Financial Management - Study Mode

[#521] Present value takes _________.
Correct Answer

(A) Discounting rate

Explanation

Solution: Present value takes Discounting rate. Present value (PV) is the current value of a future sum of money or stream of cash flows given a specified rate of return.

[#522] Operating leverage measures ____________.
Correct Answer

(A) business risk

Explanation

Solution: Operating leverage measures a company’s fixed costs as a percentage of its total costs. It is used to evaluate the break-even point of a business, as well as the likely profit levels on individual sales.

[#523] An example of a derivative security is ______.
Correct Answer

(D) B and C

Explanation

Solution: An example of a derivative security is a call option on Mobil stock and a commodity futures contract. A derivative security is a financial instrument whose value depends upon the value of another asset.

[#524] Financial leverage helps one to estimate ____________.
Correct Answer

(B) financial risk

Explanation

Solution: Financial leverage helps one to estimate financial risk. Financial leverage which is also known as leverage or trading on equity, refers to the use of debt to acquire additional assets.

[#525] Traditional approach confines finance function only to _________ funds
Correct Answer

(A) raising

Explanation

Solution: The traditional approach to the finance function relates to the initial stages of its evolution during 1920s and 1930s. According to this approach, the scope, of finance function was confined to only procurement of funds needed by a business on most suitable terms. The utilisation of funds was considered beyond the purview of finance function. It was felt that decisions regarding the application of funds are taken somewhere else in the organisation. However, institutions and instruments for raising funds were considered to be a part of finance function.