UNIVERSITY OF CALICUT

SCHOOL OF DISTANCE EDUCATION

IV SEMESTER M.Com. (2019 ADMISSION)
MCM4E(F04 )- ADVANCED STRATEGIC FINANCIAL MANAGEMENT
Multiple Choice Question Bank
1. What is the primary goal of financial management?
A) To minimise the risk
B) To maximise the owner’s wealth
C) To maximise the return
D) To raise profit
2. From the below-mentioned items which are financial assets?
A) Machines
B) Bonds
C) