SYMBIOSIS CENTRE FOR DISTANCE LEARNING (SCDL) Subject: Financial Management

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Francine Dean
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1 Sample Questions: Section I: Subjective Questions 1. What is the difference between the Irrelevance and Relevance approach to dividend policy? 2. Which are the three main forms of business organizations? 3. What in brief is the liquidity group of ratios, what are its components, and what is its importance? 4. Why would a business form a limited company if sole proprietorship is more flexible and free from government regulations? 5. What are the different ways in which ratios can be expressed? 6. If you are planning to run a small business which is the most suitable form of organization to adopt? 7. Explain in brief the two key theories of capitalization. 8. What are the different types of costs? Section II: Objective Questions Multiple Choice Single Response 1. Revenue from sale of products ordinarily is reported as part of the earning in the period 1] The sale is made 2] The cash is collected 3] The products are manufactured 4] The planning takes place 2. The comparison of ratios of the same organisation for different years is termed as 1] Intra-firm comparison 2] Comparison with standards set

2 3] Inter-firm comparison 4] Ideal ratio 3. Net Working capital means 1] Current assets 2] Current assets less current liabilities 3] Current liabilities 4] Capital budgeting 4. Current assets consist of 1] Land 2] Building 3] Investments 4] Receivables 5. The company granting credit may insist on giving the names of those who are currently dealing with the company. This is termed as 1] Bank reference 2] Trade reference 3] Sales interview and reports 4] Past experience of the customer 6. Profit after tax is also called as 1] Net Profit 2] Retained Profit 3] Operating Profit 4] Real Profit 7. The cost which varies in direct proportion to the sales revenue is termed as 1] Fixed Cost 2] Variable Cost 3] Semi variable cost

3 4] Explicit Cost SYMBIOSIS CENTRE FOR DISTANCE LEARNING (SCDL) 8. Credit rating symbol for Fixed Deposits of Adequate safety by Investment Information and Credit rating agency is 1] MC 2] MA 3] MB 4] MD 9. The right to purchase new shares in the same proportion as their current ownership is available to the existing shareholders under 1] ESOP 2] Bonus Issue 3] Rights Issue 4] Dividend Issue 10. Financing consists of the raising, providing, managing of all the money, capital or funds of any kind to be used in connection with the business' is defined by 1] Prather and Wert 2] Kenneth Midgley and Ronald Burns 3] Bonneville and Dewey 4] R.C.Osborn Multiple Choice Multiple Response 11. Fixation of Inventory levels are based on 1] Lead Time 2] Economic Order Quantity 3] Maximum Usage 4] Cost of Capital 12. Transactions that will have effect on the current ratio are 1] Cash payment to creditors 2] Purchasing Computers 3] Cash received from Debtors 4] Making Provision for Outstanding expenses

4 13. Transactions that will have no effect on the current ratio are 1] Cash received from Debtors 2] Purchase of raw material on cash basis 3] Depositing cash in Bank Account 4] Purchasing Computers for cash 14. All the liabilities are broadly classified into 1] Net Own Funds 2] Term Liability 3] Current Liability 4] Contingent Liability 15. Objectives of finance function are 1] Profit Maximisation 2] Auditing 3] Wealth Maximisation 4] Reconciliation 16. Identify the Current assets. 1] Accrued Income 2] Debtors 3] Raw materials 4] Computers 17. All the liabilities are broadly classified into 1] Net Own Funds 2] Term Liability 3] Current Liability 4] Contingent Liability 18. The approaches to compute the cost of equity shares are

