Financial Management quiz

The primary objective of financial management is:

Capital budgeting decisions relate to:

Trading on equity is favourable when the rate of return on investment is:

Which source of finance is the cheapest due to tax deductibility of interest?

A high interest coverage ratio indicates:

Which business needs the least working capital?

Floatation cost is relevant to:

During a boom, the working capital requirement generally:

A company with stable earnings is likely to declare:

Which of the following is NOT a factor affecting dividend decision?

State two objectives of financial planning. (2 marks)

Why is financial risk higher when a company uses more debt? (2 marks)

Explain how the state of the capital market affects the financing decision. (2 marks)

What is debt service coverage ratio? What does a high DSCR indicate? (2 marks)

How does the production cycle affect working capital requirements? (2 marks)

Why do companies with high growth opportunities retain more earnings? (2 marks)

Explain how taxation policy affects dividend decisions. (2 marks)

Why are investment decisions irreversible in nature? (2 marks)

How does the choice of technique affect the fixed capital requirement? (2 marks)

Why does a firm buying on long credit need less working capital? (2 marks)

A company has a capital of Rs 50 lakh, EBIT of Rs 8 lakh and tax rate of 40%. Option A: all equity of Rs 10 shares. Option B: Rs 25 lakh equity and Rs 25 lakh 12% debt. Calculate EPS under both options. (3 marks)

EBIT is Rs 9,00,000 and annual interest on 10% debentures of Rs 30,00,000 is to be calculated. Find the interest and the interest coverage ratio, and comment on the company's ability to raise more debt. (3 marks)

Profit after tax Rs 4,20,000; depreciation Rs 80,000; interest Rs 1,00,000; preference dividend Rs 50,000; loan repayment Rs 1,50,000. Calculate the DSCR (formula: profit after tax + depreciation + interest + non-cash expenses, divided by preference dividend + interest + repayment obligation). (3 marks)

A company earned Rs 20 lakh after tax and has 4 lakh equity shares. It pays a dividend of Rs 2 per share. Calculate the EPS, the dividend payout ratio and the amount of retained earnings. (3 marks)

A firm's current assets are inventory Rs 6 lakh, debtors Rs 4 lakh and cash Rs 2 lakh. Current liabilities are creditors Rs 5 lakh and outstanding expenses Rs 1 lakh. Calculate gross working capital and net working capital. (3 marks)

Read the passage and answer the questions. A steel company plans to set up a new plant costing Rs 500 crore. Its finance team evaluates the expected cash flows, rate of return and payback period of the project before deciding. (i) Identify the financial decision. (ii) Name three factors affecting this decision mentioned in the passage. (iii) Why is this decision crucial for the company? (5 marks)

Read the passage and answer the questions. A telecom company has a stable cash flow and an ROI of 15%. The interest rate on debt is 9% and the tax rate is 25%. The promoters do not want to dilute control. (i) Should the company use more debt? Give reasons. (ii) Identify three factors affecting capital structure in the passage. (iii) State one risk of using excessive debt. (5 marks)

Read the passage and answer the questions. A woollen garment maker needs large working capital from August to December and very little in other months. It also sells on credit to wholesalers. (i) Identify two factors affecting working capital in the passage. (ii) Explain each factor. (iii) Suggest one source of short-term finance. (5 marks)

Read the passage and answer the questions. A fast-growing technology company paid no dividend for five years despite healthy profits, while a utility company paid stable dividends every year. (i) Identify the factors affecting dividend decision for each company. (ii) Why might shareholders of the technology company accept no dividend? (iii) State two other factors affecting dividend decision. (5 marks)

Read the passage and answer the questions. A company prepared a financial plan for five years, estimating the funds needed for expansion and identifying the sources from which they would be raised. It also ensured that it would not raise more funds than necessary. (i) Identify the concept. (ii) State two objectives mentioned. (iii) State two points of importance of this concept. (5 marks)

Explain the three financial decisions with factors affecting each. Draw a chart summarising them. (6 marks)

Explain trading on equity with a numerical illustration and a labelled chart comparing EPS under all-equity and debt-equity options. (6 marks)

Explain the factors affecting the choice of capital structure. Draw a chart grouping them. (6 marks)

Explain the factors affecting working capital requirements. Draw a labelled diagram of the operating cycle. (6 marks)

Explain the factors affecting fixed capital requirements. Draw a chart comparing the fixed capital needs of a trading firm, a manufacturing firm and a public utility. (6 marks)