## Analyzing Strategic Edge – Strategic Management MCQ

Analyzing Strategic Edge – CS Executive Financial and Strategic Management MCQ Questions with Answers you can quickly revise the concepts.

## Analyzing Strategic Edge – Strategic Management MCQ

Question 1.
What is the term for the act of recreating a core business process with the goal of improving product output, quality or reducing costs?

Question 2.
Which of the following is objective of Business Process Reengineering (BPR)?
(A) Boost effectiveness and produce higher quality products for end customer.
(B) Improve efficiency in the production processes.
(C) Providing more meaningful work to employees.
(D) All of the above
(D) All of the above

Question 3.
Which of the following is not one of the stepsoftheBusinessProcessReengineering (BPR)?
(A) Identify customers and determine their needs
(B) Determining objectives and frame-work
(C) Formulation of a redesign process plan
(D) Partial modification or marginal improvement in the existing work processes.
(D) Partial modification or marginal improvement in the existing work processes.

Question 4.
Which of the following is NOT a principle underlying business process re-engineering (BPR)?
(A) Business process must be managed end to end
(B) Business processes should be agile.
(C) Business processes should use prototype technology
(D) Business processes must be aligned with organizational strategy and needs
(E) None of the above
(C) Business processes should use prototype technology

Question 5.
…………. is an approach of setting goals and measuring productivity of firms based on best industry practices or against the products, services and practices of its competitors or other acknowledged leaders in the industry.
(A) Benchmarking
(B) Bench parking
(C) Object marking
(D) Quality marking
(A) Benchmarking

Question 6.
Benchmarking –
(A) Helps businesses in improving performance by learning from the best practices and the processes by which they are achieved.
(B) Is a process of continuous improvement in search for competitive advantage.
(C) Is an approach of setting goals and measuring productivity of firms based on best industry practices or against the products, services and practices of its competitors or other acknowledged leaders in the industry.
(D) All of the above
(D) All of the above

Question 7.
Consider following two statements.
1. It refers to the analysis and redesign of work flows both within and between the organization and the external entities.
2. Benchmarking is a process of finding the best practices within and outside the industry to which an organization belongs.
Select true statement.
(A) 1 only
(B) 2 only
(C) Both  1 and 2
(D) Neither 1 nor 2
(C) Both 1 and 2

Question 8.
Consider following two statements.
I. Benchmarking and Business Process re-engineering are one and the same.
II. Benchmarking is a remedy for all problems faced by organizations.
Select true statement.
(A) 1 only
(B) 2 only
(C) Both 1 and 2
(D) Neither 1 nor 2
(D) Neither 1 nor 2

Question 9.
Managers use this type of benchmarking to identify the best way to compete in the market –
(A) Performance Benchmarking
(B) Process Benchmarking
(C) Strategic Benchmarking
(D) Internal Benchmarking
(C) Strategic Benchmarking

Question 10.
………… refers to a process when a company compares itself with the competitors inside its industry.
(A) Functional Benchmarking
(B) Competitive benchmarking
(C) Generic Benchmarking
(D) Strategic Benchmarking
(B) Competitive benchmarking

Question 11.
Benchmarking Wheel is a ………. stage process.
(A) Four
(B) Five
(C) Six
(D) Seven
(B) Five

Question 12.
Which of the following is not Benchmarking Wheel stage process?
(A) Plan
(B) Find
(C) Analyze
(D) Repeat
(D) Repeat

Question 13.
TQM owes its genesis to post war research of American management consultants like –
(A) Drs. Joseph Juran & W. Edwards Dening
(B) Dr. Eric Penfield& Dr. Wilder Penfield
(C) Dr. Eric Berne & W. Edwards Dening
(D) Drs. Joseph Juran & Dr. Wilder Penfleld
(A) Drs. Joseph Juran & W. Edwards Dening

Question 14.
Which of the following is not a key feature of Total Quality Management?
(A) Continuous improvement
(B) Identifying customers and their needs
(C) Establishing clear specifications
(D) Teamwork, trust and empowerment
(C) Establishing clear specifications

Question 15.
……….. collectively established a common set of quality standards known as ISO 9000.
(A) European Economic Community
(B) American Economic Community
(C) Italian Economic Community
(D) Indian Economic Community
(A) European Economic Community

Question 16.
As per TQM principles which of the following is problem -…………….
(A) Process
(B) People
(C) Both process and people
(D) Government policy
(A) Process

Question 17.
Which of the following does not correctly depict the TQM principle?
(A) Every employee is responsible for quality.
(B) Quality is a long-term investment.
(C) People, not Processes, are the problem.
(B) Quality is a long-term investment.

Question 18.
……….. is also considered as a structured approach in managing uncertainty related to a threat.
(A) Crises management
(B) Risk management
(C) Crises of organizational misdeeds
(D) None of above
(B) Risk management

Question 19.
…………. is a defined and disciplined business methodology to increase customer satisfaction and profitability by streamlining operations, improving quality and eliminating defects in every organization-wide process.
(A) Six Sigma
(B) TQM
(C) Five Alpha
(D) Six Beta
(A) Six Sigma

Question 20.
The reasons for acquisition are –
(A) Increased market power
(B) Increased diversification
(C) Increased speed to market
(D) All of the these
(D) All of the these

## Strategic Implementation and Control – Strategic Management MCQ

Strategic Implementation and Control – CS Executive Financial and Strategic Management MCQ Questions with Answers you can quickly revise the concepts.

## Strategic Implementation and Control – Strategic Management MCQ

Question 1.
………. refers to the process of conducting research on a company and its operating environment to formulate a strategy.
(A) SWOT analysis
(B) Strategic implementation
(C) Strategic analysis
(D) Strategic turnaround
(C) Strategic analysis

Question 2.
………… is a process through which a strategy is put into action.
(A) Strategic analysis
(B) Strategy implementation
(C) SWOT analysis
(D) Strategic turnaround
(B) Strategy implementation

Question 3.
Strategic implementation is -……..
(A) Concerned with translating a strategic decision into action.
(B) Crafting a combination of strategies and picking out the best one.
(C) Primarily an intellectual process.
(D) Considered easier and less time consuming.
(A) Concerned with translating a strategic decision into action.

Question 4.
The critical 7-S model was developed and created by reputed consulting firm:
(A) Mckinsey
(B) Bain & Co.
(C) A. T. Kearney
(D) Accenture
(A) Mckinsey

Question 5.
……….. focuses on whether the strategy is being implemented as planned and the results produced are those intended.
(A) Strategic analysis
(B) Strategic control
(C) Strategy formulation
(D) Strategy implementation
(B) Strategic control

Question 6.
Which of the following is NOT one ‘S’ as per McKinsey 7-S framework?
(A) Structure
(B) Shared values
(C) Staff
(D) Shared plan
(D) Shared plan

Question 7.
…….. means crafting a combination of strategies and picking out the best one to achieve the organizational goals and objectives and thereby reaching the vision of the organization.
(A) Strategy implementation
(B) Strategic analysis
(C) Strategy formulation
(D) Strategic management
(C) Strategy formulation

Question 8.
The way the organization is structured and who reports to whom
(A) Strategy
(B) Structure
(C) Staff
(D) System
(B) Structure

Question 9.
Strategy implementation focuses on -……..
(A) Efficiency
(B) Co-ordination
(C) Crafting of strategies
(D) Supporting factors
(A) Efficiency

Question 10.
The plan devised to maintain and build competitive advantage over the competition -………
(A) Strategy
(B) Style
(C) Skills
(D) Systems
(A) Strategy

Question 11.
Which of the following is NOT included ‘g in McKinsey 7-S framework?
(A) Strategy
(B) Structure
(C) System
(D) Safety
(D) Safety

Question 12.
Strategy formulation is primarily –
(A) An operational process
(B) An intellectual process
(C) Profit making activity
(D) Activity undertaken to fulfil needs
(B) An intellectual process

Question 13.
McKinsey’s 7-S framework helps analyze organizations and improve their effectiveness. The seven elements to be coordinated are: shared values, structure, systems, style and what?
(A) strategy, service levels and specialization
(B) strategy, staff and skills
(C) service levels, stock and staff
(D) specialization, skills and standards
(B) strategy, staff and skills

Question 14.
What does SBU stand for?
(B) Special bureaucratic use

Question 15.
Strategy formulation requires –
(A) Conceptual intuitive and analytical skills.
(C) An operational process.
(D) None of the above
(A) Conceptual intuitive and analytical skills.

Question 16.
Maria is the Marketing Manager for Whole foods Ltd. She is working on the firm’s marketing plan. Her forecasts show that, if they carry on as they have been doing, they are likely to miss their sales revenue targets by ₹ 5,00,000. She needs some new ideas. What kind of analysis has :
Maria undertaken?
(A) PRESTCOM analysis
(B) SWOT analysis
(C) Strategic gap analysis
(D) Ratio analysis
(C) Strategic gap analysis

Question 17.
Which of the following is Hard ‘S’ as per McKinsey Model?
(A) Style
(B) Strategy
(C) Staff
(D) Skills
(B) Strategy

Question 18.
Which of the following is correct statement?
(A) Primarily, strategy formulation is an operational process and strategy implementation is an intellectual process.
(B) An organization’s culture is always an obstacle to successful strategy implementation.
(C) Resistance to change is an impediment in building of strategic supportive corporate culture.
(D) A corporate culture is always identical in all the organizations.
(C) Resistance to change is an impediment in building of strategic supportive corporate culture.

Question 19.
An important activity in ……….. is taking corrective action.
(A) Strategy evaluation
(B) Strategy implementation
(C) Strategy formulation
(A) Strategy evaluation

Question 20.
Which of the following is Soft ‘S’ as per McKinsey Model?
(A) Strategy
(B) Shared Values
(C) Structure
(D) Systems
(B) Shared Values

Question 21.
…………. are at the core of McKinsey 7-S model.
(A) Skills
(B) Staff
(C) Shared Values
(D) System
(C) Shared Values

Question 22.
The emphasis on product design is very high, the intensity of competition is low, and the market growth rate is low in the ………… stage of the industry life cycle.
(A) Maturity
(B) Introduction
(C) Growth
(D) Decline
(B) Introduction

Question 23.
Which of the following is benefit of McKinsey’s 7-S Framework Model?
(A) It is a diagnostic tool for under-standing the organizations which Eire non-effective.
(B) It also enhances employees’morale because they enjoy full freedom to work hard which leads to their empowerment and development.
(C) It becomes proposition to manage as a result of more divisions and departments.
(D) It is useful in those organizations where activities are geographically spread such as transport, insurance, banking, etc.
(A) It is a diagnostic tool for understanding the organizations which Eire non-effective.

Question 24.
Change in culture, attitude, and mindset calls for:
(A) Engagement, involvement and motivation of employees
(B) Rigorous performance appraisal
(C) Performance benchmarking
(D) Organization design change
(D) Organization design change

Question 25.
Vertical integration may be beneficial when:
(A) Lower transaction costs and improved coordination are vital and achievable through vertical integration.
(B) Flexibility is reduced, providing a more stationary position in the competitive environment.
(C) Various segregated specializations will be combined.
(D) The minimum efficient scales of two corporations are different
(A) Lower transaction costs and improved coordination are vital and achievable through vertical integration.

Question 26.
………….. is the process of stimulating an activity so that it can be performed successfully.
(A) Communication
(B) Activation
(C) Acceptance
(D) Offer
(B) Activation

Question 27.
Which types of problem is encountered in the process of resource allocation while activating the strategy?
(A) Power Play
(B) Commitments of past
(C) Resistance to changes
(D) All of the above
(D) All of the above

Question 28.
When to organizations combine to increase their strength and financial gains along with breaking the trade barriers is called -…………..
(A) Hostile takeover
(B) Liquidation
(C) Merger
(D) Acquisition
(C) Merger

Question 29.
……….e.g., production, selling, finance, etc., is the most widely used basis for grouping activities into administrative units and found in almost every business enterprise at some level or the other.
(A) Departmentation by product & equipment
(B) Departmentation by products or service
(C) Departmentation by process & equipment
(D) Departmentation by functions
(D) Departmentation by functions

Question 30.
The functional structure would be found in which type of business?
(A) A business producing a single product or limited range of products
(B) A business producing a diverse range of products
(C) A business owning several subsidiary companies
(D) Both (A) and (B)
(A) A business producing a single product or limited range of products

Question 31.
Financial objectives involve all of the  following except:
(A) Growth in revenues
(B) Larger market share
(C) Higher dividends
(D) Greater return on investment
(D) Greater return on investment

Question 32.
In a matrix organization, the functional departments like manufacturing, marketing, accounting and personnel constitute the …… while the project organization or product divisions form the ………….
(A) Vertical chains of command, Horizontal chains of command
(B) Horizontal chains of command, Vertical chains of command
(C) Vertical chains of command, Vertical chains of command
(D) Horizontal chains of command, Horizontal chains of command
(A) Vertical chains of command, Horizontal chains of command

Question 33.
……………. is defined as a set of assumptions, beliefs, values and norms which are shared by people and groups in the organization and control the way they interact with each other and with stakeholders outside the organization.
(A) Strategy execution
(B) Organizational Culture
(C) Resistance to change
(D) Strategic control
(B) Organizational Culture

Question 34.
Strategic leadership facilitates strategy execution through -…………
(A) Exploitation of core competencies
(B) Elimination of non-core competencies
(C) Non cohesive functioning
(A) Exploitation of core competencies

Question 35.
Specialization is a feature of which organizational structure?
(A) Matrix
(B) Divisional
(C) Multi-divisional
(D) Functional
(D) Functional

Question 36.
What is a strategic alliance?
(A) Any form of partnership between one firm and another
(B) Formal agreement committing two or more firms to exchange resources to produce products or services
(C) Formal agreement to share profits from a shared investment
(D) Formal agreement to share knowledge
(B) Formal agreement committing two or more firms to exchange resources to produce products or services

Question 37.
Select true statement.
(A) Culture can facilitate communication, decision making and control and promotes co-operation and commitment.
(B) Culture, as a weakness can obstruct the smooth implementation of strategy by creating resistance to change.
(C) Both (A) and (B)
(D) Neither (A) nor (B)
(C) Both (A) and (B)

Question 38.
………… involves general monitoring of various sources of information to uncover unanticipated information having a bearing on the organizational strategy.
(A) Strategic Surveillance
(B) Appraisal System
(C) Strategy formulation
(D) Strategy implementation
(A) Strategic Surveillance

Question 39.
……….. may be defined as a variation in the established way of life to which people are accustomed to in the organization.
(A) Change
(B) Resistance
(C) Decision
(D) Planning
(A) Change

Question 40.
Overt, implicit, immediate or deferred such words are used in relation to -………
(A) Total quality management (TQM)
(B) Motivation
(C) Resistance to change
(D) Morale
(C) Resistance to change

Question 41.
Transformational change in an organization refers to -………….
(A) Complete change in almost all aspects of the organization
(B) Incremental change in which necessary improvements are made in the existing organization
(C) No change in any aspect of the organization
(D) None of the above
(A) Complete change in almost all aspects of the organization

Question 42.
What do we mean by the term ‘strategic change?
(A) The changes that inevitably result in organizations as they evolve in a changing environment
(B) Planned change
(C) The proactive management of change to achieve strategic objectives
(D) An important organizational change
(C) The proactive management of change to achieve strategic objectives

Question 43.
………. is basically the ability to persuade others to achieve the defined objectives willingly and enthusiastically.
(B) Motivation
(C) Transactional Analysis
(D) Planning

Question 44.
What are the major procedural requirements involved in the strategy implementation process?
(A) Licensing Requirements
(B) Company law Requirements
(C) FEMA Requirements
(D) All of the above
(D) All of the above

Question 45.
Strategies may require changes in ………………
(A) Structure
(B) Motivation
(C) Resistance
(D) Sale price
(A) Structure

## Strategic Analysis and Planning – Strategic Management MCQ

Strategic Analysis and Planning – CS Executive Financial and Strategic Management MCQ Questions with Answers you can quickly revise the concepts.

## Strategic Analysis and Planning – Strategic Management MCQ

Question 1.
……….. refers to the process of conducting research on a company and its operating environment to formulate a strategy.
(A) Strategic management
(B) Strategic analysis
(C) Sensitive analysis
(D) Simulation analysis
(B) Strategic analysis

Question 2.
Strategic analysis involves:
(A) Identifying and evaluating data relevant to the company’s strategy.
(B) Defining the internal and external environments to be analyzed.
(C) Using several analytic methods such as Porter’s five forces analysis, SWOT analysis etc.
(D) All of the above
(D) All of the above

Question 3.
ADL matrix has been propounded by:
(A) Arthur D. Lowey
(B) Arthur D. Little
(C) Arthur D. Levin
(D) Arthur D. Louise
(B) Arthur D. Little

Question 4.
Purpose of a strategic analysis is to -……….
(A) Analyze an organization’s external and internal environment
(B) Assess current strategies
(C) Generate and evaluate the most successful strategic alternatives.
(D) All of the above
(D) All of the above

Question 5.
Arrange the Strategic Analysis Process in proper sequence:
I. Formulate plans.
II. Recommend and implement the most viable strategy.
III. Determine the effectiveness of existing strategies.
IV. Perform an environmental analysis of current strategies.
Select the correct answer from the options given below.
(A) iv,ii,i,iii
(B) iv,iii,i,ii
(C) ii,iii,i,iv
(D) iv,i,iii,ii
(B) iv,iii,i,ii

Question 6.
………… is the process we use to gain understanding and insight into our present situation.
(A) Situational analysis
(B) Sensitive analysis
(C) Simulation analysis
(D) All of the above
(A) Situational analysis

Question 7.
Which of the following is NOT ‘internal environment considerations’?
(A) Operational inefficiencies
(B) Changes in consumer taste
(C) Employee morale
(D) Constraints from financial issues
(B) Changes in consumer taste

Question 8.
Which of the following is NOT ‘external environment considerations?
(A) Political trends
(B) Economic shifts
(C) Operational inefficiencies
(D) Changes in consumer taste
(C) Operational inefficiencies

Question 9.
Strategists must ask themselves question such as:
(A) Is our strategy failing or succeeding?
(B) Will we meet our stated goals?
(C) Does our strategy align with our vision, mission, and values
(D) All of the above
(D) All of the above

Question 10.
Potential strategic alternatives include -………
(A) Changes in capital structure
(B) Changes in supply chain management
(D) All of the above
(D) All of the above

Question 11.
‘Build,’ ‘Hold,’ ‘Harvest,’ and ‘Divest’ are the strategies pursued in:
(A) Boston Consulting Group Growth Share Matrix
(B) Value chain Analysis
(C) Managerial Grid Matrix
(D) Ansoff’s Product Matrix Growth Matrix
(A) Boston Consulting Group Growth Share Matrix

Question 12.
A situation analysis should be conducted -………
(A) After developing a strategy.
(B) At the beginning of any program or project
(C) Before company is incorporated
(D) At a later stage in quality management
(B) At the beginning of any program or project

Question 13.
Which of the following is NOT element of Situation Analysis?
(A) Product Situation
(B) Competitive Situation
(C) Distribution Situation
(D) Profit Situation
(D) Profit Situation

Question 14.
The low growth, low share businesses in BCG matrix are:
(A) Cows
(B) Dogs
(C) Cats
(D) Question Marks
(B) Dogs

Question 15.
Identification of opportunities and avoiding or mitigating losses is called -………
(A) Risk management
(B) Stress management
(C) Change management
(D) Co-ordination
(A) Risk management

Question 16.
Environment scanning applies to –
1. External scanning processes
2. Motivational scanning processes
3. Internal scanning processes
Select the correct answer from the options given below -………
(A) None of the given
(B) Except 4 all other
(C) Both 1 and 3
(D) 1 only
(C) Both 1 and 3

Question 17.
In SWOT analysis the ‘O’ stands for -………
(A) Objections
(B) Openings
(C) Opportunities
(D) Obstacles
(C) Opportunities

Question 18.
SWOT analysis Originated by –
(A) Heinz Weirich
(B) United States Navy
(C) Albert S Humphrey
(D) James E. Kelley
(C) Albert S Humphrey

Question 19.
An organization that has a low relative market share position and competes in a slow growth industry is referred to as a -………
(A) Dog
(B) Question Mark
(C) Star
(D) Cash Cows
(A) Dog

Question 20.
Which of the following SWOT elements are internal factors for a business?
(A) Strengths and Weaknesses
(B) Opportunities and Threats
(C) Strengths and Opportunities
(D) Weaknesses and Threats
(A) Strengths and Weaknesses

Question 21.
………generally relate to external factors.
(A) Strengths and weaknesses
(B) Opportunities and threats
(C) Weaknesses and Threats
(D) Strengths and Opportunities
(B) Opportunities and threats

Question 22.
Which section of the SWOT Matrix involves matching internal strengths with external opportunities?
(A) The WT cell
(B) The SW cell
(C) The SO cell
(D) The ST cell
(C) The SO cell

Question 23.
The process by which an organization deals with a major event that threatens to harm the organization, its stakeholders, or the general public is known as -……..
(A) Stress management
(B) Crisis management
(C) TQM
(D) None of the above
(B) Crisis management

Question 24.
Which of the following is element of Situation Analysis?
(A) Environmental Factors
(B) Distribution Situation
(C) Both (A) and (B)
(D) Neither (A) nor (B)
(C) Both (A) and (B)

Question 25.
Which of the following is not a limitation of SWOT (Strengths, Weaknesses, Opportunity, Threats) analysis?
(B) SWOT gives a one-shot view of a moving target
(C) SWOT’s focus on the external environment is too broad and integrative
(D) SWOT over emphasizes a single dimension of strategy
(C) SWOT’s focus on the external environment is too broad and integrative

Question 26.
In the PESTEL framework for environmental analysis what does the letter S stand for?
(A) Superior
(B) Surroundings
(C) Society
(D) Socio-cultural
(D) Socio-cultural

Question 27.
Assessment of competitive rivalry does NOT include an understanding of:
(A) The extent to which competitors are in balance
(B) Market growth rates
(C) Fixed costs, exit barriers and operational efficiency
(D) The management structure of an organization
(D) The management structure of an organization

Question 28.
The most probable time to pursue a harvest strategy is in a situation of
(A) High growth
(B) Decline in the market life cycle
(D) Mergers and acquisitions
(B) Decline in the market life cycle

Question 29.
Which of the following is first step in market assessment?
(A) Analysis of the situation
(B) Competitive rivalry
(C) Suppliers power
(D) Defining the problem
(D) Defining the problem

Question 30.
Which of the following is FALSE regarding why a SWOT Analysis is used?
(A) To build on the strengths of a business
(B) To minimize the weaknesses of a business
(C) To reduce opportunities available to a business
(D) To counteract threats to a business
(C) To reduce opportunities available to a business

Question 31.
Assertion (A):
SWOT analysis is not used for ranking of organizations.
Reason (R):
SWOT analysis is a tool for organizational and environmental appraisal necessary for formulating effective strategies.
Select the correct answer from options given below.
(A) A is true but R is false
(B) A is false but R is true
(C) Both A and R are true
(D) Both A and R are false
(C) Both A and R are true

Question 32.
Geographical Diversification, Product diversification and Entry Mode Eire the domains of:
(A) Functional Strategy
(C) Corporate Strategy
(D) All of the Above
(C) Corporate Strategy

Question 33.
Which of the following is a detailing process in the mission, objectives, strategies, and policies?
(A) Strategy formulation
(B) Strategy implementation
(C) Strategic strategy
(D) Strategy achievement
(A) Strategy formulation

Question 34.
………. widely is used for the evaluation of the organization’s product portfolio in marketing and sales planning.
(A) SWOT analysis
(B) BCG Matrix
(C) Ansoff’s matrix
(D) TOWS matrix
(B) BCG Matrix

Question 35.
As per BCG Matrix, ‘Stars’ sire –
(A) Low-growth, high market share businesses or products.
(B) Sometimes called problem children or wildcats.
(C) Generates enough cash to maintain themselves, but do not have much future
(D) Products or Strategic Business Units that are growing rapidly.
(D) Products or Strategic Business Units that are growing rapidly.

Question 36.
Competitive landscape requires the application of-
(B) Competitive strategy
(C) Competitive acumen
(D) Competitive intelligence
(D) Competitive intelligence

Question 37.
Which of the following could be strength as per SWOT Analysis?
(A) Weather
(B) A new international market
(C) A price that is too high
(D) The location of a business
(D) The location of a business

Question 38.
The acronym TOWS was developed by the American international business professor
(A) Albert S Humphrey
(B) Heinz Weirich
(C) James E. Kelley
(D) United States Navy
(B) Heinz Weirich

Question 39.
‘Determinants Analysis’ falls in the purview of -………..
(A) External competitive strategy analysis
(B) Internal competitive strategy analysis
(C) Strategic risk
(D) Competitive landscape
(A) External competitive strategy analysis

Question 40.
SWOT analysis starts with , the TOWS Matrix starts with
(A) external environment analysis; internal analysis
(B) internal analysis; Strategy identification
(C) internal analysis; external environment analysis
(D) Strategy identification; internal analysis
(C) internal analysis; external environment analysis

Question 41.
Project Evaluation & Review Technique PERT developed by the in the 1950s.
(A) Gary Hamel
(B) United States Navy
(C) Heinz Weirich
(D) James E. Kelley
(B) United States Navy

Question 42.
The concept of ‘core competence’ has been advocated by –
(A) Gary Hamel and Peter Drucker
(B) C. K Prahlad and Gary Hamel
(C) C. K Prahlad and Michael Porter
(D) C. K. Prahlad and Peter Druck
(B) C. K Prahlad and Gary Hamel

Question 43.
Which of the following could be a weakness as per SWOT Analysis?
(A) A developing market such as the Internet
(C) Poor quality of goods and services
(D) Special marketing expertise
(C) Poor quality of goods and services

Question 44.
…………. is the minimum possible time required to accomplish an activity or a path, assuming everything proceeds better than is normally expected
(A) Expected Time
(B) Most Likely Time
(C) Pessimistic Time
(D) Optimistic Time
(D) Optimistic Time

Question 45.
Corporate level strategy is concerned with the following –
(A) How do we want to compete?
(B) Where do we want to compete?
(C) How to support the strategy imple-mentation?
(D) All of the above
(B) Where do we want to compete?

Question 46.
As per BCG Matrix, ‘Cash Cows’ –
(A) are low-growth, high market share businesses or products.
(B) need heavy investment to maintain their position and finance their rapid growth potential.
(C) represent best opportunities for expansion
(D) are low-growth, low-share businesses and products.
(A) are low-growth, high market share businesses or products.

Question 47.
The BCG growth-share matrix -……….
(A) is a project technique used to manage uncertain activities.
(B) is an analytical tool that helps build over your strengths and make the best use of available opportunities while also minimizing the threats.
(C) is the simplest way to portray a corporation’s portfolio of investments.
(D) is an algorithm for scheduling a set of project activities.
(C) is the simplest way to portray a corporation’s portfolio of investments.

Question 48.
‘Customer Analysis’ and ‘Market Analysis’ are the part of –
(A) Internal analysis
(B) Strategy identification and selection
(C) External Analysis
(D) None of the above
(C) External Analysis

Question 49.
The BCG Growth-Share Matrix consists of the following four major elements?
(A) Sales, Cash cows. Question marks, Dogs
(B) Stars, Cash cows, Question marks, Dogs
(C) Stars, Cash cows, Question marks, Doors
(D) Stars, Computer clouds, Question marks. Dogs
(B) Stars, Cash cows, Question marks, Dogs

Question 50.
Which of the following could be an opportunity as per SWOT Analysis?
(A) Having quality processes and procedures
(B) Moving into new market segments that offer improved profits
(C) Damaged reputation
(D) A new competitor in your home market
(B) Moving into new market segments that offer improved profits

Question 51.
‘Strategic group mapping’ involves -………..
(A) Identifying the strongest rival companies
(B) Identifying weakest rival companies
(C) Identifying weakest and strongest rival companies
(D) None of the above
(C) Identifying weakest and strongest rival companies

Question 52.
BCG in BCG matrix stands for
(A) Boston Calmette Group
(B) British Consulting Group
(C) Boston Corporate Group
(D) Boston Consulting Group
(D) Boston Consulting Group

Question 53.
What does Dog symbolize in BCG matrix?
(A) Introduction
(B) Growth
(C) Maturity
(D) Decline
(D) Decline

Question 54.
‘Attractiveness of firms’ while conducting industry analysis should be seen in –
(A) Relative terms
(B) Absolute terms
(C) Comparative terms
(D) All of the above
(A) Relative terms

Question 55.
…………… is the maximum possible time required to accomplish an activity or a path, assuming everything goes wrong.
(A) Optimistic Time.
(B) Pessimistic Time
(C) Most Likely Time
(D) Expected Time
(B) Pessimistic Time

Question 56.
The Critical Path Method (CPM) is a project modelling technique developed in the late 1950s by -………..
(A) Morgan R.Walker & James E.Kelley.
(B) C. K. Prahlad and Gary Hamel
(C) Gary Hamel and Peter Drucker
(D) All of the above
(A) Morgan R.Walker & James E.Kelley.

Question 57.
Which of the following is true of a transnational Corporation?
(A) They have subsidiaries but do not have centralized management system
(B) They have no subsidiaries but have centralized management system
(C) They do not have subsidiaries and do not have centralized management system
(D) They have subsidiaries and have a centralized management system
(C) They do not have subsidiaries and do not have centralized management system

Question 58.
Consider following two statements:
(I) A strength is an inherent capacity of an organization.
(II) A core competence is a unique strength of an organization which may not be shared by others.
Select false statement from the above statements.
(A) (I) only
(B) (II) only
(C) Both (I) and (II)
(D) Neither (I) nor (II)

(D) Neither (I) nor (II)

Question 59.
PERT is –
(A) Activity oriented
(B) Event oriented
(C) Profit oriented
(D) System oriented
(B) Event oriented

Question 60.
Entering into a ‘contract’ by MNCs is an example of:
(A) Partial Ownership Alliance
(B) Joint Venture Alliance
(C) Non-Equity Alliance
(D) Joint Ownership Alliance
(C) Non-Equity Alliance

Question 61.
PERT is technique -……….
(A) of planning and control of time.
(B) to control cost and time
(C) used in profit analysis
(D) of controlling losses
(A) of planning and control of time.

Question 62.
In BCG Matrix, are low-growth, low-share businesses and products.
(A) Cows
(B) Lion
(C) Dogs
(D) Hen
(C) Dogs

Question 63.
“Competitor’sDifferentiation’, Customer Value’ and ‘Application of Competitiveness’ are the three important areas of:
(A) Value Chain Analysis
(C) Competitor Analysis
(D) Core Competence Concept
(D) Core Competence Concept

Question 64.
What does “Question Mark (₹)” symbolize in BCG matrix?
(A) Remain Diversified
(B) Invest
(C) Stable
(D) Liquidate
(A) Remain Diversified

Question 65.
Which of the following could be a Threat as per SWOT Analysis?
(A) Changes in technology
(B) A market vacated by an ineffective competitor
(D) Lack of marketing expertise
(A) Changes in technology

Question 66.
Arrange the steps in BCG Matrix in proper sequence:
1. Choose the Unit
2. Define the Market
3. Calculate Relative Market Share
4. Calculate Market Growth Rate
5. Draw Circles on the Matrix
Select the correct answer from options given below.
(A) 1,3, 2, 4, 5
(B) 1, 4, 3, 2, 5
(C) 1,2, 3, 4, 5
(D) 1,4, 3, 2, 5
(D) 1,4, 3, 2, 5

Question 67.
Brand extension strategies are often used to delay the onset of the:
(A) Decline phase of the product life cycle
(B) Introduction phase of the product life cycle
(C) ‘Cash Cow’phase of the Boston Matrix
(D) Maturity phase of the product life cycle growth phase of the product life cycle
(A) Decline phase of the product life cycle

Question 68.
Which of the following bases of competitive advantage is/are more sustainable?
(D) All of the above

Question 69.
The Boston Matrix essentially supports:
(A) An unbalanced portfolio of product
(B) A concentration on question marks
(C) Product specialization
(D) A balanced portfolio of products
(D) A balanced portfolio of products

Question 70.
As per Ansoff Growth Matrix, market penetration refers to –
(A) A growth strategy where the business seeks to sell its existing products into new markets.
(B) A growth strategy where the business focuses on selling existing products into existing markets.
(C) A growth strategy where business aims to introduce new products into existing markets.
(D) A growth strategy where a business markets new products in new markets.
(B) A growth strategy where the business focuses on selling existing products into existing markets.

Question 71.
The ADL matrix categorizes every segment of company according to its position which can be –
(A) embryonic, growth, strong, mature and aging
(B) dominant, growth, favourable, tenable and decline
(C) dominant, strong, favourable, tenable and weak
(D) embryonic, mature, strong, favourable and aging
(C) dominant, strong, favourable, tenable and weak

Question 72.
A leading producer of tooth paste, advises its customers to brush teeth twice a day to keep breath fresh. In the context of Ansoff’s Product-Market Growth Matrix, identify, the type of growth strategies followed for the given case.
(A) Market Development
(B) Diversification
(C) Market Penetration
(D) Product Development
(B) Diversification

Question 73.
In consulting engagement with General Electric Company in the 1970’s McKinsey & Company developed a cell portfolio matrix as a tool for screening GE’s large portfolio of strategic business units (SBU).
(A) Ten
(B) Nine
(C) Twelve
(D) Six
(B) Nine

Question 74.
The BCG Matrix is based on –
(A) Industry attractiveness & Business Strength
(B) Industry Growth rate & Business strength
(C) Industry Attractiveness & Relative market share
(D) Industry Growth rate & Relative market share
(D) Industry Growth rate & Relative market share

Question 75.
GE Matrix was developed by –
(A) General Motor Company
(B) General Product Company
(C) General Electric Company
(D) General Tube Company
(C) General Electric Company

Question 76.
Active scanning involves the of continuous resources and, from time to time, supplementing them with existing resources as needed.
(A) Conscious selection
(B) Sub-conscious selection
(C) Analysis of threats to the business
(D) None of the above
(A) Conscious selection

Question 77.
Which of the following executes strategy into everyday executions tactics?
(A) Goal setting
(B) Technical planning
(C) Operational planning
(D) None of the above
(C) Operational planning

Question 78.
Which of the following refers to a situation where a product generates high profits which can then be invested in developing new products?
(A) Dogs
(B) Cash cows
(C) Question marks
(D) Growth stage
(B) Cash cows

Question 79.
A business giant in hotel industry decides to enter into dairy business. In the context of Ansoff’s Product-Market Growth Matrix, identify, the type of growth strategies followed for the given case.
(A) Market Development
(B) Product Development
(C) Diversification
(D) Market Penetration
(C) Diversification

Question 80.
As per ADL Matrix, company’s competitive position is determined by –
(A) Cash Cows & Growth Stage
(B) Market Improvement & Strategic Actions
(C) Strategic Actions & Competitor’s Strategies
(D) Strong & Stable Strategies
(C) Strategic Actions & Competitor’s Strategies

Question 81.
What does Dogs symbolize in BCG matrix?
(A) Invest
(B) Harvest
(C) Build
(D) Divest
(D) Divest

Question 82.
The ADL Matrix or Arthur D Little Strategic Condition Matrix is a Portfolio Management technique that is based on the –
(A) Market Growth Strategy (MGS)
(B) Corporate Portfolio Investment (CPI)
(C) Product Life Cycle (PLC)
(C) Product Life Cycle (PLC)

Question 83.
One of India’s premier utility vehicles manufacturing company ventures to foray into foreign markets. In the context of Ansoff’s Product-Market Growth Matrix, identify, the type of growth strategies followed for the given case.
(A) Market Development
(B) Product Development
(C) Market Penetration
(D) Market improvement
(A) Market Development

Question 84.
What is shown in the Arthur D. Little (ADL) Matrix?
(A) It classifies strategy options according to market coverage and competitive advantage dimensions.
(B) This 5 × 4 model offers strategy prescriptions according to the competitive position of an organization and stage of maturity of its market.
(C) It relates an organization’s competitive position and industry attractiveness to determine appropriate strategies.
(D) It shows the relative market share and market growth rates of the organization’s portfolio of SBUs
(B) This 5 × 4 model offers strategy prescriptions according to the competitive position of an organization and stage of maturity of its market.

Question 85.
There are four categories of industry maturity as per ADL Matrix:
(A) strong, favourable, mature and decline
(B) strong, favourable, tenable and weak
(C) embryonic, growth, mature and aging
(D) embryonic, growth, tenable and weak
(C) embryonic, growth, mature and aging

Question 86.
If Industry Attractiveness is ‘High’ and Business Unit Strength is ‘Medium’, then which of the following strategy should be followed as per GE Matrix -……
(A) Invest/grow
(B) Hold/selective
(C) Divest/harvest
(D) Invest/selective
(A) Invest/grow

Question 87.
A renowned auto manufacturing company launches ungeared scooters in the market.
In the context of Ansoff’s Product-Market Growth Matrix, identify, the type of growth strategies followed for the given case.
(A) Market Development
(B) Product Development
(C) Diversification
(D) Market Penetration
(B) Product Development

Question 88.
Four generic strategies as discussed by Glueck and Jauch are –
(A) Stability Strategies, Expansion Strategies, Retrenchment Strategy & Combination Strategies
(B) Growth Strategies, Stable Strategies, Retrenchment Strategy & Combina-tion Strategies
(C) Stability Strategies, Expansion Strategies, Decline Strategy & Divest Strategies
(D) Corporate Strategies, Business Strategies, Operational Strategies & Functional Strategies
(A) Stability Strategies, Expansion Strategies, Retrenchment Strategy & Combination Strategies

Question 89.
If the organization chooses to transform itself into a leaner structure and focuses on ways and means to reverse the process of decline, it adopts a –
(A) Turnaround Strategy
(B) Liquidation Strategy
(C) Divestment Strategy
(D) Differentiation Strategy
(A) Turnaround Strategy

Question 90.
(A) Expansion Strategy
(B) Differentiation Strategy
(C) Retrenchment Strategy
(A) Expansion Strategy

Question 91.
Dell Computer has decided to rely exclusively on direct marketing. This is example of –
(A) Differentiation Strategy
(B) Focus Strategy
(D) Diversification Strategy
(A) Differentiation Strategy

Question 92.
‘NDTV’, a TV Channel has identified a profitable audience niche in the electronic media. It has further exploited that niche through the addition of new channels like ‘NDTV’ Profit and ‘Image’. According to Porter, this is example of -………….
(A) Differentiation Strategy
(B) Focus Strategy
(D) Diversification Strategy
(B) Focus Strategy

Question 93.
In BCG matrix, what is the label of the horizontal axis?
(A) Relative Market share
(C) Industry Growth Rate
(D) Market Growth Rate
(A) Relative Market share

Question 94.
If Industry Attractiveness is ‘Low’ and Business Unit Strength is ‘High’, then which of the following strategy should be followed as per GE Matrix –
(A) Hold/selective
(B) Divest/harvest
(C) Invest/selective
(D) Invest/grow
(A) Hold/selective

Question 95.
Car manufacturers ‘Maruti’ and ‘Tata Motors’ work on reducing their costs to sell their cars in popular segment at attractive prices. This is example of –
(A) Growth Strategy
(B) Turnaround Strategy
(D) Unique Strategy

Question 96.
Another name for GE/McKinsey Matrix is –

Question 97.
A business organization can redefine its business by divesting a major product line or market. This is supported by –
(A) Retrenchment Strategy
(B) Combination Strategy
(C) Growth Strategy
(D) Incline Strategy
(A) Retrenchment Strategy

Question 98.
Statement I:
Stability strategy is not a ‘do-nothing’ strategy.
Statement II:
Third step in BCG Matrix is to calculate relative market share.
Select the correct answer from options given below.
(A) Statement I is true and II is false
(B) Statement II is true and I is false
(C) Both Statements are true
(D) Both Statements are false
(B) Statement II is true and I is false

Question 99.
In BCG Matrix, what is the label of the Vertical axis?
(A) Relative Market share
(C) National Growth Rate
(D) Market Growth Rate
(D) Market Growth Rate

Question 100.
TOWS Matrix is an analytical tool that helps build over your and make the best use of available while also minimizing the ………
(A) Threats; Opportunities; Strengths
(B) Strengths; Opportunities; Threats
(C) Opportunities; Strength; Threats
(D) Strengths; Threats; Opportunities
(B) Strengths; Opportunities; Threats

## Business Policy and Formulation of Functional Strategy – Strategic Management MCQ

Business Policy and Formulation of Functional Strategy – CS Executive Financial and Strategic Management MCQ Questions with Answers you can quickly revise the concepts.

