Business Finance - Practice Test

[#356] Match List-I with List-II and select the correct answer: List-I List-II a. Modigliani Miller approach 1. Commercial papers b. Net operating income approach 2. Working capital management c. Short-term money market instrument 3. Capital structure d. Factoring 4. Arbitrage

(A) a-4, b-3, c-1, d-2

(B) a-3, b-4, c-1, d-2

(C) a-2, b-3, c-1, d-4

(D) a-3, b-2, c-4, d-1

Correct Answer

(B) a-3, b-4, c-1, d-2

[#357] Which one of the following assumptions is not included in the James E. Walter Valuation model?

(A) All financing by retained earnings only

(B) No change in the key variables such as EPS and DPS

(C) The firm has finite life

(D) All earnings are either distributed as dividends or invested internally immediately

Correct Answer

(C) The firm has finite life

[#358] Which of the following is an implicit cost of increasing proportion of debt of a company?

(A) PE ratio of the company would increase

(B) Rate of return of the company would decrease

(C) Tax shield would not be available on new debts

(D) Equity shareholders would demand higher return

(E) P.E.Ratio of the company would increase

(F) Rate of return of the company would decrease

(G) Tax-shield would not be available on new debts

(H) Equity shareholders would demand a higher return

Correct Answer

(D) Equity shareholders would demand higher return
(H) Equity shareholders would demand a higher return

[#359] Indicate the cost of equity capital based on capital asset pricing model with the following information. Beta coefficient 1.40 Risk free rate of interset 9% Expected rate of return on equity in the market 16%

(A) 98%

(B) 18%

(C) 18.8%

(D) 16%

Correct Answer

(C) 18.8%

[#360] Profitability index of a project is the ratio of present value of cash inflows to

(A) Total cash inflows

(B) Total cash outflows

(C) Present value of cash outflows

(D) Initial cost minus depreciation

Correct Answer

(C) Present value of cash outflows

Business Finance - Study Mode

[#356] Match List-I with List-II and select the correct answer: List-I List-II a. Modigliani Miller approach 1. Commercial papers b. Net operating income approach 2. Working capital management c. Short-term money market instrument 3. Capital structure d. Factoring 4. Arbitrage

Correct Answer

[#357] Which one of the following assumptions is not included in the James E. Walter Valuation model?

Correct Answer

[#358] Which of the following is an implicit cost of increasing proportion of debt of a company?

Correct Answer

[#359] Indicate the cost of equity capital based on capital asset pricing model with the following information. Beta coefficient 1.40 Risk free rate of interset 9% Expected rate of return on equity in the market 16%

Correct Answer

[#360] Profitability index of a project is the ratio of present value of cash inflows to

Correct Answer