Strategic Financial Management Set 4

Master of Commerce (M.com),

Bachelor of Management Studies (BMS)

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This set of Strategic Financial Management Multiple Choice Questions & Answers (MCQs) focuses on Strategic Financial Management Set 4

Q1 | In …… approach says that capital structure decision is relevant to the valuation of the firm.
  • Traditional
  • Net income
  • Modiglani and Millers
  • Net operating income
Answer: Net income
Q2 | ______ is defined as the length of time required to recover the initial cash outlay.
  • Payback period
  • Discounted cash back
  • IRR
  • NPV
Answer: Payback period
Q3 | The term capital structure refers to…………..
  • Shareholders equity
  • Current asset and current liabilities
  • Total asset minus liabilities
  • Composition of debt and equity
Answer: Composition of debt and equity
Q4 | In Walter model alphabet ‘D’ in the formula stands for……..
  • Dividend per share
  • Dividend earning
  • Direct dividend
  • None of these
Answer: Dividend per share
Q5 | A critical assumption of NOI (Net operating income approach) to valuation is that…
  • Debt and equity levels remain unchanged.
  • Dividends increase at constant rate
  • Overall cost of capital is independent of the degree of leverage
  • Interest expenses and taxes are included in calculation
Answer: Overall cost of capital is independent of the degree of leverage
Q6 | According to …. principle the ideal pattern of capital structure is one that tends to minimize the costof financing.
  • Control principle
  • Cost principle
  • Risk principle
  • Flexibility principle
Answer: Cost principle
Q7 | ….principle says that issue of debt and preference shares do not affect the interest of equity shareholders.
  • Cost principle
  • Risk principle
  • Control principle
  • Timing principle
Answer: Control principle
Q8 | Who Introduced Net Income approach?
  • David Durand
  • Walter
  • Gordon
  • Modigliani and Miller
Answer: David Durand
Q9 | One of the important assumptions of NI approach is…...
  • Cost of debt > cost of equity
  • Cost of debt < cost of equity
  • Cost of debt = Cost of equity
  • None of the above
Answer: Cost of debt < cost of equity
Q10 | Traditional approach of capital structure is also known as….
  • Neutral approach
  • Mixed approach
  • Intermediate approach
  • Parallel
Answer: Intermediate approach
Q11 | ……… is not a financing method for merger and acquisition.
  • Cash
  • Vendor placing
  • Convertible bond
  • Factoring
Answer: Factoring
Q12 | Convertible bonds are not ……
  • Straight bonds
  • Converted to ordinary shares
  • Two stage financial instrument
  • Hybrid securities
Answer: Straight bonds
Q13 | A lease agreement grants lessee the right to….
  • Own the asset
  • Use the asset
  • Own and use the asset
  • Sell the asset
Answer: Use the asset
Q14 | Operating lease is favoured by the lessee in respect of assets which depreciate in value on accountof …..
  • Obsolescence
  • Wear and tear
  • Exhaustion
  • Fire
Answer: Obsolescence
Q15 | A “sale and lease back” arrangement is suitable for a lessee having…..
  • Liquidity crisis
  • Surplus fund
  • High profit
  • Loss
Answer: Liquidity crisis
Q16 | Basic lease period refers to the period during which lease is irrevocable.
  • True
  • False
  • none
  • all
Answer: True
Q17 | The lessee can protect himself against obsolescence by entering into a capital lease agreement withthe lessor.
  • True
  • False
  • none
  • all
Answer: False
Q18 | A ---------- lease is a way of providing finance
  • Leveraged
  • Operating
  • Finance
  • Sale and lease back
Answer: Finance
Q19 | MVA stands for….
  • Maximum value added
  • Minimum value added
  • Market value added
  • Most value added
Answer: Market value added
Q20 | A firm that acquires another firm as part of its strategy to sell off assets, cut costs, and operate theremaining assets more efficiently is engaging in __________.
  • Strategic acquisition
  • Two tier tender offer
  • A financial acquisition
  • Shark repellent
Answer: Strategic acquisition
Q21 | The ways in which mergers and acquisitions occur do not include:
  • Conglomerate takeover
  • Vertical integration
  • Diversification
  • Horizontal integration
Answer: Diversification
Q22 | Which among the following does not consider time value of money?
  • NPV
  • Payback period
  • IRR
  • Discounted payback period
Answer: Payback period
Q23 | How do we calculate economic value added (EVA)?
  • EVA= NOPAT – (WAAC x Capital invested)
  • EVA = NOI- Cost of capital
  • EVA = EPS x WACC
  • EVA= PER x WACC
Answer: EVA= NOPAT – (WAAC x Capital invested)
Q24 | Retained earnings is…….
  • An Indication of a company’s liquidity
  • The same as cash in the bank
  • Not important when determining dividends
  • The cumulative earnings of the company after dividends
Answer: The cumulative earnings of the company after dividends
Q25 | Economic value added indicates….
  • Value added to economy
  • Financial performance based on residual wealth
  • Net profit
  • Expected amount of dividend
Answer: Financial performance based on residual wealth
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