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FM Mbaquiz1

This document contains 30 multiple choice questions about financial management and corporate finance topics like cost of capital, hurdle rate, required rates of return, investment decisions, capital structure, dividend policy, and the Miller and Modigliani hypotheses. The questions are part of a test or assignment for an MBA semester 2 course on financial management and corporate finance.

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Pritee Singh
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50 views4 pages

FM Mbaquiz1

This document contains 30 multiple choice questions about financial management and corporate finance topics like cost of capital, hurdle rate, required rates of return, investment decisions, capital structure, dividend policy, and the Miller and Modigliani hypotheses. The questions are part of a test or assignment for an MBA semester 2 course on financial management and corporate finance.

Uploaded by

Pritee Singh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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STEP-HBTI, KANPUR

MBA SEMESTER 2
FINANCIAL MANAGEMENT & CORPORATE FINANCE
CT-01
Max. Marks 15 Max. Time 1hrs
1. Cost of capital is useful as a standard for –
(a) Designing a firm’s debt policy
(b) Evaluating investment decisions
(c) Appraising the financial performance of top management
(d) All of the above

2. Hurdle rate is also known as –


(a) Cost of capital
(b) Compound rate
(c) Net present value
(d) Time value of money

3. From return point of view, which is most risky, out of the choices mentioned below?
(a) Government bonds
(b) Debt
(c) Preference shares
(d) Equity shares

4. The cost of capital of an all-equity financed firm is equal to the -


(a) Preference shareholders required rate of return
(b) Ordinary shareholders required rate of return
(c) Creditors required rate of return
(d) Debtors required rate of return

5. The required rates of return are -


(a) Investment-determined
(b) Risk-determined
(c) Return-determined
(d) Market-determined

6. The relevant cost in the investment decisions is the –


(a) Agency costs
(b) Marginal costs
(c) Historical costs
(d) Variable costs

7. The cost of preference shares is computed on –


(a) Before-tax basis
(b) After-tax basis
(c) Coupon-rate basis
(d) Floatation cost

8. Which of these rates is not fixed –


(a) Interest rate
(b) Preference dividend rate
(c) Equity
(d) All the above

9. An investment which has cash outflows mingled with cash inflows throughout the life of the project is
called –
(a) Independent investment
(b) Contingent investment
(c) Non – conventional investment
(d) Conventional investment

10. Determining optimum capital structure is-


(a) An investment decision
(b) A financing decision
(c) A dividend decision
(d) A liquidity decision

11. The expected rate of return that an investor could earn by investing his money in financial assets of
equivalent risk is called,
(a) Retention ratio
(b) Dividend –payout ratio
(c) Optimum capital structure
(d) Opportunity cost of capital

12. Financial decisions of the firm are guided by


(a) Firm’s wealth
(b) Risk–return trade –off
(c) Retention ratio
(d) Financial leverage

13. One of the ways of mitigating agency costs is,


(a) By giving ownership rights to managers
(b) By creating satisfactory wealth for shareholders than maximum
(c) By avoid taking high investment and financing risks
(d) By giving higher perks to managers

14. Select the incorrect statement -


(a) Dividends rate for ordinary shareholders is not fixed
(b) The payment of dividends to shareholders is a legal obligation
(c) Ordinary shareholders are generally called owners of residue
(d) Preference shareholders receive dividend at fixed rate

15. Select the correct statement about Profit Maximisation-


(a) It ignores the timing of returns
(b) It is quite accurate
(c) It takes in to account risk
(d) It does not assume perfect competition

16. Select the incorrect statement regarding features of investment decisions-


(a) The exchange of current funds for future benefits
(b) The funds are invested in long –term assets
(c) The future benefits will occur to the firm within a year
(d) Sale of a division is an investment decision
17. Replacement investment decisions are also called as –
(a) Contingent investments
(b) Cost – reduction investments
(c) Mutually exclusive investments
(d) Revenue –expansion investments

18. The ratio of the present value of cash inflows, at the required rate of return, to the initial cash outflow
of the investment , is called –
(a) Net present value
(b) Payback
(c) Profitability index
(d) Internal rate of return

19. An investment which has cash outflows mingled with cash inflows throughout the life of the project
is called –
(a) Independent investment
(b) Contingent investment
(c) Non – conventional investment
(d) Conventional investment

20. A non DCF technique that takes into account accounting profit is called ,
(a) Net present value
(b) Internal rate of return
(c) Profitability index
(d) Accounting rate of return

21. Under the NI approach ,the firm will have the maximum value and minimum WACC, when it is –
(a) 50 per cent debt-financed
(b) 75 per cent debt-financed
(c) 90 per cent debt -financed
(d) 100 per cent debt-financed

22. The view that the cost of capital declines with debt, is supported by –
(a) The Net income approach
(b) Linear programming approach
(c) Traditional view of capital structure
(d) Net operating income approach

23. The view that two firms with identical assets , irrespective of how these assets have been financed,
cannot command different market values, is a part of –
(a) The Net income approach
(b) Traditional view of capital structure
(c) MM’s proposition I
(d) MM’s proposition II

24. The justification for the levered firm’s opportunity cost of remaining constant with financial leverage
is provided by-
(a) Corporate leverage
(b) Traditional view of capital structure
(c) MM’s proposition I
(d) MM’s proposition II
25. Dividend per share as a percentage of earnings per share is,
(a) Dividend yield
(b) Payout ratio
(c) Retention ratio
(d) Capital gains

26. Walter’s model is based on-


(a) Internal financing
(b) Constant EPS and DIV
(c) Infinite time
(d) All of the above

27. Gordon’s model is based on-


(a) Firm with high amount of debt
(b) Existence of corporate taxes
(c) Cost of capital less than growth rate
(d) None of the above

28. The view that under a perfect market situation, the dividend policy of a firm is irrelevant, as it does not
affect the value of the firm, is –
(a) The bird-in-the-hand argument
(b) Gordon’s model
(c) MM’s hypothesis
(d) Walter’s model

29. Select the option that is not the part of assumptions relating to Miller and Modigliani’s hypothesis –
(a) Existence of corporate taxes
(b) No risk
(c) Fixed investment policy
(d) Perfect capital markets

30. The view that distant dividends would be discounted at a higher rate than near dividends, is held by,
(a) The Gordon’s model
(b) The Walter’s model
(c) The Bird- in – the hand argument
(d) MM hypothesis

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