1.

The use of the fixed – charges sources of funds, such as debt and preference, capital

along with owners equity in the capital structure , is called –

(a) Operating leverage

(b) Combined leverage

(c) Trading on equity

(d) Income coverage

2. The formula for calculating EPS is ,

(a) EPS = PAT * Numbers of shares

(b) EPS = PAT/ Numbers of shares

(c) EPS = PAT + Numbers of shares

(d) EPS = PAT - Numbers of shares

3. The variability of EBIT is called,

(a) Unique risk

(b) Market risk

(c) Operating risk

(d) Financial risk

4. Select the incorrect statement-

(a) Operating leverage affects earnings per share

(b) The point of intersection of EBIT – EPS lines is called indifference point

(c) Financial leverage accelerates EPS under favorable conditions

(d) Return on equity is obtained by dividing profit after tax by value of equity

5. 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

6. 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

7. The view that the advantage of corporate borrowing is reduced by the personal tax loss

represents –

(a) MM hypothesis

(b) Miller’s model

(c) Net income approach

(d) Traditional view of capital structure

8. The theory that explains the negative inverse relationship between profitability and debt

ratio is ,

(a) Utility theory

(b) Pecking order theory

(c) Portfolio theory

(d) Capital market theory

9. Select the incorrect statement –

(a) A constant dividend per share policy puts ordinary shareholders at par with
preference shareholders.

(b) Constant dividend per share policy does not put any pressure on a company’s

liquidity since dividends are distributed only when the company has profits.

(c) Certain shareholders like the policy of constant dividend per share plus extra

dividend because of the certain cash flow in the form of regular dividend and the

option of earning extra occasionally.

(d) The policy of constant dividend per share plus extra dividend is easy to follow

when earnings are fluctuating.

10. Companies mostly pay dividends in-

(a) Stock dividend

(b) Shares buyback

(c) Cash

(d) Bonus shares

11. A method to increase the number of outstanding shares through a proportional reduction

in the par value of the share is called,

(a) Share split

(b) Reverse split

(c) Collar

(d) Strangle

12. In India, the method which cannot be employed by companies for buying back their

shares is –

(a) Buying a block of shares from a single buyer at negotiated price.

(b) By making tender offer.

(d) None of the above

13. Dividend per share as a percentage of earnings per share is,

(a) Dividend yield

(b) Payout ratio

(c) Retention ratio

(d) Capital gains

14. 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 held by –

(a) The bird-in-the-hand argument

(b) Gordon’s model

(c) MM’s hypothesis

(d) Walter’s model

15. 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

16. The length of the operating cycle of a manufacturing firm is the sum of :

a) Raw materials conversion period and debtors’ conversion period.

b) Inventory conversion period and debtors’ conversion period.

c) Finished goods conversion period and debtors’ conversion period.

17. The time duration required to convert sales, after the conversion of resources in

to inventories, into cash is called,

a) Cash conversion cycle

b) Net operating cycle

c) Operating cycle

d) Creditors deferral period

18. The minimum level of required current assets is called,

a) Gross working capital

b) Net working capital

c) Permanent working capital

d) Variable working capital

19. Select the incorrect statement –

a) The firm should use the bill discounting to make the credit-granting

decision.

b) The stipulations under which the firm sells on credit to customers are

called credit terms.

c) Credit scoring models are based on past data.

d) None of the above.

20. The extent of risk taken by the firm by supplying goods on credit to a customer

is indicated by ,

a) Management audit
b) Credit limit

c) Financial ratios

d) Credit file

21. A better approach for evaluating the management of receivables is –

a) Average collection period

b) Aging schedule

c) Collection experience matrix

d) None of the above

22. Select the option that is not an example of carrying costs –

a) Warehousing

b) Handling

c) Clerical and staff

d) Transportation

23. Select the option that is not an example of ordering costs –

a) Requisitioning

b) Insurance

c) Order placing

d) Clerical and staff

24. Select the option that is not an approach for determining economic order

quantity –

a) Ad hoc approach

b) Trial and error approach

c) Order-formula approach
d) Graphic approach

25. Select the option that is not an essential requirement of determining reorder

point under certainty –

a) Credit limit

b) Lead time

c) Average usage

d) Economic order quantity

26. Select that inventory control system that complements the Total Quality

Management –

a) Out-sourcing

b) Computerized inventory control systems

c) Just-in-time systems

d) ABC analysis

27. Select that inventory control system that measures the significance of each item

of inventories in terms of its values –

a) Just-in-time systems

b) ABC analysis

c) Out-sourcing

d) Computerized inventory control systems

28. Select the inventory control system that eliminates the necessity of carrying

large inventories –

a) ABC analysis

b) Computerized inventory control systems

d) Just-in-time systems

29. Select that motive of holding inventories which emphasizes the need to

maintain inventories to facilitate smooth production and sales operations –

a) Speculative motive

b) Transaction motive

c) Precautionary motive

d) None of the above

30. A formal cash management approach for determining a firm’s optimum cash

balance under certainty is called,

a) Adjusted net income method

b) Baumol model

c) Receipt and disbursement method

d) Miller –Orr model