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
Answer:
(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
Answer:
(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
Answer:
(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
Answer:
(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
Answer:
(D) All of the above

Question 6.
External sources of finance do not include:
(A) Leasing
(B) Debentures
(C) Retained earnings
(D) Overdrafts
Answer:
(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.
Answer:
(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
(C) Trade credit
(D) Retained earnings
Answer:
(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.
Answer:
(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.
Answer:
(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.
Answer:
(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)
Answer:
(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)
Answer:
(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
Answer:
(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
Answer:
(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
Answer:
(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
Answer:
(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)
Answer:
(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)
(B) American Depository Receipt (ADR)
(C) Indian Depository Receipt (IDR)
(D) Any of the above
Answer:
(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)
Answer:
(B) Indian Rupees

Question 21.
Depository Receipt (DR) is ………….
1. Denominated in foreign currency
2. Traded in foreign exchanges
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
Answer:
(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)
Answer:
(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
Answer:
(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
Answer:
(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
Answer:
(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
Answer:
(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
Answer:
(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
Answer:
(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.
Amount received is – 9.73
Crore At what amount this CP will be redeemed?
(A) 10 Crore
(B) 11 Crore
(C) 9.5 Crore
(D) 9.95 Crore
Answer:
(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%
Answer:
(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: