Wednesday, March 2, 2011

Strategic Finance - 25

Strategic Finance - 25

Match The Following
Question - Correct Answer
Opportunity cost -An asset value when they are the target of an alternative use.
Exit cost -Lost efficiency prior to separation, Job vacancy cost during the new search & termination pay.
Historical costs Sacrifice necessary to hire & train people .
Substitution cost- Exit costs of the leaving employee & recruiting & training of the replacement

Multiple Choice Single Answer
Question Book value is relevant to determine the firm's value because of the following reasons except:-Correct Answer It cannot be used as a starting point to be compared & complimented by other analysis

True/False
Question For determining exchange ratio, the model developed by Conn & Nielson is used.
Correct Answer True

Multiple Choice Single Answer
Question Normally the basis for identifying an enterprise segments are :-
Correct Answer The organizational structure of an enterprise


Multiple Choice Single Answer
Question FEA is a technique to analyze & evaluate :-
Correct Answer Alternative process improvements

True/False
Question Arbitrage process implies that security cannot sell at different prices.
Correct Answer True

Select The Blank
Question ________ is not a characteristic of financial conglomerates.
Correct Answer Provide ineffective competitive process

True/False
Question Retained earnings are the most important internal sources of financing the growth of the firm.
Correct Answer True

Multiple Choice Multiple Answer
Question Significant influence is the power to :-
Correct Answer Participate in the financial decisions , Participate in the operating policy decisions

Multiple Choice Single Answer
Question For paying dividends, firms will have a given amount of :-
Correct Answer Cash available

Multiple Choice Multiple Answer
Question The characteristics of working capital are :-
Correct Answer It is continually required for a going concern , Quantum of working capital fluctuates depending on the level of activity , It is impacted by numerous transactions on a continuous basis

Select The Blank
Question Earning power of the company approach tries to value the ________.
Correct Answer Current value of the assets

Multiple Choice Multiple Answer
Question As per AS 13 Statement, the following are not considered as investments:-
Correct Answer Shares , Debentures , Other securities held as stock in trade

Multiple Choice Multiple Answer
Question Operating economies of scale are achieved through the following mergers :-
Correct Answer Horizontal , Vertical , Conglomerate

True/False
Question Usually only a single method is used for valuation of shares.
Correct Answer False

Select The Blank
Question As per residual theory of dividends the focus is on ________.
Correct Answer Growth
True/False
Question Management of working capital refers to the management of total assets and liabilities of a
company.
Correct Answer False

Multiple Choice Multiple Answer
Question The important aspect of dividend policy is :-
Correct Answer To determine the amount of earnings to be distributed to shareholders , Amount to be retained inthe firm

Multiple Choice Multiple Answer
Question The cost of an investment includes charges such as :-
Correct Answer Brokerage , Fees , Duties

Select The Blank
Question Forfeiting is mostly used for ________.
Correct Answer Big ticket items & durable goods


True/False
Question Planning helps an acquiring firm to identify the units it should drop & it should add.
Correct Answer True


Multiple Choice Single Answer
Question Segment information needs to be presented :-
Correct Answer Only on the basis of the consolidated financial statements

Select The Blank
Question Postage is an example of ________ cost.
Correct Answer Non traceable cost

Match The Following
Question- Correct Answer
Earning per share- Acquisition is considered to be a function of the impact of the merger on
Book value- Divide net worth by the number of equity shares outstanding
Appraisal value- Provides a list of the reasonableness of results obtained through
methods base upon the going concern concept
Market value- Indicate the consensus of the investors

Multiple Choice Multiple Answer
Question Book value of the assets is directly dependent on the accounting policies followed by the company
which is used in the following areas :-
Correct Answer Booking depreciation , Methods of provisions , Inventory valuation
Multiple Choice Multiple Answer
Question Every business requires funds on a continual basis for expenses incurred on for :-
Correct Answer Purchase of raw material , Manufacturing costs , Administration
Select The Blank
Question Forward or backward integration is a characteristic of ________.
Correct Answer Vertical Mergers

True/False
Question According to NI Approach, decrease in leverage decreases the overall cost of capital and
increases the firm's value.
Correct Answer False