## Business Policy and Formulation of Functional Strategy – Strategic Management MCQ

Question 1.
Business Policy permits the management to deal with the problems and issues without consulting management every time for decisions.
(A) Top level; Lower level
(B) Lower level; Top level
(C) Lower level; Subordinate
(D) Middle management; Lower level
(B) Lower level; Top level

Question 2.
At the corporate level, a organization starts the strategic planning process by defining its overall purpose and
(A) Mission
(B) Values
(C) Vision
(D) All the above
(D) All the above

Question 3.
Business policies are the ………. developed by an organization to govern its actions.
(A) Ethics
(C) Guidelines
(D) Actions
(C) Guidelines

Question 4.
A clear mission statement acts as an invisible hand that guides people in the firm. It is a statement of …………………..
(A) Fact
(B) Value
(C) Purpose
(D) Financial goals
(C) Purpose

Question 5.
Which of the following is best identified as a statement that presents “a firm’s big picture statement, describing a desired end-state, general in scope, and not restrictive”?
(A) Corporate philosophy statement
(B) Company creed
(C) Vision statement
(D) Mission statement
(C) Vision statement

Question 6.
Business policy also deals with –
(A) Process of conducting research on a company and its operating environment.
(B) The process that is conducted periodically to keep the strategies up to date
(C) Acquisition of resources with which organizational goals can be achieved.
(D) Products being offered by the business at present.
(C) Acquisition of resources with which organizational goals can be achieved.

Question 7.
Which of the following statement is TRUE about a Vision statement of a company?
(A) It concentrates on future
(B) It defines the customers
(C) It identify critical processes
(D) It informs about the desired level of
(A) It concentrates on future

Question 8.
(A) Satisfying basic supplier needs
(B) Satisfying basic customer needs
(C) Satisfying basic stockholder needs
(D) Satisfying basic owner needs
(B) Satisfying basic customer needs

Question 9.
Every policy must have a basic feature of being –
(B) Specific and definite
(C) Complex and stable
(D) Flexible and stable
(B) Specific and definite

Question 10.
_____ serves the purpose of stating what an organization wishes to achieve in the long run.
(A) Mission
(B) Value
(C) Vision
(D) Rule
(C) Vision

Question 11.
To be a global leader in promoting good corporate governance is ………. of ICSI.
(A) Vision
(B) Mission
(C) Rule
(D) Destination
(A) Vision

Question 12.
(A) Must be unambiguous and as clear as possible in order to guide the subordinates effectively.
(B) Must be uniform and reliable enough to be efficiently followed by the sub ordinates.
(C) Should be appropriate to the represent the organizational goals.
(D) All of the above
(D) All of the above

Question 13.
A vision statement is a company’s –
(A) Profitability statement
(C) Ethical thinking
(D) Policy statement

Question 14.
Which of the following is feature of vision statement?
(A) It motivates employees and is something that employees view as desirable
(B) It describes where the company is going From the current level.
(C) It offers a long-term perspective and is unlikely to be impacted by market or technology changes.
(D) All of the above
(D) All of the above

Question 15.
Policy should be in application.
(A) Rigid
(B) Complex
(C) Flexible
(D) Indecisive
(C) Flexible

Question 16.
Vision statement …………
(A) is something that can be easily met and discarded.
(B) is general enough to encompass all of the organizations interests and strategic direction.
(C) likely to be impacted by market or technology changes.
(D) undergo maximum revisions during the life of a business.
(B) is general enough to encompass all of the organizations interests and strategic direction.

Question 17.
Which of the following describes the desired future position of the company?
(A) Vision statement
(B) Mission statement
(C) Planning statement
(D) Forecasting statement
(A) Vision statement

Question 18.
Assertion (A):
Strategic vision and mission statements are not needed in small business houses.
Reason (R):
Organizations irrespective of their size face similar business environment and have to work through competition. Small organizations have to plan strategies for their survival in the market where large organizations are also present
Select the correct answer from the options given below.
(A) A is true but R is false
(B) A and R both are true
(C) A and R both are true and R is correct explanation of A.
(D) A is false R is true and R correctly explains how A is false.
(D) A is false R is true and R correctly explains how A is false.

Question 19.
A narrow market focus is to a differentiation-based strategy as a –
(B) Growth market is to a cost-based strategy
(C) Technological innovation is to a cost- based strategy
(D) Growth market is to a differentiation-based strategy

Question 20.
Vision Statement answers the question –
(A) What do we do?
(B) What makes us different?
(C) Where do we aim to be?
(D) Whether is it possible to make growth?
(C) Where do we aim to be?

Question 21.
A defines the company’s business, its objectives and its approach to reach those objectives.
(A) Vision statement
(B) Mission statement
(C) Planning statement
(D) Forecasting statement
(B) Mission statement

Question 22.
One of the primary advantages of diversification is sharing core competencies. In order for diversification to be most successful, it is important that –
(A) The target market is the same, even if the products are very different. –
(B) The products use similar distribution channels.
(C) The methods of production are the same.
(D) The similarity required for sharing core competencies must be in the value chain, not in the product.
(D) The similarity required for sharing core competencies must be in the value chain, not in the product.

Question 23.
…………… is a force that creates a sense of commonality that permeates the organization and gives coherence to diverse activities
(A) Right mission
(B) Shared vision
(C) Purpose statement
(D) Shares views
(B) Shared vision

Question 24.
Mission and Vision Statements are not commonly used to:
(A) Guide management’s thinking on strategic issues, especially during times of significant change
(B) Create wider linkages with customers, suppliers and alliance partners
(C) Help establish a framework for ethical behaviour
(D) Inspire employees to work more productively by providing focus and common goals
(B) Create wider linkages with customers, suppliers and alliance partners

Question 25.
…………. of a company focuses on the question: ‘Who we are’ and ‘What we do’.
(A) Vision statement
(B) Mission statement
(C) Philosophy
(D) Statement of Philosophy
(B) Mission statement

Question 26.
Horizontal integration is concerned with
(A) Production
(B) Quality
(C) Product planning
(D) All of the above
(A) Production

Question 27.
Corporate level of management consists of –
(A) the Chief Executive Officer (CEO), other senior executives, the board of directors, and corporate staff
(B) general managers are concerned with strategies that are specific to a particular business.
(C) managers are responsible for the specific business functions or operations (human resources, purchasing, product development, customer service, and so on)
(D) none of the above
(A) the Chief Executive Officer (CEO), other senior executives, the board of directors, and corporate staff

Question 28.
Competitive rivalry has the most effect on the firm’s strategies than the firm’s other strategies.
(B) Corporate level
(C) Functional level
(D) All of these

Question 29.
Match the List-I with List-II.

(D)

Question 30.
(A) Mission, Vision
(B) Vision, Mission
(C) Vision, Vision
(D) Mission, Mission
(B) Vision, Mission

Question 31.
A firm successfully implementing a differentiation strategy would expect:
(A) Customers to be sensitive to price increases.
(C) Customers to perceive the product as standard.
(D) To automatically have high levels of power over suppliers.

Question 32.
Match the List-I with List-II:

(D)

Question 33.
In the case where an organization acquires its supplier, this is an example of –
(A) Horizontal integration
(B) Forwards vertical integration
(C) Backwards vertical integration
(D) None of the above
(C) Backwards vertical integration

Question 34.
The strategic management process is the way in which strategists determine objectives and
(A) Make recording
(B) Make coordinating
(C) Make strategic decisions
(D) Make planning
(C) Make strategic decisions

Question 35.
Conglomerate diversification is another name for which of the following?
(A) Related diversification
(B) Unrelated diversification
(C) Portfolio diversification
(D) Acquisition diversification
(B) Unrelated diversification

Question 36.
Mission statement reflects the -…………….
(A) Corporate philosophy
(B) Identity of an organization
(C) Image of an organization.
(D) All of the above
(D) All of the above

Question 37.
Corporate Strategy is –
(A) Decisive and legislative
(B) Executive and governing
(C) Growth and profitability
(D) Focus and Differentiation
(A) Decisive and legislative

Question 38.
Internal are activities in an organization that are performed especially well.
(A) Opportunities
(B) Competencies
(C) Strengths
(D) Management
(C) Strengths

Question 39.
Corporate Strategy deals with –
(A) Particular business unit or division
(C) Profitable product segment
(D) All of the above

Question 40.
Corporate Strategy uses –
(A) Introverted approach
(B) Complicated approach
(C) Extroverted approach
(D) Value approach
(C) Extroverted approach

Question 41.
A mission statement is a …………….. of an organization’s purpose, identifying the goal of its operations
(A) Long statement
(B) Short statement
(C) Complex statement
(D) None of the above
(B) Short statement

Question 42.
Assertion (A):
Functional level constitutes the lowest hierarchical level of strategic management.
Reason (R):
Functional level is responsible for the specific business functions or operations (human resources, purchasing, product development, customer service, and so on) that constitute a company or one of its divisions.
Select the correct answer from the options given below.
(A) A is true and R is false
(B) Both A and R are false
(C) A is true but R is not correct explanation of A
(D) A and R both are true and R is correct explanation of A
(D) A and R both are true and R is correct explanation of A

Question 43.
A financing strategy is integral to an organization’s –
(A) Value system
(B) Strategic plan
(C) Operational efficiency
(D) Ratio analysis
(B) Strategic plan

Question 44.
Net worth is the -………
(A) Always equal to economic value added.
(B) Sum of free cash flow generated by the organization
(C) Total assets minus total outside liabilities of an individual or a company.
(D) Effective management of current assets and current liabilities and the enhanced management of its working capital and cash conversion cycle.
(C) Total assets minus total outside liabilities of an individual or a company.

Question 45.
The New York based financial advisory postulated a concept of economic value added
(A) Stern Stewart & Co.
(B) Shawn Stewart & Co.
(C) Stern Porter & Co.
(D) Miche! Shawn & Co.
(A) Stern Stewart & Co.

Question 46.
Risk management is responsibility of the –
(A) Customer
(B) Investor
(C) Developer
(D) Project team
(D) Project team

Question 47.
Where you want your business to be in 10 years time. This can be termed as:
(A) Mission statement
(B) Vision statement
(C) Statement of purpose
(D) Memorandum of understanding
(B) Vision statement

Question 48.
What are the key decisions falling within the scope of financial strategy?
(A) Investment Decisions
(B) Finance Decisions
(C) Dividend Decisions
(D) All of the above
(D) All of the above

Question 49.
Aim of financial strategy is to achieve –
(A) Profit maximization
(B) Wealth maximization
(C) Profit and wealth maximization
(D) Distribute maximum dividend
(C) Profit and wealth maximization

Question 50.
Similar to Mission and Vision Statements, Corporate Values Statements provide three of the following. Which is not true?
(A) A vision for the future.
(B) Strategies that zero in on key success approaches.
(C) Values that shape actions.
(D) Directions for promotional planning
(D) Directions for promotional planning

Question 51.
……….. is concerned more with how a business competes successfully in a particular market and often described as mission statement.
(A) D, B & C
(B) A, C, B & E
(C) A and C only
(D) E, C & A
(C) A and C only

Question 52.
Which of the following is said to be the lifeblood of an organization?
(A) Cash
(B) Finance
(C) Material
(D) Goodwill
(B) Finance

Question 53.
Which of the following is concerned with how each part of the business is organized to deliver the corporate and business-unit level strategic direction and is concerned with strategic decisions about choice of products, meeting needs of customers etc.?
(A) Operational strategy
(B) Corporate strategy
(D) All of above
(A) Operational strategy

Question 54.
Financial Management is concerned with –
A. Investment decisions
B. Labour turnover decisions
C Financing decisions
D. Personnel policy decisions
E Dividend decisions
Select the correct answer from the options
given below.
(A) D,B & C
(B) AC,B & E
(C) A and C only
(D) E,C & A
(D) E,C & A

Question 55.
Operational strategy focuses on issues of
(A) Resources
(B) Processes
(C) People
(D) All of above
(D) All of above

Question 56.
Which of the following business function more focus on customer
(A) Selling
(B) Marketing
(D) Accounting
(B) Marketing

Question 57.
Which of the following is concerned with the overall purpose and scope of the business to meet stakeholder expectations?
(A) Operational strategy
(B) Corporate strategy
(D) Operation strategy
(B) Corporate strategy

Question 58.
Concept through which life is brought up in message of advertising strategy in memorable and distinctive way is classified as –
(A) Rational concept
(B) Reminder concept
(C) Creative concept
(D) Persuasive concept
(C) Creative concept

Question 59.
Customer driven marketing strategy is another name of the –
(A) Selling concept
(B) Marketing concept
(C) Product concept
(D) Societal marketing concept
(B) Marketing concept

Question 60.
Marketing strategy in which a firm sells different segments and offers different product is classified as……………
(A) Individual marketing
(B) Differentiated marketing
(C) Mass marketing
(D) Niche marketing
(B) Differentiated marketing

Question 61.
Adapting the firm to take advantage of opportunities in its constant changing environment is called …………
(A) Long-range planning
(B) Annual planning
(C) Strategic planning
(D) Environmental scanning
(C) Strategic planning

Question 62.
All of the following are accurate descriptions of a company’s mission statement, except which one?
(A) Mission statement should be realistic.
(B) Mission statement should be broad.
(C) Mission statement should fit the market environment.
(D) Mission statement should be written for “public relations” purpose.
(B) Mission statement should be broad.

Question 63.
The original framework of marketing mix comprises of 4Ps -.
(A) product, price, place and promotion
(B) product, price, profit and plan
(C) profit, price, place and policy
(D) policy, price, place and promotion
(A) product, price, place and promotion

Question 64.
Match List-I with List-II:
List-I —– List-II
1. Money customers have to pay to obtain the product
2. Communicate the merits of the product and persuade target consumers to buy it
3. Make the product available to target consumers
“Goods-and-service” combination the company offers to the target market
Select the correct answer from the options given below.

(A)

Question 65.
Marketing strategy is a -…………
(A) careful selection of viable and profitable investment proposals
(B) business’s overall game plan for reaching people and tinning them into customers of the product or service that the business provides.
(C) mix of a firm’s capitalization
(D) process that set out how the organization plans to finance its overall operations to meet its objectives now and in future
(B) business’s overall game plan for reaching people and tinning them into customers of the product or service that the business provides.

Question 66.
The Strategic Marketing answers three ‘W’s:…………..
(A) Which markets to compete in?
(B) Which markets to compete in?
(C) When to compete?
(D) All of the above
(D) All of the above

Question 67.
………… is a company that has the largest market share in an industry and which can use its dominance to affect the competitive landscape and direction the market takes
(A) Market Challenger
(B) Market Follower
(C) Market Nicher

Question 68.
Market challengers are known as -…………..
(A) Winner firms
(B) Runner-up firms
(C) Challenging firms
(D) Followers
(B) Runner-up firms

Question 69.
……….. generally follows the policy of wait and watch. They rarely invest in their own funds in R&D and sit and relax to watch market leaders to bring out novel and innovative products and afterwards adopt a “me-too” approach.
(A) Challenging firms
(C) Market Challenger
(D) Market Follower
(D) Market Follower

Question 70.
……….. will compete ‘neck to neck’ with the market leader in an effort to grab their market share.
(A) Market Follower
(B) Market Challenger
(C) Market Nicher
(D) Market maker
(B) Market Challenger

Question 71.
In terms of market position, firms may be classified as –
(i) Market Nichers
(ii) Market Challengers
(iv) Market Followers Arrange in proper sequence.
(A) (iii), (ii), (i), (iv)
(B) (iii), (ii), (iv), (i)
(C) (ii), (iv), (iii), (i)
(D) (i), (ii), (iv), (iii)
(B) (iii), (ii), (iv), (i)

Question 72.
According to …………. every entrant into a market whether it is new or not is classified under a Market Pioneer, Close Follower or a Late follower
(A) Koontz and O’Donnell
(B) Haimann and Hick
(C) Lieberman and Montgomery
(D) Lieberman and Hick
(C) Lieberman and Montgomery

Question 73.
………… are known to often open a new market to consumers based on major innovation.
(A) Late Followers
(B) Market Pioneers
(C) Close Followers
(D) All of the above
(B) Market Pioneers

Question 74.
According to Lieberman and Montgomery who have the first-mover advantage?
(A) Passionate
(B) Followers
(C) Pioneers
(D) Seller
(C) Pioneers

Question 75.
(A) Gaining an advantage through re-search and development.
(B) Acquiring scarce assets within a certain market.
(C) Allowing pre-existing information to be used.
(D) Bearing in mind customer preference
(A) Gaining an advantage through research and development.

Question 76.
Human Resource strategy is that part of management which is –
(A) Concerned with how people at work use the various resources available in organization.
(B) Concerned with people at work and with their relationship with an enterprise.
(C) Concerned with how manger effectively use the various resources available in organization.
(D) Concerned with how manger effectively control the people in organization.
(B) Concerned with people at work and with their relationship with an enterprise.

Question 77.
Human resource strategy is concerned with the ……………. employed in an organization.
(A) Resources
(B) People
(C) Assets
(D) All of the above
(B) People

Question 78.
Which of the following activity is not included in human resource management?
(A) Training and development
(B) Appraisal of performance of employees
(C) Resistance management
(D) Motivation of workforce
(C) Resistance management

Question 79.
The human resource management functions aim at –
(A) Ensuring that the human resources possess adequate capital, tool, equipment and material to perform the job successfully
(B) Helping the organization deal with its employees in different stages of employment
(C) Improving an organization’s credit-worthiness among financial institutions
(D) None of the above
(B) Helping the organization deal with its employees in different stages of employment

Question 80.
Which of the following statement is true?
(1) Human resource management aids in strategic management.
(2) The human resource management helps the organization to effectively deal with the external environmental challenges.
Select the correct answer from the options given below.
(A) (1) only
(B) (2) only
(C) Both (1) and (2)
(D) Neither (1) nor (2)
(C) Both (1) and (2)

Question 81.
Prominent area where Human Resource Manager can play a strategic role –
(A) Providing purposeful direction
(B) Building core competency
(D) All of the above
(D) All of the above

Question 82.
Prominent area where Human Resource Manager can play a strategic role –
(A) Managing workforce diversity
(B) Empowerment of human resources
(C) Development of works ethic and culture
(D) All of the above
(D) All of the above

Question 83.
In relation Human Resource management, ‘Empowerment’ means –
(A) Accomplishments rather than active
(B) Management of diverse workforce
(C) Authorizing every member of an organization to take up his own destiny realizing his full potential.
(D) All of the above
(C) Authorizing every member of an organization to take up his own destiny realizing his full potential.

Question 84.
Restructuring Strategies relating to Human Resource includes –
(A) Providing the current staff with training and development opportunities to encompass new roles in the organization
(B) Reducing staff, regrouping tasks to create well-designed jobs, and re-organizing work groups to perform more efficiently.
(C) Outreaching to external individuals or organizations to complete certain tasks.
(D) Area of the employer-employee relationship in your organization deserves your attention.
(B) Reducing staff, regrouping tasks to create well-designed jobs, and re-organizing work groups to perform more efficiently.

Question 85.
Retention Strategy relating to Human Resource includes –
(A) Every area of the employer employee relationship in your organization deserves your attention.
(B) Providing the current staff with training and development opportunities to encompass new roles in the organization
(C) Collaborating with other organizations to learn from how others do things, allow employees to gain skills and knowledge not previously available in their own organization.
(D) None of the above
(A) Every area of the employer employee relationship in your organization deserves your attention.

Question 86.
Which of the following cannot be classified as Business Strategies –
(A) Differentiation Strategy
(B) Delivery Strategy
(D) Market Segmentation Strategy
(B) Delivery Strategy

Question 87.
Under a ………. the company tries to be different and unique from its competitors.
(A) Low Cost Strategy
(B) Product Mix Strategy
(C) Differentiation strategy
(D) Quality Strategy
(C) Differentiation strategy

Question 88.
Under a cost leadership strategy –
(A) The company divides the market according cost associated with marketing.
(B) The company tries to reduce its cost of production.
(C) The company sells its product below cost.
(D) The company reduces cost by scarifying quality.
(B) The company tries to reduce its cost of production.

Question 89.
Under , the company produces and sells high-quality goods and services.
(A) Profit strategy
(B) Quality strategy
(C) Delivery Strategy
(D) Quantity Strategy
(B) Quality strategy

Question 90.
Under eco-friendly strategy –
(A) The company keeps friendly approach with its customers.
(B) The company keeps friendly approach with its customers and sup-pliers.
(C) The company produces and sells agricultural products.
(D) The company produces and sells environment-friendly products also called as Green Products.
(D) The company produces and sells environment-friendly products also called as Green Products.

Question 91.
In …….. importance is given to speed and reliability.
(A) Flexible response strategy
(B) Service Strategy
(C) Response strategy
(D) Low Cost Strategy
(A) Flexible response strategy

Question 92.
Purpose of supply chain management is –
(A) Provide customer satisfaction
(B) Improve quality of a product
(C) Integrating supply and demand management
(D) Increase production
(C) Integrating supply and demand management

Question 93.
The term supply chain refers to the linkages between –
(A) Seller, debtor and creditor
(B) Issuer, investor and broker
(C) Suppliers, manufacturers and customers.
(D) Purchaser and supplier
(C) Suppliers, manufacturers and customers.

Question 94.
………. is an extension of …………..
(A) Supply chain management; logistic management.
(B) Logistic management; Supply chain management; logistic management
(C) Supply chain management; purchase management
(D) Purchase management; Logistic management
(A) Supply chain management; logistic management.

Question 95.
Which of the following statement is true?
1. Logistic Management is an extension of Supply Chain Management.
2. Supply chain management is a tool of business transformation and involves delivering the right product at the right time to the right place and at the right price.
Select the correct answer from the options given below.
(A) 2 only
(B) 1 only
(C) Both 1 and 2
(D) Neither 1 nor 2
(A) 2 only

Question 96.
Inbound and Outbound logistics” are related to:
(A) Supply Chain Management
(B) Logistics Management
(C) Value Chain Analysis
(D) All of the above
(D) All of the above

Question 97.
Geographical Diversification, Product diversification and Entry Mode are the domains of:
(A) Functional Strategy
(C) Corporate Strategy
(D) All of the Above
(C) Corporate Strategy

Question 98.
An advertisement says, ‘Have Roohafza with milk and lassi too’. Which strategy is the company trying to use:
(A) Market Development
(B) Product Development
(C) Market Penetration
(D) All of the above
(C) Market Penetration

Question 99.
A tool by which management identifies and evaluates the various businesses that make up a company is termed as:
(A) Value Chain Analysis
(B) Portfolio Analysis
(C) Competition Analysis
(D) Strategic Analysis
(B) Portfolio Analysis

Question 100.
A campaign advocating the message of ‘SAVE WATER’ is:
(A) Services Marketing
(B) Holistic marketing
(C) Social Marketing
(D) Direct Marketing
(C) Social Marketing

## Introduction to Strategic Management – Strategic Management MCQ

Introduction to Strategic Management – CS Executive Financial and Strategic Management MCQ Questions with Answers you can quickly revise the concepts.

## Introduction to Strategic Management – Strategic Management MCQ

Question 1.
We may define the term ‘strategy’ as a ……… blueprint.
(A) Long range
(B) Short range
(C) Short and medium range
(D) Unlimited range
(A) Long range

Question 2.
Strategic management involves the decision-making and the activities in an organization which –
(A) Have wider ramifications
(B) Have a long time perspective
(C) Use critical resources towards perceived opportunities or threats in a changing environment
(D) All of the above
(D) All of the above

Question 3.
According to Chandler ‘Strategic Management’ is –
(A) That set of decisions and actions which lead to the development of an effective strategy or strategies to help achieve corporate objectives.
(B) The formulation and implementation of the major goals and initiatives taken by a company’s top management.
(C) Determination of the basic long-term goals and objectives of an enterprise and adoption of course of action and allocation of resources necessary to carry out these goals.
(D) Developing the company’s vision,environmental scanning, strategy formulation, implementation and evaluation and control.
(C) Determination of the basic long-term goals and objectives of an enterprise and adoption of course of action and allocation of resources necessary to carry out these goals.

Question 4.
According to Glueck ‘Strategic Management’ is set of decisions and actions which lead to the development of an effective strategy or strategies to help achieve –
(A) Major objectives
(B) Planning objectives
(C) Corporate objectives
(D) National objectives
(C) Corporate objectives

Question 5.
According to Hambrick ‘Strategic Management’ Strategic management is the formulation and implementation of the taken by a company’s top management on behalf of owners, based on consideration of resources and an assessment of the internal and external environments in which the organization competes.
(A) Major goals and initiatives
(B) Major plans and process
(C) Major decisions
(D) Product development
(A) Major goals and initiatives

Question 6.
Strategic management involves developing the –
I. Company’s vision
II. Training of personnel
III. Environmental scanning
IV. Strategy formulation
V. New software
VI. Strategy implementation
Select the correct answer from the options
given below.
(A) I, III & IV only
(B) IV, III, I & VI
(C) I and IV only
(D) Except V all
(B) IV, III, I & VI

Question 7.
Strategic management emphasizes the monitoring and evaluation of external opportunities and threats in the light of a company’s and designing strategies for the survival and growth of the company.
(A) Plans and budget
(B) Asset and liabilities
(C) Strengths and weaknesses
(D) Opportunities and plans
(C) Strengths and weaknesses

Question 8.
According to Chandler ‘Strategic Management’ is determination of the basic long-term goals and objectives of an enterprise and adoption of course of action and allocation of …………. necessary to carry out these goals.
(A) Sources
(B) Resources
(C) Assets
(D) Expenses
(B) Resources

Question 9.
Arrange the process of strategic management in proper sequence –
R Where we want to be?
Q. How can we ensure arrival?
R. How might we get there?
S. Where are we now?
T. Which way is best?
Select the correct answer from the options given below.
(A) S, P, R, T. Q
(B) S, T, R, P, Q
(C) P, R, S, T, Q
(D) R, S, P, Q, T
(A) S, P, R, T. Q

Question 10.
Match the List I with List II with reference to strategic management process:

(C)

Question 11.
Out of all the alternatives generated in the earlier stage the organization selects the best suitable alternative. This stage in strategic management process is called as –
(A) Evaluation
(B) Means
(C) Ends
(D) Beginning
(A) Evaluation

Question 12.
The strategic management process is defined as the process by which the managers are able to make a choice of a set of strategies for the organization that will enable it to accomplish –
(A) Targeted marketing plans
(B) improved performance
(C) Better debt equity ratio
(D) Government help
(B) improved performance

Question 13.
Strategic management –
(A) Is not a static
(B) Is continuous process
(C) Consists of different phases
(D) All of the above
(D) All of the above

Question 14.
There are ………….. indispensable phases of every strategic management process.
(A) Five
(B) Four
(C) Six
(D) Three
(B) Four

Question 15.
Which of the following is first phase of strategic management process?
(A) Strategy Formulation
(B) Strategy Evaluation
(C) Strategy Implementation
(D) Environmental Scanning
(D) Environmental Scanning

Question 16.
Environment scanning is careful monitoring of an organization’s environments for detecting early signs of opportunities and threats that may influence its current and future plans.
(A) Internal
(B) External
(C) Internal and external
(D) Internal or external
(C) Internal and external

Question 17.
Which of the following is/are NOT features of business environment?
(I) Uncertainty
(II) Relativity
(III) Static Nature
Select the correct answer from the options given below
(A) (I) only
(B) (II) only
(C) (III) only
(D) None of the above
(C) (III) only

Question 18.
Which of the following describes the desired future position of the company?
(A) Vision statement
(B) Mission statement
(C) Planning statement
(D) Forecasting statement
(A) Vision statement

Question 19.
Which of these basic questions should a vision statement answer?
(B) Who are our competitors?
(C) Where we are to go?
(D) Why do we exist?
(C) Where we are to go?

Question 20.
Which of the following is beginning stage of strategic management process?
(A) Process of goal setting for the organization after it has finalized its vision and mission.
(B) The organization selects the best suitable alternative.
(C) Firm find out its relative market position, corporate image, its strength and weakness and also threats and opportunities.
(D) The organization deals with the various strategic alternatives it has.
(C) Firm find out its relative market position, corporate image, its strength and weakness and also threats and opportunities.

Question 21.
A defines the company’s business, its objectives and its approach to reach those objectives.
(A) Vision statement
(B) Mission statement
(C) Planning statement
(D) Forecasting statement
(B) Mission statement

Question 22.
According to Porter, what is usually the most powerful of the five competitive forces?
(A) Rivalry among existing firms
(B) Potential development of substitute products
(C) Bargaining power of buyers and suppliers
(D) Potential entry of new competitor
(A) Rivalry among existing firms

Question 23.
Mission and Vision Statements are NOT commonly used to:
(A) Guide management’s thinking on strategic issues, especially during times of significant change
(B) Create wider linkages with customers, suppliers and alliance partners
(C) Help establish a framework for ethical behaviour
(D) Inspire employees to work more productively by providing focus and common goals
(B) Create wider linkages with customers, suppliers and alliance partners

Question 24.
A business has absolute control in the …………….. (X), whereas it has no control on the …………….. (Y)
Select the correct answer from the options given below.

(C)

Question 25.
What type of organizational structure do most small businesses follow?
(A) Divisional Structure
(B) Functional Structure
(C) Hour Glass Structure
(D) Matrix Structure
(D) Matrix Structure

Question 26.
Which of the following contains the owner of the business, the shareholders, the managing director, the non-managers, employees, the customers, the infrastructure of the business organization, and the culture of the organization?
(A) Internal environment
(B) External environment
(C) Outside environment
(D) All of above
(A) Internal environment

Question 27.
We may define the term ‘strategy’ as a long range blueprint of an organization’s desired –
A. Image
B. Direction
C. Destination
Select the correct answer from the options given below.
(A) A & C
(B) B & C
(C) A & B
(D) All of the above
(D) All of the above

Question 28.
In evaluating strategies, which one of Rumelt’s criteria for evaluating strategies, refers to the need for strategists to examine sets of! rends?
(A) Consistency
(B) Consonance
(C) Feasibility
(B) Consonance

Question 29.
(A) Mission, Vision
(B) Vision, Mission
(C) Vision, Vision
(D) Mission, Mission
(B) Vision, Mission

Question 30.
Internal environment includes M’s
(A) 3
(B) 4
(C) 5
(D) 6
(D) 6

Question 31.
What can be defined as the art and science of formulating, implementing and evaluating cross-functional decisions that enable an organization to achieve its objectives?
(A) Strategy Formulation
(B) Strategy Evaluation
(C) Strategy Implementation
(D) Strategic Management
(D) Strategic Management

Question 32.
Match the List I with List II with reference to strategic management process:
List I ———- List II
A. Where we want to be? — 1. Stage 4
B. Where are we now? — 2. Stage 1
C. How can we ensure arrival? — 3. Stage 5
D. How might we get there? — 4. Stage 2
E. Which way is best? — 5. Stage 3

(B)

Question 33.
Where you want your business to be in 10 years time. This can be termed as:
(A) Mission statement
(B) Vision statement
(C) Statement of purpose
(D) Memorandum of understanding
(B) Vision statement

Question 34.
The internal factors that contribute to the business environment is/are:
1. Research and Development
2. Company Image
3. Brand Equity
4. Value System
Select the correct answer from the options given below.
(A) 2, 1 & 3 only
(B) 4, 3 & 2 only
(C) 2 & 4 only
(D) 4, 1,2,3
(D) 4, 1,2,3

Question 35.
The competencies or skills that a firm employs to transform inputs into outputs are
(A) Tangible resources
(B) Intangible resources
(C) Organizational capabilities
(D) Reputational resources
(C) Organizational capabilities

Question 36.
…………… may include inventions and techniques which affect the way of doing things that is, designing, producing and distributing products.
(A) Research and Development
(B) Company Image and Brand Equity
(C) Value System
(D) All of above
(A) Research and Development

Question 37.
The principles of right and wrong that are accepted by an individual or organization are what comprise
(A) Research and Development
(B) Company Image and Brand Equity
(C) Value System
(D) All of above
(C) Value System

Question 38.
Individual investors are reliant on upon the organization’s managers to……
(A) Maximize short-term returns in the form of dividends.
(B) Add value to their investments in a way that the stockholders could not accomplish on their own.
(C) Achieve risk reduction at a lower cost than stockholders could obtain on their own.
(D) Diversify the stockholder’s investments in order to reduce risk.
(B) Add value to their investments in a way that the stockholders could not accomplish on their own.

Question 39.
Competitor analysis involves:
(1) Identifying the actual competitors
(2) Assessing competitors’ objectives, strategies, strengths & weaknesses, and reaction patterns
(3) Selecting the strategies to deal with competitors
Select the correct answer from the options given below –
(A) (1) and (2)
(B) (2) and (3)
(C) (1) and (3)
(D) All of the above
(D) All of the above

Question 40.
An organization has little or no control over its –
A. Internal environment
B. Inner environment
C. External environment
Select the correct answer from the options given below –
(A) A and B
(B) B and C
(C) A only
(D) C only
(D) C only

Question 41.
Change in company’s ……….. gives rise to problems necessitating a new …………. to be made.
(A) Structure. Strategy
(B) Strategy, Structure
(C) Structure, Structure
(D) Strategy, Strategy
(B) Strategy, Structure

Question 42.
To develop caliber professionals facilitating good corporate governance is ………. of ICSL
(A) Mission
(B) Vision
(C) Both (A) and (B)
(D) None of above
(A) Mission

Question 43.
To be a global leader in promoting good corporate governance is of ICSI.
(A) Mission
(B) Vision
(C) Both (A) and (B)
(D) None of above
(B) Vision

Question 44.
The micro environment is also known as the ……..
(B) Operation environment
(C) Task environment and operating environment
(D) None of the above
(C) Task environment and operating environment

Question 45.
Feature(s) of strategy is/Eire:
(A) It is a specialized planning to retaliate competitors.
(B) It explains how managers have to respond to the subordinate in providing leadership.
(C) It is one of the way to manage the people in organization.
(D) All of above
(A) It is a specialized planning to retaliate competitors.

Question 46.
Formulating strategies is the job of –
(A) Low level management
(B) Top level management
(C) Middle level management
(D) All of above
(B) Top level management

Question 47.
Which of the following is concerned with the overall purpose and scope of the business to meet stakeholder expectations?
(A) Operational strategy
(B) Corporate strategy
(D) Operation strategy
(B) Corporate strategy

Question 48.
Consider following two statements.
(I) Strategic management is a bundle of tricks and magic.
(II) Strategic management is not needed in non-profit organizations.
Select the correct answer from the options given below.
(A) Statement I is true and Statement II is false
(B) Statement II is true and Statement I is false
(C) Both Statement I and Statement II are true
(D) Both Statement I and Statement II are false.
(D) Both Statement I and Statement II are false.

Question 49.
Assertion (A):
Success or failure of a strategy is dependent on several extraneous factors.
Reason (R):
Strategic management is much more serious affair and requires some tricks or magic.
Select the correct answer from the options given below.
(A) A is false but R is true
(B) A and R are true and R is correct explanation of A
(C) A and R are true but R is not correct explanation of A
(D) A is true but R is false
(D) A is true but R is false

Question 50.
Assertion (A):
Strategy is a substitute for sound, alert and responsible management.
Reason (R):
Strategy can never be perfect, flawless and optimal. Strategies are goal-directed decision and actions in which capabilities and resources are matched with the opportunities and threats in the environment. A good management at the top can steer the organizations by adjusting its path on the basis of the changes in the environment.
Select the correct answer from the options given below.
(A) A and R are true and R is correct explanation of A
(B) A is false but R is true
(C) A and R are true but R is not correct explanation of
(D) A is false and R is true; it explains how A is false
(D) A is false and R is true; it explains how A is false

Question 51.
………. is the ability to influence others to voluntarily make decisions that enhance the prospects for the organization’s long – term success while maintaining long-term financial stability.

Question 52.
The consists of the factors in the company’s immediate environment that affects the performance and working of the company.
(A) Micro environment
(B) Macro environment
(D) Outside environment
(A) Micro environment

Question 53.
………… is concerned more with how a business competes successfully in a particular market and often described as mission statement.
(A) Operational strategy
(B) Corporate strategy
(D) Mix strategy

Question 54.
Strategic leadership refers to a manager’s potential to –
(A) Articulate the strategic vision for the organization
(B) Motivate, guide and influence his subordinates to attain the objectives g of that vision.
(C) Both (A) and (B)
(D) (B) but not (A)
(B) Motivate, guide and influence his subordinates to attain the objectives g of that vision.

Question 55.
Micro environmental factors can be described as close to a business that have a direct impact on its strategy.
(A) Employees relationship
(B) Internal factors
(C) Media relation
(D) Competitive environment
(B) Internal factors

Question 56.
Which of the following statement is true?
1. Strategic leaders generate organizational structure, assign resources and communicate strategic vision.
2. Strategic leaders have to work in an certain environment on various strategic issues.
3. The main purpose of strategic leadership
4. Strategist develops a short-range course of action or set of goals to align with the organization’s vision.
Select the correct answer from the options given below
(A) 2 only
(B) 3 and 4 only
(C) 1, 2 and 3 only
(D) 2 and 4 only
(D) 2 and 4 only

Question 57.
How you will classify a Strategic Leader who clearly and quickly works through the complexity of key issues, problems and opportunities to affect actions?
(A) Global Thinker
(B) Enterprise Guardian
(C) Navigator
(C) Navigator

Question 58.
………….. are generally more uncontrollable than micro environment factors.
(A) Macro factors
(B) Micro factors
(C) Estimated factors
(A) Macro factors

Question 59.
Strategic management facilitates to prepare the organization to face the future and act as –
(B) Pathfinder
(C) Director
(D) Friend
(B) Pathfinder

Question 60.
Strategic management serves as a corporate defense mechanism against –
(A) Right and wrong
(B) Choice and investment
(C) Mistakes and pitfalls
(D) Flawless and optimal
(C) Mistakes and pitfalls

Question 61.
Match the following:

(D)

Question 62.
Assertion (A):
Strategic management is not needed in non-profit organizations.
Reason (R):
Though non-profit organizations are not working for the profit, they have to have purpose, vision and mission. They also work within the environmental forces and need to manage strategically to stay afloat to accomplish their objectives.
Select the correct answer from the options given below.
(A) Both A and Rare true and R is correct explanation of A.
(B) BothAandRaretruebutR is correct explanation of A
(C) A is true and R is false
(D) A is false and R is true explaining how A is false
(D) A is false and R is true explaining how A is false

Question 63.
Match the List I with List II with reference to strategic management process:
List — I List — II
(W) Strategist — 1. Builds passion & commitment toward a common goal
(X) Entre preneur — 2. Identifies and exploits opportunities for new products and markets.
(Y) Captivator — 3. Develops a long range action or set of goals to align with organization’s vision.
(Z) Mobilizer — 4. Proactively builds and aligns stakeholders, capabilities and resources for getting things done quickly and achieving complex objectives.
select the correct answer from the options given below.

(D)

Question 64.
The following factors are key drivers of globalization:
(A) Government action, exchange rates,competition and socio demographic factors
(B) Market convergence, competition, exchange rates and cost advantages.
(C) Cost advantages, government action,economic cycles and competition
(D) Market, cost, competition and government policies.
(D) Market, cost, competition and government policies.

Question 65.
Which of the following is concerned with how each part of the business is organized to deliver the corporate and business-unit level strategic direction and is concerned with strategic decisions about choice of products, meeting needs of customers etc?
(A) Operational strategy
(B) Corporate strategy
(D) All of above
(A) Operational strategy

Question 66.
Strategic management helps organizations to be more –
(A) Proactive
(B) Reactive
(C) Turbulence
(D) Uncertain
(A) Proactive

Question 67.
Value system of an organization have an impact on its:
I. Objectives
II. Policies
III. Practices
IV. Profit
The correct option is –
(A) I and II only
(B) I, II and III only
(C) II, III and IV only
(D) I, II, III and IV
(D) I, II, III and IV

Question 68.
Who attracts, develops, and retains talent to ensure that people with the right skills and motivations to meet business needs are in the right place at the right time is called as -………….
(A) Captivator
(C) Change Driver
(D) Enterprise Guardian

Question 69.
Which of the following can be treated as feature of strategy?
(1) It reflects concern to effectively mobilize resources.
(2) It maximizes chances to achieve objectives.
(3) Formulating strategies is the job of top management.
Select the correct answer from the options given below.
(A) (1) & (3) only
(B) (1), (2) & (3)
(C) (2) & (3) only
(D) (1) & (3) only
(B) (1), (2) & (3)

Question 70.
Assertion (A):
Developing annual objectives & short term strategies that are compatible with the selected set of long term objectives are one of the major tasks of strategic management.
Reason (R):
A company’s set of strategic objectives should include both short term and long term performance target. Short term objectives help to focus attention on delivering immediate performance improvements. While long term objectives represent the results expected from pursuing certain strategies.
Select the correct answer from the options given below.
(A) A is false and R is true explaining how A is false
(B) Both A and Rare true and R is correct explanation of A.
(C) A is true and R is false
(D) Both A and R are true but R is correct explanation of A
(B) Both A and Rare true and R is correct explanation of A.

Question 71.
Change Driver –
(A) Creates an environment that embraces change
(B) Makes change happen – even if the change is radical
(C) Helps others to accept new ideas
(D) All of the above
(D) All of the above

Question 72.
He ensures shareholder value through courageous decision-making that supports enterprise or unit-wide interest called as
(A) Navigator
(B) Entrepreneur
(C) Enterprise Guardian
(C) Enterprise Guardian

Question 73.
You are appointed as a Strategic Manager by ABC Ltd. Being a strategic manager what should be your tasks to perform?
I. Defining the mission and goals of the organization.
II. Determining what businesses it should be in.
III. To increase the production.
IV. Allocating resources among the different businesses.
V. Discovering a new product method.
Select the correct answer from the options given below.
(A) I, IV and III
(B) II and I only
(C) IV, II and I
(D) V, II, IV and I only
(C) IV, II and I

Question 74.
A Company Secretary has to take care ………. of the critical facets of the business ie.
(A) Risk management
(B) Assessing the sustainability of an organization
(C) Contribution towards corporate vision and mission
(D) All of the above
(D) All of the above

Question 75.
Which core competencies are required for a Company Secretary to become effective player of strategic management?
1. Thorough knowledge of the company’s business.
2. Specialist as to mathematical and statistical methods and calculation.
3. Sound knowledge of laws relating to company, capital markets, industry related etc.
4. Ability to read and write.
Select the correct answer from the options given below.
(A) 1,2 and 4
(B) 2 and 4 only
(C) 2,3 and 4 only
(D) 1 and 3 only
(D) 1 and 3 only

Question 76.
There are mainly two types of business environment –
(A) Internal and external
(B) Internal and operational
(C) Operational and external
(D) Matrix and diagonal
(A) Internal and external

Question 77.
Environment is complex. Which of the following supports this?
(A) Customers are the people who pay money to acquire an organization’s products.
(B) The environment consists of a number of factors, events, conditions and influences arising from different sources and it is somewhat easier to understand in parts but difficult to grasp in totality.
(C) A study of the competitive scenario is essential for the marketer, particularly threats from competition.
(D) If a supplier provides a poor service, this could increase timescales or lower product quality.
(B) The environment consists of a number of factors, events, conditions and influences arising from different sources and it is somewhat easier to understand in parts but difficult to grasp in totality.

Question 78.
Operational strategy focuses on issues of …………
(A) Resources
(B) Processes
(C) People
(D) All of above
(D) All of above

Question 79.
Which of the following is a characteristic of business environment?
(A) Environment is complex.
(B) Environment is dynamic.
(C) Environment is multi-faceted.
(D) All of the above
(D) All of the above

Question 80.
Micro environment is also known as –
(A) General Environment
(B) Global Environment
(D) Matrix Environment

Question 81.
The Porter’s ………… Forces tool is a simple but powerful tool to evaluate the power of business.
(A) Four
(B) Five
(C) Six
(D) Ten
(B) Five

Question 82.
Micro environment has ……… influence on the business.
(A) Indirect
(B) Direct
(C) Negative
(D) Minor
(B) Direct

Question 83.
According to Michael Porter, the essence of strategy formulation is
(A) Mapping the Five Forces
(B) Developing core competences
(C) Coping with competition
(D) Balancing stakeholder interests
(C) Coping with competition

Question 84.
Which of the following is element of micro environment?
(A) Demographic Environment
(B) Competitors
(C) Socio-cultural factors
(D) Economic terms
(B) Competitors

Question 85.
The Porter’s Five Forces tool is a simple but powerful tool to evaluate the power of business. Which of the following is not one of the five?
(A) Bargaining power of suppliers
(B) Bargaining power of customer
(C) Rivalry among current players
(D) None of the above
(D) None of the above

Question 86.
Assertion (A);
Porter’s five forces model considers new entrants as a significant source of competition.
Reason (R):
New capacity and product range that the new entrants bring in throw up new competitive pressure. Bigger the new entrant, more severe the competitive effect. New entrants also place a limit on prices and affect the profitability of existing players.
Select the correct answer from the options given below.
(A) A is false and R is true explaining how A is false
(B) Both A and Rare true and R is correct explanation of A.
(C) A is true and R is false
(D) Both A and R are true
(B) Both A and Rare true and R is correct explanation of A.

Question 87.
(A) Strategies related to functional areas such as Marketing, Production and HRM.
(B) Where a firm is going and the scope of its activities.
(C) How a firm competes within a particular market or industry.
(D) How to allocate resources between different parts of the business
(C) How a firm competes within a particular market or industry.

Question 88.
Porter’s notion of a differentiation strategy is best described as one in which firms seek a competitive advantage:
(A) Through having a lower cost than their competitors.
(B) Through establishing their uniqueness.
(C) Through concentrating on a narrow market segment.
(D) Through achieving a match between their internal and external environments
(B) Through establishing their uniqueness.

Question 89.
Which of the following is not an element of Porter’s 5 Forces Model?
(A) The bargaining power of suppliers.
(B) The firm’s existing competition.
(C) The firm’s macro-economic environment.
(D) The potential competition from new entrants.
(C) The firm’s macro-economic environment.

Question 90.
Porter’s Value Chain is essentially a tool for:
(A) Identifying the competitive forces within an industry.
(B) Advising firms on how to price their products.
(C) Diagnosing and enhancing sources of competitive advantage within an organization.
(D) Calculating what a firm is worth.
(C) Diagnosing and enhancing sources of competitive advantage within an organization.

Question 91.
In Porter’s five forces model, conditions are more favourable for firms within an industry if:
(B) Supplier power is high
(C) Entry threat is low
(D) Substitute threat is high
(C) Entry threat is low

Question 92.
If a firm takes over a competitor then, according to Porter’s 5 forces model:
(B) Supplier power is higher
(C) Substitute threat is higher
(D) Rivalry is lower
(D) Rivalry is lower

Question 93.
Which of the following is not a force in the Porter Five Forces model?
(B) Suppliers
(C) Complementary products
(D) Industry rivalry
(C) Complementary products

Question 94.
According to Porter, suppliers are more able to exercise bargaining power over buyers when:
(A) The supply industry is dominated by a few large firms.
(B) The supply industry is populated by a large number of small firms.
(C) When buyers have the ability to takeover suppliers.
(D) There are few buyers in the market
(A) The supply industry is dominated by a few large firms.

Question 95.
Which core competencies are required for a Company Secretary to become effective player of strategic management?
(a) Communication and professional skills, legal skills, management skills and IT skills.
(b) Updated knowledge of legal environment, financial environment & business environment.
(c) Ability to work and achieve a consensus within multidisciplinary settings.
(d) Remaining calm under pressure and not losing sight of perspective.
Select the correct answer from the options given below.
(A) (a) and (b)
(B) (b) and (c)
(C) (a) and (c)
(D) All (a) to (d)
(D) All (a) to (d)

Question 96.
Potential rivals will not find it difficult to enter a market where:
(A) Existing firms have long-term contracts with the biggest customers.
(B) Product differentiation is very strong.
(C) Existing firms have the ability to retaliate strongly.
(D) Economies of scale are insignificant
(D) Economies of scale are insignificant

Question 97.
According to Porter, which of the following is most important to achieving a competitive advantage?
(A) Serving all customers equally, rather than targeting the most profitable.
(B) Operating at lower cost, commanding a premium price, or both.
(C) Focusing on becoming the most competitive business within the sector/ market.
(B) Operating at lower cost, commanding a premium price, or both.

Question 98.
Identify which of the following forces does not form part of Porter’s Competitive Position Analysis?
(B) Risk of losses
(C) Threat of new entry
(D) Supplier power
(B) Risk of losses

Question 99.
What is likely to happen if many new businesses enter a market?
(A) Barriers to entry will rise.
(B) Industry capacity will fall.
(C) Competitive rivalry will intensify.
(D) Industry profits will increase.
(C) Competitive rivalry will intensify.

Question 100.
In Porter’s five forces model, what is meant by the term ‘substitute’?
(A) A substitute refers to an alternative manufacturing process.
(B) A substitute is an alternative product or service that performs the same function for the consumer.
(C) A substitute is a rival firm offering the same products.
(D) A substitute is something else consumers would rather spend their money on.
(B) A substitute is an alternative product or service that performs the same function for the consumer.

## Introduction to Management – Strategic Management MCQ

Introduction to Management – CS Executive Financial and Strategic Management MCQ Questions with Answers you can quickly revise the concepts.

## Introduction to Management – Strategic Management MCQ

Question 1.
The word “management” derives its origin from a word –
(A) monos
(B) konos
(C) nomos
(D) lomos
(C) nomos

Question 2.
Who stated that management means, “Getting things done through and with people”?
(A) James
(B) Koontz and O’Donnell
(C) Haimann
(D) Henry Fayol
(B) Koontz and O’Donnell

Question 3.
According to whom “to manage is to forecast, and to plan, to organize to command, to coordinate and to command”?
(A) Haimann
(B) Koontz and O’Donnell
(C) Hick
(D) Henry Fayol
(D) Henry Fayol

Question 4.
The word “management” derives its origin from ………….word nomos.
(A) Roman
(B) Italian
(C) Greek
(D) Egyptian
(C) Greek

Question 5.
“Management is the function of getting things done through people and directing the efforts of individuals towards a common objective”. It is observed by –
(A) Haimann
(B) Koontz and O’Donnell
(C) Hick
(D) Henry Fayol
(A) Haimann

Question 6.
Hick defines management as “the process of getting things done by the  and through the
(A) People, Manager
(B) People, employee
(C) People, people
(D) Manager, People
(C) People, people

Question 7.
Koontz & d O’Donnell state that management means, “Getting things done
(A) Through people
(B) With people
(C) Through or with people
(D) Through and with people
(D) Through and with people

Question 8.
According to Henry Fayol, “to manage is …………. , to organize to command, to coordinate and to command”
(A) To forecast
(B) To plan
(C) To budget and to control
(D) To forecast and to plan
(D) To forecast and to plan

Question 9.
Haimann observes that, “management is the function of …………
(A) Getting things done through people and directing the efforts of individuals towards a common objective.
(B) Forecast, and to plan, to organize to command.
(C) The process of getting things done by the people and through the people.
(D) Thinking and utilizing human, material & financial resources in such a manner that would result in best combination.
(A) Getting things done through people and directing the efforts of individuals towards a common objective.

Question 10.
Which of the following is importance of management?
(1) It arranges the factors of production, assembles and organizes the resources.
(2) It helps the country to keep balanced approached in social order.
(3) It utilizes all the physical & human resources productively.
(4) It helps the employees to get stronger trade union.
(5) It gets maximum results through minimum input by proper planning and by using minimum input.
Select the correct answer from the options given below –
(A) (4), (2) & (1)
(B) (3), (2) & (5)
(C) (1) & (3)
(D) (3), (1) & (5)
(D) (3), (1) & (5)

Question 11.
Importance of management:
(A) It enables the organization to survive in changing environment.
(B) It improves standard of living and increases the profit which is beneficial to business and society.
(C) Management fills up various positions with right persons, having right skills, training and qualification.
(D) All of the above
(D) All of the above

Question 12.
Which of the following statement is false?
(A) Management can then well be described as a science albeit a variable one if compared with the nature of exact physical sciences.
(B) We can have the same kind of experimentation in management as is possible in natural sciences.
(C) Management has now a theoretical base with a number of principles relating to coordination, organization, decision-making and so on.
(D) Management is a vital function concerned with all aspects of the working of an enterprise.
(B) We can have the same kind of experimentation in management as is possible in natural sciences.

Question 13.
Management is science.
(A) Exact
(B) An inexact
(C) Pure
(D) Perfect
(B) An inexact

Question 14.
Management is science.
(A) Developed
(B) Developing
(C) Well settled
(D) Exact
(B) Developing

Question 15.
Management is -………..
(A) Science
(B) Art
(C) Both science and art
(D) History
(C) Both science and art

Question 16.
Management is an art. Which of the following statement does not support that management is art?
(A) The process of management involves the use of know how and skills.
(B) The process of management is directed towards the accomplishment of concrete results.
(C) The process of management is directed towards the accomplishment of concrete results.
(D) Management is personalized in the 5 sense that every manager has his own approach to problems.
(D) It deals with complex human phenomena about which knowledge is still limited
(D) It deals with complex human phenomena about which knowledge is still limited

Question 17.
Management qualifies all tests of a profession except
(A) Dominance of service motive
(B) Restricted entry
(C) Systematic body of knowledge
(D) Use of knowhow and skills
(D) Use of knowhow and skills

Question 18.
Who is popularly known as the ‘founder of modem management theory?
(A) Frederick Taylor
(B) Luther Gulick
(C) Newmann and Summer
(D) Henry Fayol
(D) Henry Fayol

Question 19.
Henry Fayol, the ……………. industrialist and popularly known as the ‘founder of modem management theory’,
(A) German
(B) French
(C) Greek
(D) American
(B) French

Question 20.
Planning is deciding in advance – S
(A) What is to be done
(B) How is to be done
(C) When it is to be done
(D) All of above
(D) All of above

Question 21.
Which of the following is the preparatory step for actions and helps in bridging the gap between the present and the future?
(A) Controlling
(B) Directing
(C) Motivating
(D) Planning
(D) Planning

Question 22.
Which of the following comprises determination and laying down of objectives, policies, procedures, rules, programmes, budget, and strategies?
(A) Motivating process
(B) Planning process
(C) Controlling process
(D) Directing process
(B) Planning process

Question 23.
Which of the following is fundamental function of management and all other functions of management are greatly influenced by it?
(A) Controlling
(B) Directing
(C) Motivating
(D) Planning
(D) Planning

Question 24.
……………. is concerned with both the “orderly” assemblage of human and material resources as well as the process of development of a structure of formally identified and distinguished tasks, roles and relationships that may be attributable to the various members so that they may effectively work as a group.
(A) Planning
(B) Directing
(C) Organizing
(D) Staffing
(C) Organizing

Question 25.
Organizing as a function of management involves –
(A) Determination of activities of the enterprise keeping in view its objectives.
(B) Laying down of suitable selection and placement procedures
(C) Guiding, counselling and instructing the subordinates about the proper way of doing the job
(D) Measurement of actual performance against the standard and recording deviations
(A) Determination of activities of the enterprise keeping in view its objectives.

Question 26.
Division of work among people and coordination of their efforts to achieve specific objectives are the fundamental aspects of –
(A) Forecasting
(B) Organization
(C) Motivation
(D) None of above
(B) Organization

Question 27.
provides the organization with adequate number of competent and qualified personnel at all levels in the enterprise.
(A) Motivation process
(B) Directing process
(C) Forecasting process
(D) HR process/staffing
(D) HR process/staffing

Question 28.
Which of the following function of management starts issuing orders and instructions to subordinates and ends with getting things done by satisfaction of various need of subordinates?
(A) Motivation
(B) Directing
(C) Forecasting
(D) Staffing
(B) Directing

Question 29.
Directing the subordinates involves –
(A) Delegation of authority and fixing of responsibility for carrying out the assigned duties.
(B) Guiding, counselling and instructing the subordinates about the proper way of doing the job.
(C) Co-ordination of activities and authority relations throughout the organization.
(D) Classification of activities into convenient groups for the purpose of division.
(B) Guiding, counselling and instructing the subordinates about the proper way of doing the job.

Question 30.
Control –
(A) Is closely related to the planning job of the manager.
(B) Should not be viewed merely as a postmortem of past achievements and performance.
(C) Should suggest corrective measures so that negative deviations may not re-occur in future.
(D) All of the above
(D) All of the above

Question 31.
Maintaining discipline and rewarding effective performance is part of function of management.
(A) Planning
(B) Directing
(C) Forecasting
(D) Staffing
(B) Directing

Question 32.
Which of the following consists in knowing the extent to which actions are in conformity with plans adopted and instructions issued so that errors and deviations are promptly reported and analyzed, and suitable corrective actions taken?
(A) Forecast
(B) Planning
(C) Controlling
(D) Decision
(C) Controlling

Question 33.
Controlling involves:
(A) Harmonizing the work relations and efforts at all levels for common purpose.
(B) Innovation because the manager not only adjusts his organization according to future conditions but also attempts to effect changes in these conditions.
(C) Measurement of actual performance against the standard and recording deviations.
(D) Issuing orders and instructions.
(C) Measurement of actual performance against the standard and recording deviations.

Question 34.
Which of the following is not one of the five elements of management?
(A) Planning
(B) Co-ordination
(C) Centralization
(D) Command
(C) Centralization

Question 35.
Control is closely related to the ………… job of the manager.
(A) Planning
(B) Discipline
(C) Order
(D) Motivation
(A) Planning

Question 36.
Who is popularly known as the father of ‘scientific management?
(A) Luther Gulick
(B) Newmann
(C) Henry Fayol
(D) Frederick Taylor
(D) Frederick Taylor

Question 37.
The scientific management movement early in the ……… century was hailed as a “second industrial revolution”.
(A) Seventieth
(B) Eightieth
(C) Ninetieth
(D) Twentieth
(D) Twentieth

Question 38.
Who is popularly known as the father of ‘modem management theory’
(A) Luther Gulick
(B) Newmann
(C) Henry Fayol
(D) Frederick Taylor
(C) Henry Fayol

Question 39.
How many principles of management have been suggested by the Henry Fayol?
(A) Ten
(B) Twelve
(C) Fourteen
(D) Fifteen
(C) Fourteen

Question 40.
Out of principles of management suggested by the Henry Fayol, ‘Discipline’ is necessary to ensure obedience and respect for –
(A) Juniors’
(B) Society
(C) Superiors
(D) Older people in society
(C) Superiors

Question 41.
“Unity of Command” means –
(A) An employee shall give orders to one junior only.
(B) An employee shall receive orders from one senior only.
(C) An employee shall receive orders from as much senior as possible.
(D) An employee shall have one plan for every action.
(B) An employee shall receive orders from one senior only.

Question 42.
“Unity of Direction” means –
(A) An employee shall receive orders from one senior only.
(B) A group of activities with common objectives shall have one head but different plans
(C) A group of activities with common objectives shall have one head and one plan
(D) More than one manager should supervise the employees.
(C) A group of activities with common objectives shall have one head and one plan

Question 43.
A group of activities with common objectives shall have one head and one plan. This principle is known as –
(A) Scalar chain
(B) Unity of discipline
(C) Unity of command
(D) Unity of direction
(D) Unity of direction

Question 44.
An employee shall receive orders from one senior only. This principle is known as –
(A) Scalar chain
(B) Unity of discipline
(C) Unity of command
(D) Unity of direction
(C) Unity of command

Question 45.
As per Henry Fayol principle of “Subordination”-
(A) Organizational interest should be subordinate to individual interest.
(B) Individual interest should be subordinate to general interest.
(C) Individual should not have any sort of interest at all.
(D) Organizational interest should be subordinate to national interest.
(B) Individual interest should be subordinate to general interest.

Question 46.
Which of the following principle of Henry Fayol refers to superior-subordinate relations?
(A) Esprit de corps
(B) Stability of tenure of personnel
(C) Division of work
(D) Scalar chain
(D) Scalar chain

Question 47.
Fayol’s functions of management include:
(A) Planning, designating, completing, cooperating
(B) Punishing, commanding, organizing, coordinating, controlling
(C) Preparing, commanding, operating, consulting, controlling
(D) Planning, commanding, organizing, coordinating, controlling
(D) Planning, commanding, organizing, coordinating, controlling

Question 48.
Which of the following principle of Henry Fayol emphasizes the need for teamwork?
(A) Esprit de corps
(B) Stability of tenure of personnel
(C) Division of work
(D) Scalar chain
(A) Esprit de corps

Question 49.
Management is system.
(A) Social
(B) Close
(C) An open
(D) None of the above
(C) An open

Question 50.
Scientific management is based on the assumption that –
(A) Observation would reveal the workers need to be multi-skilled.
(B) Workers can decide their own methods of performing tasks.
(C) The scientific observation of people at work would reveal the one best way to do the task.
(D) Workers would receive a set wage regardless of performance.
(C) The scientific observation of people at work would reveal the one best way to do the task.

Question 51.
(A) Policy implementation
(B) Policy making
(C) Both (A) and (B)
(D) Neither (A) nor (B)
(B) Policy making

Question 52.
(A) Planning
(B) Organizing
(C) Motivating and controlling
(D) Planning and organizing
(D) Planning and organizing

Question 53.
(A) Top level management
(B) Middle level management
(C) Lower level management
(D) None of above
(A) Top level management

Question 54.
Board of directors of any company is normally concerned with –
(A) Management
(C) Health of managers
(D) None of the above

Question 55.
Administration is a process of -………
(B) Objectives of the organization
(C) Either (A) or (B)
(D) Both (A) & (B)
(D) Both (A) & (B)

Question 56.
It is also said that administration is ……….
(A) Lower level function
(B) Middle level function
(C) Top-level function
(D) None of the above
(C) Top-level function

Question 57.
Management includes –
(B) Operative management
(C) Either (A) or (B)
(D) Both (A) & (B)
1. An all-pervasive function
2. Fundamental function
Select the correct answer from the options given below –
(A) 2 only
(B) Neither 1 nor 2
(C) Both 1 and 2
(D) 1 only
(D) 1 only

Question 58.
(A) Less important than management
(B) The same thing as management
(C) Part of management
(D) Separate from management
(C) Part of management

Question 59.
Decision-making skills are required at –
(A) Top level management
(B) Middle level of management
(C) All levels of management
(D) None of the above
(C) All levels of management

Question 60.
Managers require a combination of technical competence, social and human skills and conceptual ability. Technical competence may be defined as:
(A) The ability to view the complexities of the operations of the organization as a whole, including environmental influences
(B) The ability to secure the effective use of human resources of the organization
(C) The ability to apply specific knowledge, methods and skills to discrete tasks
(D) None of the above
(C) The ability to apply specific knowledge, methods and skills to discrete tasks

Question 61.
What type of approach is most frequently identified with Human Capital Management (HCM)?
(A) Controlling
(B) Interpersonal and technical
(C) Formalized, technical and manipulative
(D) Influencing and manipulative
(C) Formalized, technical and manipulative

Question 62.
Which of the following is NOT a measure of a manager’s effectiveness?
(A) Absenteeism and sickness
(B) Level of Staff turnover
(C) Accidents at work
(D) Speed of promotion through the organization
(D) Speed of promotion through the organization

Question 63.
How you will describe the planning as function of management?
given below –
(A) 2 only
(B) Neither 1 nor 2
(C) Both 1 and 2
(D) 1 only
(C) Both 1 and 2

Question 64.
Planning is deciding in advance –
(I) What is to be done?
(II) How is to be done?
(III) When it is to be done?
(IV) Who has to do it?
Select the correct answer from the options
given below –
(A) (I)
(B) (I), (II),
(C) (I), (II), (III)
(D) (I), (II), (III), (IV)
(D) (I), (II), (III), (IV)

Question 65.
Identify the best definition of planning.
(A) An integrated process, in which plans are formulated, carried out and controlled.
(B) Devising ways of achieving the objectives of an organization.
(C) The core activity of planners and planning departments.
(D) Setting an organization’s objectives and the means of reaching them.
(D) Setting an organization’s objectives and the means of reaching them.

Question 66.
Planning –
(A) Involves identification and classification of activities of the enterprise
(B) Involves choosing the proper course of action from among alternatives
(C) Is based upon individual incentives rather than group incentives
(D) Give employees fresh insights into their own personalities and it can also help them understand why others sometimes respond as they do.
(B) Involves choosing the proper course of action from among alternatives

Question 67.
Which qualities should a person possess to succeed in planning?
(I) Reflective thinking
(II) Pondering
(III) Imagination
(IV) Farsightedness
(V) Reflecting
Select the correct answer from the options given below –
(A) (I), (III) & (V)
(B) (IV), (III) & (II)
(C) (II),(III),(I)&(V)
(D) (IV), (I) & (III)
(D) (IV), (I) & (III)

Question 68.
Limitations of planning:
(A) Planning is a continuous function of management
(B) Since the future cannot be predicted with absolute accuracy, premising is always subject to a margin of error and guess-work which are reflected in various plans based on them.
(C) Planning is an all-pervasive and a primary function of management.
(D) Planning is the selecting and relating of facts and the making and using of assumptions regarding the future in the visualization and formulation of proposed activities believed necessary to achieve desired results.
(B) Since the future cannot be predicted with absolute accuracy, premising is always subject to a margin of error and guess-work which are reflected in various plans based on them.

Question 69.
A statement defines the company’s business, its objectives and its approach to reach those objectives.
(A) Planning
(B) Mission
(C) Forecasting
(D) Policy
(B) Mission

Question 70.
Planning process comprises determination and laying down of –
(i) Objectives
(ii) Policies
(iii) Procedures
(iv) Rules
(v) Remuneration
Select the correct answer from the options given below –
(A) (i), (ii), (iii), (v)
(B) (i), (ii), (iii), (iv)
(C) (i), (ii), (iv), (v)
(D) (i), (iii), (iv), (v)
(B) (i), (ii), (iii), (iv)

Question 71.
The second step involved in planning process is the –
(A) Evaluation of alternatives
(B) Formulating derivative plans
(C) Establishment of planning premises
(D) Establishing objectives
(C) Establishment of planning premises

Question 72.
Which of the following can be treated as internal planning premise?
(A) Politico-technological conditions
(B) Socio-economic conditions
(C) Sales forecast
(D) Technological changes
(C) Sales forecast

Question 73.
Which of the following can be treated as external planning premise?
(A) Politico-technological conditions
(B) Marketing plans
(C) Sales forecast
(D) Strategic Plans
(A) Politico-technological conditions

Question 74.
Identify the correct steps in planning.
I. Selecting a course of action
II. Determining alternative courses
III. Establishing objectives
IV. Formulating derivative plans
V. Evaluation of alternatives
VI. Establishment of planning premises
Select the correct answer from the options given below –
(A) III, VI, II, IV, I, V
(B) VI, III, II, V, I, IV
(C) III, IV, II, V, I, VI
(D) III, VI, II, V, I, IV
(D) III, VI, II, V, I, IV

Question 75.
Identify correct steps in forecasting.
I. Analysis of deviations
II. Forecasting future course of business
III. Improving the existing forecasting procedure
IV. Identifying and developing the structure
Select the correct answer from the options given below –
(A) II, IV, I, III
(B) III, I, II, IV
(C) I, III, IV, II
(D) IV, II, I, III
(D) IV, II, I, III

Question 76.
Statement 1:
Forecasting does not play any role in planning.
Statement 2:
Forecasts are based on postulations and assumptions and, as such, are subject to some amount of guess-work.
(A) Statement 1 and Statement 2 both are false.
(B) Statement 1 and Statement 2 both are true.
(C) Statement 1 is true but Statement 2 is false.
(D) Statement 2 is true but Statement 1 is false.
(D) Statement 2 is true but Statement 1 is false.

Question 77.
Risk cannot be managed unless it is
(A) Assessed
(B) Identified
(C) Measured
(D) Evaluated
(B) Identified

Question 78.
In decision making under different conditions, what is the difference between risk and uncertainty?
(A) Under risk, information is reliable; under uncertainty, it is not.
(B) Under risk, choices are clear and the chances of different outcomes can be measured; under uncertainty, neither applies
(C) Under risk, there is a well defined problem; under uncertainty, the definition is unclear.
(D) Under risk, probabilities can be measured; under uncertainty, they cannot
(B) Under risk, choices are clear and the chances of different outcomes can be measured; under uncertainty, neither applies

Question 79.
Which of the following is not a principle of decision-making?
(A) Principle of definition
(B) Principle of evidence
(C) Principle of identity
(D) Principle of prudence
(D) Principle of prudence

Question 80.
In case of decision making, “diagnosing the real problem implies”
(A) Analyzing the internal and external factors and discovering relations between them
(B) Knowing the gap between what exists and what is expected to happen, identifying the reasons for the gap
(C) Decentralizing routine matters so that top management can concentrate on vital and strategic decisions
(D) Actual selection of a course of action from among a number of alternatives
(B) Knowing the gap between what exists and what is expected to happen, identifying the reasons for the gap

Question 81.
Identify correct steps in decision making.
I. Identifying the real problem
II. Discovery of alternatives
III. Analysis of available alternatives
IV. Selection of alternatives
V Communication of decision
Select the correct answer from the options given below –
(A) II, IV, I, III, V
(B) III, I, II, IV, V
(C) I, III, II, IV, V
(D) I, II, III, IV, V
(D) I, II, III, IV, V

Question 82.
Which of the following is not related with ‘business plans?
(B) The reasons why they are believed attainable
(C) The plan for reaching those goals
(D) Changes in perception and branding
(D) Changes in perception and branding

Question 83.
Which of the following best expresses the difference between programmed and non-programmed decisions?
(A) Made by managers who prefer a thinking or technocratic style; made by managers who use judgment and follow intuition
(B) Have computer routines developed for them; are not computerized
(C) Handled with decision rules; decision rules cannot be developed
(D) Occur under certainty or risk; occur under uncertainty or ambiguity
(C) Handled with decision rules; decision rules cannot be developed

Question 84.
Identify correct sequence/steps in organizing function of management.
(I) Delegation of authority and placing of responsibility.
(II) Identification and classification of activities of the enterprise consistent with its objectives.
(III) Making provision for effective coordination and establishment of definite lines of supervision.
(IV) Establishing superior subordinate relationship within the departments.
(V) Grouping various activities into workable units or departments.
Select the correct answer from the options given below –
(A) II, V, I, III & IV
(B) II, V, IV, I & III
(C) II, I, V, IV & III
(D) II, V, I, IV & III
(D) II, V, I, IV & III

Question 85.
Which of the following is one of the steps in organizing function of management?
(A) Identification of opportunities and avoiding or mitigating losses.
(B) Grouping various activities into workable units or departments
(C) Structured approach in managing uncertainty related to a threat.
(D) Promote greater openness in decision making and improves communication
(B) Grouping various activities into workable units or departments

Question 86.
Due to which function of management superior subordinate relationships are established?
(A) Planning
(B) Decision making
(C) Organizing
(D) Controlling
(C) Organizing

Question 87.
The total activities of an individual industrial organization may be separated into major functions like production, purchasing, marketing, and financing, and each such function is further sub-divided into various jobs. This is called as –
(A) Developing relationships
(B) Determination of objectives
(C) Identification and grouping of activities
(D) Risk management
(C) Identification and grouping of activities

Question 88.
Which of the following refers to the relationship between people based not on procedures but on personal attitudes, prejudices, likes and dislikes?
(A) Formal organization
(B) Informal organization
(C) Matrix organization
(D) Project organization
(B) Informal organization

Question 89.
Authority may be described as the right of a manager to command –
(A) Superiors
(B) Subordinates
(C) Other manager
(D) All of above
(B) Subordinates

Question 90.
It is that makes the managerial position real and vests in him the power to order his subordinates and secure necessary compliance.
(A) Authority
(B) Responsibility
(C) Accountability
(D) Duties & obligations
(A) Authority

Question 91.
………….. is the obligation of a subordinate to carry out duties assigned.
(A) Authority
(B) Responsibility
(C) Delegation
(D) Power
(B) Responsibility

Question 92.
Which of the following denotes answer ability for the accomplishment of the task assigned by the superior to his subordinate?
(A) Responsibility
(B) Accountability
(C) Power
(D) Authority
(B) Accountability

Question 93.
Which of the following can be delegated?
(A) Power
(B) Responsibility
(C) Accountability
(D) Authority
(D) Authority

Question 94.
Which of the following refers to capacity to influence the behaviour of others and secure obedience?
(A) Power
(B) Responsibility
(C) Accountability
(D) None of the above
(A) Power

Question 95.
Responsibility is exacted while authority flows
(A) Downward; upward
(B) Upward; upward
(C) Upward; downward
(D) Downward; downward
(C) Upward; downward

Question 96.
Arrange the process of delegation in proper from.
(1) Creation of accountability
(2) Allocation of duties
(3) Assignment of responsibility
(4) Delegation of authority
Select the correct answer from the options given below –
(A) (3), (4), (2), (1)
(B) (2), (3), (4), (1)
(C) (2), (4), (1), (3)
(D) (2), (4), (3), (1)
(D) (2), (4), (3), (1)

Question 97.
“Principles of exception’ relating to delegation of authority requires that –
(A) When authority is delegated, responsibility steps in and is coextensive with authority.
(B) Whether specific or general, written or unwritten, delegation of authority must be very clear in terms of its contents, functional relations, scope and assignments.
(C) Problems involving unusual matters should be referred upward and decided by higher level executives.
(D) Specific written delegations help both the manager and the recipient of authority.
(C) Problems involving unusual matters should be referred upward and decided by higher level executives.

Question 98.
Principle of “clarity of delegation” required that –
(A) Only problems involving unusual matters should be referred upward and decided by higher level executives.
(B) When authority is delegated, responsibility steps in and is coextensive with authority.
(C) Whether specific or general, written or unwritten, delegation of authority must be very clear in terms of its contents, functional relations, scope and assignments.
(D) If the manager is able to pass on obligation along with delegation of authority to the subordinates, the rule of single chain of command will be violated.
(C) Whether specific or general, written or unwritten, delegation of authority must be very clear in terms of its contents, functional relations, scope and assignments.

Question 99.
As per scalar principal of delegation –
(A) The delegatee should also be given a clear idea about the tasks assigned, what is expected of the recipient in his own job and how his obligation fits into the general plan.
(B) Whenever authority is delegated, reponsibility steps in and is coextensive with authority.
(C) It is expected that the recipient of authority shall make proper use of it and make all the decisions falling within the scope of his authority.
(D) Subordinates must know who delegates authority to them and to whom matters beyond their own authority must be referred.
(D) Subordinates must know who delegates authority to them and to whom matters beyond their own authority must be referred.

Question 100.
As per principle of unity of command of delegation –
(A) Subordinates must know who delegates authority to them and to whom matters beyond their own authority must be referred.
(B) In case of delegation, except for the inevitable instances of splintered authority, the right of discretion over a particular activity will flow from a single superior to a subordinate.
(C) Larger number of decisions and more important of them are made by those occupying higher positions in the organization.
(D) Delegation of authority is essential in as much as no organization is possible without delegation.
(B) In case of delegation, except for the inevitable instances of splintered authority, the right of discretion over a particular activity will flow from a single superior to a subordinate.

Question 101.
Which of the following refers to the tendency to withhold a larger part of formal authority at higher echelons of management hierarchy?
(A) Delegation of authority
(B) Decentralization
(C) Centralization
(D) Exception principle
(C) Centralization

Question 102.
…………. means partial dispersal of authority from central/top management to lower level.
(A) Delegation of authority
(B) Decentralization
(C) Centralization
(D) All of above
(B) Decentralization

Question 103.
Where larger part of the authority is delegated down the levels of management so that decisions are made a near the source of action, such a tendency in the organization is described a –
(A) Delegation of authority
(B) Decentralization
(C) Centralization
(D) Principle of functional definition
(B) Decentralization

Question 104.
The Principles of Unity of Command and Unity of Direction was given by –
(A) W.F. Taylor
(B) Lyndall Urwick
(C) Henry Fayol
(D) None of the above
(C) Henry Fayol

Question 105.
‘Each individual should be given a particular job to do according to his ability and made responsible for that.’ Which step in the organizing process does the sentence relate to –
(A) Allotment of duties
(B) Identification and grouping of activities
(C) Developing relationships
(D) Integration of activities
(A) Allotment of duties

Question 106.
The framework of interrelationships among individuals and departments that describe relationships of reporting and accountability is called –
(A) Chain of command
(B) Functional arrangement
(C) Specialization
(D) Organizational structure
(D) Organizational structure

Question 107.
The formal channel that defines the lines of authority and accountability in a hierarchical organizational structure is called –
(A) Line positions
(B) Chain of command
(C) Staff positions
(D) Line and staff positions
(B) Chain of command

Question 108.
Determining the number of people who are accountable to a single manager refers to –
(A) Chain of command
(B) Degree of centralization
(C) Span of control
(D) Degree of specialization
(C) Span of control

Question 109.
“Span of management’ is often referred to as –
I. Span of control
II. Span of supervision
III. Span of authority
IV. Span of responsibility
Select the correct answer from the options given below –
(A) I
(B) I, II
(C) I, II, III
(D) I, II, III, IV
(D) I, II, III, IV

Question 110.
Human Resource Management (HRM) is that part of management which is –
(A) Concerned with how people at work use the various resources available in organization.
(B) Concerned with people at work and with their relationship with an enterprise.
(C) Concerned with how manager effectively use the various resources available in organization.
(D) Concerned with how manager effectively control the people in organization.
(B) Concerned with people at work and with their relationship with an enterprise.

Question 111.
Human Resource Management is often referred to as –
(A) Peoples Management
(B) Human Management
(C) Resource Management
(D) Personnel Management
(D) Personnel Management

Question 112.
Blue-collar workers are
(B) Clerical employees
(C) Executive employees
(D) Contract employees

Question 113.
White-collar workers are
(B) Clerical employees
(C) Executive employees
(D) Contract employees
(B) Clerical employees

Question 114.
The process of searching for prospective employees and encouraging them to apply for the jobs in an organization is known as –
(A) Selection
(B) Placement
(C) Recruitment
(D) Manpower planning
(C) Recruitment

Question 115.
…………. is the process by which candidates for employment are distinguished between those who are suitable and those who are not.
(A) Manpower planning
(B) Selection
(C) Recruitment
(D) Induction
(B) Selection

Question 116.
Training is generally given to ……… in organization.
(A) Managers
(B) Middle and lower level people
(C) Executives
(D) None of the above
(B) Middle and lower level people

Question 117.
Development process is taken for –
(A) Middle and lower level people
(B) Manager & executives
(C) Debtor & creditors
(D) Chairman & Directors
(B) Manager & executives

Question 118.
Which of the following is /are benefits of training?
(A) It ensures long-term increase in the sales of the organization.
(B) It helps to reduce the time and cost required to reach the acceptable level of performance.
(C) It improves the leadership quality of employee.
(D) It gives employees fresh insights into their own personalities and it can also help them understand why others sometimes respond as they do.
(B) It helps to reduce the time and cost required to reach the acceptable level of performance.

Question 119.
Direction starts with issuing …………. to subordinates and ends with getting things done by satisfaction of various needs of subordinates.
(A) Orders
(B) Request
(C) Instructions
(D) (A) or (C)
(D) (A) or (C)

Question 120.
The most important characteristic of direction is –
(A) Guiding
(B) Procurement
(C) Planning
(D) Thinking
(A) Guiding

Question 121.
Which of the following is essential of the directing function of management?
(A) Identifying the activities and grouping them into convenient classes
(B) Motivating the subordinates to direct their behaviour in a desired pattern.
(C) Revise the structure on the basis of assessment of personnel and other resources
(D) None of the above
(B) Motivating the subordinates to direct their behaviour in a desired pattern.

Question 122.
Essential of the directing function –
(A) Delegation of authority to the executives of the departments
(B) Identifying and diagnosing the real problem
(C) Analysis and evaluation of available alternatives
(D) Maintaining discipline and rewarding effective performance.
(D) Maintaining discipline and rewarding effective performance.

