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Financial Management
Quiz 3
Solution
Q.1.
If a preferred stock issue is cumulative, this means____________.
dividends are paid at the end of the year
dividends is legally binding on the corporation
unpaid dividends will be paid in the future
unpaid dividends are never repaid
Q.2.
When a company uses debt fund in its financial structure, it will lead to a change in
Financial leverage
Operating leverage
Money market leverage
Stock market leverage
Q.3.
The available capital funds are to be carefully allocated among competing projects by careful prioritization. This is called ____________.
capital positioning
capital structuring
capital rationing
capital budgeting
Q.4.
Treasury bills are traded in the __________.
money market
capital market
government market
regulated market
Q.5.
Which one of the following is not a money market securities?
Treasury bills
National savings certificate
Certificate of deposit
Commercial paper
Q.6.
Capital budgeting is related to ________.
long terms assets
short term assets
long terms and short terms assets
fixed assets
Q.7.
The expansion of CAPM is ____________.
Capital amount pricing model.
Capital asset pricing model.
Capital asset printing model.
Capital amount printing model.
Q.8.
Most investors are risk averse which means____________.
they will assume more risk only if they are compensated by higher expected return
they will always invest in the investment with the lowest possible risk
they will always invest in the investment with the lowest possible risk
they avoid the stock market due to the high degree of risk
Q.9.
EBIT is usually the same thing as.
funds provided by operations
earnings before taxes
net income
operating profit
Q.10.
The decision to invest a substantial sum in any business venture expecting to earn a minimum return is called ____________.
working capital decision
an investment decision
a production decision
a sales decision
Q.11.
Operating leverage measures ____________.
business risk
financial risk
both risks
production risk
Q.12.
Which of the following is not a characteristic of investments companies?
pooled investing
diversification
managed portfolios
reduced expenses
Q.13.
Short term sources are
Bank credit
Public deposit
Commercial papers
All of the above
Q.14.
The cost of capital of a long term debt is generally.
Lower than the owned funds
Equal to that of owned funds
More or less than owned funds
Higher than that of owned funds
Q.15.
Which of the following would not be considered as capital market security?
A corporate bond
A common stock
A 6-month Treasury bill
A mutual fund share
Q.16.
Working capital management is managing ____________.
short term assets and liabilities
long term assets
long terms liabilities
only short term assets
Q.17.
The company’s average cost of capital is ____________.
the average cost of equity shares and debentures
the average cost of equity preference shares
the average cost of shares and all sources of long-term funds
the average cost of short term funds
Q.18.
The company's cost of capital is called ________.
Leverage
Hurdle rate
Risk rate
Return rate
Q.19.
Which of the following would be considered a risk-free investment?
Gold
Equity in a house
High-grade corporate bonds
Treasury bills
Q.20.
Cost of retained earnings is equal to _______.
Cost of equity
Cost of debt
Cost of bank loan
Cost of term loans
Q.21.
Savings accounts are___________ but are not__________.
negotiable; liquid
marketable; liquid
liquid; personal
liquid; marketable
Q.22.
An example of a derivative security is ______.
a common share of General Motors
a call option on Mobil stock
a commodity futures contract
B and C
Q.23.
Financial leverage helps one to estimate ____________.
business risk
financial risk
both risks
production risk
Q.24.
A company having easy access to the capital markets can follow a ____________ dividend policy
liberal
formal
strict
Varying
Q.25.
The underwriter has to take up ________________.
the fixed portions of the issue capital
the unsubscribed part of the agreed portion
the agreed portion or can refuse if
the unfixed portions of the issue capital
Q.26.
Future value interest factor takes ____________.
Compounding rate
Discounting rate
Inflation rate
Deflation rate
Q.27.
Investment is the _______________.
net additions made to the nation’s capital stocks
person’s commitment to buy a flat or house
employment of funds on assets to earn returns
employment of funds on goods and services that are used in production process
Q.28.
Financial Management is mainly concerned with ______________.
All aspects of acquiring and utilizing financial resources for firms activities
Arrangement of funds
Efficient Management of every business
Profit maximization
Q.29.
Net working capital is the excess of current asset over ____________.
Current liability
Net liability
Total payable
Total liability
Q.30.
Beta measures the ________.
Investment risk rate
Financial risk
Market risk
Market and finance risk
Q.31.
Traditional approach confines finance function only to _________ funds
raising
mobilizing
utilizing
financing
Q.32.
Operating leverage x Financial leverage = ________
Combined Leverage
Financial Combined Leverage
Operating Combined Leverage
Fixed leverage
Q.33.
Arbitrage is the level processing technique introduced in _________.
Net income approach
MM approach
Operating approach
Traditional approach
Q.34.
Financial leverage measures ____________.
sensitivity of EBIT with respect of % change with respect to output
% variation in the level of production
sensitivity of EPS with respect to % change in level of EBIT
no change with EBIT and EPS
Q.35.
___________ are financial assets.
Bonds
Machines
Stocks
A and C
Q.36.
Present value takes _________.
Discounting rate
Compounding rate
Inflation rate
Deflation rate
Q.37.
The primary goal of the financial management is ____________.
to maximize the return
to minimize the risk
to maximize the wealth of owners
to maximize profit
Q.38.
In his traditional role the finance manager is responsible for ___________.
proper utilisation of funds
arrangement of financial resources
acquiring capital assets of the organization
efficient management of capital
Q.39.
Market value of the shares are decided by ____________.
the respective companies
the investment market
the government
shareholders
Q.40.
All of the following influence capital budgeting cash flows EXCEPT.
accelerated depreciation
salvage value
tax rate changes
method of project financing used
Q.41.
Factoring is a form of financing.
payable
receivables
borrowings
debts
Q.42.
The relevant risk for a well-diversified portfolio is____________.
interest rate risk
inflation risk
business risk
market risk
Q.43.
In order to determine the expected return of a portfolio, all of the following must be known except______________.
probabilities of expected returns of individual assets
weight of each individual asset to total portfolio value
expected return of each individual asset
all of the above must be known in order to determine the expected return of a portfolio
Q.44.
The fixed proportion of working capital should be generally financed from the ____ capital sources.
fixed
variable
semi-variable
borrowed
Q.45.
Which of the following is true regarding the expected return of a portfolio?
It is a weighted average only for stock portfolios
It can only be positive
It can never be above the highest individual return
All of the above are true
Q.46.
The gross working capital is a _____ concern concept.
Going concern
money measurement
revenue concept
cost concept
Q.47.
_____________is concerned with the interrelationships between security returns.
random diversification
correlating diversification
Friedman diversification
Markowitz diversification
Q.48.
The rate of return on investment ____ with the shortage of working capital.
falls
going
constant
change
Q.49.
The decision function of financial management can be broken down into the__________ decisions.
financing and investment
investment, financing, and asset management
financing and dividend
capital budgeting, cash management, and credit management
Q.50.
Which of the following portfolios has the least reduction of risk?
A portfolio with securities all having positive correlation with each other
A portfolio with securities all has zero correlation with each other
A portfolio with securities all having negative correlation with each other
A portfolio with securities all has skewed correlation with each other
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