Multiple Choice Multiple Answer
Question If a firm diversifies managerial teams formed can be shifted from unproductive activities to
productive ones which leads to :-
Correct Answer Improved profitability , Continuity , Growth of the firm

Multiple Choice Single Answer
Question Best practices, a tool for review process is similar to :-
Correct Answer Bench marking

Multiple Choice Single Answer
Question One of the important assumptions for capital structure theories is :-
Correct Answer Debt and equity are the 2 kinds of funds used by the firm



True/False
Question If a company has resorted to buyback its shares, it cannot make a further issue of the same kind of
securities within a period of 1 year.
Correct Answer False


True/False
Question The scope of the data required relates to the scope of the activity model & processes under review.
Correct Answer True


Select The Blank
Question The ________ cost tier has the advantage of being the simplest to calculate and justify.
Correct Answer Direct


Select The Blank
Question Stock repurchases ________ the debt / equity ratio.
Correct Answer Increases


Select The Blank
Question The resource theory considers that the competitive position of a firm depends on its ________
Assets.
Correct Answer Specific


Multiple Choice Single Answer
Question Many companies claim their main assets are their :-
Correct Answer People


Multiple Choice Multiple Answer
Question The important steps involved in the analysis of mergers & acquisitions are:-
Correct Answer Planning , Searching & screening , Financial evaluation


Select The Blank
Question ________ is not a example of segment liability.
Correct Answer Goodwill


Select The Blank
Question If a segment is not designated as a ________ it should be included as an unallocated reconciling item.
Correct Answer Reportable segment


Multiple Choice Multiple Answer
Question The main characteristics of CAPM are :-
Correct Answer It is an equilibrium Model , It describes the pricing of assets as well as
derivatives , Expected security return = Riskless return + beta x (expected market risk premium)

Multiple Choice Single Answer
Question Debt suppliers main concern is :-
Correct Answer Interest & debt repayment


True/False
Question Organisational changes are similar to mission changes.
Correct Answer True


Multiple Choice Single Answer
Question The difference between current assets & current liabilities is known as :-
Correct Answer Net working capital


Multiple Choice Multiple Answer
Question The 3 groups of participants in a firm are :-
Correct Answer Suppliers of equity , Debt suppliers , Firm Managers
Multiple Choice Single Answer
Question When the working capital is less than its peak level :-
Correct Answer The surplus is invested in liquid assets

Multiple Choice Single Answer
Question According to a survey for reasons for share purchase, what is the percentage of cash distribution to cash holders ?
Correct Answer 0.28



Strategic Finance - 24

Match The Following
Question Correct Answer Your Answer
AS 21 Consolidated financial statements Consolidated financial statements
AS 4 Contingencies & events occurring after the balance sheet date Contingencies & events occurring after the balance sheet date
AS 13 Accounting for investments Accounting for investments
AS 23 Accounting for investments in associates in consolidated financial statements Accounting for investments in associates in consolidated financial statements

Select The Blank
Question There is a ________ relationship between the number of employees & the use of
operating supplies.
Correct Answer Natural

Multiple Choice Multiple Answer
Question The main characteristics of CAPM are :-
Correct Answer It is an equilibrium Model , It describes the pricing of assets as well as derivatives ,
Expected security return = Riskless return + beta x (expected market risk premium)

Multiple Choice Multiple Answer
Question A firm using a conservative policy for determining the requirements of current assets:-
Correct Answer Has fewer production stoppages , Ensures quick deliveries to customers , Stimulates sales


Multiple Choice Single Answer
Question As per Pecking order theory, which is the costliest means of funding :-
Correct Answer Equity Shares


Multiple Choice Single Answer
Question Free Reserves is a component of :-
Correct Answer Equity


Select The Blank
Question ________ are those operating assets that are employed by a segment in its
operating activities.
Correct Answer Segment assets


Multiple Choice Multiple Answer
Question The overhead expenses include :-
Correct Answer Utilities , Maintenance , Security


Multiple Choice Multiple Answer
Question Examples of accrued expenses are :-
Correct Answer Wages , Income tax , Property tax