Question 123.
Which of the following is not principle of direction?
(A) Principle of unity of command
(B) Principle of evidence
(C) Principle of unity of direction
(B) Principle of evidence

Question 124.
Which of the following is not principle of direction?
(C) Principle of unity of direction
(D) Principle of unity of command

Question 125.
(A) Leadership does not necessarily take place within a hierarchical structure of an organization
(B) Not every leader is a manager
(C) When people operate as leaders their role is always clearly established and defined
(D) All of the above
(C) When people operate as leaders their role is always clearly established and defined

Question 126.
…………… is a voluntary collective action to serve a common purpose. Whereas is the orderly synchronization of group efforts so as to provide unity of action in the pursuit of common purpose.
(A) Motivation, Co-operation
(B) Co-ordination, Co-operation
(C) Co-operation, Direction
(D) Co-operation, Co-ordination
(D) Co-operation, Co-ordination

Question 127.
Arrange the process of control in proper form.
(2) Establishment of goals and standards
(3) Corrective action
(4) Measurement of actual performance
Select the correct answer from the option given below –
(A) (4), (2), (3), (1)
(B) (2), (3), (4), (1)
(C) (4), (1), (3), (2)
(D) (2), (4), (3), (1)
(D) (2), (4), (3), (1)

Question 128.
Which of the following is essential of good control system?
(A) Motivation
(B) Feedback
(C) Self control
(D) All of above
(B) Feedback

Question 129.
Organizational control systems:
(A) Always penalize ethical decision making.
(B) Rely entirely on formal controls
(C) May help to embed corporate social responsiveness
(D) Are just another name for budgeting
(C) May help to embed corporate social responsiveness

Question 130.
Consider the following statements: Planning involves –
1. Forecasting
2. Choice among alternative courses of action.
3. Wishful thinking
4. Decision only by production manager Of these statements:
(A) 1,2, 3 and 4 are correct
(B) 1, 3 and 4 are correct
(C) 1 and 2 are correct
(D) 2 and 3 are correct
(C) 1 and 2 are correct

Question 131.
If a general manager asks the sales manager to recruit some salesman on his behalf, it is an instance of –
(A) Division of authority
(B) Decentralization of authority
(C) Delegation of authority
(D) Delegation of responsibility
(C) Delegation of authority

Question 132.
While delegating, a superior delegates –
(A) Only authority
(B) Authority and responsibility
(C) Authority, responsibility and accountability
(D) Authority and responsibility but not accountability
(A) Only authority

Question 133.
Directing function of management implies
1. Planning
2. Staffing
4. Motivation
Choose the correct answer using the codes given below:
(A) 1 and 2
(B) 3 and 4
(C) 2 and 4
(D) 2, 3 and 4
(B) 3 and 4

Question 134.
Consider the following statements:
1. Decentralization and delegation are closely interrelated.
2. Delegation and decentralization both are desirable.
3. Decentralization is not suitable for large organization.
4. Delegation is not possible in the case of small organizations.
Of these statements:
(A) 1 and 2 are correct
(B) 2 and 3 are correct
(C) 1 and 4 are correct
(D) 1, 3 and 4 are correct
(A) 1 and 2 are correct

Question 135.
Delegation of authority is linked to
(A) Managerial planning
(B) Management coordination
(C) Management control
(D) Scientific management
(C) Management control

Question 136.
Decentralization of an organization is commanded on account of which of the following advantages?
1. Reduced burden on top executives
2. Development of employees
3. Improvement of morale
4. Solves problems of coordination
Select the correct answer from the options given below.
(A) 2 and 3
(B) 1,2 and 4
(C) 1, 2 and 3
(D) 3 and 4
(C) 1, 2 and 3

Question 137.
When management pays attention to more important areas and when the day to day routine problems are looked after by lower level management, it is known as –
(A) Management by objectives
(B) Management by Exception
(C) Participative Management
(D) Critical path method
(B) Management by Exception

Question 138.
Staffing includes –
1. Training
2. Appraisal
3. Placement
4. Directing
(A) 1 and 3
(B) 2 and 3
(C) 1,2 and 3
(D) 1,2, 3 and 4
(C) 1,2 and 3

Question 139.
Span of controls means that -……………
(A) An organization consists of various departments
(B) Each person’s authority is clearly defined.
(C) Every subordinate has one superior.
(D) A manager can supervise only a limited number of subordinates.
(D) A manager can supervise only a limited number of subordinates.

Question 140.
Which one of the following statement is correct?
(A) Planning and controlling are essentially one and the same.
(B) Controlling is a part of the planning process.
(C) Controlling is a substitute for planning
(D) A control process is meaningless without preset goals.
(D) A control process is meaningless without preset goals.

Question 141.
Assertion (A):
One can have ‘power’ without having ‘authority’.
Reason (R):
People with ‘authority’ have ‘power’, but ‘power’ does not always denote authority.
Select the correct answer from the options given below.
(A) (A) and (R) both are true, but (R) is not a correct explanation of (A)
(B) (A) and (R) both are true, (R) is the correct explanation of (A)
(C) (A) is true and (R) is false
(D) (A) is false and (R) is true
(B) (A) and (R) both are true, (R) is the correct explanation of (A)

Question 142.
Assertion (A):
Today managers with leadership qualities and skill are preferred to managers with expertise alone.
Reason (R):
The major organizational changes now emphasize managing people and processes.
Select the correct answer from the options given below.
(A) Both A and R are true and R is correct explanation of A
(B) Both A and R are true but R is not a correct explanation of A
(C) A is true but R is false
(D) A is false and R is true
(A) Both A and R are true and R is correct explanation of A

Question 143.
Match the following:
List-I —- List-II
(a) Forecasting — (i) Controlling
(b) Communication — (ii) Planning
(c) Selection of manager — (iii) Leading
(d) Established performance standard — Staffing
Select the correct answer from the options given below

(D)

Question 144.
Assertion (A):
Co-ordination implies the avoidance of all splintering efforts.
Reason (R):
One of the four benefits of coordination is unity of direction.
Select the correct answer from the options given below.
(A) Both A and R are true and R is correct explanation of A
(B) Both A and R are true but R is not a correct explanation of A
(C) A is true but R is false
(D) A is false but R is true
(B) Both A and R are true but R is not a correct explanation of A

Question 145.
A strategy can be defined as –
(A) A plan designed to reach long-term objectives.
(B) A specific, narrow plan designed to achieve tactical planning.
(C) Designed to be the end of tactical planning.
(D) None of the above
(A) A plan designed to reach long-term objectives.

Question 146.
Assertion (A):
Management is the development of people. Reason (R):
Management is not the direction of things.
Select the correct answer from the options given below.
‘Plans’ are natural out growths of the planning process.
(A) (A) is true and (R) is false
(B) (A) is false and (R) is true
(C) Both (A) and (R) are true
(D) Both (A) and (R) are false
(A) (A) is true and (R) is false

Question 147.
Assertion (A): ‘Plan’ is a theoretical concept but ‘planning’
has particular values.
Reason (R):
Plans’ are natural out growths of the planning process.
(A) (A) is true and (R) is false
(B) (A) is false and (R) is true
(C) Both (A) and (R) are true
(D) Both (A) and (R) are false
(C) Both (A) and (R) are true

Question 148.
Scalar principle of organization implies that –
(A) All subordinates have only one supervisor
(B) Line of authority is defined clearly
(C) Manager can directly supervise only a limited number of persons
(D) The subordinates need not necessarily have a supervisor
(B) Line of authority is defined clearly

## Project Finance and Types of Financing – Financial Management MCQ

Project Finance and Types of Financing – CS Executive Financial and Strategic Management MCQ Questions with Answers you can quickly revise the concepts.

## Project Finance and Types of Financing – Financial Management MCQ

Question 1.
Project appraisal by financial institution takes into consideration
(A) Promoter’s capacity and competence
(B) Project
(C) Economic Aspects
(D) All of above
(D) All of above

Question 2.
A project would normally be undertaken if its net present value is:
(A) Negative
(B) Exactly the same as the NPV of existing projects
(C) Positive
(D) Zero
(C) Positive

Question 3.
The project planning activities and goals include defining:
1. The specific work to be performed and goals that define and bind the project.
2. Estimates to be documented for planning, tracking, and controlling the project.
3. Commitments that are planned, documented, and agreed to by affected groups.
4. Project alternatives, assumptions, and constraints.
Select the correct answer from the options given below.
(A) 1,2, 3 and 4
(B) 2, 3 and 4
(C) 1 and 3 only
(D) 1 and 4 only
(A) 1,2, 3 and 4

Question 4.
Which of the following is not one of the three fundamental methods of firm valuation?
(A) Discounted Cash flow
(B) Income or earnings – where the firm is valued on some multiple of accounting income or earnings.
(C) Balance sheet – where the firm is valued in terms of its assets.
(D) Market Share
(D) Market Share

Question 5.
The promoter’s capacity and competence should be examined with reference to –
(A) Their management background, traits as entrepreneurs, business
(B) Industrial experience, and past performance in other concerns
(C) Their integrity and reputation, market standing and legal competence
(D) All of the above
(D) All of the above

Question 6.
External sources of finance do not include:
(A) Leasing
(B) Debentures
(C) Retained earnings
(D) Overdrafts
(B) Debentures

Question 7.
Which of the following is a drawback to a business that issues debentures?
(A) Lenders do not have any voting rights.
(B) There is dilution of control.
(C) There is a dilution of ownership.
(D) The value of liabilities increases.
(A) Lenders do not have any voting rights.

Question 8.
Internal sources of finance do not include:
(A) Better management of working capital
(B) Ordinary shares
(D) Retained earnings
(B) Ordinary shares

Question 9.
Technical feasibility implies to mean –
(A) Appraisal of project by a team of expert drawn from different disciplines.
(B) The adequacy of the proposed plant and equipment to produce the product within the prescribed norms.
(C) Working plan for implementation of project proposal after investment decision by a company has been taken.
(D) To ensure before taking in hand a project whether or not the proposed project is viable.
(B) The adequacy of the proposed plant and equipment to produce the product within the prescribed norms.

Question 10.
The project is viable when BCR is –
(A) One
(B) One or more than one
(C) Two
(D) Two or more than two.
(B) One or more than one

Question 11.
Financial aspects of project is judged with reference to –
(A) Availability of land and site.
(B) Availability of servicing facilities like machine shops, electric repair shop, etc.
(C) NPV, Benefit Cost Ratio, Internal Rate of Return, Sensitivity & Risk Analysis
(D) Availability of work force as per required skill and arrangements proposed for training-in-plant and outside.
(C) NPV, Benefit Cost Ratio, Internal Rate of Return, Sensitivity & Risk Analysis

Question 12.
The objective of economic appraisal is to -……………
(A) Examine the project from the entire economy’s point of view
(B) Determine whether the project will improve the economic welfare of the country
(C) Both (A) and (B)
(D) Neither (A) nor (B)
(C) Both (A) and (B)

Question 13.
The social analysis consists of -………….
(A) Measurement of the distribution of the income due to the project.
(B) Identification of the impact on the basic needs objectives of the society.
(C) Both (A) and (B)
(D) Neither (A) nor (B)
(C) Both (A) and (B)

Question 14.
The UNIDO guidelines provide a comprehensive framework for -………
(A) Appraisal of projects and examine their desirability and merit by using different yardsticks in a step-wise manner
(B) Appraisal of project regarding chance of getting government subsidy.
(C) Adequacy of the proposed plant and equipment to produce the product within the prescribed norms.
(D) All of the above
(A) Appraisal of projects and examine their desirability and merit by using different yardsticks in a step-wise manner.

Question 15.
………….. are those which Eire created by combining the features of equity with bond, preference and equity.
(A) Mixed instruments
(B) Baby bond
(C) Hybrid instruments
(D) Hypothetical instruments
(C) Hybrid instruments

Question 16.
Zero Coupon bonds are bonds issued at and redeemed at par.
(A) Face value to discount
(B) Discount to face value plus premium
(C) Par to discounted value
(D) Discount to face value
(D) Discount to face value

Question 17.
A lowers the interest rate risk by neutralizing the inflation risk.
(A) Carrot and stick bond
(B) Capital indexed bonds
(C) Commodity bonds
(D) Dual convertible bond
(B) Capital indexed bonds

Question 18.
Derivatives include a variety of financial contracts, including
(1) Futures
(2) Forwards
(3) Swaps
(4) Options
Select the correct answer from the options given below.
(A) (1) & (4)
(B) (2) & (3)
(C) (2), (4) & (1)
(D) (3), (1), (4) & (2)
(D) (3), (1), (4) & (2)

Question 19.
…………. means any instrument in the form of a depository receipt created by Domestic Depository in India against the underlying equity shares of a company incorporated outside India.
(A) Global Depository Receipt (GDR)
(C) Indian Depository Receipt (IDR)
(D) Any of the above
(C) Indian Depository Receipt (IDR)

Question 20.
IDR is an instrument denominated in –
(A) Foreign currency
(B) Indian Rupees
(C) Partly in (A) and partly in (B)
(D) Either (A) or (B)
(B) Indian Rupees

Question 21.
Depository Receipt (DR) is ………….
1. Denominated in foreign currency
Select the correct answer from the options given below.
(A) 1 but not 2
(B) 2 but not 1
(C) 1 and 2
(D) Neither 1 nor 2
(C) 1 and 2

Question 22.
Depository receipts can be issued by way of ………
(A) Public offering
(B) Private placement
(C) Either (A) or (B)
(D) Neither (A) nor (B)
(C) Either (A) or (B)

Question 23.
…………… means modes of raising funds by an Indian company outside India in foreign currency.
(A) American issue
(B) Swiss issue
(C) Euro issue
(D) None of the above
(C) Euro issue

Question 24.
Which of following is government security?
(A) Dated securities
(B) Capital indexed bonds
(C) Treasury bills
(D) All of above
(C) Treasury bills

Question 25.
Floating rate bonds are bonds with
(A) Fixed interest rate
(B) Variable interest rate
(C) Semi fixed interest rate
(D) None of above
(B) Variable interest rate

Question 26.
A bond that allows the issuer of the bond to redeem the bond before the date of maturity is called as -………….
(A) Callable bond
(B) Put bond
(C) Floating rate bonds
(D) Fixed rate bond
(A) Callable bond

Question 27.
A bond which has a provision that allows the holder of the bond the right to force the issuer to pay back the principal on the bond is called as –
(A) Callable bond
(B) Put bond
(C) Floating rate bonds
(D) Fixed rate bond
(B) Put bond

Question 28.
Capital Indexed Bonds are bonds where interest rate is a fixed percentage over the
(A) Inflation index
(B) Retail price index
(C) Wholesale price index
(D) SENSEX
(C) Wholesale price index

Question 29.
Z Ltd. issued CP as per the following details:
Date of issue – 17th January, 2010
Date of maturity – 17th April, 2010
Interest rate – 11.25% p.a.
Crore At what amount this CP will be redeemed?
(A) 10 Crore
(B) 11 Crore
(C) 9.5 Crore
(D) 9.95 Crore
(A) 10 Crore
The days to maturity of CP are 90 as shown below:

Interest for 90 days = 11.25 × 90/365 = 2.774%
CP are redeemed at face value.
Hence,
Amount Received + Interest = Face Value
100 + 2.774 = 102.774
9.73 Crore + 0.27 Crore = 10 Crore

Question 30.
A company issues 90 days commercial papers of the face value of ₹ 1,000 at ₹ 980. The credit rating expenses are 0.6% of the size of issue, issuing and paying agent charges are 0.25% and stamp duty is to be paid @0.20%. You are required to calculate cost of issuing commercial papers
(A) 10.89%
(B) 12.56%
(C) 15.14%
(D) 14.73%
(C) 15.14%
CP are redeemed at face value.
Hence,
Amount Received + Interest = Face Value
980+20= 1,000

Calculation of total cost of funds:

## Security Analysis and Portfolio Management – Financial Management MCQ

Security Analysis and Portfolio Management – CS Executive Financial and Strategic Management MCQ Questions with Answers you can quickly revise the concepts.

## Security Analysis and Portfolio Management – Financial Management MCQ

Question 1.
Security Analysis is a process of estimating for individual securities.
(A) Return and risk
(B) Risk and correlation
(C) Correlation and coefficient
(D) Return and coefficient
(A) Return and risk

Question 2.
Standard deviation determine -…………..
(A) Systematic risk of a security
(B) Unsystematic risk of security
(C) Total risk of security
(C) Total risk of security

Question 3.
Financial Assets are -…………
(A) Pieces of paper representing an indirect claim to real assets in form of debt or equity commitments.
(B) Tangible, material things such as buildings, furniture, automobiles etc.
(C) Both (A) and (B)
(D) Neither (A) nor (B)
(A) Pieces of paper representing an indirect claim to real assets in form of debt or equity commitments.

Question 4.
………….. is one who exercises any degree of discretion as to the investment or management of the portfolio of the securities or the funds of the client.
(A) Non-discretionary portfolio manager
(B) Portfolio investor
(C) Discretionary portfolio manager
(D) Portfolio custodian
(C) Discretionary portfolio manager

Question 5.
Return from listed security is in two forms –
(A) One is interest and second is capital appreciation in price.
(B) One is stock split and second is dividend.
(C) One is interest and second is dividend.
(D) One is dividend and second is capital appreciation in price.
(D) One is dividend and second is capital appreciation in price.

Question 6.
Which of the following is correct formula to calculate returns of listed security?
(A) [(P1 – P0) + D] ÷ [P0 x 100]
(B) [(P1 – P0) + D] ÷ [P0 x 100]
(C) [(P1 – P0) – D] ÷ [P0 x 100]
(D) [(P1 – P0) + D (1 -t)] ÷ [P0 x 100]
(A) [(P1 – P0) + D] ÷ [P0 x 100]

Question 7.
If probability of occurrence is assigned, then the expected return would be:
(A) average return being assigned to return of security for the various scenarios
(B) weighted average of probabilities being assigned to return of security for the various scenarios
(C) weighted average return with probabilities being assigned to return of security for the various scenarios
(D) weighted average return multiplied by risk with probabilities being assigned to return of security for the various scenarios
(C) weighted average return with probabilities being assigned to return of security for the various scenarios

Question 8.
Standard deviation is a deviation from -……………
(A) Arithmetic mean
(B) Harmonic mean
(C) Median mean
(D) Mode mean
(A) Arithmetic mean

Question 9.
Standard deviation is expressed -……………
(A) always in percentage
(B) in same units in respect of which the deviation is computed.
(C) in terms of rupee risk
(D) in terms of amount
(B) in same units in respect of which the deviation is computed.

Question 10.
The market price of a bond depend on -……………
(A) The coupon rate and terms of the indenture
(B) The coupon rate and maturity date
(C) The terms of the indenture, and maturity date
(D) The coupon rate, terms of the indenture, and maturity date
(D) The coupon rate, terms of the indenture, and maturity date

Question 11.
Investment with lower standard deviation carries -……………
(A) High risk
(B) Less risk
(C) Infinite risk
(D) Avoidable risk
(B) Less risk

Question 12.
Which of the following is on the horizontal axis of the Security Market Line?
(A) Standard deviation
(B) Beta
(C) Expected return
(D) Required return
(B) Beta

Question 13.
Covariance is a measurement of -……………
(A) The co-movement between two variables
(B) The link between the variability of returns in two independent securities
(C) Both (A) and (B)
(D) None of the above
(C) Both (A) and (B)

Question 14.
Expected worth is the –
(A) Inverse of standard deviation
(B) Correlation between a security
(C) Same as discrete probability distribution
(D) Weighted average of all possible outcomes
(D) Weighted average of all possible outcomes

Question 15.
Positive Covariance indicates that –
(A) Returns on two assets bear a tendency to off-set each other Le. if return on A is above par, return on B is likely to be below par. If return on A is below par, return on B is likely to be above par.
(B) There is no distinct relationship between the movements in returns of two securities.
(C) Returns on two assets tend to go together, ie. if return on A is above par, return on B is also likely to be above par.
(D) Higher discount rate should be used in capital budgeting to discount the cash flow.
(C) Returns on two assets tend to go together, ie. if return on A is above par, return on B is also likely to be above par.

Question 16.
Liquidity risk:
(A) is risk investments bankers face
(B) is lower for small companies
(C) is risk associated with secondary market transactions
(D) increases whenever interest rates increases
(C) is risk associated with secondary market transactions

Question 17.
Correlation Coefficient supplements and upgrades the –
(A) Expected return
(B) WACC
(C) Covariance
(D) Mean deviation
(C) Covariance

Question 18.
Consider a graph with standard deviation on the horizontal axis and expected return on the vertical axis. The line that connects the risk-free rate and the optimal risky portfolio is called:
(A) Indifference curve
(B) Capital market line
(C) Characteristic line
(D) Security market line
(B) Capital market line

Question 19.
A risk associated with project and way considered by well diversified stockholder is classified as –
(A) Expected risk
(B) Beta risk
(C) Industry risk
(D) Returning risk
(B) Beta risk

Question 20.
Which of the following is correct formula to Correlation Coefficient?
(A) Covxy x σ x x σy
(B) Covxy÷ (σx × σy)
(C) (σx x σy) ÷ Covxy
(D) (σx ÷ σy) x Covxy
(B) Covxy÷ (σx × σy)

Question 21.
An attempt to make correction by adjusting historical beta to make it closer to Em average beta is classified as –

Question 22.
The efficient frontier –
(A) Is the set of optimal portfolios that offers the highest expected return for a defined level of risk’
(B) Is the set of optimal portfolios that offers the lowest risk for a given level of expected return
(C) Helps to decide whether a new security can be selected or rejected
(D) All of the above
(D) All of the above

Question 23.
A corporate bond is a corporation’s write undertaking that it will refund a specific amount of money plus –
(B) Interest
(C) Nothing
(D) Security
(B) Interest

Question 24.
The common stock of a company must provide a higher expected return than the debt of the same company because
(A) There is less demand for stock than for bonds.
(B) There is greater demand for stock than for bonds.
(C) There is more systematic risk involved for the common stock.
(D) There is a market premium required for bonds.
(C) There is more systematic risk involved for the common stock.

Question 25.
As per ‘Efficient Frontier’ concept, if the security falls below the frontier –
(A) The security is efficient and hence will be selected.
(B) The security dominates some security on previously drawn security and hence the frontier itself will have to be re-draw.
(C) The security is dominated by some security on the frontier and will be rejected.
(D) It shows that earning of the security is above market return and hence will be selected.
(C) The security is dominated by some security on the frontier and will be rejected.

Question 26.
Capital Market Line is firstly initiated by:
(A) Mohsin
(B) Linter
(C) Markowitz
(D) William Sharpe
(D) William Sharpe

Question 27.
For an all-equity financed firm, a project whose expected rate of return plots should be rejected.
(A) Above the characteristic line
(B) Above the security market line
(C) Below the security market line
(D) Below the characteristic line
(C) Below the security market line

Question 28.
Portfolio risk will be when two components of a portfolio stand perfectly positively correlated and will be when the same are perfectly negatively correlated.
(A) Minimum; Maximum
(B) Maximum; Minimum
(C) Minimum; Less
(D) Maximum; More
(B) Maximum; Minimum

Question 29.
A main difference among real and nominal interest proceeds is that -……….
(A) Real returns adjust for inflation and nominal returns do not
(B) Real returns use actual cash flows and nominal use expected cash flows
(C) Real interest adjusts for commissions and nominal returns do not
(D) Real returns show highest possible return and nominal returns show lowest possible return
(A) Real returns adjust for inflation and nominal returns do not

Question 30.
The beta of the market is: -…………
(A) -1.0
(B) 0
(C) 1.0
(D) 0.5
(C) 1.0

Question 31.
Non-systematic risk is furthermore identified as -…………
(A) No diversiable risk
(B) Market risk
(C) Random risk
(D) Company specific risk
(D) Company specific risk

Question 32.
Beta is measure of -…………
(A) Non-diversifiable risk
(B) Diversihable risk
(C) Total risk
(D) Covariance
(A) Non-diversifiable risk

Question 33.
Investors should be agreeing to invest in riskier investments merely –
(A) If return is short
(B) If there are no safe alternatives except for holding cash
(C) If expected return is adequate for risk level
(D) If there are true speculators
(C) If expected return is adequate for risk level

Question 34.
Negative covariance indicates that -………..
(A) Returns on two assets bear a tendency to off-set each other i.e. if return on A is above par, return on B is likely to be below par. If return on A is below par, return on B is likely to be above par.
(B) Returns on two assets tend to go together, ie. if return on A is above par, return on B is also likely to be above par.
(C) There is no distinct relationship between the movements in returns of two securities.
(D) There is unnecessary relationship between the movements in returns of two securities.
(A) Returns on two assets bear a tendency to off-set each other i.e. if return on A is above par, return on B is likely to be below par. If return on A is below par, return on B is likely to be above par.

Question 35.
Holding two securities as an alternative of will not decrease hazard occupied by an investor if two securities are:
(A) Perfectively positive correlated
(B) Perfectively negative correlated
(C) No correlation
(D) All of answers are correct
(A) Perfectively positive correlated

Question 36.
A beta of 1.15 for a security would indicate that -………….
(A) Security is trading 15% higher than market index
(B) Security is 15% riskier than index/ market.
(C) Security is 15% less risky than index/ market.
(D) Security and market has covariance of 0.15.
(B) Security is 15% riskier than index/ market.

Question 37.
Choice of correlation coefficient is between -………….
(A) 0 to 1
(B) 0 to 2
(C) Minus 1 to +1
(D) Minus 1 to 3
(C) Minus 1 to +1

Question 38.
A beta of 0.8 for a security would indicate that -………….
(A) Security is 20% riskier than index/ market.
(B) Security is 80% less risky than index/ market.
(C) Security is 20% less risky than index/ market.
(D) Security is 80% riskier than index/ market
(C) Security is 20% less risky than index/ market.

Question 39.
Markowitz model presumed generally investors are –
(A) Risk averse
(B) Risk natural
(C) Risk seekers
(D) Risk moderate
(A) Risk averse

Question 40.
Zero covariance indicate that –
(A) There is close relationship between the movements in returns of two assets.
(B) There is positive relationship between the movements in returns of two securities.
(C) There is strong relationship between the movements in returns of two assets.
(D) There is no distinct relationship between the movements in returns of two securities.
(D) There is no distinct relationship between the movements in returns of two securities.

Question 41.
Which of the following is correct formula to calculate beta (P)?

(D) All of the Above

Question 42.
Capital Asset Pricing Model (CAPM) provides the link between –
(A) Return and total risk
(B) Risk and covariance
(C) Return and non-diversifiable risk
(D) Return and diversifiable risk
(C) Return and non-diversifiable risk

Question 43.
Which of the following investment advice will you provide to your client investor if CAPM Return < Expected return?
(A) Sell
(B) Hold
(D) Short

Question 44.
As per ‘Efficient Frontier’ concept, if the security falls on frontier –
(A) The security is efficient and hence will be selected
(B) The security dominates some security on previously drawn security and hence the frontier itself will have to be re-drawn
(C) The security is efficient but will be rejected.
(D) The security is dominated by some security on the frontier and will be rejected.
(A) The security is efficient and hence will be selected

Question 45.
Capital market line (CML) represents –
I. Portfolios that optimally combine risk and return.
II. The trade-off between risk and return for efficient portfolios.
III. Covariance value in order to help comparison with corresponding values for the other pairs of securities constituting the portfolio.
IV. The relationship between return and risk.
Select the correct answer from the options given below.
(A) IV and I only
(B) II, III and IV only
(C) III and n only
(D) III, IV and I only
(D) III, IV and I only

Question 46.
Which of the following investment advice will you provide to your client investor if CAPM Return > Expected return?
(A) Sell
(C) Hold
(D) None of the above
(A) Sell

Question 47.
If expected return is more than required return as per CAPM, then -…………
(A) Security is overvalued and hence can be bought
(B) Security is correctly priced and hence should be hold
(C) Security is undervalued and hence can be sold
(D) Security is undervalued and hence can be bought
(C) Security is undervalued and hence can be sold

Question 48.
The Security Market Line (SML) is a line drawn on a chart that serves as a graphical representation of the -…………
(A) MM Model
(B) Capital Asset Pricing Model
(C) Markowitz Model
(D) NOI Model
(C) Markowitz Model

Question 49.
The opportunity line is the:
(A) Set of all portfolios with the same expected rate of return but different standard deviations.
(B) Set of investment opportunities made available by mixing a risky asset and a risk-free asset.
(C) Set of investment opportunities made available by mixing two risky assets.
(D) Set of portfolios among which the investor is indifferent.
(B) Set of investment opportunities made available by mixing a risky asset and a risk-free asset.

Question 50.
The Security Market Line (SML) is a line drawn on a chart that serves as a graphical representation of the Capital Asset Pricing Model, which shows different levels of …………. of various marketable securities
plotted against the expected return.
(A) Systematic risk
(B) Statement Q is true and Statement P is false.
(C) Both Statement P and Statement Q are true.
(D) Both Statement P and Statement Q are false.
(A) Systematic risk

Question 51.
Market risk is also called: ………
(A) Systematic risk and unique risk.
(B) Unique risk & non diversifiable risk.
(C) Systematic risk & diversihable risk.
(D) Non diversifiable risk & systematic risk.
(D) Non diversifiable risk & systematic risk.

Question 52.
As per ‘Efficient Frontier’ concept, if the security falls above the frontier –
(A) the security is dominated by some security on previously drawn security and hence the frontier itself will have to be re-drawn.
(B) the security dominates some security on previously drawn security and hence the frontier itself will have to be re-drawn.
(C) the security is dominated by some security on the frontier and will be rejected.
(D) the security is efficient and hence will be selected.
(B) the security dominates some security on previously drawn security and hence the frontier itself will have to be re-drawn.

Question 53.
Which of the following investment advice will you provide to your client investor if CAPM Return = Expected return?
(A) Sell
(C) Hold
(D) Put
(C) Hold

Question 54.
If required return as per CAPM is more than expected return, then –
(A) Security is undervalued ……….. and can be sold
(B) Security is correctly priced and hence should be hold
(C) Security is overvalued and hence can be bought
(D) Security is undervalued and hence can be bought
(A) Security is undervalued ……….. and can be sold

Question 55.
If an asset’s expected return plots above the security market line, the asset is:
(A) Overpriced
(B) Underpriced
(C) Fairly priced (if it has an unusually large amount of unique risk)
(D) Both the first and third answers.
(B) Underpriced

Question 56.
The X-axis of the Security Market Line (SML) chart represents –
(A) Expected return
(B) Risk in terms of beta
(C) Standard deviation
(D) Co-efficient
(B) Risk in terms of beta

Question 57.
The market risk premium is the slope of the:
(A) Security market line
(B) Opportunity line
(C) Efficient frontier
(D) Capital market line
(A) Security market line

Question 58.
…………. is also called a Characteristic Line.
(A) Capital Market Line
(B) Security Market Line
(C) Opportunity line
(D) Line of expected return
(B) Security Market Line

Question 59.
According to the CAPM, overpriced securities have:
(A) Negative alphas
(B) Positive alphas
(C) Zero betas
(D) Zero alphas
(A) Negative alphas

Question 60.
Consider following two statements:
P. Beta coefficient is the measure of risk in CML.
Q. Standard deviation determines the risk factors of the SML.
Select correct answer from the options given below.
(A) Statement P is true and Statement Q is false.
(B) Statement Q is true and Statement P is false.
(C) Both Statement P and Statement Q are true.
(D) Both Statement P and Statement Q are false.
(D) Both Statement P and Statement Q are false.

Question 61.
The beta of the risk-free asset is:
(A) 0
(B) 0.5
(C) 2.0
(D) 1.0
(A) 0

Question 62.
Security Market Line graphs defines -………
(A) Efficient portfolios
(B) Non-efficient portfolios
(C) Disposable portfolios
(D) Both efficient and non-efficient portfolios.
(D) Both efficient and non-efficient portfolios.

Question 63.
Capital asset pricing theory asserts that portfolio returns are best explained by:
(A) Economic factors
(B) Systematic risk
(C) Specific risk
(D) Diversification
(B) Systematic risk

Question 64.
According to security market line, the expected return of any security is a function of:
(A) Diversifiable risk
(B) Unique risk
(C) Unsystematic risk
(D) Systematic risk
(D) Systematic risk

Question 65.
According to the capital market line, the expected return of any efficient portfolio is a function of:
(A) Unsystematic risk
(B) Systematic risk
(C) Unique risk
(D) Total risk
(D) Total risk

Question 66.
Which of the following statements about the market portfolio is false?
(A) The market portfolio is on the efficient frontier.
(B) The market portfolio lies, on the security market line.
(C) The market portfolio contains both systematic and unsystematic risk.
(D) The market portfolio lies on the capital market line.
(C) The market portfolio contains both systematic and unsystematic risk.

Question 67.
Alpha is an indicator of the extent to which the –
(A) Actual return of a security deviates from those predicated by market experts.
(B) Actual return of a security deviates from those predicated by derivative market
(C) Actual return of a security deviates from those predicated by its beta value.
(D) Actual return of a security deviates from those predicated by its probable distribution value.
(C) Actual return of a security deviates from those predicated by its beta value.

Question 68.
Alpha is denoted by symbol -………
(A) A
(B) ¥
(C) α
(D) Δ
(C) α

Question 69.
Negative alpha value indicates that -………
(A) Expected return is less than required return as per CAPM and hence security is overvalued. Such security should be sold.
(B) Expected return is less than required return as per CAPM and hence security is undervalued. Such security should be bought.
(C) Expected return is more than required return as per CAPM and hence security is undervalued. Such security should be bought.
(D) Expected return is equal to required return as per CAPM and hence security is correctly valued. Such security should be hold.
(A) Expected return is less than required return as per CAPM and hence security is overvalued. Such security should be sold.

Question 70.
Systematic Risk is -………
(A) Uncontrollable
(B) Controllable
(C) Avoidable
(D) Voidable
(A) Uncontrollable

Question 71.
Positive alpha value indicates that –
(A) Expected return is less than required return as per CAPM and hence security is overvalued. Such security should be sold.
(B) Expected return is more than required return as per CAPM and hence security is undervalued. Such security should be bought.
(C) Expected return is equal to required return as per CAPM and hence security is correctly valued. Such security should be hold.
(D) Expected return is more than required return as per CAPM and hence security is overvalued. Such security should be sold.
(B) Expected return is more than required return as per CAPM and hence security is undervalued. Such security should be bought.

Question 72.
Systematic risk = ?
(A) Beta × SD of market
(B) Total risk – SD of market
(C) Total risk – Beta
(D) Beta ÷ SD of market
(B) Total risk – SD of market

Question 73.
…………… is also called specific risk.
(A) Systematic risk
(B) Unsystematic risk
(C) Covariance
(D) Coefficient
(B) Unsystematic risk

Question 74.
Which of the following is objective of Fundamental Approach to valuation of securities?
(A) To conduct a company stock valuation and predict its probable price evolution.
(B) To make a projection on its business performance.
(C) To find out the intrinsic value of the share.
(D) All of the above are correct
(D) All of the above are correct

Question 75.
Efficient market hypothesis (EMH) was developed by –
(A) Professor Eugene Fama
(B) Professor Miller
(C) Professor Mark Linter
(D) Professor Marshall
(A) Professor Eugene Fama

Question 76.
The advocates of the Efficient-market hypothesis (EMH) theory contend that securities markets are –
(A) Perfect
(B) Imperfect
(C) Monopolistic
(D) Perfect or at least not too imperfect.
(D) Perfect or at least not too imperfect.

Question 77.
The EMH was developed by Professor Eugene Fama who argued that –
(A) Stocks always trade at their fair value, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices.
(B) It should be impossible to outperform the overall market through expert stock selection or market timing, and that the only way an investor can possibly obtain higher returns is by chance or by purchasing riskier investments.
(C) Efficient capital markets prices of traded securities always fully reflect all publicly available information concerning those securities.
(D) All of the above.
(D) All of the above.

Question 78.
Dow Jones theory was formulated by -………….
(A) John P. Dow
(B) Charles H. Dow
(C) James T. Dow
(D) Michel R. Dow
(B) Charles H. Dow

Question 79.
According to Dow Jones theory, share prices demonstrate a pattern over 4 to 5 years. These patterns can be divided into three distinct cyclical trends –
(A) Preliminary, primary and secondary trends
(B) Preliminary, bullish and bearish trends
(C) Primary, secondary and minor trends
(D) Primary, secondary and major trends.
(C) Primary, secondary and minor trends

Question 80.
…………. suggests that stock price changes have the same distribution and are independent of each other, so the past movement or trend of a stock price or market cannot be used to predict its future movement.
(A) Technical analysis theory
(B) Random walk theory
(C) Efficient market theory
(D) Fundamental Market theory
(B) Random walk theory

Question 81.
According to the Sharpe single index model the return for each security can be given by the –
(A) I + βI + E
(B) I × βI × E
(C) I ÷ βI ÷ E
(D) I – βI – E
(A) I + βI + E

Question 82.
Covariance between Security X and Security Y is zero. This indicate that -…………………
(A) There is strong relationship between the movements in returns of two securities.
(B) There is positive relationship between the movements in returns of two securities.
(C) There is no distinct relationship between the movements in returns of two securities.
(D) There is negative relationship between the movements in returns of two securities.
(C) There is no distinct relationship between the movements in returns of two securities.

Question 83.
Following details are available for two securities:

(C)
X: (0.05 × 30) + (0.20 × 25) + (050 × 20) + (0.20 × 15) + (0.05 × 10) 20%
Y: (0.05 × 39) + (020 × 29) + (0.50 × 21) + (0.20 × 13) + (0.05 × 3) = 21%

Question 84.
You have been given following data for Security X:

Calculate standard deviation of security.
(A) 3.02%
(B) 3.36%
(C) 4.57%
(D) 4.12%
(A) 3.02%

Question 85.
Following details are available for EX Ltd. & FX Ltd. securities.

Covariance between Security EX and Security FX is –
(A) 85
(B) 58
(C) -58
(D) -54
(B) 58

Question 86.
Covariance between Security X and Security Y is + 45.8. This indicate that –
(A) If return on Security X is below par,return on Security Y is likely to be above par.
(B) Returns on Security X & Security Y tend to go together, i.e. if return on X is above par, return on Y is also likely to be above par.
(C) Returns on Security X & Security Y bear a tendency to off-set each other.
(D) Covariance of these to two securities is positive which means standard deviation of both securities must be negative.
(B) Returns on Security X & Security Y tend to go together, i.e. if return on X is above par, return on Y is also likely to be above par.

Question 87.
Covariance between Security X and security Y is – 42. This indicate that –
(A) Returns on Security X & Security Y bear a tendency to off-set each other.
(B) Covariance of these two securities is negative that means standard deviation of both securities must be positive.
(C) There is no distinct relation between Security X and Security Y.
(D) Return on Security X is above par, return on Security Y is also likely to be above par.
(A) Returns on Security X & Security Y bear a tendency to off-set each other.

Question 88.
Covariance between Security P & Q is 48.91. Standard deviation of Security P is 5.36 while that of Security Q is 9.13. Compute value of correlation coefficient.
(A) 0
(B) 1
(C) -1
(D) 0.899
(B) 1

Question 89.
An investor has invested in Security A & B in the ratio of 70:30. Standard deviation of Security A & B is 4.47 & 7.62 respectively. Covariance AB is 34. Correlation Coefficient of Security A & B is 1. Risk of portfolio is –
(A) 5.41%
(B) 6.48%
(C) 3.13%
(D) 7.26%
(A) 5.41%

Question 90.
X and Y are two securities in portfolio for which available. following information is …………..

Correlation coefficient is + 0.7.
What weight you will assign to the Security Y so that portfolio risk is lowest.
(A) 15.38%
(B) 84.62%
(C) 82.46%
(D) 20.18%
(B) 84.62%

Question 91.
Suppose risk free rate is 4% and λ is 2.5%. If an investor takes 13% risk, he can expect a return of –
(A) 32.5%
(B) 52%
(C) 10%
(D) 36.5%
(D) 36.5%
Risk free rate is 4% and λ is 2.5%. Thus, for every 1% increase in the risk, the investor can expect 2.5% above risk-free return. Thus, if an investor takes 13% risk, he can expect a return of 36.5%
(13 × 2.5 + 4).

Question 92.
Yogesh invest ₹ 1,25,000 in shares of BABA Ltd., a listed company. At the end of period investment value is ₹ 1,32,000.He gets dividend of ₹ 8,000. Return from investment is –
(A) 11%
(B) 12%
(C) 13%
(D) 14%
(B) 12%
[(1,32,000 – 1,25,000) + 8,000]/1,25,000 12%

Question 93.
Following data is available for two listed securities:
Covrb = 37
σb = 8.49%
Correlation coefficient between security R and Security B is +0.8595. The standard deviation of Security R should have been -………..
(A) 4.03%
(B) 8.04%
(C) 5.07%
(D) 6.09%
(C) 5.07%
Covariance = Corrrb × σr × σb
37 = 0.8595 × σr × 8.49
37 = 7.297 × σr
σ = 5.07

Question 94.
Actual return of GK Ltd. for last four year is 20%, 14%, 17% and 18%. GLtd. has beta of 1.15. Return on market portfolio is 15%. Risk free rate of return is 6%. Compute Alpha value and decide whether to hold, buy or to sell the security.
(A) Alpha value is + 0.8 and hence it is advised to sell the security.
(B) Alpha value is – 0.9 and hence it is advised to buy the security.
(C) Alpha value is – 0.8 and hence it is advised to short sell the security
(D) Alpha value is + 0.9 and hence it is advised to buy the security.
(D) Alpha value is +0.9 and hence it is advised to buy the security.

Question 95.
Return of last 5 years of listed security is 16.2%, 19.8%, 18%, 15% & 21%. Five years ago price of the security was 120 per share. What is its average return
(A) 18%
(B) 19%
(C) 20%
(D) 21%
(A) 18%

Question 96.
Return of last 5 years of listed security is 16.2%, 19.8%, 18%, 15% & 21%. Five years ago price of the security was 120 per share. What is its holding period return
(A) 135.55%
(B) 128.58%
(C) 145.64%
(D) 154.45%
(B) 128.58%
120 × 1.162 × 1.198 × 1.18 × 1.15 × 1.21
= 274.29 (274.29 – 120)/120 × 100 = 128.58%

Question 97.
Dividend for last 4 years of Tara Ltd. was ₹ 7, ₹ 5,12.8 & ₹ 10 and market price was ₹ 120, ₹ 80, ₹ 130 & ₹ 150 respectively. What is the average return of last 3 years considering capital gain and dividend.
(A) 19.28%
(B) 14.48%
(C) 10.84%
(D) 16.65%
(A) 19.28%

Question 98.
Given the probability of 0.1, 0.4, 0.3 & 0.2 estimated returns of the security are 36%, 26%, 20% & 15% respectively. Risk free rate is 6% and cost of capital is 13%. Total risk of security is –
(A) 36%
(B) 12%
(C) 6%
(D) 4%
(C) 6%

Question 99.
From the following data, you are required to calculate the covariance of Security G and Security K and interpret the result.

Select the correct answer from the options given below.
(A) Covariance between Security G & Security K is+56 whichindicate that return on these two securities tend to go together.
(B) Covariance between Security G & Security K is – 48 which indicate that return on these two securities bear tendency to off-set each other.
(C) Covariance between Security G & Security K is + 48 which indicate that return on these two securities tends to go together.
(D) Covariance between Security G & Security K is -56 which indicate that return on these two securities bear tendency to off-set each other
(D) Covariance between Security G & Security K is -56 which indicate that return on these two securities bear tendency to off-set each other

Question 100.
Following data is available for the Security P & Q.

Correlation Coefficient for the above two securities is –
(A) – 0.9899
(B) – 0.9989
(C) + 0.8999
(D) + 0.9989
(B) – 0.9989
Expected return of both securities is 10% and both securities have same probabilities for the returns hence standard deviation for both the securities will be same as shown below.

Question 101.
Given the probability of 0.05,0.20,0.50, 0.20,0.05 estimated returns of Security A are 14%, 20%, 27%, 34% & 40% respectively. For same probability estimated returns of Security B are 10%, 20%, 28%, 36% & 46% respectively. Which security you will choose for investment and why.
(A) Total risk of Security A is 7.42% while that of Security B is 5.47% hence Security B will be selected.
(B) Covariance between Securities A & Security B is positive ie. +48 hence both securities can be selected.
(C) Expected return of Security B is 28% which is more than return of Security A which has return of 27% and hence Security B will be selected.
(D) Both securities have near about same returns ie.21% and 28% but standard deviation of Security A [6.04%] is less than standard deviation of Security B [7.62%] hence security A will be selected.
(D) Both securities have near about same returns ie.21% and 28% but standard deviation of Security A [6.04%] is less than standard deviation of Security B [7.62%] hence security A will be selected.
Security k (0.05 × 14) + (0.20 × 20) + (0.50 × 27) + (0.20 × 34) + (0.05 × 40) = 27%
Security B: (0.05 × 10) + (0.20 × 20) + (0.50 × 28) + (0.20 × 36) + (0.05 × 46) = 28%

Question 102.
Raman has made investment in two securities in ratio of 60:40. Following data is available for these two securities:
Standard — Deviation:
Security —  A: 6.04%
Security —  B: 7.62%
Covariance between Security A & B is +45.80. Raman’s portfolio risk is –
(A) 6.66%
(B) 5.84%
(C) 3.67%
(D) 9.43%
(A) 6.66%

Question 103.
Ram has formed portfolio with 3 securities. Proportion of investment in three securities is 35%, 25% & 40%.

Ram’s portfolio risk = ₹
(A) 9.40%
(B) 3.41%
(C) 5.32%
(D) 4.76%
(B) 3.41%

Question 104.
NSZ has formed portfolio with three securities P, Q & R. Proportion of investment in three securities is 20%, 70% & 10%. Other data of his portfolio is as follows:

Risk of portfolio = ₹
(A) 9.90%
(B) 11.22%
(C) 10.45%
(D) 8.34%
(A) 9.90%

Question 105.
K and H are two securities in portfolio for which following information is available.

Correlation coefficient is + 0.5. Calculate the risk of portfolio using 20:80 weights.
(A) 12.13%
(B) 1321%
(C) 13.12%
(D) 12.31%
(C) 13.12%

Question 106.
K and H are two securities in portfolio for which following information is available.

Correlation coefficient is + 0.5. At what weight portfolio risk will be lowest.
(A) 87.51:12.49
(B) 58.71:41.29
(C) 84.17:15.83
(D) 14.29:85.71
(D) 14.29:85.71

Question 107.
Security A has return of 12% with 10% risk (σ). Security B has return of 18% with 15% risk (σ). If investor makes investment in two securities in weight of 20:80 his return for portfolio is 16.80% with 13.12% risk (σ). If investor makes investment in two securities in weight of 14.29:85.71 his return for portfolio is 17.14% with 13.63% risk (σ). Which of the following strategy will be adopted by the rational investor
(A) Invest 100% in Security A.
(B) Invest 100% in Security B.
(C) Invest the ratio of 20:80 in A & B.
(D) Invest the ratio of 14.29 : Security A & B.
(D) Invest the ratio of 14.29 : Security A & B.

In all the above strategy return is more than risk. Hence, depend upon risk tolerance investor can choose any strategy he likes. 1f investor is willing to take high risk, he wifi be get high return. At strategy (2) return is high Le. 18% but risk is also high. But as rational investor, it advised to choose strategy (4) as risk is lowest and return is also high as compared to risk.

Question 108.
Following is securities: the data regarding six securities:

Which three securities will be selected?
(A) Securities U, V & X
(B) Securities V, W & Z
(C) Securities U, W & Y
(D) Securities W, X & Y
(D) Securities W, X & Y
A rational investor will always choose those securities which have high return and low risk.
(1) Security U has return of 10% at a risk of 5%. Security V & Z also has returns of 10% but their risk is 6% & 7% which is more than risk of Security U and hence Security U dominates Security V & Z. Thus, out of Security U, V & Z, Security U can be selected.
(2) Security X has return of 5% and also has risk of 5%. Thus, investment in this security can be ignored for two reason – First, low return and secondly due same risk ie. risk is equal to return.
(3) In Security W & Y risk is high but return is also high.
In view of above observations, investment in Security U, W & Y can be selected based on individual prefer

Question 109.
Standard deviation of Market is 8.4%. Covariance of Security X with Market is 35.7. Risk free rate is 7% while GDP of the economy is growing at 8%. What is market sensitivity index of Security X?
(A) 1.315
(B) 0.879
(C) 0.506
(D) 0.605
(C) 0.506

Question 110.
Standard deviation of Security X and Market are 12% & 16% respectively. Covariance of Security X with Market is +96. What is market sensitivity index of Security X?
(A) 0.407
(B) 0.873
(C) 0.375
(D) 0.573
(C) 0.375

Question 111.
Beta factor of Security Z is 0.506. Market risk is 8.4%. Correlation coefficient for Security Z and Market is 0.3965. What is the standard deviation of security Z?
(A) 11.45%
(B) 12.44%
(C) 10.98%
(D) 10.72%
(D) 10.72%

Question 112.
Beta factor of Security Z is 0.506. Market risk is 8.4%. Correlation coefficient for Security Z and Market is 0.3965. Covariance between Security Z and x Market is -…………..
(A) 35.7
(B) 38.4
(C) 33.3
(D) 32.8
(A) 35.7

Question 113.
Return on XM Ltd. shares has a standard deviation of 23%, as against the standard deviation of the market at 19%. Correlation co-efficient between market and stock of XM Ltd. is 0.8. Compute the systematic risk of XM Ltd.’s shares.
(A) 96.84%
(B) 18.4%
(C) 25.78%
(D) 64.85%
(B) 18.4%

β = 0.9684
Systematic risk = Beta × SD of market
=0.9684 × 19
= 18.4%

Question 114.
Return on Lucky Ltd. shares has a standard deviation of 20%, as against the standard deviation of the market at 15%. Correlation co-efficient between market and stock of XM Ltd. is 0.9. Compute the unsystematic risk of Lucky Ltd.’s shares.
(A) 5
(B) 2%
(C) 18%
(D) 20%
(B) 2%

Systematic risk Beta × SD of market
= 1.2 × 15
=18%
Unsystematic risk Total risk – Systematic risk
=20 – 18
=2%

Question 115.
You are analyzing the beta for ABC Ltd. and have divided the Company into four broad business groups, with market ; values and betas for each group.

Estimate the beta for ABC Ltd. as a company.
(A) 1.275
(B) 1.825
(C) 1.645
(D) 0.895
(A) 1.275

Question 116.
Pavan has invested in four securities. Amount invested and beta of each security is as follows:

Compute portfolio beta.
(A) 1.524
(B) 1.874
(C) 0.789
(D) 1.315
(D) 1.315

Question 117.
ABC Ltd beta is 1.45. Rate of market return is 16%. Rate of return on government securities is 8%. What is the expected return as per Capital Asset Pricing Model? If the f risk premium on the market goes up by 2.5% points, what would be revised expected return on this stock?
(A) 16.9%; 32.32%
(B) 18.7%; 24.28%
(C) 19.6%; 23.23%
(D) 19.6%; 16.7%
(C) 19.6%; 23.23%
ER=Rf+p(Rm-Rf)
= 8 + 1.45 (16 – 8)
= 19.6%
Revised expected return if the risk premium on the market goes up by 2.5%:
ER = Rf + p (Rm – Rf)               Note: Risk Premium = (Rm – Rf)
= 8 + 1.45 (10.5)                     Revised risk premium = 8 + 2.5 = 10.5
= 23.23%

Question 118.
A financial consultant has gathered following facts for H Ltd.
Systematic risk of the firm is 1.4.
182 days Treasury bill yield is 8%
Expected yield on market portfolio is 13%. Calculate expected return based on capital asset pricing model (CAPM).
(A) 18%
(B) 17%
(C) 16%
(D) 15%
(D) 15%
ER= Rf+ p (Rm– Rf)
= 8+1.4(13 – 8)
= 15%

Question 119.
An investor is seeking the price to pay for a security, whose standard deviation is 3%. The correlation coefficient for the security with the market is 0.8 and the market standard deviation is 2.2%. The return from government security is 5.2% and from the market portfolio is 9.8%. The investor knows that, by calculating the required return, he can then determine the price to pay for security. What is the required return on the security
(A) 8.44%
(B) 12.66%
(C) 10.22%
(D) 9.77%
(C) 10.22%

Question 120.
Calculate the required return on the security from the following information:
Standard deviation — 2.5%
Market standard deviation — 2.0%
Risk free rate of return — 13%
Expected rate of return on market portfolio 15%
Correlation coefficient of portfolio with the market 0.8
(A) 16%
(B) 15%
(C) 14%
(D) 12%
(B) 15%

Question 121.
As an Investment Manager you are given the following information:

Risk free return may be taken at 14%. Calculate expected rate of return on market portfolio.
(A) 26.33%
(B) 62.32%
(C) 24.78%
(D) 34.12%
(A) 26.33%

Question 122.
As an Investment Manager you are given the following information:
Particulars — β
Cement Ltd. — 0.8
Steel Ltd. — 0.7
Liquor Ltd. — 0.5
GOl bonds — 0.99
Risk free return may be taken at — 14%.
Expected rate of return on market portfolio is — 26.33%.
Average return on portfolio = ?
(A) 23.86%
(B) 22.63%
(C) 26.21%
(D) 23.22%
(D) 23.22%
ER=Rf+ (Rm– Rf)
Cement Ltd. = 14 + 0.8 (26.33 – 14) 23.86%
Steel Ltd. = 14+0.7 (26.33 – 14) = 22.63%
Liquor Ltd.= 14+0.5 (26.33 – 14) = 20.17%
GOl Bonds 14+0.99(26.33- 14)26.21%

Question 123.
A Ltd. has an expected return of 21% and standard deviation of 39%. B Ltd. has an expected return of 23% and standard deviation of 37%. A Ltd. has beta of 0.76 and B Ltd. a beta of 1.14. Market return is 20%. A rational and risk averse investor shall make investment in –
(A) A Ltd. as its standard deviation is greater than B Ltd.
(B) A Ltd. as greater risk means possibility of high returns.
(C) A Ltd. as its beta is less than B Ltd.
(D) B Ltd. as it expected return is more than A Ltd. and its risk is also as compared to A Ltd.
(D) B Ltd. as it expected return is more than A Ltd. and its risk is also as compared to A Ltd.

Question 124.
A Ltd. has an expected return of 22% and standard deviation of 40%. B Ltd. has an expected return of 24% and standard deviation of 38%. A Ltd. has beta of 0.86 and B Ltd. a beta of 1.24. The correlation of coefficient between return of A Ltd. and B Ltd. is 0.72. The standard deviation of market return is 20%. If you invest 30% in B Ltd. and 70% in A Ltd. what is your expected return and portfolio standard deviation?
(A) 22.6%; 35.74%
(B) 24%; 35%
(C) 22.6%; 37.06%
(D) 22.6%; 34.75%
(C) 22.6%; 37.06%

Question 125.
Expected return of Security A is 22% while that of Security B is 24%. Beta of Security A is 0.86 while that of Security B is 1.24. What is risk free rate?
(A) 14.74%
(B) 17.47%
(C) 14.71%
(D) 14.00%
(B) 17.47%

22= x+0.86y
24 = x+ 1.24y
– 2= – 0.38y
y = 2/0.38 = 52632
y = Rm – Rf = 5.2632
Putting value of ‘y’ in first equation we can get value of ‘x’.
22=x +0.86y
22 = x + 0.86 × 5.2632
22x + 4.5264
x = Risk free rate = 17.47%

Question 126.
Expected return of Security A is 20% while that of Security B is 25%. Beta of Security A is 0.85 while that of Security B is 1.25.
What is market rate of return?
(A) 21.875%
(B) 22.385%
(C) 18.655%
(D) 20.555%
(A) 21.875%

Putting value of y in first equation we can get value of x.
22 = x+ 0.85y
22 = x+ 0.85 × 12.5
20 = x+ 10.625
20 = x+ 4.5264 x = Risk free rate = 17.47%

Question 127.
The expected return and beta of three securities is as follows:

If the risk free rate of return is 6.75% and the expected return on market portfolio is 10.5%, which of the above securities under or correctly valued?

(C)

Question 128.
Actual return of T Ltd. for last four year is as follows:
Year — Return
1 — 15.06%
2 — 10.12%
3 — 12.28%
4 — 13.26%
T Ltd. has beta of 1.15. Return on market portfolio is 11.2%. Risk free rate of return is 4%. Compute Alpha value and decide whether to hold, buy or to sell the security.
(A) Alpha value is positive Le. 0.4 and hence security is overvalued. Such security should be sold.
(B) Alpha value is positive Le. 0.4 and hence security is undervalued. Such security should be bought.
(C) Alpha value is negative Le. – 0.2 and hence security is overvalued. Such security should be sold.
(D) Alpha value is negative Le. – 0.2 and hence security is undervalued. Such security should be bought.
(B) Alpha value is positive Le. 0.4 and hence security is undervalued. Such security should be bought.

Alpha value is positive ie. 0.4 and hence security is undervalued. Such security should be bought.

Question 129.
Following details are made available to you for a security.
Beta (β) : 1.4
Risk free rate of return : 6.3%
Market rate of return : 13.2%
If the alpha value is + 1.8 what investment action would you suggest?
(B) Hold
(C) Sell
(D) Short

Question 130.
Following details Eire made available to you for a security.
Beta (β) : 1.4
Risk free rate of return : 6.3%
Market rate of return : 13.2%
If the alpha value is + 1.2 what investment action would you suggest?
(A) Short
(B) Sell
(D) Hold

Question 131.
Following details are made avaiable to you for a security.
Beta (β) : 1.4
Risk free rate of return : 6.3%
Market rate of return : 13.2%
If the alpha value is zero what investment action would you suggest?
(A) Buy as Security is undervalued.
(B) Sell as Security is undervalued.
(C) Hold as Security is correctly valued.
(D) Sell as Security is overvalued.
(C) Hold as Security is correctly valued.

Question 132.
Following details are made avaUable to you for a security.
Beta (β) : 1.4
Risk free rate of return : 6.3%
Market rate of return : 13.2%
If the alpha value is negative i..e. – 2.82 what investment action would you suggest?
(A) Hold
(C) Sell
(D) None of the above
(C) Sell

Question 133.
Stocks A & B have the following historical returns:

Assume that someone held a portfolio consisting of 70% of Stock A and 30% Stock B. What would have been the realized rate of return on the portfolio in each year from 2015 to 2019?
(A) 16.20%
(B) 15.40%
(C) 18.60%
(D) 13.70%
(A) 16.20%

Question 134.
Following details are gathered by the investor:
Standard deviation — 2.8%
Market standard deviation — 2.3%
Risk free rate of return — 8%
Expected rate of return on market portfolio — 18%
Correlation coefficient of portfolio with the market — 0.8
Required return on security is –
(A) 14.77%
(B) 17.74%
(C) 15.84%
(D) 20.65%
(B) 17.74%

Calculation of required return on the security:
ER=Rf+β(Rm-Rf)
= 8 + 0.974(18 – 8)
= 17.74%

Question 135.
to you for particular security:
Beta of security : 0.5
Expected return on portfolio : 15%
Risk free rate of return : 0.06
In another security has an expected rate of return of 18%, what would be its beta?
(A) 1.222
(B) 1.111
(C) 1.333
(D) 1.444
(C) 1.333
ER= Rf+ P (Rm– Rf)
= 6 + 0.5(15-6)
= 10.5%
Computation of beta for other security:
ER=Rf+β(Rm-Rf)
18 = 6 + β (15 – 6)
18 = 6 + 9β
12 = 9β
P = 1.3333

Question 136.
Following information is available in respect of the return from Reliance’s stock under different economic conditions:

Find out risk associated with it
(A) 5.6%
(B) 6.5%
(C) 8.4%
(D) 4.8%
(A) 5.6%

Question 137.
The market portfolio has a historically based expected return of 10% and a standard deviation of 4% during a period when risk-free assets yielded 3%. The 7% risk premium is thought to be constant through time. You are required to find market’s return-risk trade-off.
(A) 1.25
(B) 1.50
(C) 1.75
(D) 2.00
(C) 1.75

Question 138.
The market portfolio has a historically based expected return of 0.10 and a standard deviation of 0.04 during a period when risk-free assets yielded 0.03. The 0.07 risk premium is thought to be constant through time. Riskless investments may now be purchased to yield 0.09. A security
has a standard deviation of 0.08 and a coefficient of correlation with the market portfolio is 0.85. The market portfolio is now expected to have a standard deviation of 0.04. You are required to find equilibrium required expected return of the security.
(A) 11.4%
(B) 13.6%
(C) 18.9%
(D) 20.9%
(D) 20.9%

Question 139.
Dhanpat, an investor, is seeking the price to pay for a security, whose standard deviation is 5%. The correlation coefficient for the security with the market is 0.75 and the market standard deviation is 4%. The return from risk-free securities is 6% and from the market portfolio is 11%. Dhanpat knows that only by calculating the required rate of return, he can determine the price to pay for the security. What is the required rate of return on the security?
(A) 10.69%
(B) 16.90%
(C) 19.60%
(D) 16.96%
(A) 10.69%

Question 140.
Security-A offers an expected rate of return of 14% with a standard deviation of 8%. Security-B offers an expected rate of return of 11% with a standard deviation of 6%. If an investor wishes to construct a portfolio with a 12.8% expected return, what percentage of the portfolio will consist of Security-A & Security-B?
(A) 40:60
(B) 60:40
(C) 70:30
(D) 30:70
(B) 60:40
Let the weight of investment in Security-A be ‘x\ Thus, investment in Security-B = [1 – x\ Expected Return = (RA × WA) + (RB × WB)
12.8 = (14 × x) + (11 × [1 – x])
12.8 = 14x+ 11- 11x
1.8 = 3x
x = 0.6
Thus,
Weight of Security-A = 60%
Weight of Security-B = 40% (100- 60)

Question 141.
Mohan has a portfolio of 6 securities, each with a market value of Rs. 10,000. The current beta (β) of the portfolio is 1.30 and β of the riskiest security is 1.80, Mohan wishes to reduce his portfolio β to 1.15 by selling the riskiest security and replacing it with another security with a lower β. What must be the β of the replacement security?
(A) 0.8
(B) 0.7
(C) 0.9
(D) 1.1
(C) 0.9
Beta of a portfolio = Weighted average beta of the securities = ∑WB
Current beta of Mohan’s portfolio = 1.30
Market value of total portfolio = 10,000 × 6 = 60,000
Weight of each security in the portfolio = $$\frac{10,000}{60,000}=\frac{1}{6}$$
Sum of betas of six securities = 1.30× 6 = 7.80
Beta of portfolio after replacement of security =1.15
Sum of betas of six securities after replacement =1.15×6 = 6.90
Since the riskiest security with beta of 1.80 is to be replaced
Sum of betas of six securities – Beta of security to be replaced = Sum of betas of six securities after replacement
7.80- 1.80 + x = 6.90
x = 0.90
Thus, beta of security replaced should be 0.90.

Question 142.
Zebra Ltd. has a beta (β) of 1.15. The return on market portf oho is 14%. The risk free rate of return is 5%. Actual rates of returns over 4 observations are as under:

(A) Year 1 & Year 3
(B) Year 2 & Year 3
(C) Year 3 & Year 4
(D) Year 1 & Year 4
(D) Year 1 & Year 4
ER = Rf + β (Rm – Rf)
= 5 + 1.15 (14 – 5)
= 15.35%

Question 143.
Return on Lucky Ltd.’s shares has a standard deviation of 22%, as against the standard deviation of the market at 12%. Correlation co-efficient between market and stock of Lucky Ltd. is 0.7%. Compute unsystematic risk of Lucky Ltd.’s shares.
(A) 15.4%
(B) 8.4%
(C) 6.6%
(D) 12.6%
(C) 6.6%

$$\beta=\frac{22}{12} \times 0.7$$
β = 1.2833
Systematic risk = Beta × SD of market
= β × σM
= 1.2833 ×12
= 15.4%
Unsystematic risk = Total risk – Systematic risk
= 22 – 15.4
= 6.6%

Question 144.
In a portfolio of the company, ₹ 2,00,000 have been invested in Asset-X which has an expected return of 8.5%, ₹ 2,80,000 in Asset-Y, which has an expected return of 10.2% and ₹ 3,20,000 in Asset-Z which has an expected return of 12%. What is the expected return for the portfolio?
(A) 12.945%
(B) 10.495%
(C) 10.549%
(D) 15.945%
(B) 10.495%

Question 145.
The following data relate to two securities, A and B:

Assume RF 10% and RM = 18%.
Find out whether the securities, A and B are correctly priced?
Security A — Security B
(A) Undervalued — Overvalued
(B) Overvalued — Undervalued
(C) Correctly valued — Under valued
(D) Overvalued — Correctly valued
(C) Correctly valued — Under valued

## Dividend Policy – Financial Management MCQ

Dividend Policy – CS Executive Financial and Strategic Management MCQ Questions with Answers you can quickly revise the concepts.

## Dividend Policy – Financial Management MCQ

Question 1.
Dividend policy determines –
(A) what portion of earnings will be paid out to stock holders
(B) what portion will be retained in the business to finance long-term growth.
(C) Only (A) not (B)
(D) Both (A) and (B)
(D) Both (A) and (B)

Question 2.
Dividend constitutes the cash flow that accrues to -…………..
(A) Holders
(B) Equity holders
(C) Bond holders
(D) All of the above
(B) Equity holders

Question 3.
Which of the following factor will affect the dividend policy of the firm?
1. Insufficiency of cash
2. Firms contractual obligation
3. Ratio of debt to equity
Select the correct answer from the options given below.
(A) 1 and 3 only
(B) 2 and 4 only
(C) 2, 3 and 4
(D) 1,2, 3 and 4
(D) 1,2, 3 and 4

Question 4.
Retained earnings are –
(A) An indication of a company’s liquidity.
(B) The same as cash in the bank.
(C) Not important when determining dividends.
(D) The cumulative earnings of the company after dividends.
(D) The cumulative earnings of the company after dividends.

Question 5.
In retention growth model, percent of net income firms usually pay out as shareholders dividends, is classified as –
(A) Payout ratio
(B) Payback ratio
(C) Growth retention ratio
(D) Present value of ratio
(A) Payout ratio

Question 6.
Which of the following is an argument for the relevance of dividends?
(A) Informational content.
(B) Reduction of uncertainty.
(C) Some investor’s preference for current income.
(D) All of the above.
(D) All of the above.

Question 7.
As per Modigliani-Miller hypothesis of dividend irrelevance price of share at year zero is –
(A) D0 + P0/1 + Ke
(B) (D1 + P1)× (1 + Ke)
(C) D1 + P/1+Ke
(D) 1-(D0 + P0)÷Ke
(C) D1 + P/1+Ke

Question 8.
All of the following are true of stock splits except:
(A) Market price per share is reduced after the split.
(B) The number of outstanding shares is increased.
(C) Retained earnings are changed.
(D) Proportional ownership is unchanged.
(C) Retained earnings are changed.

Question 9.
Which of the following techniques does not reward shareholders for investing in a company?
(B) Offering non-pecuniary benefits
(C) Making a rights issue
(D) Offering a scrip dividend
(C) Making a rights issue

Question 10.
Forecast by analysts, retention growth model and historical growth rates are methods used for an –
(A) Estimate future growth
(B) Estimate option future value
(C) Estimate growth ratio
(D) Estimate option present value
(A) Estimate future growth

Question 11.
The repurchase of stock is considered …………. decision rather than ……….. decision.
(A) an investment; a financing
(B) financing; an investment
(C) an investment; a dividend
(D) a dividend; a financing
(B) financing; an investment

Question 12.
If OML Corporation buyback ten percent of its outstanding common stock from the secondary market, the result would be –
(A) A decline in EPS.
(B) An increase in cash.
(C) A decrease in total assets.
(D) An increase in the number of stock-holders.
(C) A decrease in total assets.

Question 13.
Historical growth rates, analysis fore-casts and retention growth model are approaches to estimate:
(A) Net present value of gain
(B) Growth rate
(C) Growth gain
(D) Discounted gain
(B) Growth rate

Question 14.
The primary goal of a publicly-owned firm interested in serving its stockholders should be to
(A) Maximize expected total corporate profit
(B) Maximize expected EPS
(C) Maximize the stock price per share
(D) Maximize expected net income.
(C) Maximize the stock price per share

Question 15.
A decrease in a firm’s willingness to pay dividends is likely to result from an increase in its –
(A) Earnings stability
(C) Profitable investment opportunities
(D) Collection of accounts receivable.
(C) Profitable investment opportunities

Question 16.
Payout ratio is subtracted from one to calculate –
(A) Growth ratio
(B) Present value ratio
(C) Retention ratio
(D) Future value ratio
(C) Retention ratio

Question 17.
Which of the following would not have an influence on the optimal dividend policy?
(A) The possibility of accelerating or delaying investment projects.
(B) A strong share holders’ preference for current income versus capital gains.
(C) The costs associated with selling new common stock.
(D) All of the statements above can have an effect on dividend policy.
(D) All of the statements above can have an effect on dividend policy.

Question 18.
A stock split will cause a change in the toted amounts shown in which of the following balance sheet accounts?
(A) Cash
(B) Common stock
(C) Paid-in capital
(D) None of the above
(D) None of the above

Question 19.
You currently own 100 shares of stock in Baba Ltd. The stock currently trades at ₹ 120 a share. The company is contemplating a 2:1 stock split. Which of the following best describes your position after the proposed stock split takes place?
(A) You will have 200 shares of stock, and the stock will trade at or near ₹120 a share.
(B) You will have 200 shares of stock, and the stock will trade at or near ₹60 a share.
(C) You will have 100 shares of stock, and the stock will trade at or near ₹60 a share.
(D) You will have 50 shares of stock, and the stock will trade at or near ₹60 a share.
(B) You will have 200 shares of stock, and the stock will trade at or near ₹60 a share

Question 20.
Consider following two statements:
(1) Buyback can be used by companies to defend against hostile takeovers since they increase the proportion of debt in a firm’s capital structure.
(2) After a 3-for-1 stock split, a company’s price per share will fall and its number of shares outstanding will rise total value remaining the same.
Which of the above statement is correct? “%
(A) (2) only
(B) Neither (1) nor (2)
(C) (1) only
(D) Both (1) and (2)
(D) Both (1) and (2)

Question 21.
The dividend growth model can be used to compute the cost of equity for a firm in which of the following situations?
I. Firms that have a 100% retention ratio.
II. Firms that pay a constant dividend.
III. Firms that pay an increasing dividend
IV. Firms that pay a decreasing dividend.
Select correct answer from the options given below.
(A) I & II only
(B) II & III only
(C) II,III & IV only
(D) I, II & III only
(C) II,III & IV only

Question 22.
If markets are in equilibrium, which of the following will occur:
(A) Each investment’s expected return should equal its realized return
(B) Each investment’s expected return should equal its required return.
(C) Each investment should have the same realized return.
(D) All of the statements above are correct
(B) Each investment’s expected return should equal its required return.

Question 23.
Regular Dividend Policy means -……….
(A) investors get dividend at usual rate.
(B) reserve fund is created to pay fixed amount of dividend
(C) payment of low dividend per share constantly plus extra dividend in the year when the company earns high profit.
(D) All of the above
(A) investors get dividend at usual rate.

Question 24.
Which of the following examples best represents a passive dividend policy?
(A) The firm sets a policy such that the proportion of dividends paid from net income remains constant.
(B) The firm pays dividends with what remains of net income after taking acceptable investment projects.
(C) The firm sets a policy such that the quantity (dollar amount per share) of dividends paid from net income remains constant.
(D) All of the above are examples of various types of passive dividend policies
(B) The firm pays dividends with what remains of net income after taking acceptable investment projects.

Question 25.
Modigliani and Miller argue that the dividend decision
(A) is irrelevant as the value of the firm is based on the earning power of its assets.
(B) is relevant as the value of the firm is not based just on the earning power of its assets.
(C) is irrelevant as dividends represent cash leaving the firm to shareholders, who own the firm anyway.
(D) is relevant as cash outflow always influences other firm decisions
(A) is irrelevant as the value of the firm is based on the earning power of its assets.

Question 26.
Constant payout ratio means –
(A) Declaration same bonus ratio every year.
(B) The payment of fixed percentage of earning as dividend every year.
(C) Constantly paying same dividend if EPS is same for all the year.
(D) None of the above
(B) The payment of fixed percentage of earning as dividend every year.

Question 27.
Dividend policy is determined by the –
(A) Shareholders in AGM
(B) CEO of the company
(C) Board of directors
(D) Ministry of Corporate Affairs
(C) Board of directors

Question 28.
How you calculate Dividend Cover Ratio?
(A) PAT ÷ Dividend
(B) Dividend ÷ PAT
(C) EBIT ÷ Dividend
(D) Dividend ÷ EBIT
(A) PAT ÷ Dividend

Question 29.
Investors may be willing to pay a premium for stable dividends because of the informational content of ………. the desire of investors for………. and certain
(A) institutional considerations; dividends; current income.
(B) dividends; current income; institutional considerations.
(C) current income; dividends; institutional considerations.
(D) institutional considerations; current income; dividends
(B) dividends; current income; institutional considerations.

Question 30.
EPS ratio measures –
(A) Earning of the company to ratio of debt and equity
(B) Social earning per individual
(C) The profit available for the equity shareholders on a per share basis.
(D) Profit earned by the enterprises by employment various assets.
(C) The profit available for the equity shareholders on a per share basis.

Question 31.
A ………….. is a payment of additional shares to shareholders in lieu of cash.
(A) Stock split
(B) Stock dividend
(C) Extra dividend
(D) Regular dividend
(B) Stock dividend

Question 32.
Which of the following is correct formula to calculate P/E Ratio?
(A) Market Price ÷ EPS
(B) EPS ÷ Market Price
(C) PAT ÷ EPS
(D) EPS ÷ PAT
(A) Market Price ÷ EPS

Question 33.
A …………… occurs when there is an increase in the number of shares out-standing by reducing the par value of stock.
(A) Stock split
(B) Stock dividend
(C) Extra dividend
(D) Regular dividend
(A) Stock split

Question 34.
The P/E ratio reflects –
(A) the market’s confidence in the company’s management effectiveness.
(B) Effectiveness of capital budget process.
(C) the market’s confidence in the company’s stakeholders.
(D) the market’s confidence in the company’s equity.
(D) the market’s confidence in the company’s equity.

Question 35.
A ……………. is the expected cash dividend that is normally paid to shareholders.
(A) Stock split
(B) Stock dividend
(C) Extra dividend
(D) Regular dividend
(D) Regular dividend

Question 36.
Myron Gordon believe that the required return on equity increases as the dividend payout ratio is decreased. Their argument is based on the assumption that
(A) Investors are indifferent between dividends and capital gains.
(B) Investors require that the dividend yield and capital gains yield equal a constant.
(C) Capital gains are taxed at a higher rate than dividends.
(D) Investors view dividends as being less risky than potential future capital gains.
(D) Investors view dividends as being less risky than potential future capital gains.

Question 37.
………….. is a non-recurring dividend paid to shareholders in addition to the regular dividend.
(A) A stock split
(B) A stock dividend
(C) An extra dividend
(D) A regular dividend
(C) An extra dividend

Question 38.
In the real world, we find that dividends –
(A) Usually exhibit greater stability than earnings.
(B) Fluctuate more widely than earnings
(C) Tend to be a lower percentage of earnings for mature firms
(D) Are usually set as a fixed percentage of earnings
(A) Usually exhibit greater stability than earnings.

Question 39.
What method of stack repurchase occurs when the buyer purchases securities through a brokerage house?
(A) Dutch-auction
(B) Fixed-price
(C) Open-market
(D) Fair-warning
(C) Open-market

Question 40.
What method of stock repurchase occurs when the buyer seeks bids within a specified price range and accepts the lowest price that will allow it to acquire the entire block of securities desired?
(A) Dutch-auction
(B) Fixed-price
(C) Open-market
(D) Fair-warning
(A) Dutch-auction

Question 41.
Which of the following is correct formula to calculate dividend payout ratio?
(A) DPS ÷ EPS
(B) EPS ÷ DPS
(C) Market Price ÷ EPS
(D) EPS ÷ Market Price
(A) DPS ÷ EPS

Question 42.
The shareholders of your firm anticipate receiving a regular dividend that is consistent with past dividend policies. What benefit occurs to shareholders if the firm repurchases shares with the same total quantity of money that would have been spent on dividends? Assume that the P/E ratio is maintained with either scenario.
(A) Shareholders can postpone or reduce taxes (assuming a lower capital gain rate).
(B) It is cheaper for shareholders to sell existing shares for cash than it costs to reinvest cash dividends into existing shares.
(C) The current shareholders benefit because there are a greater number share holders than if the firm pays a cash dividend.
(D) There is no benefit as shareholders will not be receiving any cash
(A) Shareholders can postpone or reduce taxes (assuming a lower capital gain rate).

Question 43.
Dividend payout ratio – ……………
(A) expresses the relationship between what is available as earnings per share and what is actually paid in the form of dividends out of available earnings.
(B) is a good measure of the dividend policy of the company.
(C) Both (A) and (B)
(D) Neither (A) nor (B)
(C) Both (A) and (B)

Question 44.
A dividend reinvestment plan (DRIP) is –
(A) An optional plan, provided by brokerage firms, allowing unit holders to automatically reinvest dividend payments in additional units of the mutual fund.
(B) An optional plan, provided by mutual funds, allowing unit holders to automatically reinvest dividend payments in additional units of the mutual funds.
(C) A mandatory plan, provided by brokerage firms, where shareholders are automatically reinvesting dividend payments in additional units of the mutual fund at a reduced price.
(D) A mandatory plan, provided by mutual funds, where unit holders are automatically reinvesting dividend payments in additional emits of the mutual funds at a reduced price.
(B) An optional plan, provided by mutual funds, allowing unit holders to automatically reinvest dividend payments in additional units of the mutual funds.

Question 45.
Which of the following is correct formula to calculate dividend yield ratio?
(A) DPS Question Market Price × 100
(B) (1 – EPS) Question Market Price
(C) EPS Question Market Price × 100
(D) (Market Price × 100) ÷ DPS
(A) DPS Question Market Price × 100

Question 46.
Which of the following is not a reason that DeStore.com would prefer to pay a stock dividend rather than a regular cash dividend?
(A) It decreases the supply of shares and enhances shareholder wealth.
(B) It may conserve cash for other firm needs.
(C) It will reduce the stock price into what management perceives as a more beneficial trading range.
(D) It may convey information about the firm to investors that it cannot convey credibly otherwise.
(A) It decreases the supply of shares and enhances shareholder wealth.

Question 47.
Some ratios are given below:
I. EPS
II. P/E Ratio
III. Net Profit Ratio
IV. DPS
V. Dividend Yield Ratio
Which of the above ratio can be classified as market test ratio?
(A) Except V all other
(B) II & V only
(C) I, III & IV
(D) All except III
(D) All except III

Question 48.
The ……….. is the proportion of earnings that are paid to common shareholders in the form of a cash dividend.
(A) Retention rate
(B) 1 + Retention rate
(C) Growth rate
(D) Dividend payout ratio
(D) Dividend payout ratio

Question 49.
All of the following statements are
true regarding ratios that analyze a stock investment except
(A) In general, an increased P/E ratio indicates increased investor confidence in the future of the company.
(B) Shareholders who invest primarily to receive dividends pay special attention to the dividend yield ratio.
(C) Many experts argue that book value is the most useful ratio for investment analysis.
(D) Two ways for shareholders to earn a return on a share investment are receiving dividends and selling the stock investment at again.
(C) Many experts argue that book value is the most useful ratio for investment analysis.

Question 50.
The dividend payout ratio describes:
(A) The proportion of earnings paid as dividends
(B) The relationship of dividends per share to market price per share
(C) The percentage change in dividends this year compared to last year
(D) Dividends as a percentage of the price/earnings ratio
(A) The proportion of earnings paid as dividends

Question 51.
Which of the following factors is most likely to explain why a company decides to increase its annual dividend?
(A) A firm belief by management that dividends represent a residual payment
(B) A large number of desirable projects.
(C) A large proportion of its shares are owned by institutional investors
(D) Pecking order theory
(C) A large proportion of its shares are owned by institutional investors

Question 52.
Company J and Company K each recently reported the same EPS. Company J’s stock, however, trades at a higher price. Which of the following statements is most- correct?
(A) Company J must have a higher P/E ratio.
(B) Company J must have a higher market to book ratio.
(C) Company J must be riskier.
(D) All of the statements above are correct.
(A) Company J must have a higher P/E ratio.

Question 53.
Which of the following statements lends most support to the theory that dividend payments are irrelevant to the value of ordinary shares?
(A) Shareholders making homemade dividends face dealing costs
(B) Shareholders are concerned with total earnings rather than with the split between distributed and retained earnings.
(C) Investors’ discount rates increase with time due to uncertainty.
(D) Firms have particular clienteles due to their dividend policy
(C) Investors’ discount rates increase with time due to uncertainty.

