants
Yes, the
answer is correct.
Feedback:
'Sweat
equity shares' are such equity shares, which are issued by a Company to its
directors or employees at a discount or for consideration, other than cash, for
providing their know-how or making available rights in the nature of
intellectual property rights or value additions, by whatever name called.
Accepted
Answers:
Fixed
capital
Measuring
the weighted-average maturity of a fixed income instrument stated in present
value terms is known as:
The correlation coefficient.
Bond duration
Net present value
An inverse yield gap
Yes, the
answer is correct.
Feedback:
Duration is
an approximate measure of a bond's price sensitivity to changes in interest
rates.
Accepted
Answers:
Bond
duration
The expenditure
incurred on fixed assets are expected to give return over
One year
Two year
A number of years
Five years
Yes, the
answer is correct.
Feedback:
An
expenditure incurred relating to fixed asset resulting in increase in capacity
of the asset should be added to the gross book value of asset.
Accepted
Answers:
A number of
years
A company
having ample stock of liquid current assets will require
More amount of working capital
Lesser amount of working capital
Adequate amount of working capital
No working capital required
Yes, the
answer is correct.
Feedback:
A company
having ample stock of liquid current assets will require more amount of working
capital.
Accepted
Answers:
More amount
of working capital
Deposit
schemes of Banks can be grouped into given no of categories.
three
Two year
four
five
Yes, the
answer is correct.
Feedback:
Deposit
schemes of Banks can be grouped into 3 categories.
Accepted
Answers:
three
Short-term
gains are covered under which section of Income Tax Act.
80C
80A
111A
111B
Yes, the
answer is correct.
Feedback:
Section 111A
is applicable in case of STCG arising on transfer of equity shares or units of
equity oriented mutual-funds (*) or units of business trust, which are
transferred on or after 1-10-2004 through a recognised stock exchange and such
transaction is liable to securities transaction tax (STT).
Accepted
Answers:
111A
Real estate
does not includes Land, House property, Office premises etc.
TRUE
FALSE
Yes, the
answer is correct.
Feedback:
Real estate
is property consisting of land and the buildings on it, along with its natural
resources such as crops, minerals or water.
Accepted
Answers:
FALSE
80C came
into force with effect from 1st April, 2006.
TRUE
FALSE
Yes, the
answer is correct.
Feedback:
Section 80C
of the Income Tax Act came into effect on 1 April 2006
Accepted
Answers:
TRUE
Equity
Linked Saving Scheme is an ____ equity growth scheme that is offered by mutual
funds.
close-ended
open-ended
Can't say
not defined
Yes, the
answer is correct.
Feedback:
Equity
Linked Saving Scheme or ELSS is a type of mutual fund scheme that primarily
invests in the stock market or Equity.
Accepted
Answers:
open-ended
The
advantages of mutual fund are _______, transparency, liquidity, safety, professional
management and economy of scale.
diversion
diversification
revision
loss
Yes, the
answer is correct.
Feedback:
Diversification.
Accepted
Answers:
diversification
ELSS stands
for ____
Equity Linked Savings Scheme
Equity Link Savings Scheme
Equity Linked Saved Scheme
None of these
Yes, the
answer is correct.
Feedback:
Equity
Linked Savings Scheme
Accepted
Answers:
Equity
Linked Savings Scheme
What is the
value of the firm usually based on?
The value of debt and equity.
The value of equity.
The value of debt.
The value of assets plus liabilities.
Yes, the
answer is correct.
Feedback:
The value of
equity.
Accepted
Answers:
The value of
equity.
Which of the
following defines the market to book value?
The ratio of stock market valuation divided by the value of its NAV.
The ratio of NAV value divided by stock market
valuation.
The market value of tangible assets divided by
the book value of tangible assets.
The market value of intangible assets divided
by the book value of intangible assets.
Yes, the
answer is correct.
Feedback:
The ratio of
stock market valuation divided by the value of its NAV.
