Financial Management - Study Mode

[#611] Non-systematic risk is also known as_____________.
Correct Answer

(D) company-specific risk

Explanation

Solution: Non-systematic risk is also known as company-specific risk. Specific risk is a risk that affects a minimal number of assets. Specific risk, as its name implies, relates to risks that are very specific to a company or small group of companies. This type of risk is the opposite of overall market risk or systematic risk. Specific risk is also referred to as “unsystematic risk” or “diversifiable risk.”

[#612] Setup cost is a type of __________ cost.
Correct Answer

(A) fixed

Explanation

Solution: Setup cost is a type of fixed cost. Setup cost is the cost incurred to get equipment ready to process a different batch of goods. Hence, setup cost is regarded as a batch-level cost in activity based costing. Setup cost is considered to be a non-value-added cost that should be minimized.

[#613] Under the P/E model, stock price is a product of_____________.
Correct Answer

(B) P/E ratio and EPS

Explanation

Solution: Under the P/E model, stock price is a product of P/E ratio and EPS. The price-to-earnings ratio (P/E) is a valuation method used to compare a company's current share price to its per-share earnings.

[#614] The amount of the temporary working capital __________.
Correct Answer

(A) keeps on fluctuating from time to time

Explanation

Solution: The amount of the temporary working capital keeps on fluctuating from time to time. Temporary working capital (TWC) is the temporary fluctuation of networking capital over and above the permanent working capital.

[#615] Net investment in operating capital is Rs 5000 and net operating profit after taxes is Rs 8000 then free cash flow would be
Correct Answer

(C) Rs 3,000.00

Explanation

Solution: Free cash flow = Operating profit after tax - Net investment in operating capital = 8000 - 5000 = Rs. 3000.