Question 54.
Which of the following is market test ratio?
(A) Basic Defence Interval
(B) Debt Service Coverage
(C) Dividend Yield Ratio
(D) All of the above
(C) Dividend Yield Ratio

Question 55.
Which of the following statements is consistent with dividend irrelevance theory?
(A) Investment decisions are the sole determinant of shareholder wealth
(B) Making homemade dividends causes investors to incur transaction costs
(C) Companies with stable dividend policies build up shareholder clienteles
(D) Investors like to maintain the real value of their dividend payments.
(A) Investment decisions are the sole determinant of shareholder wealth

Question 56.
While calculating dividend cover for preference shares numerator should be taken as
(A) EBIT
(B) Profit available for equity shareholder
(C) PAT
(D) PAT + Depreciation
(C) PAT

Question 57.
Which of the following statements about the dividend growth model are true?
1. The model prices shares on the basis of the present value of expected future dividends.
2. The model relies on the ability to predict a constant future growth rate for dividend payments.
3. The dividend growth model can accommodate future changes in shareholder’s required rate of return
Select the correct answer from the options given below.
(A) Only 1 and 2 are correct
(B) Only 2 and 3 are correct
(C) 1, 2 and 3 are correct
(D) Only 3 is correct
(A) Only 1 and 2 are correct

Question 58.
………… reflects the market’s confidence in the company’s equity.
(A) P/E ratio
(B) Net profit ratio
(C) Cash profit ratio
(D) Total assets turnover ratio
(A) P/E ratio

Question 59.
Financial signalling has been raised as an argument in the battle over the relevancy of dividends. Which of the following statements concerning dividends is most likely to be voiced by someone using the financial signalling argument?
(A) A dividend decrease should be viewed by investors as “goodnews.” The dividend decrease acts to add conviction to the statement that the firm has better uses for the earnings of the company than the stockholders.
(B) Reported accounting earnings of a company, not dividends, are a proper reflection or signal of the company’s economic earnings.
(C) The price of a firm’s stock should react unfavourably to an increase in dividends.
(D) Cash dividends speak louder than words when it comes to conveying information about management’s expectations of the future
(D) Cash dividends speak louder than words when it comes to conveying information about management’s expectations of the future

Question 60.
…. is a good measure of the dividend policy of the company.
(A) Dividend Payout Ratio
(B) Price Earnings Ratio
(C) Earnings Per Share
(D) None of the above
(A) Dividend Payout Ratio

Question 61.
Which of the following statement is correct?
(A) A company may, if so authorized by its articles, pay dividends in proportion to the amount paid-up on each share.
(B) Dividend cannot be paid on calls-in-advance.
(C) All the provisions of the Companies Act, 2013 that are applicable to final dividend are also applicable to interim dividend.
(D) All of the above
(D) All of the above

Question 62.
As per provisions of the Companies Act, 2013, dividend can be paid –
1. Out of current profit
2. Out of revaluation reserve
3. Out of profits of previous financial years
4. Out of money provided by the Central or State Government
5. Out of free reserve
Select the correct answer from the options given below.
(A) 1 and 5 only
(B) 1,2, 3 & 5
(C) 1, 3 and 5 only
(D) 1,3, 4 and 5
(D) 1,3, 4 and 5

Question 63.
As per Section 128 of the Companies Act, 2013, a company may, before the declaration of any dividend in any financial year, transfer to the reserves of the company.
(A) 25% of its profit
(B) 10% of its profit before tax
(C) such percentage of its profits for that financial year as it may consider appropriate
(D) such percentage of its profits for that financial year as equity shareholder may consider appropriate
(C) such percentage of its profits for that financial year as it may consider appropriate

Question 64.
As per Rule 7 of the Companies (Declaration & Payment of Dividend) Rules, 2014, in the event of inadequacy or absence of profits in any year, a company may declare dividend out of surplus subject to the fulfilment of the condition that rate of dividend declared shall not exceed the average of the rates at which dividend was declared by it in the immediately preceding that year.
(A) 5 years
(B) 10 years
(C) 3 years
(D) 4 years
(C) 3 years

Question 65.
As per Rule 7 of the Companies (Declaration & Payment of Dividend) Rules, 2014, in the event of inadequacy or absence of profits in any year, a company may declare dividend out of surplus subject to the fulfilment of the condition that total amount to be drawn from such accumulated profits shall not exceed as appearing in the latest audited financial statement.
(A) 1/10th of the total assets
(B) 1 /5th of the sum of its paid-up share capital
(C) 1/10th of the sum of its paid-up share capital and free reserves
(D) 1 / 5th of the sum of its paid-up share capital and free reserves
(C) 1/10th of the sum of its paid-up share capital and free reserves

Question  66.
As per Rule 7 of the Companies (Declaration & Payment of Dividend) Rules, 2014, in the event of inadequacy or absence of profits in any year, a company may declare dividend out of surplus subject to the fulfilment of the condition the balance of reserves after such withdrawal shall not
fall below as appearing in the latest audited financial statement.
(A) 10% of its paid-up share capital
(B) 15% of its paid-up share capital
(C) 15% of its paid-up share capital and free reserve
(D) 10% of its paid-up share capital and free reserve
(C) 15% of its paid-up share capital and free reserve

Question 67.
As per the provisions of the Companies Act, 2013, the amount of the dividend, including interim dividend, shall be deposited in a scheduled bank in a separate account within ………….. from the date of declaration of such dividend.
(A) 30 days
(B) 15 days
(C) 10 days
(D) 5 days
(D) 5 days

Question 68.
After declaration of dividend, the company has to pay dividend within of declaration of dividend. If amount of dividend remains unpaid or unclaimed for 30 days of declaration of dividend, then in next ……….. the company has to transfer the amount unclaimed to the to a special account in any scheduled bank to be called the “Unpaid Dividend Account”.
(A) 5 days; 5 days
(B) 30 days; 7 days
(C) 30 days; 5 days
(D) 10 days; 7 days
(B) 30 days; 7 days

Question 69.
The shareholders may desire that their dividends be credited directly to their bank account. The request will be made in a form duly filled and sent to the company. This is known as –
(A) Dividend Cheque
(B) Dividend Request Form
(C) Dividend Mandate
(D) Pay Dividend Form
(C) Dividend Mandate

Question 70.
According to ………….. dividend policy is strictly a financing decision.
(A) Ezra Solomon
(B) Modigliani-Miller
(C) Marshall
(D) John Miller
(A) Ezra Solomon

Question 71.
Professor James E. Walter has developed a theoretical model which shows the relationship between
(A) Dividend policies and common stock prices.
(B) Earning policies and common stock prices.
(G) Cost of capital and common stock prices.
(D) Earning policies and dividend policies
(A) Dividend policies and common stock prices.

Question 72.
As per Walter’s Model in case of growth firm –
(A) Dividend policies are irrelevant
(B) Optimal payout ratio is 100%
(C) Payout ratio is irrelevant
(D) Optimal payout ratio is nil
(D) Optimal payout ratio is nil

Question 73.
……………. suggests that the market price of share is the present value of future dividends.
(A) Walter’s model
(B) MM Model
(C) Grodon’s model
(D) General knowledge
(C) Grodon’s model

Question 74.
As per Grodon’s Model payout ratio is irrelevant in case of –
(A) Growth firm
(B) Normal firm
(C) Declining firm
(D) All of the above
(B) Normal firm

Question 75.
How market price will be calculated by using the dividend growth model?
(A) P0 = D1÷(Ke – g)
(B) P0 = (Ke – g) ÷ D1
(C) P0 = (1+D1)÷(Ke-g)
(D) P0 = (1 + D1) × (Ke – g)
(A) P0 = D1÷(Ke – g)

Question 76.
Consider following two statements:
(I) A company with large portion of inside ownership, all of whom are high-income individuals.
(II) A growth company with an abundance of good investment opportunities.
For each of the company described above, would you expect it to have a high or low dividend payout ratio?
(A) low dividend payout ratio for both companies
(B) high dividend payout ratio for both companies
(C) low dividend payout ratio for company mentioned in Statement (I) and high dividend payout ratio for company mentioned in Statement (II)
(D) high dividend payout ratio for company mentioned in Statement (I) and low dividend payout ratio for company mentioned in Statement (II)
(A) low dividend payout ratio for both companies

Question 77.
Consider following two statements:
(I) A company is experiencing ordinary growth and has high liquidity and much unused borrowing capacity.
(II) A company with volatile and high business risk.
For each of the company described above, would you expect it to have a high or low dividend payout ratio?
(A) low dividend payout ratio for both companies
(B) high dividend payout ratio for both companies
(C) low dividend payout ratio for company mentioned in Statement (I) and high dividend payout ratio for company mentioned in Statement (II)
(D) high dividend payout ratio for company mentioned in Statement (I) and low dividend payout ratio for company mentioned in Statement (II)
(D) high dividend payout ratio for company mentioned in Statement (I) and low dividend payout ratio for company mentioned in Statement (II)

Question 78.
If you are calculating market price by using Gordon’s Model, increasing payout ratio other things renaming the same will –
(A) Increase the price per share
(B) Decrease the price per share
(C) Will not have any effect on price of the share
(D) Price will remain constant.
(C) Will not have any effect on price of the share

Question 79.
As per Gordon’s Model whether com­pany adopts 50%, 80% or any other payout ratio, market price will remain same when -…………..
(A) K>r
(B) Ke<r
(C) K=r
(D) K>Rf
(C) K=r

Question 80.
If you are calculating market price by using dividend growth method D1 ÷ (Ke – g) increase in growth rate leads to –
(A) Fall in market price of stock
(B) Increase in market price of stock
(C) No change in market price of stock
(D) None of the above
(B) Increase in market price of stock

Question 81.
Company A and Company B both cal­culates their market price by using Walter’s formula. Both companies will have same market price if –
(A) Ra > Rc and retention ratio of Com­pany A is more than retention ratio of Company B.
(B) Ra < Rc and retention ratio of Com­pany B is more than retention ratio of Company A.
(C) Ra = Rc whether retention ratio is same or different for both the com­panies.
(D) All of the above
(C) Ra = Rc whether retention ratio is same or different for both the com­panies.

Question 82.
As per Walter’s Model when Ra < Rc in­crease in dividend payout ratio will lead to –
(A) Increase in market price
(B) Decrease in market price
(C) No change in market price
(D) None of the above
(A) Increase in market price

Question 83.
As per Walter’s Model when Ra < Rc decrease in retention ratio will lead to –
(A) Increase in market price
(B) Decrease in market price
(C) No change in market price
(D) None of the above
(A) Increase in market price

Question 84.
As per Walter’s Model when R = R market price will remain same when –
(A) Retention ratio increases
(B) Retention ratio decreases
(C) Retention ratio increase or decreases
(D) None of the above
(C) Retention ratio increase or decreases

Question 85.
As per Walter’s Model when Ra > Rc in­crease in dividend payout ratio will lead to –
(A) Increase in market price
(B) Decrease in market price
(C) No change in market price
(D) None of the above
(B) Decrease in market price

Question 86.
As per Walter’s Model when Ra > Rc decrease in retention ratio will lead to –
(A) Increase in market price
(B) Decrease in market price
(C) No change in market price
(D) No change in market price
(B) Decrease in market price

Question 87.
Which of the following is correct formula to calculate market price as per MM Model?
(A) P0 = (1 + Ke) ÷ (D1 + P1)
(B) P0 = (D1 + P1) × (1 + Ke)
(C) P0 = (D1+ P1) ÷ (1 + Ke)
(D) P0 = (D1 + P1) ÷ (1 – Ke)
(C) P0 = (D1+ P1) ÷ (1 + Ke)

Question 88.
As per MM Model total value of firm remains same whether it declares dividend or not. You are required to state if dividend is declared the market price per share as per MM Model –
(A) Increase
(B) Decreases
(C) Remain constant
(D) None of the above
(A) Increase

Question 89.
Which one of the following is a non-cash payment made by a firm to its shareholders that dilute the value of each share of stock outstanding?
(A) reverse stock split
(B) cash distribution
(C) stock dividend
(D) regular dividend
(C) stock dividend

Question 90.
Market price = ?
(A) D1 ÷ (Ke – g)
(B) EPS × P/E Ratio
(C) (D1 + P1) ÷ (1 + Ke)
(D) All of the above
(D) All of the above

Question 91.
The date by which a shareholder must be recorded as the share owner in order to receive a declared dividend is called the:
(A) ex-rights date
(B) ex-dividend date
(C) date of record
(D) date of payment
(C) date of record

Question 92.
The target payout ratio is:……………
(A) a firm’s preferred rate of dividend growth.
(B) the inverse of a firm’s equity multiplier.
(C) the preferred number of dividend payments per year divided by 12.
(D) a firm’s long-term desired dividend-to-earnings ratio.
(D) a firm’s long-term desired dividend-to-earnings ratio.

Question 93.
The difference between the highest and lowest prices at which a stock has sold is called the stock’s:
(A) Average price
(D) Opening price

Question 94.
Which one of the following statements concerning cash dividends is correct?
(A) The chief financial officer of a corporation determines whether or not a dividend will be paid.
(B) A dividend is not a liability of a firm until it has been declared.
(C) If a firm has paid regular quarterly dividends in the past it is legally obligated to continue doing so.
(D) Cash dividends always reduce the paid-in capital account balance
(B) A dividend is not a liability of a firm until it has been declared.

Question 95.
The fact that flotation costs can be significant is justification for:
(A) A firm to issue larger dividends than their closest competitors.
(B) Maintaining a constant dividend policy even when profits decline significantly.
(C) Maintaining a high dividend policy.
(D) Maintaining a low dividend policy and rarely issuing extra dividends.
(D) Maintaining a low dividend policy and rarely issuing extra dividends.

Question 96.
When a firm is short of cash yet it wishes to distribute something to shareholders, it should consider –
(A) Cash dividend.
(B) Liquidating dividend
(C) Stock dividend
(D) None of the above
(C) Stock dividend

Question 97.
A company wants to buy back stock. How will this impact the company and its stock?
(A) The company makes more money because management owns more stock.
(B) Other investors make less money because management can pay more dividends to internal shareholders before external shareholders.
(C) Because there are fewer shares in the open market, the price of the shares goes up.
(D) The net income of the company will go up because of the increase in stocks
(C) Because there are fewer shares in the open market, the price of the shares goes up.

Question 98.
Which of the following would ultimately give the greatest benefit to stockholders?
(B) The issuance of a bond
(C) A stock split
(D) The issuance of new stock

Question 99.
Match the following:

Select the correct answer from the options given below.

(B)

Question 100.
Required return × Retention Ratio=?
(A) Ke (Cost of equity)
(B) WACC
(C) B (Beta)
(D) g (Growth Rate)
(D) g (Growth Rate)

Question 101.
The shares of company are selling at ₹ 45 per share. The firm had paid dividend @ ₹ 4.5 per share last year. The estimated growth of the company is approximately 5% per year. Determine the estimated market price of the equity share if the anticipated growth rate of the firm rises to 8%.
(A) ₹ 60.45
(B) ₹ 64.80
(C) ₹ 65.70
(D) ₹ 80.35
(B) ₹ 64.80

Question 102.
The shares of company are selling at ₹ 90 per share. The firm had paid dividend @ ₹ 9 per share last year. The estimated growth of the company is approximately 5% per year. Determine the estimated market price of the equity share if the anticipated growth rate of the firm falls to 3%.
(A) ₹ 70.84
(B) ₹ 84.70
(C) ₹ 74.16
(D) ₹ 52.34
(C) ₹ 74.16

Question 103.
Details regarding A Ltd. are given below:
E = ₹ 24
K = 11%
r = 12%
If retention ratio is 80%, market price as per Gordon’s Model is –
(A) ₹ 340.68
(B) ₹ 346.82
(C) ₹ 324.65
(D) ₹ 342.86
(D) ₹ 342.86

Question 104.
Details regarding B Ltd. are given below:
E = ₹ 24
K = 13.20%
r = 14.40%
If retention ratio is 50%, market price as per Gordon’s Model is –
(A) ₹ 200
(B) ₹ 300
(C) ₹ 400
(D) ₹ 600
(A) ₹ 200

Question 105.
Details regarding C Ltd. are given below:
E = ₹ 14.4
Ke =7.92%
r = 8.64%
If retention ratio is 90%, market price as per Gordon’s Model is –
(A) ₹ 200
(B) ₹ 25
(C) ₹ 100
(D) ₹ 130
(C) ₹ 100

Question 106.
Following details are available for G Ltd.:
E = ₹ 22
Ke = 12.10%
r = 12.10%
Calculate the value of equity shares when retention ratio is
(a) 50%, (b) 80% , (c) 90%.
(A) ₹183.28; ₹ 183.28; ₹ 183.28
(B) ₹181.82; ₹ 181.82; ₹ 181.82
(C) ₹ 175.26; ₹ 190.26; ₹ 130.26
(D) ₹ 200.22; ₹ 180.24; ₹ 120.18
(B) ₹181.82; ₹ 181.82; ₹ 181.82

Question 107.
Market price per share of WX Ltd. is ₹ 400 per share at 50% retention ratio as per Gordon’s Model. The firms cost of equity is below required rate of return. If the firm increases retention ratio –
(A) Its price will decrease and will go below ₹ 400
(B) Its price will increase and will go above ₹ 400
(C) Its price will still remain at ₹ 400
(D) None of the above
(B) Its price will increase and will go above ₹ 400

Question 108.
JKL Ltd. is foreseeing a growth rate of 12% p.a. in the next 2 years. The growth rate is likely to fall to 10% for the third year and forth year. After that growth rate is expected to stabilize at 8% p.a. If .the last dividend (D0) paid was ₹ 2.7 per share and investor’s required rate of return is 16%, find out the intrinsic value per share of JKL Ltd. as of date.

(A) ₹ 55.38
(B) ₹ 40.21
(C) ₹ 50.26
(D) ₹ 46.88
(B) ₹ 40.21

Question 109.
A large chemical company has been expected to grow at 14% per year for next 4 years and then to grow indefinitely at the same rate as national economy ie. 5%. The required rate of return on equity share is 12%. Assume that company paid a dividend of ₹ 2 per share last year (D0 = 2). Determine the market price of the shares today.
(A) ₹ 40.62
(B) ₹ 50.42
(C) ₹ 45.23
(D) ₹ 61.18
(A) ₹ 40.62

Question 110.
The required rate of return of investors is 15%. ABC Ltd. declared and paid annual dividend of ₹ 4 per share. It is expected to grow @ 20% for the next 2 years and 10% thereafter. Compute the price at which the shares should sell.
PV Factors: @15% for Year 1 = 0.8696 and Year 2 = 0.7561.

Question 111.
Anurag has invested in a share whose dividend is expected to grow @15% for 5 years and there after @ 5% till life of the company. Find out the value of the share, if current dividend is ₹ 4 per share and investors required rate of return is 6%.

Question 112.
The cost of capital and rate of return on investment of GOD Ltd. is 10% and 15% respectively. The company has 10 lakh shares of 10% each. Its earnings per share is ₹ 7.5. Calculate the value of the firm per share using Walter’s Model assuming all earnings are distributed as dividend.
(A) ₹ 75
(B) ₹ 100
(C) ₹ 125
(D) ₹ 150
(A) ₹ 75

Question 113.
Cost of capital of MNL Ltd. is less them rate of return on investment. Its market price per share is ₹ 62.50 as per Walter’s Model at 50% retention ratio. If firm increase its retention ratio then –
(A) Its price will fall below — ₹ 62.50
(B) Its price will increase above — ₹ 62.50
(C) Its price will increase above — ₹ 100
(D) It price will not change
(B) Its price will increase above — ₹ 62.50

Question 114.
EPS of Kalki Ltd. is ₹ 20. Its cost of capital is 16%. Internal rate of return on investment is 20% and retention ratio is 50%. What is the market price per share of Kalki Ltd. as per dividend growth model ?
(A) ₹ 164.55
(B) ₹ 176.66
(C) ₹ 166.67
(D) ₹ 167.33
(C) ₹ 166.67

Question 115.
EPS of Don Ltd. is ₹ 15. Its cost of capital is 16%. Internal rate of return on investment is 20% and retention ratio is 40%. What is the market price per share of Don Ltd. as per Walter’s Model?
(A) ₹ 103.125
(B) ₹ 105.225
(C) ₹ 108.125
(D) ₹ 110.525
(A) ₹ 103.125

Question 116.
Following details are available for PQR Ltd:
Earnings per share — ₹ 27.5
Cost of capital — 16%
Internal rate of return on investment — ₹ 20%
Retention ratio — 50%
Calculate the price per share as per Walter’s Model.
(A) ₹ 315.40
(B) ₹ 193.36
(C) ₹ 292.91
(D) ₹ 282.86
(B) ₹ 193.36

Question 117.
Following details are available for PQR Ltd.:
Calculate the price per share as per Walter’s Model.
(A) ₹ 190.60
(B) ₹ 188.72
(C) ₹ 176.28
(D) ₹ 189.06
(D) ₹ 189.06

Question 118.
Details regarding three companies are given below:

If Walter’s Model is applied with 100% retention ratio market price per share of these companies are –

(D)

Question 119.
Khemka Ltd. paid dividend per share of ₹ 3, ₹ 3.6, ₹ 4.32, ₹ 5.18 & ₹ 6.22 for last five year. What is the expected dividend for next year?
(A) ₹ 7.46
(B) ₹ 8.32
(C) ₹ 6.80
(D) ₹ 7.25
(A) ₹ 7.46

Question 120.
Details regarding three companies are given below:

If Walter’s Model is applied with 50% retention ratio market price per share of these companies are

(D)

Question 121.
ABC Ltd. was started a year back with a paid-up capital of ₹ 56,00,000. The other details are as under:
You are required to find out market price per share using Walter’s formula.
(A) ₹ 138.57 per share
(B) ₹ 131.25 per share
(C) ₹ 175.83 per share
(D) ₹ 185.73 per share
(B) ₹ 131.25 per share

Question 122.
The EPS of the Ganga Ltd. is 716. The market capitalization rate applicable to the company is 12.5%. Retained earnings can be employed to yield return of 10%. The company is considering payout ratio of 25%, 50%, 75% and 100%. Which of these, if any, would maximize the wealth of shareholders as per Walter’s Model?
(A) If payout ratio is 25%
(B) If payout ratio is 50%
(C) If payout ratio is 75%
(D) If payout ratio is zero percentage
(D) If payout ratio is zero percentage
For Ganga Ltd. Ra > Rc (12.5% > 10). It is growth firm as its rate of return on investment is greater than cost of capital. Optimal payout ratio as per Walter’s Model is nil. (in other words 100% retention policy must be followed to maximize the wealth of shareholders)

Question 123.
Prakash Ltd. has had earnings of ₹ 3.20, ₹ 3.00 & ₹ 5.50 per share for the past 3 years. Company anticipates maintaining the same dividend policy this year as the past 3 years. That dividend policy has resulted in dividends per share of ₹ 1.28, ₹ 1.20 & ₹ 2.20 for the past 3 years. It is anticipated that the next year will result in a large increase in earnings to ₹ 9.80 per share. What dividend do you expect the firm to pay in the next year?
(A) ₹ 3.92
(B) ₹ 1.56
(C) ₹ 3.12
(D) ₹ 4.68
(A) ₹ 3.92
DPS Ratio: Year 1:1.28/3.2 × 100 = 40%; Year 2:1.2/3 × 100 = 40%; Year 3:22/5.5 × 100 = 40%
Dividend for next year = 9.8 × 40% = 3.92

Question 124.
MNP Ltd. has made plans for the next year. The company will employ total assets of ₹ 25,00,000; 30% of assets being financed by debt at an interest cost of 9% p.a. The direct costs for the year are estimated at ₹ 15,00,000 and all other operating expenses are estimated at ₹ 2,40,000. Sales revenue are estimated at ₹ 22,50,000. Tax rate is assumed to be 40%.
Return on equity = ?
(A) 12.46%
(B) 15.17%
(C) 11.86%
(D) 15.98%
(B) 15.17%
Total assets = 25,00,000;
Equity = 25,00,000 × 70% = 17,50,000;
Debt = 25,00,000 × 30% = 7,50,000
22,50,000 – 15,00,000 – 2,40,000 – 67,500 = 4,42,500
PAT = 4,42,500 – 1,77,000 = 2,65,500
Return on equity = 2,65,500/17,50,000 × 100 = 15.17%

Question 125.
Joshi Corporation is growing at a constant rate of 6% per year. It has both common stock and non-participating preferred stock outstanding. The cost of preferred stock (K) is 8%. The par value of the preferred stock is ₹ 120, and the stock has a stated dividend of 10% of par. What is the market value of the preferred stock
(A) ₹ 125
(B) ₹ 120
(C) ₹ 175
(D) ₹ 150
(D) ₹ 150
12/0.08 = 150

Question 126.
A share of common stock has just paid a dividend of ₹ 2.00. If the expected long-run growth rate for this stock is 15 percent, and if investors require a 19 percent rate of return, what is the price of the stock?
(A) ₹ 57.50
(B) ₹ 62.25
(C) ₹ 71.86
(D) ₹ 64.00
(A) ₹ 57.50
D1 =2×1.15 = 2.3
2.3/(0.19 – 0.15) = 57.5

Question 127.
CPC Company’s stock is currently selling for ₹ 40 a share. The stock is expected to pay a ₹ 2 dividend at the end of the year. The stock’s dividend is expected to grow at a constant rate of 7 percent a year forever. The risk-free rate (RF) is 6 percent and the market risk premium (RM – RF) is also 6 percent. What is the stock’s beta?
(A) 1.06
(B) 1.00
(C) 2.00
(D) 0.83
(B) 1.00
Ke = 2/40 + 0.07 = 0.12 12%
K =Rf + β(Rm-Rf)
12 = 6 + 6x
6 = 6x
x = β = 1

Question 128.
Retention ratio is 0.60 and return on equity is 15.5% then growth retention model would be –
(A) 14.9%
(B) 25.84%
(C) 16.1%
(D) 9.3%
(D) 9.3%
15.5% × 0.60 = 9.3%

Question 129.
Ali Motors recently completed a 3 for 1 stock split. Prior to the split, the company had 10 Million shares outstanding and its stock price was ₹150 per share. After the split, the total market value of the company’s stock equalled 71.5 Billion. What was the price of the company’s stock following the stock split?
(A) ₹ 15
(B) ₹ 45
(C) ₹ 50
(D) ₹ 150
(C) ₹ 50
150 × 1/3 = 50

Question 130.
If payout ratio is 0.45 then retention ratio will be:
(A) 55%
(B) 1.45
(C) 0.055
(D) 100%
(A) 55%

Question 131.
Retention ratio is 0.55 and return on equity is 12.5% then growth retention model would be –
(A) 0.1195
(B) 0.06875
(C) 0.1305
(D) 0.2272
(B) 0.06875

Question 132.
Company Q is all equity financed. For each ₹ 1 of earnings, it consistently pays 30 paisa in dividends and retains 70 paisa for reinvestment. It expects to earn a rate of return of 14% on capital employed. According to the Gordon Growth Model, what would the rate of earnings growth be in future Ignore tax.
(A) 4-2%
(B) 7%
(C) 9-8%
(D) 14%
(C) 9-8%
br= g = 0.70 × 14 = 9.8%

Question 133.
DHC Ltd. is looking to purchase WIC Ltd., which has the following information: Revenue ₹ 40,00,000; EBITD ₹ 9,00,000; Basic EPS ₹ 1.40; Net assets ₹ 50,00,000 Dividends paid ₹ 0.50. Research has shown that the price-earnings ratio for companies like WIC Ltd. is 9.5. Based on that ratio, what is the value of WIC Ltd.?
(A) 23,75,000
(B) 85,50,000
(C) 50,00,000
(D) 66,50,000
(D) 66,50,000
Market Price = P/E Ratio × EPS = 9.5 × 1.4 = 13.3;
50,00,000×13.3/10 = 66,50,000

Question 134.
Market price of Jhakas Ltd. is ₹200 per share as per Gordon Model. EPS is ₹ 20 per share. Cost of capital is 11%. Rate of return on investment is 12%. What is retention ratio?
(A) 80%
(B) 75%
(C) 100%
(D) 50%
(D) 50%

Question 135.
Market price of Sara Ltd. is ₹ 1,000 per share. EPS is ₹ 20 per share. Cost of capital is 11 %. Rate of return on investment is 12%. What is dividend per share?
(A) 2
(B) 3
(C) 4
(D) 5
(A) 2

Question 136.
Following information is available in respect of Sober Ltd.:
No. of shares outstanding : 1 lakh
Earnings per share : ₹ 4
Equity capitalization rate : 12%
Rate of return on investment : 15%
You are required to calculate Dividend payout ratio to keep share price at ₹ 40.
(A) 50%
(B) 40%
(C) 60%
(D) 20%
(D) 20%

Question 137.
A Chemical company belongs to a risk class for which P / E Ratio is 10. It currently has 50,000 equity shares selling at ₹ 200 each. The firm is contemplating the declaration of dividend of ₹ 16 per share at the current fiscal year which has just started. Given the assumption of Modigliani-Miller, what will be the price of share at the end of the year if dividend is declared?
(A) ₹ 205
(B) ₹ 208
(C) ₹ 204
(D) ₹ 225
(C) ₹ 204

Question 138.
Damodhar Ltd. has 10 lakh equity shares outstanding. Current market price of the shares is ₹ 150 each. The board of directors of the company has recommended dividend of ₹ 8 per share. Rate of capitalization is 12%. How many shares are to be issued as per MM Model at the end of accounting year on the assumption that the net income is ₹ 2 Crore and the investment budget is ₹ 4 Crore and dividend is declared as recommended by the directors.
(A) 1,19,047 shares
(B) 1,75,000 shares
(C) 1,57,000 shares
(D) 1,68,419 shares
(B) 1,75,000 shares

Question 139.
Take the data above question and calculate the market value of the company after giving effect to proposal as stated above.
(A) ₹ 18,80,00,000
(B) ₹ 15,50,00,000
(C) ₹ 18,50,00,000
(D) ₹ 19,90,00,000
(A) ₹ 18,80,00,000

Question 140.
An equity share of ₹ 100 is expected to earn an annual dividend of ₹10 and this share can be sold at price of ₹ 180 at the end of year. If the required rate of return is 12%, calculate the value of equity share.
(A) ₹ 196.46
(B) ₹ 169.64
(C) ₹ 149.66
(D) ₹ 170.05
(B) ₹ 169.64

Question 141.
Net profit before tax of Acumen Ltd. is ₹ 17,50,000. The company has 1,00,000 equity shares of face value ₹ 10 each, fully paid-up. Current market price of the shares is ₹ 85 per share. Income-tax @ 30% applies to the company. Compute the P/E ratio for the company.
(A) 5.92
(B) 8.63
(C) 6.94
(D) 9.46
(C) 6.94

Question 142.
Following details are available to you for Beauty Ltd.
Internal rate of return — 15%
Capitalization rate — 15%
Earnings per share — ₹ 12
Cash dividend per share — ₹ 5
Calculate the value of an equity share.
(A) ₹ 70
(B) ₹ 80
(C) ₹ 90
(D) ₹ 95
(B) ₹ 80

Question 143.
Rama Ltd. had 1,00,000 equity shares of ₹ 10 each outstanding. Shares are currently being quoted at par in the market. In the wake of the removal of the dividend restraint, the company now intends to pay a dividend of ₹ 2 per share for the current financial year. It belongs to a risk class whose appropriate capitalization rate is 15%. Using MM Model and assuming no taxes, ascertain the price of the company’s shares as it is likely to prevail at the end of the year – (i) when dividend is declared; and (ii) when no dividend is declared.

(D)

Question 144.
Rosa Ltd. has outstanding 1,20,000 shares selling at ₹ 20 per share. The company hopes to make a net income of ₹ 3,50,000 during the year. Company is thinking of paying a dividend of ₹ 2 per share at the end of current year. Capitalization rate has been estimated to be 15%. On the basis of MM model how many new shares the company must issue if the dividend is paid and company needs ?9,50,000 for an approved investment expenditure?
(A) 40,000 equity shares
(B) 50,000 equity shares
(C) 60,000 equity shares
(D) 70,000 equity shares
(A) 40,000 equity shares

Question 145.
Take the data of above, question and calculate total market value of the company.
(A) ₹ 35,40,000
(B) ₹ 32,90,000
(C) ₹ 33,60,000
(D) ₹ 34,30,000
(C) ₹ 33,60,000

Question 146.
Abhishek Steel Ltd. has one lakh equity shares outstanding which are selling at ₹ 100 each. Its capitalization rate is 14%. The company is expecting ₹ 65 lakh income for the current year and is planning to pay dividend amounting to ₹ 4 lakh. The company wants to invest in a new project which will cost ₹ 75 lakh. It is assumed that the MM Model on dividend policy is applicable. Compute the number of shares to be issued for financing when: A. Dividend is not paid. B. Dividend amounting to ₹ 4 lakh is paid.

(B)

Question 147.
Small Events Incorporation has recently paid dividend of ₹ 3.50 per share. The dividends are growing at 10% p.a. and the equity capitalization rate applicable to the company is 12%. Find out the implicit P/E Ratio if the EPS of the company is ₹ 7.
(A) 27.50
(B) 28.50
(C) 30.00
(D) 32.50
(A) 27.50

Question 148.
Current price of share of X Ltd. is ₹ 60 and just paid dividend per share is ₹ 4. If the capitalization rate is 12%, what is the dividend growth rate?
(A) 3%
(B) 5%
(C) 4%
(D) 6%
(B) 5%

Question 149.
Following information is available in respect of Hajela Ltd.:
No. of shares outstanding : 3 lakh
Net profit : 18 lakh
Equity capitalization rate : 16%
Rate of return on investment : 20%
You are required to calculate Dividend payout ratio to keep share price at ₹ 42.
(A) 42 %
(B) 46%
(C) 58%
(D) 52%
(D) 52%

Question 150.
Market price is ₹ 30 per share. Dividends are growing at 2%. Cost of equity is 10.5%. How much dividend must have been paid by the company at the beginning of the year or last year?
(A) 2.55
(B) 2.50
(C) 2.00
(D) 2.60
(B) 2.50

## Capital Budgeting – Financial Management MCQ

Capital Budgeting – CS Executive Financial and Strategic Management MCQ Questions with Answers you can quickly revise the concepts.

## Capital Budgeting – Financial Management MCQ

Question 1.
Capital budgeting is the process –
(A) which help to make master budget of the organization.
(B) By which the firm decides how much capital to invest in business
(C) by which the firm decides which long-term investments to make.
(D) undertaken to analyze how make available various finance to the business.
(C) by which the firm decides which long-term investments to make.

Question 2.
The values of the future net incomes discounted by the cost of capital are called –
(A) Average capital cost
(B) Discounted capital cost
(C) Net capital cost
(D) Net present values
(D) Net present values

Question 3.
The decision to accept or reject a capital budgeting project depends on –
(A) an analysis of the cash flows generated by the project
(B) cost of capital that are invested in business/project.
(C) Both (A) and (B)
(D) Neither (A) nor (B)
(C) Both (A) and (B)

Question 4.
The Internal Rate of Return (IRR) criterion for project acceptance, under theoretically infinite funds is:
Accept all projects which have –
(A) IRR equal to the cost of capital
(B) IRR greater than the cost of capital
(C) IRR less than the cost of capital
(D) None of the above
(B) IRR greater than the cost of capital

Question 5.
…………… is a project whose cash flows are not affected by the accept/reject decision for other projects.
(A) Mutually exclusive project
(B) Independent project
(C) Low cost project
(D) Risk free project
(B) Independent project

Question 6.
Where capital availability is unlimited and the projects are not mutually exclusive, for the same cost of capital, following criterion is used?
(A) Net present value
(B) Internal Rate of Return
(C) Profitability Index
(D) Any of the above
(D) Any of the above

Question 7.
………………. is the discount rate which should be used in capital budgeting.
(A) Cost of capital (Ko)
(B) Risk free rate (Rf)
(D) Beta rate (β)
(A) Cost of capital (Ko)

Question 8.
Which of the following represents the amount of time that it takes for a capital budgeting project to recover its initial cost?
(A) Maturity period
(B) Payback period
(C) Redemption period
(D) Investment period
(B) Payback period

Question 9.
Incorporating flotation costs into the analysis of a project will:
(A) have no effect on the present value of the project.
(B) increase the NPV of the project.
(C) increase the project’s rate of return.
(D) increase the initial cash outflow of the project.
(D) increase the initial cash outflow of the project.

Question 10.
A project is accepted when:
(A) Net present value is greater than zero
(B) Internal Rate of Return will be greater than cost of capital
(C) Profitability index will be greater than unity
(D) Any of the above
(D) Any of the above

Question 11.
When choosing among mutually exclusive projects, the project with –
(A) Longest payback is preferred
(B) Higher NPV get selected
(C) Quickest payback is preferred
(D) Lower cost of capital will be selected
(C) Quickest payback is preferred

Question 12.
With limited finance and a number of project proposals at hand, select that package of projects which has:
(A) The maximum net present value
(B) Internal rate of return is greater than cost of capital
(C) Profitability index is greater than unity
(D) Any of the above
(A) The maximum net present value

Question 13.
Statement I:
In case of capital rationing, a company is compelled to invest in projects having shortest payback period.
Statement II:
The shorter the payback period, the less risky is the project. Therefore, it can be considered as an indicator of risk.
Select the correct answer from the options given below:
(A) Statement I is true but Statement II is false.
(B) Statement II is true but Statement I: is false.
(C) Both Statement I and Statement II are false.
(D) Both Statement I and Statement II are true.
(D) Both Statement I and Statement II are true.

Question 14.
A Profitability Index (PI) of 0.92 for a ……….. project means that
(A) the project’s costs (cash outlay) are ?
(is) less than the present value of the project’s benefits.
(B) the project’s NPV is greater than zero.
(C) the project’s NPV is greater than 1.
(D) the project returns 92 cents in present value for each rupee invested.
(D) the project returns 92 cents in present value for each rupee invested.

Question 15.
The shorter the payback period –
(A) the more risky is the project.
(B) the less risky is the project.
(C) less will the NPV of the project.
(D) more will the NPV of the project
(B) the less risky is the project.

Question 16.
Which of the following statements is incorrect regarding a normal project?
(A) If the NPV of a project is greater than 0, then its PI will exceed 1.
(B) If the IRR of a project is 8%, its NPV, using a discount rate, K0, greater than 8%, will be less than 0.
(C) If the Plot a project equals 0, then the project’s initial cash outflow equals the PV of its cash flows.
(D) If the IRR of a project is greater than the discount rate, K0, then its PI will be greater than 1.
(C) If the Plot a project equals 0, then the project’s initial cash outflow equals the PV of its cash flows.

Question 17.
Ranking projects according to their ability to repay quickly may be useful to firms:
(A) when experiencing liquidity constraints.
(B) when careful control over cash is required.
(C) to indicate the prospective investors specifying when their funds are likely to be repaid.
(D) All of the above
(D) All of the above

Question 18.
Capital budgeting decisions are analyzed with help of weighted average and for this purpose –
(A) Component cost is used I
(B) Common stock value is used
(C) Cost of capital is used
(D) Asset valuation is used
(C) Cost of capital is used

Question 19.
What is the difference between economic profit and accounting profit?
(A) Economic profit includes a charge for all providers of capital while accounting profit includes only a charge for debt.
(B) Economic profit covers the profit over the life of the firm, while accounting profit only covers the most recent accounting period.
(C) Accounting profit is based on current accepted accounting rules while economic profit is based on cash flows.
(D) All of the above are correct.
(A) Economic profit includes a charge for all providers of capital while accounting profit includes only a charge for debt.

Question 20.
Which of the following is demerit of payback period?
(A) It is difficult to calculate as well as understand it as compared to accounting rate of return method.
(B) This method disregards the initial investment involved.
(C) It fails to take into account the timing of returns and the cost of capital.
(D) None of the above
(C) It fails to take into account the timing of returns and the cost of capital.

Question 21.
A project whose acceptance does not prevent or require the acceptance of one or more alternative projects is referred to as
(A) Mutually exclusive project
(B) Independent project
(C) Dependent project
(D) Contingent project
(B) Independent project

Question 22.
Which of the following is demerit of payback period?
(A) It does not indicate whether an investment should be accepted or rejected, unless the payback period is compared with an arbitrary managerial target.
(B) The method ignores cash generation beyond the payback period and this can be seen more a measure of liquidity than of profitability.
(C) This method makes no attempt to measure a percentage return on the capital invested and is often used in conjunction with other methods.
(D) All of the above
(D) All of the above

Question 23.
When operating under a single-period capital-rationing constraint, you may first want to try selecting projects by descending order of their ……… in order to give yourself the best chance to select the mix of projects that adds most to firm value.
(A) Profitability Index (PI)
(B) Net Present Value (NPV)
(C) Internal Rate of Return (IRR)
(D) Payback Period (PBP)
(A) Profitability Index (PI)

Question 24.
What is the idea behind project-specific required rates of return for a firm or division?
(A) Different projects should have different required rates of return because they are not alike with respect to risk.
(B) Each firm should have a different required rate of return because firms are not alike with respect to risk and have been created historically by projects taken that differ with regards to risk.
(C) A division of the firm will always have a required rate of return different from the firm’s overall weighted average cost of capital because the risk of the division always differs from that of the firm.
(D) All of the above
(A) Different projects should have different required rates of return because they are not alike with respect to risk.

Question 25.
Which of the following statements is correct regarding the internal rate of return (IRR) method?
(A) Each project has a unique internal rate of return.
(B) As long as you are not dealing with mutually exclusive projects, capital rationing, or unusual projects having multiple sign changes in the cash-flow stream, the internal rate of return method can be used with reasonable confidence.
(C) The internal rate of return does not consider the time value of money.
(D) The internal rate of return is rarely used by firms today because of the ease at which net present value is calculated.
(B) As long as you are not dealing with mutually exclusive projects, capital rationing, or unusual projects having multiple sign changes in the cash-flow stream, the internal rate of return method can be used with reasonable confidence.

Question 26.
Which of the following method of capital budgeting ignores the time value of money?
(A) Discounted payback period
(B) Net present value
(C) Internal rate of return
(D) None of the above
(D) None of the above

Question 27.
Which of the following is not a potential for a ranking problem between two mutually exclusive projects?
(A) The projects have unequal lives that differ by several years.
(B) The costs of the two projects differ by nearly 30%.
(C) The two projects have cash flow patterns that differ dramatically.
(D) One of the mutually exclusive projects involves replacement while the other involves expansion.
(D) One of the mutually exclusive projects involves replacement while the other involves expansion.

Question 28.
As per discounted payback period method, a project with –
(A) more discounted payback period will be selected.
(B) higher NPV will be preferred.
(C) low NPV will be preferred.
(D) less discounted payback period will be selected.
(D) less discounted payback period will be selected.

Question 29.
A single, overall cost of capital is often used to evaluate projects because:
(A) it avoids the problem of computing the required rate of return for each investment proposal.
(B) it is the only way to measure a firm’s required return.
(C) it acknowledges that most new investment projects have about the same degree of risk.
(D) it acknowledges that most new investment projects offer about the same expected return.
(A) it avoids the problem of computing the required rate of return for each investment proposal.