Accepted
Answers:
The ratio of
stock market valuation divided by the value of its NAV.
Different
Concepts of Values does NOT includes:
Market Value
Replacement Value
Liquidation Value
Chapter Value
Yes, the
answer is correct.
Feedback:
Chapter
Value
Accepted
Answers:
Chapter
Value
Unlisted
company can be valued at
Net asset Method
Market value method
Both of them
None of them
Yes, the
answer is correct.
Feedback:
The adjusted
net asset method is a business valuation technique that changes the stated
values of a company's assets and liabilities to reflect its estimated current
fair market values better.
Accepted
Answers:
Net asset
Method
Which of the
following valuation methods is based on “Going concern concept”.
Market value method
Book value method
Liquidation method
Salvage value method
Yes, the
answer is correct.
Feedback:
The book
value method is a technique for recording the conversion of a bond into stock.
In essence, the book value at which the bonds were recorded on the books of the
issuer is shifted to the applicable equity account.
Accepted
Answers:
Book value
method
CAPM stands
for Capital Asset Pricing Model.
TRUE
FALSE
Yes, the
answer is correct.
Feedback:
Capital
Asset Pricing Model.
Accepted
Answers:
TRUE
Cost of
capital can be defined as "the rate at which an organisation must pay to
the suppliers of capital for the use of their funds".
TRUE
FALSE
Yes, the answer
is correct.
Feedback:
Cost of
capital is the required return necessary to make a capital budgeting project,
such as building a new factory, worthwhile. ... It refers to the cost of equity
if the business is financed solely through equity, or to the cost of debt if it
is financed solely through debt.
Accepted
Answers:
TRUE
In Earning
based approach, __________ is taken as a base for valuation of business.
Profit Before tax
Loss Before tax
Expected Rate of return
Enterprise Value
Yes, the
answer is correct.
Feedback:
Business
value under this approach is based on the present value of future cash flows of
one's business.
Accepted
Answers:
Profit
Before tax
Enterprise
Value = Profit Before Interest and Tax __ Weighted average cost of capital
Sum of
Difference of
Multiply of
Division of
Yes, the
answer is correct.
Feedback:
Division
Accepted
Answers:
Division of
Liquidation
method is normally followed when a company is in _________ and does not want to
continue the business.
continuous loss
continuous profit
None of these
Can't say
Yes, the
answer is correct.
Feedback:
The
liquidation approach is a method of business valuation. It measures the total
worth of a company's physical assets that could potentially be sold if it were
to be liquidated in the immediate future rather than run as a going concern.
Accepted
Answers:
continuous
loss
The
restructuring of a corporation should be undertaken if
the restructuring can prevent an unwanted takeover.
the restructuring is expected to create value
for shareholders.
the restructuring is expected to increase the
firm's revenue.
the interests of bondholders are not
negatively affected.
Yes, the
answer is correct.
Feedback:
the
restructuring is expected to create value for shareholders.
Accepted Answers:
the
restructuring can prevent an unwanted takeover.
In the long
run, a successful acquisition is one that:
enables the acquirer to make an all-equity
purchase, thereby avoiding additional financial leverage.
enables the acquirer to diversify its asset
base.
increases the market price of the acquirer's stock over what it would
have been without the acquisition.
increases financial leverage.
Yes, the
answer is correct.
Feedback:
increases
the market price of the acquirer's stock over what it would have been without
the acquisition.
Accepted
Answers:
increases
the market price of the acquirer's stock over what it would have been without
the acquisition.
Vertical
mergers are those in which the participants are
in the same industry
in different industries
in different phases of the value chain
In differenct sectors
Yes, the
answer is correct.
Feedback:
A vertical
merger is the merger of two or more companies that provide different supply
chain functions for a common good or service.
