Business Finance — Practice

Question 1

Which of the following is a well-documented limitation of the profit maximisation objective of financial management?

Accepted Answer

B

Question 2

Wealth maximisation as an objective of financial management is best measured, in practice, by a firm's

Accepted Answer

A

Question 3

₹1,00,000 receivable exactly 3 years from now is discounted at 10% per annum. Given the present value factor at 10% for 3 years is 0.751, its present value today is closest to

Accepted Answer

C

Question 4

A project requires an initial investment of ₹2,00,000 and generates equal annual cash inflows of ₹60,000 for 5 years. Given PVIFA(12%, 5 years) = 3.605, the project's NPV at a 12% discount rate is closest to

Accepted Answer

D

Question 5

A project has an initial outlay of ₹1,00,000 and equal annual cash inflows of ₹30,000 for 5 years. Given PVIFA(15%, 5) = 3.352 and PVIFA(16%, 5) = 3.274, the project's IRR, found by interpolation, is closest to

Accepted Answer

A

Question 6

A machine costs ₹4,50,000 and generates a constant annual cash inflow of ₹90,000 throughout its life. Its payback period is

Accepted Answer

B

Question 7

A company's share currently trades at ₹40, is expected to pay a dividend of ₹4 next year, and dividends are expected to grow at a constant 6% per annum indefinitely. Using the dividend growth model, its cost of equity is

Accepted Answer

C

Question 8

XYZ Ltd. is financed by equity worth ₹60 lakh (cost of equity 16%) and debt worth ₹40 lakh (pre-tax cost of debt 12%, tax rate 30%). Its WACC is closest to

Accepted Answer

D

Question 9

Which capital structure theory holds that a firm's overall cost of capital and total value remain constant at every level of financial leverage, because any fall in the cost of debt is exactly offset by a rise in the cost of equity?

Accepted Answer

B

Question 10

According to the Modigliani-Miller hypothesis WITH corporate taxes, the value of a levered firm compared with an identical unlevered firm is

Accepted Answer

C

Question 11

A firm has EPS = ₹10, DPS = ₹6, cost of capital Ke = 16%, and internal rate of return r = 20%. Using Walter's model, its market price per share is closest to

Accepted Answer

A

Question 12

As per Walter's model, when a firm's internal rate of return (r) exceeds its cost of capital (Ke), the dividend payout ratio that maximises its share price is

Accepted Answer

D

Question 13

A firm has current assets of ₹5,00,000 and current liabilities of ₹3,20,000. Its net working capital is

Accepted Answer

A

Question 14

The Modigliani-Miller (MM) dividend irrelevance hypothesis rests critically on the assumption of

Accepted Answer

B

Practice — Business Finance

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