Financial Management - Study Mode

[#616] Situation in which new business reduces an existing business of firm is classified as
Correct Answer

(B) cannibalization effect

Explanation

Solution: Situation in which new business reduces an existing business of firm is classified as cannibalization effect. Market cannibalization is a sales loss caused by a company's introduction of a new product that displaces one of its own older products rather than increasing the company's overall market share.

[#617] In cash flow estimation and risk analysis, real rate will be equal to nominal rate if there is
Correct Answer

(A) no inflation

Explanation

Solution: In cash flow estimation and risk analysis, real rate will be equal to nominal rate if there is no inflation.

[#618] In cash flow estimation, depreciation shelters company's income from
Correct Answer

(C) taxation

Explanation

Solution: In cash flow estimation, depreciation shelters company's income from taxation. Cash flow indicates a cash outflow and cash inflows. It is necessary to estimate the cash flow in the process of analyzing investment proposal. While analyzing the cash flow, it is also necessary to estimate the cash outflow as well as cash inflow.

[#619] Weighted average cost of debt, preferred stock and common equity is classified as
Correct Answer

(D) cost of capital

Explanation

Solution: Weighted average cost of debt, preferred stock and common equity is classified as cost of capital. Cost of capital is the required return necessary to make a capital budgeting project, such as building a new factory, worthwhile.

[#620] An investment outlay cash flow is Rs 4000, operating cash flow is Rs 1000 and salvage cash flow is Rs 5000 then free cash flow would be
Correct Answer

(A) Rs 10,000.00

Explanation

Solution: Free cash flow = Investment outlay cashflow + Operating cash flow + salvage cash flow = 4000 + 1000 + 5000 = Rs. 10000.