Multiple Choice Single Answer
Question One of the bases for determining the residual value of similar assets is :-
Correct Answer Realizable value


Select The Blank
Question The number of bidding centers shall not be less than ________ for buy back through
book building.
Correct Answer 30


Multiple Choice Single Answer
Question Conservative policy for determining the requirements of current assets is also known
as :-
Correct Answer Flexible policy


True/False
Question Management of working capital refers to the management of total assets and
liabilities of a company.
Correct Answer False


Multiple Choice Single Answer
Question usually the `controlling block' tends to be between :-
Correct Answer 20 & 40 percent


Multiple Choice Single Answer
Question The difference between current assets & current liabilities is known as :-
Correct Answer Net working capital


Select The Blank
Question Conglomerate mergers are also called ________.
Correct Answer Concentric mergers


Multiple Choice Multiple Answer
Question The main theories behind share repurchases are :-
Correct Answer Dividend or personal taxation hypothesis , Leverage hypothesis , Information or
signalling hypothesis


Multiple Choice Single Answer
Question In value of assets method the following is also to be included as they are also of
value to the company :-
Correct Answer Non trading assets


Multiple Choice Multiple Answer
Question Every business requires funds on a continual basis for expenses incurred on for :-
Correct Answer Purchase of raw material , Manufacturing costs , Administration


True/False
Question The scope of the data required relates to the scope of the activity model & processes
under review.
Correct Answer True


Multiple Choice Single Answer
Question Investment decisions are mainly concerned with :-
Correct Answer Assets


Match The Following
Question -Correct Answer
Unsecured loans- Form of debt not backed by the pledge of specific assets
Line of credit- Does not constitute any legal commitments on the part of the
bank
Revolving credit agreements -While the commitment is in force the bank must extend credit
whenever the borrower wishes to borrow

Transaction loan -The cash flow ability of the borrower to pay the loan is usually of paramount importance

Multiple Choice Single Answer
Question Short term sources of funds include :-
Correct Answer Current Liabilities


Multiple Choice Single Answer
Question Profitability of a company depends upon :-
Correct Answer Cost of capital


True/False
Question DCF is not a method used to calculate market value of a firm.
Correct Answer False


Multiple Choice Multiple Answer
Question Shortcomings of accounting numbers consist of the following :-
Correct Answer Firms use different kind of accounting methods , Business risk and financial risk do
not have any influence on accounting numbers


Multiple Choice Multiple Answer
Question Debt reduces :-
Correct Answer Agency cost of free cash flow , Commitment to pay in time to all lenders , Freedom of
decisions

True/False
Question Planning helps an acquiring firm to identify the units it should drop & it should add.
Correct Answer True


Select The Blank
Question Non value added activities helps ________.
Correct Answer To analyse the activities more carefully


True/False
Question Usually only a single method is used for valuation of shares.
Correct Answer False


Select The Blank
Question In the reproduction value method of valuation, the value of assets is taken to be on
the basis of ________
Correct Answer Replacement cost

Multiple Choice Multiple Answer
Question The major conditions to be fulfilled for buyback of shares as per the legal provisions
include :-
Correct Answer Articles of association should authorize buyback of shares , The shares which are
sought to be bought back should be fully paid up , After the buy back the ratio of debt
to total capital and free reserves should not be more than 2 : 1


Multiple Choice Single Answer
Question The Public announcement of share buy back has to be made at least :-
Correct Answer 7 Days prior to the commencement of buy back


Select The Blank
Question Combination of 2 or more companies into existing company is called ________.
Correct Answer Absorption


Select The Blank
Question ________ is not a example of segment liability.
Correct Answer Goodwill

Multiple Choice Multiple Answer
Question The characteristics of working capital are :-
Correct Answer It is continually required for a going concern , Quantum of working capital fluctuates
depending on the level of activity , It is impacted by numerous transactions on a
continuous basis

True/False
Question The accounting records serve as the major source of cost data.
Correct Answer True

Select The Blank
Question AS 23 - Accounting for investments in associates in consolidated financial
statements comes into effect in respect of accounting periods commencing on or
after ________.
Correct Answer 01.04.2002

True/False
Question The activity model is normally created by an activity Accountant.
Correct Answer False


True/False
Question Organisational changes are similar to mission changes.
Correct Answer True


Multiple Choice Single Answer
Question Equity includes :-
Correct Answer Development Rebate Reserve


Select The Blank
Question A geographical segment cannot be ________.
Correct Answer Countries in different zones


Multiple Choice Single Answer
Question The Management of the Company may enter into a negotiated purchase, which is
referred to as :-
Correct Answer Greenfield


Multiple Choice Single Answer
Question The acquirer should intimate to the target company & the concerned stock
exchanges as soon as its holding touches :-
Correct Answer 5 % of the voting capital of the target company


Multiple Choice Multiple Answer
Question Significant influence is the power to :-
Correct Answer Participate in the financial decisions , Participate in the operating policy decisions


Multiple Choice Multiple Answer
Question An investment property is an investment in land or buildings :-
Correct Answer Not intended to be occupied substantially for use by investing enterprise , Not
intended to be in the operations of the investing enterprise


Multiple Choice Single Answer
Question The following analysis is more targeted on similar activities or firms that exist in
parallel within the activity model or process flow to ensure that they are being done
the same best way :-
Correct Answer Comparative analysis

Strategic Finance - 26

True/False
Question Odd lots purchase is not a method of buy back of shares.
Correct Answer False

Select The Blank
Question As per NOI Approach - the overall capitalization rate remains
________ for all levels of financial leverage.
Correct Answer Constant

Multiple Choice Single Answer
Question The following method of valuation is used for listed companies
that have an active market for their shares :-
Correct Answer Market value approach

Multiple Choice Single Answer
Question The main assumption in comparative analysis is the possibility of
:-
Correct Answer Combination or co-location of similar functions

Multiple Choice Multiple Answer
Question The budgetary records are useful for:-
Correct Answer Validating accounting costs , Providing a rationale for division of
costs , Replacing missing data

Select The Blank
Question usually credit lines are established for a period of ________.
Correct Answer 1 year

Strategic Finance

Multiple Choice Single Answer
Question As per the study conducted by RBI, Current assets constitute :-
Correct Answer More than 50 % of the total assets

Select The Blank
Question Cost of ________ is more than other sources for raising short -
term finance.
Correct Answer Bank finance

Match The Following
Question- Correct Answer

Diversification -Growth through the combination of firms in
unrelated fields of business

Horizontal mergers 2- Firms operate & compete in a similar kind
of business

Vertical mergers -Firms in different stages of production


Conglomerate mergers -Different or unrelated business activity

Multiple Choice Single Answer
Question in case of temporary working capital, the investment in current
assets varies with :-
Correct Answer Seasonal requirements

Multiple Choice Multiple Answer
Question Organisations have various records and reports from past
actions such as :-
Correct Answer Logs to record workflow , Specific costs , External and internal
audit reports

True/False
Question The carrying amount for current investments is the lower of cost
& fair value.
Strategic Finance
Correct Answer True

Multiple Choice Multiple Answer
Question A company is prohibited to buy back its own shares in the
following circumstances :-
Correct Answer Through any subsidiary company , Through any investment
company , If a company defaults in repayment of deposits or
interest due thereon

True/False
Question Explicit cost and implicit cost are the two parts of cost of debt.
Correct Answer True

Select The Blank
Question Forward or backward integration is a characteristic of ________.
Correct Answer Vertical Mergers

Multiple Choice Single Answer
Question As per Dorsman (1995) - financing with a high percentage of
debt prevents firms from :-
Correct Answer Investing too much

Multiple Choice Single Answer
Question Estimation for determining the useful life of an asset is required
:-
Correct Answer On some reasonable basis

True/False
Question In market value approach, interested parties never manipulate
the stock markets.
Correct Answer False
Strategic Finance


Multiple Choice Single Answer
Question Which of the following company is reaping high market valuation
due to showing human resources as an asset in its balance
sheet information?
Correct Answer Infosys

Multiple Choice Single Answer
Question Decrease in leverage results in increasing the :-
Correct Answer Overall cost of capital