Question 30.
A project whose acceptance precludes the acceptance of one or more alternative projects is referred to as …………..
(A) Mutually exclusive project
(B) Independent project
(C) Dependent project
(D) Contingent project
(A) Mutually exclusive project

Question 31.
The adjusted present value (APV) is best described as being
(A) equal to the discounted value of all cash flows after the discount rate is adjusted upward for additional risk
(B) equal to the discounted value of operating cash flows plus the present value of any tax-shield benefits less any flotation costs
(C) equal to the discounted value of operating cash flows plus the present value of any tax-shield
(D) benefits equal to the discounted value of operating cash flows less any flotation costs.
(B) equal to the discounted value of operating cash flows plus the present value of any tax-shield benefits less any flotation costs

Question 32.
Which of the following is correct formula to calculate payback period reciprocal?
(A) (1/payback period) × 100
(B) (100/payback period) × 10
(C) (100/payback period) × β
(D) [(1/payback period) × β]÷ 100
(A) (1/payback period) × 100

Question 33.
How ARR is calculated?
(A) (Average PAT/Initial Investment) × 100
(B) (Average NPV/Investment) × 100
(C) (Average PAT/Initial Investment) ÷ 100
(D) (Initial Investment/Average PAT) × 100
(A) (Average PAT/Initial Investment) × 100

Question 34.
Some projects that a firm accepts will undoubtedly result in zero or negative returns. In light of this fact, it is best if the firm:
(A) Adjusts its hurdle rate (ie. cost of capital) upward to compensate for this fact.
(B) Adjusts its hurdle rate (ie. cost of capital) downward to compensate for this fact
(C) Does not adjust its hurdle rate up or down regardless of this fact
(D) Raises its prices to compensate for this fact.
(C) Does not adjust its hurdle rate up or down regardless of this fact

Question 35.
If we add depreciation and other non cash expenses in profit after tax, the resulting figure is –
(A) Profit available for equity shareholder
(B) CFAT
(C) Net cash flow
(D) Free cash flow
(B) CFAT

Question 36.
Lotus Corporation is trying to determine how to assign discount rates to the various projects proposed by its numerous international divisions. The company should put the greatest emphasis on which one of the following when assigning the discount rates?
(A) the geographic location where the project will be undertaken
(B) the currency exchange rate that will apply to the project
(C) the various types of risk associated with the project
(D) the experience of the managers of the division which is proposing the project
(C) the various types of risk associated with the project

Question 37.
Which of the following is demer it of accounting rate of return (ARR) method?
(A) It does not take into accounting time value of money.
(B) It fails to measure properly the rates of return on a project even if the cash flows are even over the project life.
(C) It is biased against short-term projects in the same way that payback is biased against longer term ones.
(D) All of the above
(D) All of the above

Question 38.
NPV = ?
(A) Project’s cash inflows minus the project’s cash outflows.
(B) Project’s cash inflows after tax minus the project’s cash outflows.
(C) Present value of the project’s cash inflows minus the present value of the project’s cash outflows.
(D) Present value of the project’s cash inflows minus the present value of the project’s cash outflows in initial year ignoring the present value of cash flows in subsequent years.
(C) Present value of the project’s cash inflows minus the present value of the project’s cash outflows.

Question 39.
Lower standard deviation indicates –
(A) lower risk
(B) higher risk
(C) no risk at all
(D) highly favorable situation
(A) lower risk

Question 40.
Consider following two statements.
I. The NPV decision rule specifies that all independent projects with a positive NPV should be accepted.
II. When choosing among mutually exclusive projects, the project with the largest (positive) NPV should be selected.
Select the true statement.
(A) I only
(B) Neither I nor II
(C) II only
(D) Both I and II
(D) Both I and II

Question 41.
Which of the following statistical or mathematical technique of risk evaluation is used in capital budgeting?
(I) Certainty Equivalent Approach
(II) Standard Deviation
(III) Sensitivity Analysis
(IV) Probability Distribution Approach
Select the correct answer from the options given below –
(A) I only
(B) I and II only
(C) I, II and III only
(D) I, II, III and IV
(D) I, II, III and IV

Question 42.
Which of the following statement is true in relation to NPV Method?
1. It considers the total benefits arising out of proposals over its lifetime.
2. It recognizes the time value of money.
3. It produces multiple rates, which can be confusing.
4. NPV can never be zero if cash flows are discounted by using risk free rate.
Select the correct answer from the options given below.
(A) 1 & 3
(B) 1,2 & 3
(C) 2,3 & 4
(D) 1 & 2
(D) 1 & 2

Question 43.
………… is the ratio of assured cash flows to uncertain cash flows.
(A) Beta Factor (BF)
(B) Contingency Equivalent Factor
(D) Certainty Equivalent Factor (CEF)
(D) Certainty Equivalent Factor (CEF)

Question 44.
……………. is an investment appraisal technique calculated by dividing the present value of future cash flows of a project by the initial investment required for the project.
(A) Indexed cost method
(B) Profitability index
(C) Cost benefit ratio
(D) Both (B) and (C)
(D) Both (B) and (C)

Question 45.
Accept a project if the profitability index is:
(A) less than 1
(B) positive
(C) greater than 1
(D) negative
(B) positive

Question 46.
Profitability index is actually a modification of the –
(A) Payback period method
(B) IRR Method
(C) Net present value method
(C) Net present value method

Question 47.
………….. is a technique used to determine how different values of an independent variable impact a particular dependent variable under a given set of assumptions.
(A) Simulation Analysis
(B) Single Variable Analysis
(C) Sensitivity Analysis
(D) Sensex Analysis
(C) Sensitivity Analysis

Question 48.
…………. of a capital budgeting project is the discount rate at which the Net Present Value (NPV) of a project equals zero.
(A) External Rate of Return (ERR)
(B) Risk Free Rate of Return (RFRR)
(C) Price Cost Method (PCM)
(D) Internal Rate of Return (IRR)
(D) Internal Rate of Return (IRR)

Question 49.
Which of the following capital budgeting techniques takes into account the incremental accounting income rather than cash flows?
(A) Net present value
(B) Internal rate of return
(C) Accounting/simple rate of return
(D) Cash payback period
(C) Accounting/simple rate of return

Question 50.
The IRR decision rule specifies that all independent projects –
(A) with positive NPV should be selected.
(B) with an IRR greater than the cost of capital should be accepted.
(C) having IRR greater economic value added should be selected.
(D) with an IRR greater than the cost of capital should be accepted though it have negative NPV.
(B) with an IRR greater than the cost of capital should be accepted.

Question 51.
Which of the following techniques does not take into account the time value of money?
(A) Internal rate of return method
(B) Simple cash payback method
(C) Net present value method
(D) Discounted cash payback method
(B) Simple cash payback method

Question 52.
If you are considering two projects namely, Project X & Project Y; NPV of the Project X is higher than Project Y but IRR of Project Y is greater than Project X then you will select –
(A) Project Y
(B) Project X
(C) Some other project
(D) None of the above
(B) Project X

Question 53.
The current worth of a sum of money to be received at a future date is called:
(A) Real value
(B) Future value
(C) Present value
(D) Salvage value
(C) Present value

Question 54.
The difference between the present value of cash inflows and the present value of cash outflows associated with a project is known as:
(A) Net present value of the project
(B) Net future value of the project
(C) Net historical value of the project
(D) Net salvage value of the project
(A) Net present value of the project

Question 55.
Capital rationing refers to a situation –
(A) where a company cannot undertake projects as the cost of capital is less than required rate of return on projects.
(B) where company is confused in selection of more than one projects.
(C) where a company cannot undertake all positive NPV projects, it has identified because of shortage of capital.
(D) where cost of the projects is equal to present value leading NPV to zero.
(C) where a company cannot undertake all positive NPV projects, it has identified because of shortage of capital.

Question 56.
If present value of cash outflow is equal to present value of cash inflow, the net present value will be:
(A) Positive
(B) Negative
(C) Zero
(D) Infinite
(C) Zero

Question 57.
Generally, a project is considered acceptable if its net present value is:
(A) Negative or zero
(B) Negative or positive
(C) Positive or zero
(D) Negative
(C) Positive or zero

Question 58.
An increase in the discount rate will:
(A) Reduce the present value of future cash flows.
(B) Increase the present value of future cash flows.
(C) Have no effect on net present value.
(D) Compensate for reduced risk.
(A) Reduce the present value of future cash flows.

Question 59.
Using profitability index, the preference rule for ranking projects is:
(A) the lower the profitability index, the more desirable the project.
(B) the higher the profitability index, the more desirable the project.
(C) the lower the sunk cost, the more desirable the project.
(D) the higher the sunk cost, the more desirable the project.
(B) the higher the profitability index, the more desirable the project.

Question 60.
A project whose cash flows are more than capital invested for rate of return then net present value will be
(A) Positive
(B) Independent
(C) Negative
(D) Zero
(A) Positive

Question 61.
In mutually exclusive projects, project which is selected for comparison with others must have –
(A) Higher net present value
(B) Lower net present value
(C) Zero net present value
(D) All of the above
(A) Higher net present value

Question 62.
Relationship between Economic Value Added (EVA) and Net Present Value (NPV) is considered as
(A) Valued relationship
(B) Economic relationship
(C) Direct relationship
(D) Inverse relationship
(C) Direct relationship

Question 63.
In capital budgeting, positive net present value results in –

Question 64.
Cash inflows are revenues of project and are represented by –
(A) Hurdle number
(B) Relative number
(C) Negative numbers
(D) Positive numbers
(D) Positive numbers

Question 65.
The process of planning expenditures that will influence the operation of a firm over a number of years is called –
(A) Investment
(B) Capital budgeting
(C) Net present valuation
(D) Dividend valuation
(B) Capital budgeting

Question 66.
Which of the following is an example of a capital investment project?
(A) Replacement of worn-out equipment
(B) Expansion of production facilities
(C) Development of employee training programs
(D) All of the above are examples of capital investment projects.
(D) All of the above are examples of capital investment projects.

Question 67.
The beta coefficient is associated with –
(A) Capital asset pricing model
(B) Dividend valuation model
(C) Risk-free rate plus premium model
(A) Capital asset pricing model

Question 68.
The term mutually exclusive investments mean:
(A) Choose only the best investments
(B) Selection of one investment pre-eludes the selection of an alternative
(C) The elite investment opportunities will get chosen.
(D) There are no investment options available.
(B) Selection of one investment pre-eludes the selection of an alternative

Question 69.
Which method provides more confidence, the payback method or the net present value method?
(A) Payback because it provides a good timetable.
(B) Payback because it tells you when you break even.
(C) Net present value because it considers all inflows and outflows and the time value of money.
(D) Net present value because it does not need to use cost of capital.
(C) Net present value because it considers all inflows and outflows and the time value of money.

Question 70.
To estimate an unknown number that lies between two known numbers is knows as –
(A) Capital rationing
(B) Capital budgeting
(C) Interpolation
(D) Amortization
(C) Interpolation

Question 71.
Capital budgeting is the process of identifying analyzing and selecting investments project whose returns are expected to extend beyond –
(A) 3 years
(B) 2 years
(C) 1 year
(D) Months
(C) 1 year

Question 72.
Indifference criteria whenBCR(Benifit Cost Ratio)?
(A) BCR > 1
(B) BCR = 1
(C) BCR < 1
(D) None of the above
(B) BCR = 1

Question 73.
Criterion for IRR (Internal Rate of Return)?
(A) Accept, if IRR > Cost of capital
(B) Accept, if IRR < Cost of capital
(C) Accept, if IRR = Cost of capital
(D) None of the above
(A) Accept, if IRR > Cost of capital

Question 74.
The categories of cash flows includes –
(A) Net initial investment
(B) Cash flow from operations after paying taxes
(C) Cash flow from terminal disposal after paying taxes
(D) All of the above
(D) All of the above

Question 75.
The concept which explains that a money received in present time is more valuable than money received in future is classified as –
(B) Storage value of money
(C) Time value of money
(D) Cash value of money
(C) Time value of money

Question 76.
The method which calculates the time to recoup initial investment of project in form of expected cash flows is classified as –
(A) Net value cash flow method
(B) Payback method
(C) Single cash flow method
(D) Lean cash flows method
(B) Payback method

Question 77.
The rate of return to cover risk of investment and decrease in purchasing power as a result of inflation is classified as –
(A) Nominal rate of return
(B) Accrual accounting rate of return
(C) Real rate of return
(D) Required rate of return
(A) Nominal rate of return

Question 78.
The payback period is multiplied to constant increase in yearly future cash flows to calculate –
(A) Cash value of money
(B) Net initial investment
(C) Net future value
(D) Time value of money
(B) Net initial investment

Question 79.
The rate of return which is made up of risk free element and business risk element is classified as –
(A) Nominal rate of return
(B) Accrual accounting rate of return
(C) Real rate of return
(D) Required rate of return
(C) Real rate of return

Question 80.
The project’s expected monetary loss or monetary gain by discounting all cash outflows and inflows using required rate of return is classified as –
(A) Net present value
(B) Net future value
(C) Net discounted value
(D) Net recorded cash value
(A) Net present value

Question 81.
The decrease in purchasing power of any monetary unit such as euro, dollars etc. is classified as…
(A) Net investment parity
(B) Inflation
(B) Inflation

Question 82.
When using the expected value criterion, it is assumed that the individual wants to
(A) Maximize return for a given level of risk
(B) Maximize return for maximum level of risk
(C) Maximize return irrespective of the level of risk
(D) All of the above
(B) Maximize return for maximum level of risk

Question 83.
The profitability index may be used in investment decisions where capital rationing exists. In this context, when selecting investments for an optimal portfolio, the use of the profitability index is appropriate only where:
1. Projects are divisible.
2. Capital rationing occurs within a single investment period.
Which one of the following combinations (true/false) relating to the above statements is correct?

(A)

Question 84.
Which of the following statements is true about mutually exclusive projects?
(A) They are not in direct competition with each other.
(B) They are in direct competition with each other.
(C) They are not evaluated based on shareholder wealth.
(D) They are never evaluated.
(B) They are in direct competition with each other.

Question 85.
Why are projects with negative net present values (NPVs) unacceptable to a firm?
(A) Returns lower than the cost of capital result in firm failure.
(B) Returns with negative NPVs cause an equal profit ratio.
(C) Returns with negative NPVs are acceptable to a firm.
(D) Returns lower than the cost of capital result in higher profit ratios
(A) Returns lower than the cost of capital result in firm failure.

Question 86.
Internal Rate of Return is defined as –
(A) The discount rate which causes the payback to equal one year.
(B) The discount rate which causes the NPV to equal zero.
(C) The ROE when the NPV equals 0.
(D) The ROE associated with project maximization.
(B) The discount rate which causes the NPV to equal zero.

Question 87.
What are the two drawbacks associated with the payback period?
(A) The time value of money is ignored. It ignores cash flows beyond the payback period.
(B) The time value of money is considered. It ignores cash flows beyond the payback period.
(C) The time value of money is considered. It includes cash flows beyond the payback period.
(D) The time value of money is ignored. It includes cash flows beyond the payback period.
(A) The time value of money is ignored. It ignores cash flows beyond the payback period.

Question 88.
Which of the following cash flows should not be considered relevant in calculating project cash flows?
(A) Opportunity costs
(B) Any effects caused by cannibalization
(C) Investments in net working capital as a result of making the investment
(D) Sunk costs
(D) Sunk costs

Question 89.
Cash flows that should be considered for decision in hand are classified as –
(A) Relevant cash flows
(B) Irrelevant cash flows
(C) Marginal cash flows
(D) Transaction cash flows
(A) Relevant cash flows

Question 90.
Nominal interest rates and nominal cash flows are usually reflected the –
(A) Inflation effects
(B) Opportunity effects
(C) Equity effects
(D) Debt effects
(A) Inflation effects

Question 91.
In cash flow estimation and risk analysis, real rate will be equal to nominal rate if there is –
(A) No inflation
(B) High inflation
(C) No transactions
(D) No acceleration
(A) No inflation

Question 92.
Real interest rate and real cash flows do not include –
(A) Equity effects
(B) Debt effects
(C) Inflation effects
(D) Opportunity effects
(C) Inflation effects

Question 93.
Which of the following is not used in capital budgeting?
(A) Time value of money
(B) Sensitivity analysis
(C) Net assets method
(D) Cashflows
(C) Net assets method

Question 94.
Which of the following is not incorporated in Capital Budgeting?
(A) Tax Effect
(B) Time Value of Money
(C) Required Rate of Return
(D) Rate of Cash Discount
(D) Rate of Cash Discount

Question 95.
Which of the following is not applied in capital budgeting?
(A) Cash flows be calculated in incremental terms
(B) All costs and benefits are measured on cash basis
(C) All accrued costs and revenues be incorporated
(D) All benefits are measured on after tax basis.
(C) All accrued costs and revenues be incorporated

Question 96.
A proposal is not a capital budgeting proposal if it:
(A) is related to Fixed Assets
(B) brings long-term benefits
(C) brings short-term benefits only
(D) has very large investment
(C) brings short-term benefits only

Question 97.
Risk of a capital budgeting can be incorporated:
(D) All of the above
(D) All of the above

Question 98.
In Certainty Equivalent Approach, the CE Factors for different years are:
(A) Generally increasing
(B) Generally decreasing
(C) Generally same
(D) None of the above
(B) Generally decreasing

Question 99.
Which of the following is correct for Risk Adjusted Discount Rate (RADR)?
(A) Accept a project if NPV at RADR is negative
(B) Accept a project if IRR is more than RADR
(D) All of the above

Question 100.
Expected Value of Cash flow, EVCF, is:
(A) Certain to occur
(B) Most likely cash flows
(C) Arithmetic average cash flow
(D) Geometric average cash flow
(B) Most likely cash flows

Question 101.
Concept of joint probability is used in case of:
(A) Independent cash flows
(B) Uncertain cash flows
(C) Dependent cash flows
(D) Certain cash flows
(C) Dependent cash flows

Question 102.
Decision-tree approach is used in:
(A) Proposals with longer life
(B) Sequential decisions
(C) Independent Cash flows
(D) Accept-Reject Proposal
(B) Sequential decisions

Question 103.
Situation in which company replaces existing assets with new assets is classified as
(A) Replacement projects
(B) New projects
(C) Existing projects
(D) Internal projects
(A) Replacement projects

Question 104.
The investment proposal with the greatest relative risk would have:
(A) Highest standard deviation of net present value.
(B) Highest coefficient of variation of net present value.
(C) Highest expected value of net present value.
(D) Lowest opportunity loss.
(B) Highest coefficient of variation of net present value.

Question 105.
Probability-tree analysis is best used when cash flows are expected to be:
(A) Independent over time.
(B) Risk-free.
(C) Related to the cash flows in previous periods.
(D) Known with certainty.
(C) Related to the cash flows in previous periods.

Question 106.
You are considering two mutually exclusive investment proposals, project A and project B. B’s expected value of net present value is \$1,000 less than that for A and A has less dispersion. On the basis of risk and return, you would say that:
(A) Project A dominates project B.
(B) Project B dominates project A.
(C) Project A is more risky and should offer greater expected value.
(D) Each project is high on one variable, so the two are basically equal.
(A) Project A dominates project B.

Question 107.
If two projects are completely independent (or unrelated), the measure of correlation between them is:
(A) 0
(B) 0.5
(C) 1.0
(D) -1.0
(A) 0

Question 108.
Consider following two statements.
(I) Capital budgeting decisions are reversible in nature.
(II) An expansion decision is not a capital budgeting decision.
Select the correct answer from the options given below.

(D)

Question 109.
Match List-I with List-II:

Select the correct answer from the options given below.

(C)

Question 110.
Money Discount Rate is equal to:
(A) (1 + IR) × (1 + RDR) – 1
(B) (1 + IR) – (1 + RDR) -1
(C) (1 +RDR) – (1 + IR) -1
(D) (1 + RDR) + (1 + IR) -1
(A) (1 + IR) × (1 + RDR) – 1

Question 111.
Real Discount Rate is equal to:
(A) (1 + IR) (1 + MDR) -1
(B) (1 + MDR) + (1 + IR) – 1
(C) (1 +MDR) ÷ (1 + IR) – 1
(D) (1 + MDR) – (1 + IR) – 1
(C) (1 +MDR) ÷ (1 + IR) – 1

Question 112.
Consider following statements:
(1) Expected value of cash flows is equal to the arithmetic average of the cash flows.
(2) In case of capital budgeting, higher the standard deviation better the project is.
(3) In case of dependent cash flows, the risk is measured with reference to joint probabilities.
Select the correct statement.
(A) (1) False (2) False (3) False
(B) (1) False (2) True (3) True
(C) (1) True (2) True (3) False
(D) (1) False (2) False (3) True
(D) (1) False (2) False (3) True

Question 113.
In the open-ended lease –
(A) The seller of an asset leases back the same asset from the purchaser.
(B) The lease arrangement is made immediately after the sale of the asset with the amount of the payments and the time period specified.
(C) The lessee has the option of purchasing the assets at the end of lease period.
(D) None of the above
(C) The lessee has the option of purchasing the assets at the end of lease period.

Question 114.
Assume that a firm has accurately calculated the net cash flows relating to two mutually exclusive investment proposals. If the net present value of both proposals exceed zero and the firm is not under the constraint of capital rationing, then the firm should
(A) calculate the IRRs of these investments to be certain that the IRRs are greater than the cost of capital.
(B) compare the profitability index of these investments to those of other possible investments.
(C) calculate the payback periods to make certain that the initial cash outlays can be recovered within a appropriate period of time.
(D) accept the proposal that has the largest NP V since the goal of the firm is to maximize shareholder wealth and, since the projects are mutually exclusive, we can only take one.
(D) accept the proposal that has the largest NP V since the goal of the firm is to maximize shareholder wealth and, since the projects are mutually exclusive, we can only take one.

Question 115.
Which of the following statements is correct regarding the risk-adjusted discount rate (RADR) approach?
(A) Under the RADR approach, we should accept a project if its net present value (NPV) calculated using a risk-adjusted discount rate is positive.
(B) Adjusting the firm’s overall cost of capital upward is required if the project or group are of higher than average risk.
(C) Under the RADR approach, we would still compare a project’s internal rate of return (IRR) to the firm’s overall weighted-average cost of capital in order to decide acceptance/rejection.
(D) Adjusting the firm’s overall cost of capital downward is required if the project or group are of lower than average risk.
(A) Under the RADR approach, we should accept a project if its net present value (NPV) calculated using a risk-adjusted discount rate is positive.

Question 116.
Which one of the following projects – A, B, C or D – should be accepted? The expected return on the market is 16% and the risk-free rate is 6%.
(A) Project A, which has a beta of 0.50 and expected return of 11.2%.
(B) Project B, which has a beta of 2.50 and expected return of 25.4%.
(C) Project C, which has a beta of 1.25 and expected return of 18.2%.
(D) Project D, which has a beta of 1.00 and expected return of 15.8%.
(A) Project A, which has a beta of 0.50 and expected return of 11.2%.

Question 117.
Damodhar is evaluating two conventional, independent capital budgeting projects (X & Y) by making use of the risk-adjusted discount rate (RADR) method of analysis. Projects X & Y have internal rates of return of 16% & 12%, respectively. RADR appropriate to Project X is 18%, while Project Y’sRADRisonly 10%. The company’s overall, weighted-average cost of capital is 14%. Damodhar should –
(A) Accept Project X and accept Project Y
(B) Accept Project X and reject Project Y
(C) Reject Project X and accept Project Y
(D) Reject Project X and reject Project Y
(C) Reject Project X and accept Project Y

Question 118.
Two mutually exclusive projects are being considered. Neither project will be repeated again in the future after their current lives are complete. There-exists a potential problem though – the expected life of the first project is one year and the expected life of the second project is three years. This has caused the NPV and IRR methods to suggest different project preferences. What technique can be used to help make a better decision in this scenario?
(A) Rely on the NPV method and make your choice as it will tell you which one is best.
(B) Use the common-fife technique to replicate the one-year project three times and recalculate the NPV and IRR for the one-year project.
(C) Ignore the NPV technique and simply choose the highest IRR since managers are concerned about maximizing returns.
(D) In this situation, we need to rely on the profitability index (PI) method and choose the one with the highest PI.
(A) Rely on the NPV method and make your choice as it will tell you which one is best.

Question 119.
In Certainty Equivalent Approach, the first step is to Convert uncertain cash flows to certain cash flows by multiplying it with the CE Factor and step two is –
(A) Discount the certain cash flows at the IRR to arrive at NP.
(B) Discount the certain cash flows at WACC rate to arrive at NP.
(C) Discount the certain cash flows at the risk free rate to arrive at NP.
(D) Discount the certain cash flows at the market rate of return to arrive at NP
(C) Discount the certain cash flows at the risk free rate to arrive at NP.

Question 120.
Which of the following is correct formula to calculate risk-adjusted discount rate?

(A)

Question 121.
You are considering two projects namely Project X and Project Y. Project X has low standard deviation but high coefficient of variation as compared to Project Y. Project Y has high standard deviation but low coefficient of variation as compared to Project X. Which project will you select?
(A) Project X only
(B) Both Project X & Project Y
(C) Neither Project nor & Project Y
(D) Project Y only
(D) Project Y only

Question 122.
The coefficient of variation of net present value measures the ………
(A) Total risk of the project
(B) Relative risk of the project
(C) Highest expected value of net present value
(D) Market risk of the project
(B) Relative risk of the project

Question 123.
Vayu’ Ltd. uses the Net Present Value (NPV) method, the Internal Rate of Return (IRR) method and Discounted Payback Period (DPP) to appraise its new investment. An investment opportunity was recently appraised using each of these methods and was estimated to provide a positive NPV of ₹ 1.5 million, an IRR of 15% and a DPP of 3 years. Later, it was discovered that the cost of capital of the company was lower than had been previously estimated. What would be the effect on the figures provided by each investment appraisal method of taking account of the lower cost of capital?

(C)

Question 124.
A risk averse investor is considering four mutually exclusive investments, which have the following characteristics:

Which two of the above investments will the investor immediately reject?
(A) Alpha & Beta
(B) Alpha & Gamma
(C) Gamma & Delta
(D) Beta & Delta
(C) Gamma & Delta

Question 125.
A approach to examining project risk occurs when the manager applies a probability distribution to factors such as market size, selling price, fixed and variable costs, and the useful life of the project. The manager then runs a computer program to determine the project worth by randomly selecting values for each variable, within the limits assigned. This is done numerous times to generate a complete risk-return analysis.
(A) Simulation
(B) Probability-tree
(C) Firm-portfolio
(D) Market risk
(A) Simulation

Question 126.
A ……….. approach to examining project risk occurs when cash flows are arranged such that a cash flow in one period leads to several possible cash flow outcomes in the subsequent period. Each individual cash flow in the subsequent period then leads to several possible cash flow outcomes in its subsequent period. This process continues numerous times to generate a complete risk-return graphic.
(A) Simulation
(B) Probability-tree
(C) Firm-portfolio
(D) Market risk
(B) Probability-tree

Question 127.
The probability in subsequent periods that is conditioned on what has occurred earlier is referred to as the –
(A) Initial probability
(B) Conditional probability
(C) Joint probability
(D) None of the above
(B) Conditional probability

Question 128.
A firm that ignores risk differences (does not adjust for risk) when choosing new investment projects will generally –
(A) Reduce the overall risk of the firm overtime
(B) Not change the overall risk of the firm over time
(C) Increase the overall risk of the firm over time
(D) None of the above
(C) Increase the overall risk of the firm over time

Question 129.
If two projects are completely and positively linearly dependent (or positively related), the measure of correlation between them is …………..
(A) 0
(B) +0.5
(C) +1
(D) -1
(C) +1

Question 130.
The probability associated with the first portion of a complete branch of the probability tree is referred to as the……………..
(A) Initial probability
(B) Conditional probability
(C) Joint probability
(D) None of the above
(A) Initial probability

Question 131.
The probability that a particular sequence of cash flows might occur is referred to as the………..
(A) Initial probability
(B) Conditional probability
(C) Joint probability
(D) None of the above
(C) Joint probability

Question 132.
What technique is best used when cash flows are related to cash flows in previous periods?
(A) Cash flow analysis
(B) Risk aversion analysis
(C) Probability-tree analysis
(D) None of the above
(C) Probability-tree analysis

Question 133.
When evaluating the risk and return of a project using the probability tree approach, what is the appropriate rate to discount each sequence of cash flows in the tree?
(A) Zero
(B) Risk-free rate
(C) Cost of capital
(D) Firm’s historical return on its stock
(B) Risk-free rate

Question 134.
Consider the following two statements concerning finance leasing.
Statement I:
The lessor is responsible for the maintenance and servicing of the asset.
Statement II:
The period of the lease will cover all, or substantially all, of the useful economic life of the leased asset.
Select the correct answer from the options given below:

(C)

Question 135.
Which of the following relate to finance leases as opposed to operating leases?
1. At the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset.
2. Ownership of the asset remains with the lessor for the entire lease period.
3. Asset acquired under finance lease is shown as asset in the balance sheet of the lessee.
Select the correct answer from the options given below:
(A) 2 only
(B) 1 and 3 only
(C) 1 and 2 only
(D) 2 and 3 only
(B) 1 and 3 only

Question 136.
AB Ltd. is considering either leasing an asset or borrowing to buy it, and is attempting to analyze the options by calculating the NPV of each. When comparing the two, AB Ltd. is uncertain whether they should include interest payments in their option to ‘borrow and buy’ as it is a future, incremental cash flow associated with that option. They are also uncertain which discount rate to use in the NPV calculation for the lease option. How should AB Ltd. treat the interest payments and what discount rate should they use?
Include interest — ₹ Discount Rate
(A) Yes — After tax cost of the loan if they borrow and buy
(B) Yes — AB Ltd.’s WACC
(C) No — After tax cost of the loan if they borrow and buy
(D) No — AB Ltd.’s WACC
(C) No — After tax cost of the loan if they borrow and buy

Question 137.
Consider following two statements:
1. Risk analysis gives management better information about the possible outcomes that may occur so that management can use their judgment and experience to accept an investment or reject it.
2. In relation to capital budgeting, sensitivity analysis deals with the consideration of sensitivity of the NPV to different variables contributing to the NPV.
Select correct answer from the options given below:
(A) Both Statements are false
(B) Statement 1 is true while Statement 2 if false.
(C) Statement 2 is true while Statement 1 if false.
(D) Both Statements are true
(D) Both Statements are true

Question 138.
Which of the following is advantage of sensitivity analysis?
(A) It compels the decision maker to identify the variables which affect the cash flow forecasts. This helps him in understanding the investment project in totality.
(B) It indicates the critical variables for which additional information may be obtained. The decision maker can consider actions which may help in strengthening the “weak spots” in the project
(C) It helps to expose inappropriate forecasts and thus guides the decision maker to concentrate on relevant variables.
(D) All of the above
(D) All of the above

Question 139.
Which of the following is correct formula to calculate coefficient of variation?
(A) Standard deviation ÷ Expected NPV
(B) Standard deviation × Expected NPV
(C) Correlation × SD ÷ Expected NP
(D) None of the above
(A) Standard deviation ÷ Expected NPV

Question 140.
Select odd one ……………
(A) Certainty Equivalent Approach
(B) Expected Net Present Value
(C) Simulation
(D) ARR
(D) ARR

Question 141.
A project requires initial investment of ₹ 2,00,000 and estimated to generate cash flow after tax of ₹ 1,00,000,₹ 80,000, ₹ 40,000,₹ 20,000 &₹ 10,000 in next 5 years. What is the payback period of the project?
(A) 3 years and 4 months
(B) 2 years and 6 months
(C) 4 years and 2 months
(D) 2 years and 8 months
(B) 2 years and 6 months

Question 142.
Y Ltd. is considering a project which requires initial investment of ₹ 6,75,000. Its cost of capital is 10%. Estimated cash flow after tax are as follows:
Year 1 — …………
Year 2 — 1,50,000
Year 3 — 6,60,000
Year 4 — 4,20,000
Year 5 — 4,20,000
What is projects discounted payback period?
(A) 3 years & 7.58 months
(B) 4 years & 4.12 months
(C) 3 years & 2.32 months
(D) 4 years & 8.11 months
(C) 3 years & 2.32 months

Question 143.
Rakesh Ltd. is considering to invest in one of four projects for which an analyst has calculated ‘payback period reciprocal’ as 25%, 40%, 50% & 75% respectively for Project P, Q, R & S. Which project will be selected on ‘payback period’ method of capital budgeting?
(A) Project R
(B) Project P
(C) Project S
(D) Project Q
(D) Project Q
Payback period reciprocal $$=\frac{1}{\text { Payback Period }} \times 100$$
Payback period of the Project P, Q, R & S project will be 4 years, 2.5 years, 2 years & 1.33 years. Since payback period of Project S is minimum; it will get selected.

Question 144.
Ramsey Ltd. wants to select one of machine out of two. Data for machines are given below:

Machine has to be written off over the period of 5 years by SLM.
The company will select –
(A) Machine A because its ARR is 15% while that of Machines B is 14%
(B) Machine B because it has higher average CFAT
(C) Machine A because it has higher average CFAT
(D) Machine B because its ARR is 16% while that of Machines A is 14%
(D) Machine B because its ARR is 16% while that of Machines A is 14%

Question 145.
Following data is available for Project A whose initial investment is ₹ 50,000 and salvage value after 5 years is ₹ 3,750.

What is the NPV of the Project A if the Ke of the company is 10%? Ignore taxation.
(A) ₹ 5,710
(B) ₹ 6,690
(C) ₹ 6,800
(D) ₹ 7,216
(B) ₹ 6,690

Question 146.
A Machine requires initial investment of ₹ 40,000 and expected to generate cash flow of ₹ 8,400,₹ 14,300 & ₹ 32,800 in next 3 years. Applicable tax rate is 30% and WACC of the company is 12%. The company will select machine because –
(A) It has positive NPV of ₹ 2,522
(B) It profitability index is 1.653 which is more than 1.
(C) Its IRR is between 14% to 15% which is more than WACC of the company.
(D) All of the above
(C) Its IRR is between 14% to 15% which is more than WACC of the company.

Question 147.
Profitability index of Project ₹ is 1.20167 when its cash flow is discounted at 12%. Initial investment on project was ₹ 1,50,000. This project generates equal cash flow over the five years time. How much cash flow will be generated by the project each year?
(A) ₹ 50,000
(B) ₹ 40,000
(C) ₹ 60,500
(D) ₹ 40,897
(A) ₹ 50,000

Question 148.
LMN Corporation is considering an investment that will cost ₹ 80,000 and have a useful life of 4 years. During the first 2 years, the net incremental after-tax cash flows are ₹ 25,000 per year and for the last 2 years they are ₹ 20,000 per year. What is the payback period for this investment?
(A) 3.2 year
(B) 3.5 year
(C) 4.0 year
(D) Cannot be determined with this information.
(B) 3.5 year

Question 149.
Bhaskar Ltd. estimated that a proposed project’s 8-year net cash benefit will be ₹ 4,000 per year for years 1 to 8, with an additional terminal benefit of ₹ 8,000 at the end of the eighth year. Assuming that these cash inflows satisfy exactly required rate of return of 8 percent, the project’s initial cash outflow is closest to which of the following four possible answers?
(A) ₹ 27,308
(B) ₹ 25,149
(C) ₹ 14,851
(D) ₹ 40,000
(A) ₹ 27,308

Question 150.
A project has the following cash inflows ₹ 34,444, ₹ 39,877, ₹ 25,000 & ₹ 52,800 for years 1 to 4, respectively. The initial cash outflow is ₹ 1,04,000. Which of the following four statements is correct concerning the project internal rate of return (IRR)?
(A) The IRR is less than 10%.
(B) The IRR is greater than 10%, but less than 14%.
(C) The IRR is greater than 14%, but less than 18%.
(D) The IRR is greater than or equal to 18%.
(C) The IRR is greater than 14%, but less than 18%.

Question 151.
You must decide between two mutually exclusive projects.
Project X has cash flows of — ₹ 10,000, ₹ 5,000, ₹ 5,000 & ₹ 5,000, for years 0 through 3, respectively.
Project Y has cash flows of — ₹ 20,000, ₹ 10,000, ₹ 10,000 & ₹ 10,000; for years 0 through 3, respectively.
The firm has decided to assume that the appropriate cost of capital is 10% for both projects. Which project should be chosen? Why?
(A) X; Project X’s NPV > ProjectY’s NPV.
(B) X or Y; Makes no difference which you choose because the IRR for X is identical to the IRR for Y and both IRRs are greater than 10%, the cost of capital
(C) Y; Project Y’s NPV > Project X’s NPV
(D) Neither X nor Y; The NPVs of both projects are negative.
(C) Y; Project Y’s NPV > Project X’s NPV

If you calculate R then it is same for both projects but when NPV and IRR gives conflicting results then NPV method is preferred and hence Project Y will be selected as its NPV is higher than Project X.

Question 152.
There are two mutually exclusive projects that have different lives. Project A has a 4-year life and Project B has a 5-year life. In replacement chain analysis, the earliest common life will occur when
Project A is replicated ………. times and
Project B is replicated ………. times.
(A) 5; 4
(B) 4; 5
(C) 20; 20
(D) Not possible to determine the answer
(A) 5; 4

Question 153.
ABC Ltd. is considering investing in a project that costs ₹ 5,00,000 that will continue for next five years. The estimated salvage value is zero, tax rate is 35%. The company uses straight line depreciation for tax purposes and the proposed project has profit before charging depreciation of ₹ 2,20,000. Company’s cost of capital is 10%. What is the total present value for this project?
(A) ₹ 6,74,798
(B) ₹ 6,47,798
(C) ₹ 6,74,987
(D) ₹ 7,64,798
(A) ₹ 6,74,798

Question 154.
ABC Ltd. is considering investing in a project that costs ₹ 5,00,000 that will continue for next five years. The estimated salvage value is zero, tax rate is 35%. The company uses straight line depreciation for tax purposes and the proposed project has profit before charging depreciation of ₹ 2,20,000. Company’s cost of capital is 10%. What is the Profitability Index of this project?
(A) 1.25
(B) 1.45
(C) 1.15
(D) 1.35
(D) 1.35

Question 155.
ABC Ltd. is considering investing in a project that costs ₹ 5,00,000 that will continue for next five years. The estimated salvage value is zero, tax rate is 35%. The company uses straight line depreciation for tax purposes and the proposed project H has profit before charging depreciation of ₹ 2,20,000. Company’s cost of capital is 10%. What is the Payback Period of this project?
(A) 2.52 years
(B) 2.81 years
(C) 3.24 years
(D) 4.11 years
(B) 2.81 years

Question 156.
ABC Ltd. is considering investing in a project that costs ₹ 5,00,000 that will continue for next five years. The estimated salvage value is zero, tax rate is 35%. The company uses straight line depreciation for tax purposes and the proposed project has profit before charging depreciation of ₹ 2,20,000. Company’s cost of capital is 10%. What is the IRR of this project?
(A) Between 10% to 15%
(B) Between 10% to 20%
(C) Between 18% to 19%
(D) Between 22% to 23%
(D) Between 22% to 23%

Question 157.
Machine Z purchased at year zero for ₹ 5,00,000 which will be depreciated @25% for 5 years on written down value basis and then will be sold at ₹ 70,000. Capital gain tax rate is 35% while corporate income tax rate is 40%. What is the present value of cash flow of machine at 5th year if cost of capital is 12%?
(A) ₹ 68,326
(B) ₹ 39,690
(C) ₹ 49,345
(D) ₹ 87,028
(C) ₹ 49,345

Question 158.
Machine P purchased at year zero at ₹ 10,00,000 which will be depreciated @ 25% for 5 years on written down value basis and then will be sold at ₹ 1,40,000. Tax rate is 35%. Profit before depreciation at 5th year is ₹ 84,000. What is the present value of CFAT at year five if cost of capital is 12%?
(A) ₹ 1,45,346
(B) ₹ 1,54,643
(C) ₹ 1,43,546
(D) ₹ 1,54,463
(A) ₹ 1,45,346

Question 159.
Net present value of Machine X is ₹ 29.15 lakh. Cost of capital is 10%. Cash flow after tax for years 1 to 5 is ₹ 35 lakh, ₹ 80 lakh, ₹ 90 lakh, ₹ 75 & ₹ 20 lakh respectively. What is the purchase cost of Machine X?
(A) Not sufficient information is given.
(B) ₹ 150 lakh
(C) ₹ 100 lakh
(D) ₹ 200 lakh
(D) ₹ 200 lakh

Question 160.
Following data is collected by the junior of finance department of Maya Ltd.

Both project requires same investment amounting to ₹ 400 lakh. Cost of capital of Maya Ltd. is 10%.
Managing Director (MD) thinks that project D should be selected whereas Company Secretary (CS) suggests to choose Project C. Who is Correct? Select correct answer from the options given below.
(A) MD as NPV @ 20% of Project D is more than Project C.
(B) CS as IRR of Project C is less than Project D.
(C) MD as IRR of Project D is more than Project C.
(D) CS as NPV 10% of Project C is more than Project D.
(D) CS as NPV 10% of Project C is more than Project D.