Accepted
Answers:
in different
phases of the value chain
The public
sale of common stock in a subsidiary in which the parent usually retains
majority control is called
A pure play
A spin-off
A partial sell-off
An equity carve-out
Yes, the
answer is correct.
Feedback:
In an equity
carve-out, a business sells shares in a business unit. The ultimate goal of the
company may be to fully divest its interests, but this may not be for several
years.
Accepted
Answers:
An equity
carve-out
A
convertible bond value is not dependent on
the time up to conversion
the current conversion value
earnings per share
the straight bond value
Yes, the
answer is correct.
Feedback:
To
accomplish convertible bond valuations, investors may rely on the following
formula: Value of convertible bond = independent value of straight bond +
independent value of conversion option.
Accepted
Answers:
earnings per
share
Takeover
pre-bid defences do not include
golden parachute
poison pill
revised profit forecast
mutual shareholdings
Yes, the
answer is correct.
Feedback:
Revised
profit forecast
Accepted
Answers:
revised
profit forecast
Joint
ventures are usually more profitable than mergers or acquisitions.
TRUE
FALSE
Yes, the
answer is correct.
Feedback:
FALSE
Accepted
Answers:
FALSE
A horizontal
merger occurs between firms at different stages of the value chain.
TRUE
FALSE
Yes, the
answer is correct.
Feedback:
FALSE
Accepted
Answers:
FALSE
______is not
the common motives for a merger or acquisition.
operating synergy
financial synergy
raising the cost of capital
buying undervalued assets
Yes, the
answer is correct.
Feedback:
raising the
cost of capital is not the common motives for a merger or acquisition.
Accepted
Answers:
raising the
cost of capital
The breaking
up of large companies or monopolies is called ______
merger
spin-off
demerger
trust busting
Yes, the
answer is correct.
Feedback:
The breaking
up of large companies or monopolies is called demerger.
Accepted
Answers:
demerger
The amount
of permanent short-term debt, long-term debt, preferred stock, and common stock
used to finance a firm defines the firm's:
financial structure
capital structure
target capital structure
optimal financial structure
Yes, the
answer is correct.
Feedback:
Capital
structure in corporate finance is the way a corporation finances its assets
through some combination of equity, debt, or hybrid securities.
Accepted
Answers:
capital
structure
A critical
assumption of the net operating income (NOI) approach to valuation is:
that debt and equity levels remain unchanged.
that dividends increase at a constant rate.
that ko remains constant regardless of changes in leverage.
that interest expense and taxes are included
in the calculation.
Yes, the
answer is correct.
Feedback:
A critical
assumption of the net operating income (NOI) approach to valuation is: that
debt and equity levels remain unchanged. that dividends increase at a constant
rate.
Accepted
Answers:
that ko
remains constant regardless of changes in leverage.
A firm's
optimal capital structure:
A firm's optimal capital structure:
exists when the debt-equity ratio is .50.
is the debt-equity ratio that exists at the
point where the firm's weighted after tax cost of debt is minimized.
is the debt-equity ratio that results in the lowest possible weighted
average cost of capital.
Yes, the
answer is correct.
Feedback:
The optimal
capital structure of a firm is the best mix of debt and equity financing that
maximizes a company's market value while minimizing its cost of capital
Accepted
Answers:
is the
debt-equity ratio that results in the lowest possible weighted average cost of
capital.
The term
"capital structure" refers to:
long-term debt, preferred stock, and common stock equity.
current assets and current liabilities.
total assets minus liabilities.
shareholders' equity.
Yes, the
answer is correct.
Feedback:
The capital
structure is the particular combination of debt and equity used by a company to
finance its overall operations and growth.
Accepted
Answers:
long-term
debt, preferred stock, and common stock equity.
Two firms
that are virtually identical except for their capital structure are selling in
the market at different values. According to M&M
one will be at greater risk of bankruptcy
the firm with greater financial leverage will
have the higher value.
this proves that markets cannot be efficient
this will not continue because arbitrage will eventually cause the
firms to sell at the same value.