Multiple Choice Single Answer
Question Suppliers of equity are interested in :-
Correct Answer High share prices

Match The Following
Question- Correct Answer

Free cash flow theory- Enormous conflicts of interest between
Stakeholders and shareholders


Net income approach -Cost of debt & equity do not change with a change
in leverage ratio


Net operating income approach
-The overall capitalization rate remains constant for all levels of financial
leverages

Modigliani - Miller Theory- weighted average cost of capital does not change
with a change in the proportion of debt to 2equity in the capital
structure


Select The Blank
Strategic Finance

Question The date on which the announcement is made of new dividend is
called ________.
Correct Answer Declaration date

Multiple Choice Multiple Answer
Question The net income approach is based on following 3 assumptions :-
Correct Answer There are no taxes , Cost of debt is less than equity
capitalization rate , Use of debt doesn't change the risk
perception of investors


Multiple Choice Single Answer
Question A single business segment does not include products & services
:-
Correct Answer With significantly differing risks & returns

True/False
Question For determining exchange ratio, the model developed by Conn &
Nielson is used.
Correct Answer True

Multiple Choice Single Answer
Question Debt suppliers main concern is :-
Correct Answer Interest & debt repayment

Multiple Choice Single Answer
Question Value added analysis is a method to determine, if elements
within a process flow provide the :-
Correct Answer Values

Select The Blank
Question Investors can reduce the company related risk by diversification
of their investments in ________.
Strategic Finance

Correct Answer Shares of a large number of companies

Multiple Choice Multiple Answer
Question The 3 main types of accounting records followed by an
organisation are :-
Correct Answer Organisational accounting , Budgetary accounting , Cost
accounting

Multiple Choice Multiple Answer
Question The following disclosures in financial statements in relation to
investments are appropriate :-
Correct Answer The accounting policies for the determination of carrying amount
of investments , Profits & losses on disposal of current
investments , The amounts included in P & L Statement

Select The Blank
Question In the shareholding pattern of a company, the promoter's holding
includes________.
Correct Answer Foreign Promoters

Multiple Choice Multiple Answer
Question For M & As, the acquiring firm needs industry data on :-
Correct Answer Market growth , Nature of competition , Degree of regulation

Multiple Choice Multiple Answer
Question The financial framework of a merger decision covers 3
interrelated aspects i.e. :-
Correct Answer Determining the firm's value , Financing techniques in mergers ,
Analysis of merger as a capital budgeting decision

Multiple Choice Single Answer
Question According to Net Income Approach, the average cost of capital
declines as the leverage ratio :-
Correct Answer Increases
Strategic Finance


True/False
Question A long term investment is an investment other than a current
investment.
Correct Answer True

True/False
Question The capital Asset pricing model describes the pricing of assets
as well as derivatives.
Correct Answer True

Multiple Choice Multiple Answer
Question Personnel services expenses is made up of:-
Correct Answer Personnel salaries , Cost of facilities , Training & development
budgets

Multiple Choice Multiple Answer
Question Investments having no physical existence includes :-
Correct Answer Shares , Debentures , Bonds

Select The Blank
Question the commercial paper may be issued in the multiples of
________.
Correct Answer 5 lakhs

Multiple Choice Single Answer
Question Modigliani - Miller Theoram is based on :-
Correct Answer Perfect Capital Markets

Select The Blank
Strategic Finance

Question The most popular kind of dividend policy is one that pays a
________.
Correct Answer Regular, steady dividend

Multiple Choice Multiple Answer
Question AS 13 Does not deal with :-
Correct Answer The bases for recognition of interest, dividends & rentals earned
on investments , Operating or finance leases , Investment in mutual funds

True/False
Question According to NOI Approach, any capital structure is optimum.
Correct Answer True

Multiple Choice Single Answer
Question One of the important assumptions for capital structure theories is
:-
Correct Answer Debt and equity are the 2 kinds of funds used by the firm

Multiple Choice Single Answer
Question Arbitrage means :-
Correct Answer Securities cannot sell at different prices

True/False
Question Short term financing is meant for funding working capital of a
company.
Correct Answer True

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