Company’s cost of capital is 10% and NPV of Project C at that cost of capital is higher so it will get selected even though IRR of the Project D is higher because when NPV and IRR gives conflicting results; preference should be given to NPV Method.

Question 161.
A company is considering whether it should spend ₹ 10 lakhs on a project to manufacture and sell a new product. Unit variable cost of the product is ₹ 15. It is expected that the new product can be sold at ₹ 25 per unit. The annual fixed costs are ₹ 50,000. The project will have a life of 6 years with scrap value of ₹ 50,000. Cost of capital is 15%. The only uncertain factor is the volume of sales. Ignore taxation. Minimum volume of sales required to justify the project is -……….
(A) 30,852 units
(B) 33,487 units
(C) 28,453 units
(D) 34,741 units
(A) 30,852 units

Question 162.
A project whose useful life is 4 years has IRR of 15% and will save cost of ₹ 1,60,000 annually. What is the project cost i.e. initial investment?
(A) ₹ 10,66,667
(B) ₹ 4,60,000
(C) ₹ 5,32,800
(D) ₹ 4,56,800
(D) ₹ 4,56,800
Annual cost saving = Cash inflow = 1,60,000
Useful life = 4 years
IRR = 15%
At 15% IRR, total present value of cash inflow is equal to initial cash outlay.
Total present value of cash inflow @ 15% for 4 years is 2.855 = 1,60,000×2.855
= 4,56,800
Thus, Project cost = 4,56,800.
PV Table and annuity table will be provided in exam.

Question 163.
A professional kitchen is attempting to choose between gas and electricity for its main heat source. Once a choice is made, the kitchen intends to keep to that source indefinitely. Each gas oven has a net present value (NPV) of ₹ 50,000 over its useful life of 5 years. Each electric oven has an NPV of ₹ 68,000 over its useful life of 7 years. The cost of capital is 8%. Which should the kitchen choose and why?
(A) Gas because its average NPV per year is higher than electric
(B) Electric because its NPV is higher than gas
(C) Electric because its equivalent annual benefit is higher
(D) Electric because it lasts longer than gas
(C) Electric because its equivalent annual benefit is higher
Equivalent NPV of gas oven = $$\frac{50,000}{3.9927}=12,523$$
Equivalent NPV of electric oven = $$\frac{68,000}{5.2064}=13,061$$

Question 164.
Universe Ltd. has an investment budget of ₹ 250 lakhs. The management wants to complete the financial appraisal before making the investment.

Company follows straight line method of will charging depreciation. Tax rate is 50%. Estimate life = 10 years (both projects).
You will advise to select – 2;
(A) Project B, as its payback period is less as compared to Project A
(B) Project B, as its payback period and ARR are higher than Project A.
(C) Project B, as its ARR is 10.35% where as ARR of Project A is 10.20%
(D) Project A, as its payback period is less and ARR is higher than Project B.
(D) Project A, as its payback period is less and ARR is higher than Project B.

Question 165.
James Co. is considering a project with an initial cost of ₹ 6.2 Million. The project will produce cash inflows of ₹ 1.8 Million a year for 5 years. Firm uses the subjective approach to assign discount rates to projects. For this project, the subjective adjustment is +2%. Firm has a pre-tax cost of debt of 6.7% and a cost of equity of 9.4%. The debt-equity ratio is 0.6 and the tax rate is 35%. What is the NPV of the project?
(A) ₹ 8,11,000
(B) ₹ 7,90,900
(C) ₹ 7,42,060
(D) ₹ 7,10,200
(D) ₹ 7,10,200

Subjective adjustment is +2%; thus rate will be 9.51% (7.51% + 2%).
18.00,000 × 3.839 = 69,10,200.
NPV = 69,10,200 – 62,00,000 = 7,10,200

Question 166.
Yogesh Ltd. has to make a choice between two identical machines, in terms of capacity, A and B. They have been designed differently, but do exactly the same job. Machine A costs ₹ 1,87,500 and will last for 3 years. It costs ₹ 50,000 p.a. to run. Machine B is an economy model costing only ₹ 1,25,000, but will last for only 2 years. It costs ₹ 75,000 p.a. to run. The cash flows of Machine A and B are real cash flows. The costs are forecasted in rupees of constant purchasing power. Ignore taxes. The opportunity cost of capital is 9%. Which machine the Yogesh Ltd. should buy?
(A) Machine B as its present value of cash outflow is less than Machine A.
(B) Machine A as its present value of cash outflow is less than Machine B.
(C) Machine B as it is cheaper than Machine A.
(D) Machine A as its equivalent present value of cash outflow is less than Machine B.
(D) Machine A as its equivalent present value of cash outflow is less than Machine B.

Analysis: Company should buy Machine A since equivalent annual cash outflow is less than that of Machine B.

Question 167.
The net present value of a proposed project is ₹ 20,000 at a discount rate of 5% and (₹ 28,000) at 10%. What is the internal rate of return of the project, to the nearest one decimal place?
(A) 7.08%
(B) 7.05%
(C) 2.03%
(D) 8.06%
(A) 7.08%

Question 168.
Monika Ltd. is considering investing in two competing projects: Delta & Gamma. Delta has NPV of ₹ 16,500 and IRR of 17%. Details of the estimated cash flows of Gamma are as follows:

The business has a cost of capital of 10%. Which of the following combinations is correct concerning the NPV and IRR of the two projects?

(C)

Question 169.
ABC Ltd. wishes to undertake a project requiring an investment of ₹ 7,32,000 which will generate equal annual inflows of ₹ 1,46,400 in perpetuity. What is the IRR of the project?
(A) 20%
(B) 25%
(C) 400%
(D) 500%
(A) 20%

Question 170.
A company purchases a non-current asset with a useful economic life of ten years for ₹ 12,50,000. It is expected to generate cash flows over the 10 year period of ₹ 2,50,000 p.a. before depreciation. The company charges depreciation over the life of the asset on SLM. At the end of the period it will be sold for ₹ 2,50,000. What is the ARR for the investment (based on average profits & average investment)? Ignore Taxation.
(A) 20%
(B) 15%
(C) 33%
(D) 25%
(C) 33%

Question 171.
Tanishka is considering an investment in a new process. The new process will require an increase in stocks of ₹ 30,000 during the first year. There will also be an increase in debtors outstanding of ₹ 40,000 and an increase of creditors outstanding of ₹ 35,000 during the first year. The new process will use machinery that was purchased immediately before the first year of operations at a cost of ₹ 3,00,000. The machinery is depreciated using SLM and has an estimated life of 5 years and no residual value. During the first year, the net operating profit before depreciation from the new process is expected to be ₹ 1,80,000. The business uses the NPV method when evaluating investment proposals. When undertaking the NPV calculations, what would be the estimated net cash flow during the first year of the project? (Ignore taxation)
(A) ₹ 85,000
(B) ₹ 2,15,000
(C) ₹ 1,45,000
(D) ₹ 1,55,000
(C) ₹ 1,45,000
Cash outflow = 30,000 + 40,000 – 35,000 = 35,000; Cash inflow = 1,80,000 – 35,000 = 1,45,000

Question 172.
LW Co. has a half empty factory on which it pays ₹ 5,000 p.a. If it takes on a new project, it will have to move to a new bigger factory costing ₹ 17,000 p.a. and it could rent the old factory out for ₹ 3,000 p.a. until the end of the current lease. What is the rental cost to be included in the project appraisal?
(A) ₹ 14,000
(B) ₹ 17,000
(C) ₹ 9,000
(D) ₹ 19,000
(A) ₹ 14,000

Question 173.
The one year rate of inflation is expected to be 3%. The one year money discount rate is 6-3%. The one year real rate of discount is:
(A) 3-30%
(B) 3-20%
(C) 9-30%
(D) 9-49%
(B) 3-20%
(1 + MDR) = (1 + RDR) × (1 + IR)
(1 + 0.063) = (1 + RDR) × (1 + 0.03)
1.063 = 1 + RDR × 1.03
1.032 = 1 + RDR
RDR = 0.032 i..e. 3.2%

Question 174.
The one year rate of inflation is expected to be 5%. The one year real discount rate is 10%. The one year money rate of discount is:
(A) 10%
(B) 13%
(C) 13.3%
(D) 15.5%
(D) 15.5%
(1 + MDR) = (1 + RDR) × (1 + IR)
1 + MDR = (1 + 0.10) × (1 + 0.05)
1 + MDR = 1.1 × 1.05
1 + MDR = 1.155
MDR = 0.155 i..e. 15.5%

Question 175.
A company has 31 December as its accounting year end. On 1.1.2014 a new machine costing ₹ 2,00,000 is purchased. The company expects to sell the machine on 31.12.2015 for ₹ 3,50,000. The rate of corporation tax for the company is 30% and the same rate is applicable for capital profit/loss. Tax-allowable depreciation is obtained at 25% on the reducing balance basis. The company makes sufficient profits to obtain relief for capital allowances as soon as they arise. If the company’s cost of capital is 15%, what is the NPV?
(A) Positive ₹ 32,290
(B) Negative ₹ 32,290
(C) Positive ₹ 1,78,445
(D) Negative ₹ 1,78,445
(A) Positive ₹ 32,290

Question 176.
A company has 31 December as its accounting year end. On 1.1.2014 a new machine costing ₹ 20,00,000 is purchased. The company expects to sell the machine on 31.12.2015 for ₹ 3,50,000. The rate of corporation tax for the company is 30% and the same rate is applicable for capital profit/loss. Tax-allowable depreciation is obtained at 25% on the reducing balance basis, and a balancing allowance is available on disposal of the asset. The company makes sufficient profits to obtain relief for capital allowances as soon as they arise. If the company’s cost of capital is 15%, what is the NPV?
(A) Negative ₹ 13,48,040
(B) Negative ₹ 13,44,080
(C) Positive ₹ 13,48,040
(D) Positive ₹ 13,44,080
(B) Negative ₹ 13,44,080

Question 177.
A project has the following estimated cash inflows.
Year 1: — ₹ 1,00,000
Year 2: — ₹ 1,25,000
Year 3: — ₹ 1,05,000
Working capital is required to be in place at the start of each year equal to 1096 of the cash inflow for that year. The cost of capital is 1096. What is the present value of the working capital?
(A) Nil
(B) (30,036)
(C) (2,735)
(D) 33,000
(B) (30,036)
Year 0 10,000 × 1.000 = 10,000
Year 1 = 12,500 × 0.909 = 11,363
Year 2 = 10,500 × 0.826 = 8,673
10,000 + 11,363 + 8,673 = 30,036

Question 178.
A company has to make a choice between two machines X and Y. The two machines are designed differently, but have identical capacity and do exactly the same job. Machine X cost ₹ 5,50,000 and will last for 3 years. It costs ₹ 1,25,000 per year to run. Machine Y is an economy model costing ₹ 4,00,000, but will last for 2 years and costs ₹ 1,50,000 per year to run. These are real cash flows. The costs are forecasted in rupees of constant purchasing power. Cost of capital is 12%. Ignore Taxes. Which machine company should buy?
(A) Machine X
(B) Machine Y
(C) Any Machine
(D) Any machine other than X and Y
(A) Machine X

Question 179.
A Ltd. is considering the purchase of a machine which will perform some operations which are at present performed by workers. Machines X and Y are alternative models. The following details are available for year:

Depreciation will be charged on straight line basis. Tax rate is 30%. Cost of capital is 10%. A Ltd. will select –
(A) Machine X as it has higher NP V than Machine Y
(B) Machine Y as it has higher profitability index
(C) Machine X as it has higher profitability index
(D) Machine Y as it has higher ARR than Machine X
(C) Machine X as it has higher profitability index

Question 180.
ANP Ltd. is providing the following information:
Annual cost of saving — ₹ 48,000
Useful life — 5 years
Salvage value Zero
Internal rate of return — 15%
Profitability index — 1.05
What is projects initial investment?
(A) ₹ 1,60,900
(B) ₹ 1,60,896
(C) ₹ 1,60,494
(D) ₹ 1,60,499
(B) ₹ 1,60,896
Annual cost saving = Cash inflow = 48,000
Useful life = 5 years
IRR = 15%
At 15% IRR, total present value of cash inflow is equal to initial cash outlay.
Total present value of cash inflow @ 15% for 5 years is 3.353
= 48,000 × 3.352 = 1,60,896.
Thus, Project cost = 1,60,896.

Question 181.
Using the data of above question calculate payback period.
(A) 3.35 years
(B) 3.43 years
(C) 3.53 years
(D) 3.76 years
(A) 3.35 years
1,60,896/48,000 = 3.35 year

Question 182.
GOL Ltd. is providing the following. What is cost of capital of GOL Ltd.?
(A) 12%
(B) 13%
(C) 14%
(D) 15%
(B) 13%
Annual cost saving = Cash inflow = 96,000
Useful life = 5 years
IRR = 15%
At 15% IRR, total present value of cash inflow is equal to initial cash outlay.
Total present value of cash inflow @ 15% for 5 years is 3.353
= 96,000 × 3.353 = 3,21,888
Thus, Project cost = 3,21,888.
Calculation of cost of capital:

96,000x = 3,37,982
x = 3.521
Looking at present value table, discount factor for 5 years is 3.521
Hence, Cost of capital = 13%
Net present value = 3,37,982 – 3,21,888 = 16,094

Question 183.
Using the data of above question calculate NPV.
(A) ₹ 16,940
(B) ₹ 16,409
(C) ₹ 16,094
(D) ₹ 16,904
(C) ₹ 16,094
Annual cost saving = Cash inflow = 96,000
Useful life = 5 years
IRR = 15%
At 15% IRR, total present value of cash inflow is equal to initial cash outlay.
Total present value of cash inflow .
15% for 5 years is 3.353 = 96,000 × 3.353 = 3,21,888
Thus, Project cost = 3,2 1,888.
calculation of cost of capitaL

96,000x = 3,37,982
x = 3.521
Looking at present value table, discount factor for 5 years is 3.521
Hence, Cost of capital 13%
Net present value = 3,37,982 – 3,2 1,888 = 16,094

Question 184.
In a capital rationing situation (investment limit ₹ 25 lakhs), suggest the most desirable feasible combination on the basis of the following data:

Suggest which combination of project should be selected.
(A) A & C
(B) B & D
(C) C & D
(D) A & B
(D) A & B

From the above analysis it is observed that Project A & B combination gives highest NPV; hence projects A & B combination should be adopted as it will maximize wealth.

Question 185.
S Ltd. has ₹ 10,00,000 allocated for capital budgeting purposes. Following proposals and associated profitability indexes have been determined:

Which of the above investments should be undertaken? Assume that projects are indivisible and there is no alternative use of the money allocated for capital budgeting
(A) 1, 2 & 6
(B) 3, 4 & 5
(C) 2, 4 & 6
(D) 1, 3 & 5
(B) 3, 4 & 5

Selection of Projects:
(1) Profitability Index Method: Assuming the projects are indivisible and there is no alternative use of unutilized amount, S Ltd. is advised to undertake investment in Projects 1, 3 & 5, which will give NPV of Rs. 1,76,000 and unutiized amount will be Rs. 1,50,000.
(2) Net Present Value Method: As per this method Projects 3,4 & 5 can be undertaken which will Rs. 1,91,000 and no money will remain unspent.
Suggestion: From the above analysis, we can observe that, selection of Projects under NP’ Method will maximize S Ltd. net cash inflow by Rs. 15,000 (1,91,000 – 1,76,000). Hence, it is suggested to undertake Projects 3, 4 & 5.

Question 186.
Calculate payback period for following two machines.

(A)
Net cash inflow of Machine X and Y are 4,500 and 6,000 respectively.
Machine X = 4,000/4,500 = 0.88 year
Machine Y = 18,000/6,000 = 3 year

Question 187.
PT Ltd. is a manufacturer of plastic products. Company is considering computerizing the company’s ordering, inventory and billing procedures. The annual savings from computerization include a reduction of 4 clerical employees with annual salaries of ₹ 50,000 each. ₹ 30,000 from reduced production delays caused by raw materials inventory problems. ₹ 25,000 from lost sales due to inventory stock-outs and ₹ 18,000 associated with timely billing procedures. The purchase price of the system is ₹ 2,50,000 and installation costs are ₹ 50,000. These outlays will be capitalized (depreciated) on SLM basis to a zero salvage value, which is also its market value at the end of 5 years. New system requires two computer specialists with annual salaries of ₹ 80,000 per person. Also annual operating (cash) expenses of ₹ 22,000 are estimated to be required. Tax rate is 40% and cost of capital is 12%. Calculate cash flow after tax likely to be generated per year by this project.
(A) ₹ 76,800
(B) ₹ 78,600
(C) ₹ 75,700
(D) ₹ 77,500
(B) ₹ 78,600

Question 188.
Take the data of above question and calculate Payback Period.
(A) 4.87 year
(B) 3.56 year
(C) 3.82 year
(D) 4.51 year
(C) 3.82 year

Question 189.
Take the data of above question and calculate PI.
(A) 0.945
(B) 0.495
(C) 0.549
(D) 0.954
(A) 0.945

Question 190.
Project X involves an initial outlay of Rs. 16.2 million. Its life span is expected to be 3 years. The cash streams generated by it are expected to be as follows:

IRR = ?
(A) 14.33%
(B) 15.79%
(C) 12.40%
(D) 15.30%
(D) 15.30%

Question 191.
The initial outlay of the project is ₹ 1,00,000 and it generates cash inflow of ₹ 50,000, ₹ 40,000, ₹ 30,000 & ₹ 20,000 in the 4 years of its life span. Cost of capital is 10%. You are required to calculate Cost Benefit Ratio.
(A) 1.147
(B) 1.474
(C) 1.389
(D) 1.578
(A) 1.147

Question 192.
Software Enterprise is considering the purchase of computer system for its research and development division. The operating cost excluding depreciation are expected to be ₹ 7,00,000 p.a. It is estimated that the useful life of the system would be 6 years, at the end of which the disposal value is expected to be ₹ 1,00,000. Tangible benefit expected from the system in the form of reduction in design and draftsmanship costs would be ₹ 12,00,000 p.a. Gain arising from disposal of used assets may be considered tax-free. Corporate tax rate is 35%. CFAT = ?
(A) ₹ 5,66,667
(B) ₹ 6,17,444
(C) ₹ 5,23,333
(D) ₹ 7,34,222
(C) ₹ 5,23,333

Question 193.
Nishce Ltd. is an all equity financed company. The current market price of the share is ₹ 180. It had just paid a dividend of ₹ 15 per share and expected future growth in dividends is 12%. Currently, it is the evaluating a proposal requiring funds of ₹ 20,00,000 with annual inflow of ₹ 10,00,000 for 3 years. Find out the NPV of the proposal if it is financed from retained earnings.
(A) ₹ 64,300
(B) ₹ 63,400
(C) ₹ 66,400
(D) ₹ 63,600
(B) ₹ 63,400

Question 194.
Narayan Ltd. is an all equity financed company. The current market price of the share is ₹ 180. It had just paid a dividend of ₹ 15 per share and expected future growth in dividends is 12%. Currently, it is the evaluating a proposal requiring funds of ₹ 20,00,000 with annual inflow of ₹ 10,00,000 for 3 years. Find out the NPV of the proposal if it is financed by issuing fresh equity (floatation costs 5%).
(A) ₹ 47,400
(B) ₹ 47,900
(C) ₹ 46,488
(D) ₹ 42,445
(B) ₹ 47,900

Question 195.
Xpert Engineering Ltd. is considering buying one of the following two mutually exclusive investment projects:
Project A: Buy a machine that requires an initial investment outlay of ₹ 1,00,000 and will generate CFAT of ₹ 30,000 per year for 5 years.
Project B: Buy a machine that requires an initial investment outlay of ₹ 1,25,000 and will generate CFAT of ₹ 27,000 per year for 8 years.
The company uses 10% cost of capital to evaluate the projects.
The company will select –
(A) Project B as its NPV is high than Project A.
(B) Project B as its equivalent NPV is high than Project A.
(C) Project A as its equivalent NPV is high than Project B.
(D) Project A as its NPV is high than Project B.
(C) Project A as its equivalent NPV is high than Project B.

Question 196.
Electrofast Ltd. is manufacturing electronic equipments in which Component-X is used, which is purchased from a local supplier at a cost of ₹ 40 each. In order to bring down cost and improve its competitiveness, the company has a proposal to install a machine for the manufacture of Component-X. It has the following two options:
Installation of semi-automatic machine involving annual fixed expenses of ₹ 22 lakh and a variable cost of ₹ 18 per component manufactured.
Installation of automatic machine involving an annual fixed cost of ₹ 40 lakh and a variable cost of ₹ 15 per component manufactured. Calculate components required to be produced to justify the installation of the machine
(A) 1,00,000 units & 1,60,000 units
(B) 50,000 units & 80,000 units
(C) 1,50,000 units & 1,00,000 units
(D) 1,40,000 units & 1,80,000 units
(A) 1,00,000 units & 1,60,000 units

Question 197.
The management of Techno Craft Ltd. is evaluating the following data of a capital project:
Annual cost saving (₹) — 80,000
Useful life (Years) — 5
Internal rate of return (%) — 12
Profitability index (PI) — 1.2705
Project Cost = ?
(A) ₹ 2,44,800
(B) ₹ 2,84,800
(C) ₹ 2,88,400
(D) ₹ 2,48,400
(C) ₹ 2,88,400

Question 198.
Take the data from above question and calculate payback period.
(A) 3.605 years
(B) 3.642 years
(C) 4.605 years
(D) 4.208 years
(A) 3.605 years

Question 199.
Take the data from above question and calculate cost of capital.
(A) 8%
(B) 6%
(C) 5%
(D) 3%
(D) 3%

Question 200.
A company is considering three methods of attracting customers to expand its business by undertaking – (A) advertising campaign; (B) display of neon signs; and (C) direct delivery service. The initial outlay for each alternative is as under:
A ₹ 1,00,000
B ₹ 1,50,000
C ₹ 1,50,000
If A is carried out, but not B, it has an NPV of ₹ 1,25,000. If B is done, but not A, B has an NPV of ₹ 45,000. However, if both are done, then NPV is ₹ 2,00,000. The NPV of the delivery system C is ₹ 90,000. Its NPV is not dependent on whether A or B is adopted and the NPV of A or B does not depend on whether C is adopted. Which of the investments should be made by the company if Firm has no budget constraint?
(A) The firm should adopt mode A + C only. The outlay would be ₹ 2,50,000 & total NPV would be ₹ 2,15,000.
(B) The firm should adopt mode B + C only. The outlay would be ₹ 3,00,000 & total NPV would be ₹ 1,35,000
(C) The firm should adopt mode A only. The outlay would be ₹ 1,00,000 & total NPV would be ₹ 1,25,000
(D) The firm should adopt all the three modes of attracting customers. Its outlay would be ₹ 4,00,000 and the expected NPV would be ₹ 2,90,000.
(D) The firm should adopt all the three modes of attracting customers. Its outlay would be ₹ 4,00,000 and the expected NPV would be ₹ 2,90,000.

No Budget Constraint: The firm should adopt all the three modes of attracting customers. Its outlay in this case would be ₹ 4,00,000 and the expected NPV would be ₹ 2,90,000.
Budget Constraint: If the budget constraints are limited to ₹ 2,50,000 then the firm should adopt mode A + C only. In this case, the outlay would be ₹ 2,50,000 and the total NPV would be ₹ 2,15,000

Question 201.
A company is considering three methods of attracting customers to expand its business by undertaking – (A) advertising campaign; (B) display of neon signs; and (C) direct delivery service. The initial outlay for each alternative is as under:
A ₹ 1,00,000
B ₹ 1,50,000
C ₹ 1,50,000
If A is carried out, but not B, it has an NPV of ₹ 1,25,000. If B is done, but not A, B has an NPV of ₹ 45,000. However, if both are done, then NPV is ₹ 2,00,000. The NPV of the delivery system C is ₹ 90,000. Its NPV is not dependent on whether A or B is adopted and the NPV of A or B does not depend on whether C is adopted. Which of the investments should be made by the company if the budgeted amount is only ₹ 2,50,000?
(A) The firm should adopt mode. A + B only. The outlay would be ₹ 2,50,000 & total NPV would be ₹ 2,00,000
(B) The firm should adopt mode B + C only. The outlay would be ₹ 3,00,000 & total NPV would be ₹ 1,35,000
(C) The firm should adopt mode A + C only. The outlay would be ₹ 2,50,000 & total NPV would be ₹ 2,15,000.
(D) None of the above
(C) The firm should adopt mode A + C only. The outlay would be ₹ 2,50,000 & total NPV would be ₹ 2,15,000.

No Budget Constraint: The firm should adopt all the three modes of attracting customers. Its outlay in this case would be ₹ 4,00,000 and the expected NPV would be ₹ 2,90,000.
Budget Constraint: If the budget constraints are limited to ₹ 2,50,000 then the firm should adopt mode A + C only. In this case, the outlay would be ₹ 2,50,000 and the total NPV would be ₹ 2,15,000

Question 202.
A company is faced with decision to purchase or acquire on lease a machine. Cost of the machine is ₹ 2,53,930. The asset can be financed by taking loan on which interest is payable @15% and loan will be paid in 5 equal installments inclusive of interest. Tax rate is 40%. Assume loan instalment is payableat the end of each year. What will be the loan instalment amount for each year?
(A) ₹ 75,800
(B) ₹ 65,278
(C) ₹ 67,800
(D) ₹ 66,824
(A) ₹ 75,800

Question 203.
X Ltd. faced with decision to purchase or acquire on lease a machine. Cost of the machine is ₹ 5,07,860. The asset can be financed by taking loan on which interest is payable @15% and loan will be paid in 5 equal instalments inclusive of interest. Tax rate is 40%. Assume loan instalment is payable at the beginning of the year. What will be the loan instalment amount for each year?
(A) ₹ 1,19,778
(B) ₹ 1,29,580
(C) ₹ 1,31,570
(D) ₹ 1,45,452
(C) ₹ 1,31,570

Question 204.
A company can obtain an asset on lease by paying 5 equal lease rentals annually. Such lease rentals are payable at the end of the year. The leasing company desires a return of 10% on the gross value of the asset. Tax rate is 40%. Cost of capital is 9%. The cost of the asset is ₹ 7,61,790. Calculate the lease rental payable by the company each year.
(A) ₹ 2,01,000
(B) ₹ 1,95,833
(C) ₹ 1,98,563
(D) ₹ 2,10,000
(A) ₹ 2,01,000

Question 205.
A company can obtain an asset on lease by paying 5 equal lease rentals annually. Such lease rentals are payable at the beginning of the year. The leasing company desires a return of 10% on the gross value of the asset. Tax rate is 40%. Cost of capital is 9%. The cost of the asset is ₹ 7,61,790. Calculate the lease rental payable by the company each year.
(A) ₹ 1,79,667
(B) ₹ 1,80,600
(C) ₹ 1,87,504
(D) ₹ 1,82,683
(D) ₹ 1,82,683

Question 206.
Z Ltd. can acquire a machine by taking 15% loan or on lease basis from leasing company. Cost of machine is ₹ 1,26,965. Tax rate is 40%. The leasing company desires a return of 10% on the gross value of the asset. The present value of cash flow under buying option is ₹ 87,528. What should be the annual lease rental to be charged by the leasing company to match the loan option?
(A) ₹ 37,900
(B) ₹ 37,805
(C) ₹ 37,424
(D) ₹ 37,501
(D) ₹ 37,501
PV Factor = 15 (1 – 0.4) = 9%
Let the lease rental be ‘*’

O.6x × 3.89 = 87,528
2.334x = 87,528
x = 37501

Question 207.
Agrani Ltd. is in the business of manufacturing bearings. Some more product lines are being planned to be added to the existing system. The cost of machine is ₹ 40,00,000 having a useful life of 5 years with the salvage value of ₹ 8,00,000. The full purchase value of machine can be financed by 20% loan repayable in 5 equal instalments falling due at the end of each year. Calculate the figure of interest payable at the end of 5th year.
(A) ₹ 4,08,831
(B) ₹ 2,08,138
(C) ₹ 2,21,813
(D) ₹ 3,12,318
(C) ₹ 2,21,813

Question 208.
Following data are furnished by Lalita Leasing Ltd.:
Investment cost — ₹ 1,250 lakhs
Primary lease term — 5 years
Residual value — Nil
Pre-tax required rate return — 24%
Company wants to charge equated lease rentals Le. equal amount of lease rental per year. Lease rental payable at the end of each year = ?
(A) ₹ 437.35 lakh
(B) ₹ 457.53 lakh
(C) ₹ 453.73 lakh
(D) ₹ 455.37 lakh
(D) ₹ 455.37 lakh

Question 209.
Following data are furnished by XY Leasing Ltd.:
Investment cost — ₹ 1,250 lakhs
Primary lease term — 5 years
Residual value — Nil
Pre-tax required rate of return — 25%
Company wants to charge stepped lease rentals (annual increase of 15%).
Lease rental for the 3rd year = ?
(A) ₹ 436.26 lakh
(B) ₹ 501.68 lakh
(C) ₹ 379.36 lakh
(D) ₹ 225.25 lakh
(A) ₹ 436.26 lakh

Question 210.
Apple Ltd. has decided to invest in earth-moving equipment which costs ₹ 5,50,000. The company can take it on lease for 7 years at ₹ 90,000 p.a. payable in advance. Alternatively, it can borrow at 20%. Asset can be written-off over 6 years under straight line method of depreciation. Asset’s useful life is ₹ years. In the terminal year the asset will be sold for ₹ 40,000. Tax rate is 30%. At 6th year principle amount contained in loan installment amount will be –
(A) ₹ 88,265
(B) ₹ 1,05,918
(C) ₹ 1,27,323
(D) ₹ 1,08,426
(B) ₹ 1,05,918

Question 211.
A company buys a machine for ₹ 10,000 and sells it for ₹ 2,000 at the end of year 3. Running costs of the machine are:
Year 1 = ₹ 3,000
Year 2 = ₹ 5,000
Year 3 = ₹ 7,000
If a series of machines are brought, run and sold on an infinite cycle of replacements, what is the equivalent annual cost of the machine if the discount rate is 10%?
(A) ₹ 22,114
(B) ₹ 8,288
(C) ₹ 246
(D) ₹ 7,371
(B) ₹ 8,288

Question 212.
T Ltd. is considering an investment in one of two mutually exclusive projects. Company is committed to maximizing the wealth of its shareholders. Details of each project, which have the same level of risk, are as follows:

Which project should be selected and for what reason?
(A) Project Alpha because it has the shorter discounted payback period
(B) Project Alpha because it has the higher net present value
(C) Project Beta because it has the higher profitability index
(D) Project Beta because it has the higher internal rate of return
(B) Project Alpha because it has the higher net present value

Question 213.
Taxmann is considering to take a new project. Management use Certainty Equivalent (CE) approach to evaluate the projects. The project is expected to generate cash flow of ₹ 57,500 for next 5 years. CE Factors are 0.90, 0.85, 0.75, 0.70 & 0.65. Projects requires initial investment of ₹ 1,50,000. Company’s cost of capital is 12% and risk free borrowing rate is 7%. What is the NPV of this project?
(A) ₹ 24,486
(B) ₹ 38,103
(C) ₹ 33,603
(D) ₹ 27,542
(C) ₹ 33,603

Question 214.
Present value at year 3 is ₹ 35,190 by using CE Approach. CE Factor is 0.75. Risk free rate is 7%. Cost of capital is 11%. What is the cash flow of year 3?
(A) ₹ 57,500
(B) ₹ 55,500
(C) ₹ 52,500
(D) ₹ 56,500
(A) ₹ 57,500
PV factor at 7% for year 3 is 0.816.
Cash flow 35,190 ± 0.8 16 ÷ 0.75 = 57,500

Question 215.
A company has ₹ 5,00,000 available for investment and is considering the following four divisible, but not repeatable, projects to invest in:

What is the maximum net present value the company can generate from its investment?
(A) ₹ 1,95,000
(B) ₹ 1,45,000
(C) ₹ 1,35,000
(D) ₹ 1,10,000
(C) ₹ 1,35,000

Question 216.
X Ltd. is considering to start a new project for which it has gathered following data:
Cash Flow — Probability
1,08,000 — 0.1
2,16,000 — 0.4
4,32,000 — 0.4
5,40,000 — 0.1
Calculate the expected cash flow.
(A) ₹ 3,42,000
(B) ₹ 3,18,000
(C) ₹ 3,24,000
(D) ₹ 3,32,000
(C) ₹ 3,24,000

Question 217.
X Ltd. is considering to start a new project for which it has gathered following data:

Compute the risk associated with the project.
(A) 89.88
(B) 9.30
(C) 11.62
(D) 8.97
(B) 9.30

Question 218.
A company is considering Projects X and Y with following information:

Which project will you recommend and why?
(A) Project Y as its higher expected NPV.
(B) Project X as its coefficient of variation is high.
(C) Project Y as its coefficient of variation is less.
(D) Project X as its risk ie. standard deviation is less.
(C) Project Y as its coefficient of variation is less.
On the basis of information about standard deviation of Project X & Y, the Project X is better as it has lower standard deviation (i.e. risk). However, the coefficient of variation for these projects may be found as follows:

Project Y = $$\mathrm{Y}=\frac{3,600}{11,000}=0.327$$
Project Y is better as its CV is lesser than Project X.

Question 219.
Laxmi Ltd. is considering a proposal to buy one of the two machines. Each machine requires investment of ₹ 34,375 and has useful life of 12 years. Estimates associated with these two machines are as follows:

(A) The company will select Machine X as its NP V is high in optimistic scenario
(B) The company will select Machine Y as its NPV is high in optimistic scenario
(C) Purchasing Machine Y will be more risky as NPV is negative as high as ₹ 7,523 while if Machine X is purchased, the NPV can be negative only ₹ 2,980.
(D) Purchasing Machine Y will be more risky as NPV is negative as high as ₹ 28,954 while if Machine X is purchased, the NPV can be negative only ₹ 4,560.
(D) Purchasing Machine Y will be more risky as NPV is negative as high as ₹ 28,954 while if Machine X is purchased, the NPV can be negative only ₹ 4,560.

Analysis: Purchasing Machine Y will be more risky as XPV is negative as high as 28,954 while if Machine X is purchased, the NPV can be negative only 4,560. Hence, it advised to purchase Machine X.

Question 220.
Following data is available for Project Q:

Project requires initial investment of ₹ 180 Crore. Calculate the profitability index of the Project P.
(A) 0.25
(B) 1.25
(C) 1.35
(D) 1.45
(B) 1.25
Expected NPV (15 × 0.2) + (30 × 0.3) + (60 × 0.3) + (75 × 0.2) = 45
Total present value 45 Crore + 180 Crore = 225 Crore
Profitability Index 225/180 = 1.25

Question 221.
Following data is available for Project P:
NPV ( in Crore) — Probability
15 — 0.1
30 — 0.4
60 — 0.4
75 — 0.1
Calculate co-efficient of variation for the Project P.
(A) 0.42
(B) 0.43
(C) 0.44
(D) 0.45
(A) 0.42

Question 222.
B Ltd. is considering the renovation of its one of department. The renovation will cost 10 lakh. Its CFAT sensitive to various events as show below:

Company estimates that the probability distribution of incremental CFAT will exists for 4 years. The company’s cost of capital is 10%. What is the project expected NPV?
(A) ₹ 3,41,300
(B) ₹ 3,13,400
(C) ₹ 3,31,400
(D) ₹ 3,00,340
(C) ₹ 3,31,400

Question 223.
A project is expected to generate CFAT of ₹ 3,56,000. Other data relating to project are as follows:
Useful life = 6 years.
Risk free rate = 8%
Certainty factor = 0.9
Tax rate = 35%
Initial investment = ₹ 12,00,000.
Depreciation Method = SLM.
Calculate risk adjusted IRR of the project using rates of 8% & 16%.
(A) 14.62%
(B) 18.51%
(C) 16.47%
(D) 15.49%
(D) 15.49%

Question 224.
Raja & Co. desires to take a project whose cost is ₹ 12,000 and useful life is 4 years. Expected annual cash flows are ₹ 4,500 p.a. Cost of capital is 14%. Calculate the sensitivity of the project cost in percentage given that:
PVAF(14%,4): 2.9137
(A) 10%
(B) 8.72%
(C) 12.56%
(D) 9.27%
(D) 9.27%

Question 225.
Following forecasts are made about a proposal which is being evaluated by a firm:
Initial outlay : ₹ 1,50,000
Life: 4 years
CFAT: ₹ 56,250
PVAF(14%,3): 2.3216
PVAF(14%,4): 2.9137
Calculate the sensitivity of the annual cash flows.
(A) 8.48%
(B) 9.32%
(C) 7.77%
(D) 8.84%
(A) 8.48%

2.9137x – 1,50,000 = 0
2.9137x = 1,50,000
= 51,481
The CFAT can decrease from the present level of ₹ 56,250 to ₹ 51,481 before NPV becomes zero. So, the CFAT have a margin of ₹ 4,769.
Margin for CFAT = $$\frac{4,769}{56,250} \quad \times 100=8.48 \%$$

Question 226.
Rani & Co. desires to take a project whose cost is ₹ 12,000 and useful life is 4 years. Expected annual cash flows are ₹ 4,500 p.a. Cost of capital is 14%. Calculate the sensitivity of the ‘cost of capital’ in percentage given that:
PVAF(14%,4) : 2.9137
PVAF (18%,4): 2.6667
(A) 29%
(B) 22%
(C) 22%
(D) 64%
(A) 29%

4,500x- 12000=0
4,500x= 12,000
x = 2.6667
The PVAF 26667 is found for 4 years in 18% column in the PVAF table. Thus, the discount rate can increase from the present level of 14% to 18% before the NPV becomes zero. Therefore, there is margin of 4% (18% – 14%) or 2996 (Le. 4/14 ×100).

Question 227.
X Ltd. is considering a project with following cash flow:
Cost of the plant: 70,000

The cost of capital is 8%. Measure the sensitivity of the project to the change in level of plant cost.
PVAF(8%1): 0.926
PVAF(8%2): 0.857
(A) 8. 92%
(B) 7. 50%
(C) 9. 16%
(D) 8. 00%
(D) 8. 00%

If the present value of running cost increases by 5,605 the NPV will become zero. Therefore sensitivity for running cost is.
$$\frac{5,605}{39,945} \times 100=14.03 \%$$
If the present value of savings decreases by 5,605 the NPV will become zero. Therefore sensitivity for savings is –
$$\frac{5,605}{1,15,550} \times 100=4.85 \%$$

Question 228.
Y Ltd. is considering a project with following cash flow:
Cost of the plant: 70,000

The cost of capital is 8%. Measure the sensitivity of the project to the change in level of running cost.
PVAF(8%1): 0.926
PVAF(8%2): 0.857
(A) 15.06%
(B) 13.07%
(C) 14.03%
(D) 12.08%
(C) 14.03%

If the present value of running cost increases by 5,605 the NPV will become zero. Therefore sensitivity for running cost is.
$$\frac{5,605}{39,945} \times 100=14.03 \%$$
If the present value of savings decreases by 5,605 the NPV will become zero. Therefore sensitivity for savings is –
$$\frac{5,605}{1,15,550} \times 100=4.85 \%$$

Question 229.
Z Ltd. is considering a project with following cash flow:
Cost of the plant: 70,000

The cost of capital is 8%. Measure the sensitivity of the project to the change in level of savings.
PVAF(8%1): 0.926
PVAF(8%2): 0.857
(A) 3.58%
(B) 4.85%
(C) 8.54%
(D) 6.78%
(B) 4.85%

If the present value of running cost increases by 5,605 the NPV will become zero. Therefore sensitivity for running cost is.
$$\frac{5,605}{39,945} \times 100=14.03 \%$$
If the present value of savings decreases by 5,605 the NPV will become zero. Therefore sensitivity for savings is –
$$\frac{5,605}{1,15,550} \times 100=4.85 \%$$

Question 230.
A project has expected NPV of 1,22,000. Its coefficient of variation is 0.7377. Risk free rate is 8% and cost of capital is 10%. What is the standard deviation of project?
(A) 1,00,000
(B) 80,000
(C) 90,000
(D) 88,889
(C) 90,000
1,22,000 × 0.7377 = 89,999
i.e 90,000

Question 231.
Following data is available for Project A:
Net cash outlay — 11,00,000
Project life 5 Years
Annual cash inflow — ₹ 30,000
Coefficient of variation — 0.4
Company selects the risk adjusted rate of discount on the basis of coefficient of variation.

Determine the risk adjusted net present value of the Project A.
(A) 6,550
(B) 7,940
(C) 8,150
(D) 9,340
(C) 8,150

Question 232.
Following financial information relates to an investment project:

What is the sensitivity of the net present value of the investment project to a change in sales volume?
(A) 7.1%
(B) 2.6%
(C) 5.1%
(D) 5.3%
$$\frac{1,300}{50,025} \times 100=2.6 \%$$