Yes, the
answer is correct.
Feedback:
The
Modigliani-Miller theorem (M&M) states that the market value of a company
is correctly calculated as the present value of its future earnings and its
underlying assets, and is independent of its capital structure
Accepted
Answers:
this will
not continue because arbitrage will eventually cause the firms to sell at the
same value.
Cost theory
of capitalisation considers the amount of capitalisation on the basis of cost
of various assets required to set up the organisation.
TRUE
FALSE
Yes, the
answer is correct.
Feedback:
This theory
is focused on the cost of acquiring assets. The total value of capitalization
under the Cost Theory is the sum total of costs of acquiring both fixed and current
assets.
Accepted
Answers:
TRUE
overcapitalisation
means existence of excess capital as compared to the level of activity and
requirements.
TRUE
FALSE
Yes, the
answer is correct.
Feedback:
Overcapitalization
occurs when a company has issued more in debt and equity than its assets are
worth.
Accepted
Answers:
TRUE
The cost of
capital for a firm_____when we allow for taxes, bankruptcy, and agency costs.
remains constant with increasing levels of
financial leverage
first declines and then ultimately rises with increasing levels of
financial leverage.
increases with increasing levels of financial
leverage.
decreases with increasing levels of financial
leverage.
Yes, the
answer is correct.
Feedback:
First
declines and then ultimately rises with increasing levels of financial
leverage.
Accepted
Answers:
first
declines and then ultimately rises with increasing levels of financial
leverage.
_______of a
firm refers to the composition of its long-term funds and its capital
structure.
Capitalisation
Over-capitalisation
Under-capitalisation
Under-capitalisation
Yes, the
answer is correct.
Feedback:
Capitalization
of a firm refers to the composition of its long-term funds and its capital
structure
Accepted
Answers:
Capitalisation
In
_______________ approach, the capital structure decision is relevant to the
valuation of the firm
Net income
Net operating income
Traditional
Miller and Modigliani
Yes, the
answer is correct.
Feedback:
Net Income
Approach suggests that value of the firm can be increased by decreasing the
overall cost of capital (WACC) through higher debt proportion.
Accepted
Answers:
Net income
Forms of
business combinations include:
Mergers
Consolidations
Holding companies and consolidations
mergers, consolidations and holding companies
Yes, the
answer is correct.
Feedback:
It includes
mergers, consolidations and holding companies
Accepted
Answers:
mergers,
consolidations and holding companies
Which one of
the following statements concerning financial leverage is correct?
The benefits of leverage are unaffected by
changes in a firm's earnings before interest and taxes.
A firm employing leverage will always have a
higher earnings per share than a firm which does not employ leverage.
If a firm employs financial leverage, the shareholders will be exposed
to greater risk.
The earnings per share remain constant even
when an all-equity firm switches to a debt-equity ratio of .4.
Yes, the
answer is correct.
Feedback:
The use of
financial leverage to control a greater amount of assets (by borrowing money)
will cause the returns on the owner's cash investment to be amplified.
Accepted
Answers:
If a firm
employs financial leverage, the shareholders will be exposed to greater risk.
Causes for
NPA Due to Borrower includes:
Inexperienced and untrained Promoters/Management
Redtapism (delay), Untimely finance
Announcement of loan waiver scheme by the
Govt.
Unfavourable market conditions
Yes, the
answer is correct.
Feedback:
Inexperienced
and untrained Promoters/Management
Accepted Answers:
Inexperienced
and untrained Promoters/Management
What is a
business organizational model that involves the large-scale outsourcing of
business functions?
Virtual corporations
Joint venture
Corporate liquidation
Equity carve-out
Yes, the
answer is correct.
Feedback:
The term
virtual corporation is used to describe a network of. independent firms that
join together, often temporarily, to. produce a service or product.
Accepted
Answers:
Virtual
corporations
This merger
refers to two to two firms operating in same industry or producing ideal
products combining together.
Horizontal
Vertical
Conglomerate
Concentric
Yes, the
answer is correct.
Feedback:
A horizontal
merger is a merger or business consolidation that occurs between firms that operate
in the same industry.
Accepted
Answers:
Horizontal
Debt capital
means borrowed capital.
TRUE
FALSE
Yes, the
answer is correct.
Feedback:
TRUE
Accepted
Answers:
TRUE
The revenue
generated may be far greater than the projected revenue in the business plan.
TRUE
FALSE
Yes, the
answer is correct.
Feedback:
FALSE
Accepted
Answers:
FALSE
The
restructuring of a firm should be undertaken if _______
the restructuring is expected to create value for shareholders
the restructuring is expected to increase
earnings per share (EPS) next year
the restructuring is expected to increase the
firm's market share power within the industry
the restructuring is expected to increase the
firm's market share power within the industry
Yes, the
answer is correct.
Feedback:
The
restructuring of a firm should be undertaken if the restructuring is expected
to create value for shareholders.
Accepted
Answers:
the
restructuring is expected to create value for shareholders
A reason
suggested by the authors for a divestiture, such as a sell-off or spin-off, is
_______
Synergy
Reverse synergy
Hubris
Economies of scale
Yes, the
answer is correct.
Feedback:
A reason
suggested by the authors for a divestiture, such as a sell-off or spin-off, is
to create synergy.
Accepted
Answers:
Reverse
synergy
Economies of
scale, market share dominance, and technological advances are reasons most
likely to be offered to justify a _____
Financial acquistion
strategic acquisition
divestiture
divestiture
Yes, the
answer is correct.
Feedback:
Economies of
scale, market share dominance, and technological advances are reasons most
likely to be offered to justify a strategic acquistion.
Accepted
Answers:
strategic
acquisition
All
definitions of Corporate Social Responsibility recognize that:
companies have a responsibility for their impact on society and
environment.
the natural environment should be the main
focus of CSR activities.
business ethics is a complex issue.
companies must pay equal attention to business
ethics and sustainability.
Yes, the
answer is correct.
Feedback:
Companies
have a responsibility for their impact on society and environment.
Accepted
Answers:
companies
have a responsibility for their impact on society and environment.
CSR stands
for :
Corporation Social Responsibility
Corporate Social Responsibility
Corporate Social Resonance
Cooperation Social Responsibility
Yes, the
answer is correct.
Feedback:
Corporate
Social Responsibility
Accepted
Answers:
Corporate
Social Responsibility
What is not
a characteristic of a corporate social responsibility framework?
Retaining the status quo
Understanding society
Harnessing diversity
Building capacity
Yes, the
answer is correct.
Feedback:
To retain
the status quo.
Accepted
Answers:
Retaining
the status quo
Which is not
a characteristic of corporate social responsibility?
Product safety
Consumer rights
Environmental policies
Price-fixing
Yes, the
answer is correct.
Feedback:
Price fixing
is not a characteristic of CSR.
Accepted
Answers:
Price-fixing
Which of the
following is an example of an area where business ethics apply?
Conduct of international operations
In the personal life of staff
Nowhere
None of these
Yes, the
answer is correct.
Feedback:
To Conduct
of international operations.
Accepted
Answers:
Conduct of
international operations
Companies
intuitively know how to communicate effectively to stakeholders during and
after a disaster.
TRUE
FALSE
Yes, the
answer is correct.
Feedback:
FALSE
Accepted
Answers:
FALSE
Minimal
social responsibility focuses on contractual stakeholders and mainly takes
economic and legal considerations into account.
TRUE
FALSE
Yes, the
answer is correct.
Feedback:
TRUE
Accepted
Answers:
TRUE
_____the
greater will be its social prestige.
The more advertisement business unit will do
The more advertisement business unit will do
The more effectively a business unit caters to the needs of society
The more profit a business unit will earn
Yes, the
answer is correct.
Feedback:
The more
effectively a business unit caters to the needs of society
Accepted
Answers:
The more
effectively a business unit caters to the needs of society
Who said
that the "only one social responsibility of business is to increase profits"?
Edward Freeman
Milton Friedman
Milton Friedman
Michael Freeman
Yes, the
answer is correct.
Feedback:
Milton
Friedman
Accepted
Answers:
Milton
Friedman
What is
Ethics to do with?
Nothing
Right or wrong
The wider community
Business
Yes, the answer
is correct.
Feedback:
At its
simplest, ethics is a system of moral principles. They affect how people make
decisions and lead their lives. Ethics is concerned with what is good for
individuals and society and is also described as moral philosophy.
Accepted
Answers:
Right or
wrong
Which of the
following statements regarding institutional shareholders is correct?
These shareholders have extensive power to monitor the activities of
the company.
These shareholders have extensive power to
monitor the activities of the company.
These shareholders often aim to improve
outcomes rather than sell their shareholding
Institutional shareholders are known to
publicly use their voting power to encourage sound corporate governance.
Yes, the
answer is correct.
Feedback:
These
shareholders have extensive power to monitor the activities of the company.
Accepted
Answers:
These
shareholders have extensive power to monitor the activities of the company.
Corporate
governance is a form of
External regulation
Self regulation
Government control
Charitable action
Yes, the
answer is correct.
Feedback:
Corporate
governance is the structure of rules, practices, and processes used to direct
and manage a company.
Accepted
Answers:
Self
regulation
Which of the
following regarding corporate governance is correct?
Corporate governance can temper growth.
Good corporate governance can result in
excessive risk-taking.
Corporate governance often result in prompt
and effective decision-making
The aim of corporate governance is to protect
the interests of shareholders and the local economies
Yes, the
answer is correct.
Feedback:
Corporate
governance can temper growth.
Accepted
Answers:
Corporate
governance can temper growth.
The goal of
corporate governance and business ethics education is to:
Teach students their professional
accountability and to uphold their personal Integrity to society
Change the way in which ethics is taught to students.
Change the way in which ethics is taught to
students.
Increase the workload for accounting students
Yes, the
answer is correct.
Feedback:
To Create
more ethics standards by which corporate professionals must operate
Accepted
Answers:
Change the
way in which ethics is taught to students.
Code of Ethics
in Finance does NOT include:
Provide information which is full, fair,
accurate, complete, objective, relevant, timely and understandable, including
in and for reports and documents.
To demote ethical behavior among our
associates.
Avoiding real or clear conflicts of interest in personal and
professional relationships.
Act with honesty and integrity.
Yes, the
answer is correct.
Feedback:
To demote
ethical behavior among our associates.
Accepted
Answers:
Avoiding
real or clear conflicts of interest in personal and professional relationships.
American
Institute of Certified Public Accountants (AICPA) developed f divourisions of
ethical principles?
TRUE
FALSE
Yes, the
answer is correct.
Feedback:
FALSE
Accepted
Answers:
FALSE
Values-based
leadership is a leadership style that builds itself on the values of both the
leader and their team.
TRUE
FALSE
Yes, the
answer is correct.
Feedback:
TRUE
Accepted
Answers:
TRUE
Corporate
governance is concerned with the formation of ……………term objective.
Very short
Short
Medium
long
Yes, the
answer is correct.
Feedback:
Corporate
governance is concerned with the formation of long term objective.
Accepted
Answers:
long
Corporate
governance is a …………… approach.
Top down
Bottom up
Hybrid
Scientific
Yes, the
answer is correct.
Feedback:
Corporate
governance is atop-down approach.
Accepted
Answers:
Scientific
There are
usually …………… key participants in corporate governance.
3
4
5
8
Yes, the
answer is correct.
Feedback:
3
Accepted
Answers:
3
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