5 1] Dividend/Price 2] Earning/Price 3] D/P + Growth 4] Price/Earnings Fill in the Blanks SYMBIOSIS CENTRE FOR DISTANCE LEARNING (SCDL) 19. is clubbed with Current Assets in the Balance Sheet. 1] Miscellaneous expenditure 2] Loans and advances given 3] Contingent liability 4] Investments 20. Turnover ratios measure how efficiently the are employed by the firm. 1] Capital 2] Assets 3] Debts 4] Profits 21. Debt Equity ratio is alternatively called ratio. 1] Proprietary 2] Turnover 3] Leverage 4] Profitability 22. Debt Service Coverage ratio is calculated as. 1] Profit before interest and taxes / Interest charges 2] (Net Profit after taxes + Depreciation + Interest on term loan) / (Interest + Instalment on term loans) 3] [(Gross Profit / Sales)] *100 4] [(Net Profit / Sales)] *100

6 23. The basic objective of management is to reduce the operating cash requirement to the minimum possible extent without affecting the routine transactions. 1] Materials 2] Working Capital 3] Receivables 4] Cash 24. Cost of Debt 10%. Amount of Debt. 100 Lacs. Cost of Equity 12% Amount of Equity 50 Lacs. Composite cost of capital is 1] 10.67% 2] 11.00% 3] 11.67% 4] 10.33% 25. A firm may be required to offer more credit in case of Market. 1] Buyers' 2] Sellers' 3] Monopoly 4] Oligopoly 26. Factoring is a financial as well as function. 1] Administrative 2] Manufacturing 3] Selling 4] Auditing 27. Interest on overdraft is payable on the actual amount drawn and is calculated on product basis. 1] Monthly 2] Daily 3] Quarterly

7 4] Yearly 28. The amount of profit earned after deducting the interest on long term sources of capital is referred to as. 1] Gains after Interest 2] Profit before Interest and Taxes 3] Profit before taxes 4] Net Profit State True or False 29. Credit rating does not create any legal relationship between the rating agency and the investor. 30. Depreciation should be charged on a vacant plot. 31. Current assets is in the form of asset receivable after a period of one year. 32. Public deposits are unsecured borrowings for the company. 33. Ordering cost of inventory includes cost incurred for insurance of stock. 34. If Internal rate of return is less than cost of capital it means profit. 35. By issuing the debentures, the controlling position of the existing equity shareholders is affected. 36. Wealth maximisation theory is an extension of Profit maximisation Theory. 37. A high degree of operating leverage means that the component of fixed cost is too high in the overall cost structure. 38. Informal method of capital budgeting does not follow any mathematical or statistical model to consider the risk factor. Match the Following 39. 1] Techniques available on macro basis 1] Average Collection period calculation 2] Techniques available on micro basis 2] Age wise analysis of receivables 3] Factoring 3] purchases book debts from the client either with or without recourse 4] Bills Discounting 4] finance against the book debts 5] Credit policy of the company 6] Non fund facility 40. 1] Earnings per share 1] (Profit after tax - Preference dividend) / Number of Equity shares

8 2] Price earning ratio 2] Market Price per share / Earnings per share 3] Operating leverage 3] Contribution / Earnings before interest and tax 4] Financial leverage 4] Earning before interest and tax / Earning before tax 5] Earning per Share/Market Price 6] Earning Before Tax/Earning before Interest and Tax 41. 1] Convertible Preference Shares 1] Which can be converted in the equity shares 2] Non-cumulative Preference shares 2] The arrears of dividend do not accumulate 3] Registered Debentures 3] Holders registered in the company as debenture holders 4] Non-Convertible Debentures 4] Which cannot be converted into equity shares 5] Registered with Registrar of Companies 6] The arrears of Preference Dividend accumulate 42. 1] Solvency Group 1] Debt Equity ratio 2] Liquidity Group 2] Current Ratio 3] Profitability Group 3] Gross Profit Ratio 4] Turnover Group 4] Debtors Turnover Ratio 5] Price Earnings Ratio 6] Capital gearing Ratio

Duration of online examination will be of 1 Hour 20 minutes (80 minutes).

Duration of online examination will be of 1 Hour 20 minutes (80 minutes). Program Name: PGDBA Subject: Financial Management Assessment Name: FM - Exam Weightage: 70 Total Marks: 70 Duration: 80 mins Online Examination: Online examination is a Computer based examination. Online