Financial Management Test

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Financial Management Test - 18

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Weekly Quiz Competition

Question 1
1 / -0

The 'BAUMOL MODEL' is related with _________________.

A
Bank Loan

B
Receivables Management

C
Return on investment

D
Cash management

Solution

Perpetual preference shares are non-existence in India. After commencement of the companies amendment act, 2000, companies are allowed to issue equity shares with differential rights.
Question 2
1 / -0

Companies with higher growth pattern are likely to __________.

A
Pay lower dividends

B
Pay higher dividends

C
Dividends are not affected by growth considerations

D
None of the Above

Solution

Companies with higher growth rate are likely to pay lower rate of dividend. Companies with higher growth rate would prefer to plough back its profit for the growth of the company which would result in long term benefits rather than distributing dividends which is temporary.
Question 3
1 / -0

Other things remaining the same, an increase in the tax rate on corporate profits will ____________.

A
make debt relatively cheaper

B
make debt relatively less cheap domestically

C
no impact on the cost of debt

D
can't be determined

Solution

The interest that is to be paid to the debtors is deducted from the total income before calculating the value of tax. Thus, as the value of tax increases, the debt becomes relatively cheaper.
Question 4
1 / -0

Given the fixed cost = Rs.20,000 the operating BEP in units = 2,500 and financial BEP - Rs.4,000, the overall BEP in units is __________.

A
3000

B
4000

C
5000

D
6000

E
8000

Solution

Over all BEP = Operating BEP + Financial BEP
Operating BEP = 20,000/2,500
= 8 [contribution per unit]
Overall BEP = (20,000 + 4,000)/8
= 3000.
Question 5
1 / -0

Higher dividends per share is associated with ______________.

A
High Earning, High Cash Flows, Unusable Earnings and Growth Opportunities

B
High Earning, High Cash Flows, Stable Earnings and Growth Opportunities

C
High Earning, High Cash Flows, Stable Earnings and Lower Growth Opportunities

D
High Earning, Low Cash Flows, Stable Earnings and Lower Growth Opportunities

Solution

There are two primary causes for increases in a company’s dividend per share payout.
The first is simply an increase in the company's net profits out of which dividends are paid.
The second is a shift in the company’s growth strategy that leads the company to decide to expend less of its earnings in seeking growth and expansion, thus leaving a larger share of profits available to be returned to equity investors in the form of dividends.
Question 6
1 / -0

If DFL of a firm is 1.61 EBIT is Rs.25,000 and the interest component is Rs.7,000 the dividend on preference shares that the firm paid assuming a tax rate of $$30\%$$ is ____________.

A
Rs.1,730

B
Rs.2,013

C
Rs.2,595

D
Rs.6,631

E
Rs.9,945

Solution

DFL = $$\frac{EBIT}{EBIT - 1 - \frac{D_p}{(1-t)}}$$
DFL = $$\frac{25,000}{25,000 - 7000 - \frac{D_p}{(1-0.30)}}$$
$$D_p$$ = 1,730.
Question 7
1 / -0

The policy that insures all other risks which are not covered under any other policy is the ______________.

A
General insurance policy

B
Umbrella policy

C
Residual insurance policy

D
Both (A) and (C) above

E
None of the above

Solution

Blankets (umbrella) policies also called excess liability coverage, insure all other riskd which are not covered under any policy.
Question 8
1 / -0

Direct plan can be made for which one of the following.

A
Sales message

B
Request refusal letters

C
Claims letters

D
None of the above.

Solution

Direct plans can only be made for events which is sure to happen in a manner as foreseen and predicted by the planners. Therefore, it cannot be made for sales messages, request refusal letters, and claim letters which are unpredictable in nature.
Hence, option (D) is the correct answer.
Question 9
1 / -0

American Depository Receipts (ADRs) are divided into __________ number of levels.

A
1

B
2

C
3

D
4

E
None of the above

Solution

ADR is a dollar-denominated negotiable certificate, it represents non-US company;'s Publicly traded equity. ADRs are divided into three levels based on the regulations and privileges of each company's issue.
Hence, option (C) is the correct answer.
Question 10
1 / -0

_______comprises two decisions, viz., (i) Financial Planning; and (ii) Capital structure decision.

A
Investment decisions

B
Financing decisions.

C
Dividend decisions

D
All of above

Solution

Financial decision is yet another important function which a financial manger must perform. It is important to make wise decisions about when, where and how should a business acquire funds. Funds can be acquired through many ways and channels. Broadly speaking a correct ratio of an equity and debt has to be maintained. This mix of equity capital and debt is known as a firm’s capital structure.

A firm tends to benefit most when the market value of a company’s share maximizes this not only is a sign of growth for the firm but also maximizes shareholders wealth. On the other hand the use of debt affects the risk and return of a shareholder. It is more risky though it may increase the return on equity funds.

A sound financial structure is said to be one which aims at maximizing shareholders return with minimum risk. In such a scenario the market value of the firm will maximize and hence an optimum capital structure would be achieved. Other than equity and debt there are several other tools which are used in deciding a firm capital structure.

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Re-Attempt Weekly Quiz Competition

Financial Management Test - 18

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Financial Management Test - 18

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SHARING IS CARING

Question 1

Bank Loan

Receivables Management

Return on investment

Cash management

Solution

Question 2

Pay lower dividends

Pay higher dividends

Dividends are not affected by growth considerations

None of the Above

Solution

Question 3

make debt relatively cheaper

make debt relatively less cheap domestically

no impact on the cost of debt

can't be determined

Solution

Question 4

3000

4000

5000

6000

8000

Solution

Question 5

High Earning, High Cash Flows, Unusable Earnings and Growth Opportunities

High Earning, High Cash Flows, Stable Earnings and Growth Opportunities

High Earning, High Cash Flows, Stable Earnings and Lower Growth Opportunities

High Earning, Low Cash Flows, Stable Earnings and Lower Growth Opportunities

Solution

Question 6

Rs.1,730

Rs.2,013

Rs.2,595

Rs.6,631

Rs.9,945

Solution

Question 7

General insurance policy

Umbrella policy

Residual insurance policy

Both (A) and (C) above

None of the above

Solution

Question 8

Sales message

Request refusal letters

Claims letters

None of the above.

Solution

Question 9

1

2

3

4

None of the above

Solution

Question 10

Investment decisions

Financing decisions.

Dividend decisions

All of above

Solution

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