Thursday, July 2, 2009

Strategic Finance - 23

Question A normal firm shows the following characteristics :-
Correct Answer No unique optimum payout ratio , Market value per share unaffected by the
payout ratio , All dividend policies are similar
Question One of the bases for determining the residual value of similar assets is :-
Correct Answer Realizable value
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
Question Segment liabilities do not include :-
Correct Answer Borrowings & other liabilities that are incurred for financing rather than
operating purpose
Question As per Pecking order theory, which is the costliest means of funding :-
Correct Answer Equity Shares
Question Cost of ________ is more than other sources for raising short - term finance.
Correct Answer Bank finance
Question Operating economies occur due to indivisibilities of resources like :-
Correct Answer People , Equipment , Overheads
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
Question In value of assets approach for computation of valuation of shares, the total value of
all the assets will be divided by the total number of shares.
Correct Answer True
Question Short term sources of funds include :-
Correct Answer Current Liabilities
Question Investment decisions are mainly concerned with :-
Correct Answer Assets
Question Debt reduces :-
Correct Answer Agency cost of free cash flow , Commitment to pay in time to all lenders ,
Freedom of decisions
Question The main theories behind share repurchases are :-
Correct Answer Dividend or personal taxation hypothesis , Leverage hypothesis , Information
or signalling hypothesis
Question The cost of facilities is usually included & distributed as ________.
Correct Answer Depreciation
Question Investments having no physical existence includes :-
Correct Answer Shares , Debentures , Bonds
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
Question If a firm opts for restrictive policy then the investments in current assets is :-
Correct Answer Low
Question According to NOI Approach, any capital structure is optimum.
Correct Answer True
Question Segment assets are ________.
Correct Answer Directly attributable to the segment
Free cash flow theory Enormous conflicts of interest between Stakeholders and shareholders
Many groups of non - investor stakeholders have an interest in the firm
Net income approach Cost of debt & equity do not change with a change in leverage ratio
Enormous conflicts of interest between Stakeholders and shareholders
Net operating income approach The overall capitalization rate remains constant for all levels of
financial leverages Firms have preferences by choosing a way to finance their projects
Modigliani - Miller Theory weighted average cost of capital does not change with a change in the
proportion of debt to equity in the capital structure Cost of debt & equity do not change with a
change in leverage ratio
Question The processes to be identified & focused should to be on the basis of not adhering to
benchmarks, bottlenecks, quality not met, time problems etc. This is called as ________.
Correct Answer Process analysis
Question The main characteristics of operating economies are :-
Correct Answer It is achieved through horizontal, vertical and conglomerate mergers , It
occurs due to indivisibilities of resources , It is possible in generic management functions
Question usually the `controlling block' tends to be between :-
Correct Answer 20 & 40 percent
Question The 3 groups of participants in a firm are :-
Correct Answer Suppliers of equity , Debt suppliers , Firm Managers
Question Human Assets accounting stands for :-
Correct Answer Measurement & reporting of the cost and value of people as organisational
Question Profitability of a company depends upon :-
Correct Answer Cost of capital
Question Horizontal mergers involves firms________.
Correct Answer That operate & compete in a similar kind of business
Availability of funds in the market Cost of funds depends on this factor Different costs are
Flexibility The extent & the ease with which the funds can be raised & paid back are very
important The extent & the ease with which the funds can be raised & paid back are very
Time Takes less time to take an overdraft from the bank Takes less time to take an overdraft from
the bank
Creditworthiness of the issuerIf a company has a good creditworthiness it is not difficult to raise
short term funds If a company has a good creditworthiness it is not difficult to raise short term
Question A firm's current assets include :-
Correct Answer Marketable securities , Receivables , Inventory
Question If a segment is not designated as a ________ it should be included as an unallocated
reconciling item.
Correct Answer Reportable segment
Question An asset is included in segment assets, if and only if the related depreciation or
amortisation is included in ________.
Correct Answer Segment expense
Question Trade credit creates book debts which the firm is expected to collect in the near
Correct Answer True
Question Long term financing strategy is used by a firm to meet :-
Correct Answer Fixed assets requirements , Permanent working capital requirements , Portion
of fluctuating working capital requirement
Question Debt is often issued at :-
Correct Answer The head office level
Question Determination of residual value of an asset is normally a difficult matter.
Correct Answer True
Question Which of the following systems identifies each of the organizational elements of the
traditional bureaucratic structure and applies the identifiable costs of that element accordingly?
Correct Answer Organization element accounting
Question Segment result represents :-
Correct Answer Operating profit or loss
Question Which of the following is NOT a disadvantage of deferred payment plan to the
acquiring firm?
Correct Answer There is built - in cushion to the acquiring firm as total payment is not made at
the time of acquisition
Question The resource theory considers that the competitive position of a firm depends on its
________ Assets.
Correct Answer Specific
Question Short term financing is meant for funding working capital of a company.
Correct Answer True
Question Money becomes less valuable when received at a latter stage instead of in present
Correct Answer True
Question The intellectual assets of a company are often worth 3 or 4 times the tangible book
Correct Answer True
Question One of the selective developments that has taken place in recent times is companies
are going in for :-
Correct Answer Activity based costing and management
Question The financial managers of a company consume a great deal of their time in activities
like :-
Correct Answer Monitoring the investment in inventories , Negotiating favourable credit terms
, Administrating Accounts receivables
Question If total external revenue attributable to reportable segments constitutes less than
________ of the total enterprise revenue additional segments should be identified as reportable
Correct Answer 75 percent
Question A single organisation model serves to keep all individual initiatives to be targeted into
a co-ordinated plan.
Correct Answer True
Question Valuation of current investments on overall basis is not considered appropriate.
Correct Answer True

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