Financial Management- II MCQ and Short Answer Questions (B.Com- II Group- B)

 

A) Choose the correct alternative from given below.                                                        

1.  ………………is the minimum required rate of return expected by the investors.

a) Cost of Capital                              b) Accounting rate of return

c) Internal rate of return                     d) Profitability index

2. ………………. is the additional cost incurred to obtain additional funds.

a)  Average Cost                                 b) Historic Cost

c) Marginal Cost                                d) Spot Cost

3. ……………….. is one of the internal sources of funds to raise equity funds.

a)  Preference Shares                           b) Debt

c) Debentures                                      d) Retained earnings

4. ……………….. is the firms decision to invest its current funds most efficiently in the long-term assets in anticipation of an expected flow of benefits over a series of years.

a)  Capital Investment                         b) Capital Budgeting

c) Capital Rationing                           d) Investment

5. Capital budgeting evaluation techniques are divided into ……………. broad categories.

a)  Two                                   b) Three

c) Four                                     d) Five

6. ………………. = Present Value of Cash Inflows ÷ Present Value of Cash Outflows

a) Pay Back Period                 b) Internal Rate of Return     

c) Profitability Index             d) Net Present Value

7. ……………… is the cost associated with particular source of finance.

a) Future Cost                         b) Spot Cost   

c) Marginal Cost         d) Specific Cost

8. The discount rate that equates the present value of cash inflows with present value of cash outflows is known as………………..

a) Spot Cost                b) Opportunity Cost

c) Explicit Cost          d) Implicit Cost

9. Weighted average cost of capital (WACC) is also known as …………………

a) Opportunity Cost                b) Composite Cost

c) Explicit Cost                       d) Implicit Cost

10. Original investment is divided by ………………. to get payback period.

a) Constant annual cash inflow       b) Constant annual cash inflow         

c) Net Present Value                           d) Profitability Index

11. Internal Rate of Return (IRR) is also called as ……………… method.

a) Traditional               b) Modern                   c) Discounted              d) Trial and error

12. Which of the following is modern technique of capital budgeting?

a) Pay Back Period                 b) Accounting Rate of Return                       

c) Net Present Value             d) All of the above

13.  An average cost of the each source of funds employed by the firm for capital formation is called as …………………

a) WACC                                b) Composite Cost

c) Overall Cost                        d) All of the above

14.  …………….. is the costs that are prevailing in the market at a certain time..

a) Future Cost                         b) Spot Cost  

c) Marginal Cost         d) Specific Cost

15. Cost of capital is the measurement of sacrifice made by ……………. in order to capital formation.

a) Investors                b) Shareholders

c) Owner                     d) Debtors

16. Capital Budgeting decision …………… without loss

a) Reversible                           b) Irreversible

c) Modified                             d) All of the above

17. ……………… is Present value of cash inflow less present value of cash outflow.

a) Pay Back Period                 b) Internal Rate of Return

c) Profitability Index              d) Net Present Value

18. …………… is the firm’s decision to invest its current fund most efficiently in long term assets in anticipation of an expected flow of benefits over a series of years.

a) Cost of Capital                    b) Capital formation

c) Capital Budgeting             d) All of the above

B)  State whether the following statements are true or false.                                         

1. Cost of Capital comprises of three components. True

2. There is no cost for internally generated funds. False

3. Capital Budgeting is short term decision. False

4. Cash flow after tax is the base for computation of payback period. True

5. Cost of capital is the minimum required rate of return needed to justify use of capital. True

6. Implicit cost is the opportunity cost. True

7. Capital Budgeting is the short term decision. False

8. Additional working capital required is not added to the cost of the project when evaluating based on discounted cash flow technique. False

9. Explicit cost is also called as internal rate of return. True

10. There are ten approaches available to calculate the cost of equity capital. False

11. Fixed assets are those assets that are of temporary in nature. False

12. If calculated IRR is greater than cost of capital (Ko) then project is accepted. True

Short Answer Questions:                                                                   

1. What is cost of capital? Explain the importance of cost of capital.

2. What is capital budgeting? Explain the classification of Projects.

3. What is Profitability Index? State the advantages of the profitability index.

4. What is cost of capital? Explain the classification of cost.

5. What is Capital Budgeting? State the importance of capital budgeting decision.

65. What is capital Budgeting? Explain the techniques of capital budgeting.

7. What is capital budgeting? Explain the Process of Capital Budgeting

8. What is WACC? Explain the steps in calculation of WACC.

9. What is capital Budgeting? Explain the kinds of capital budgeting.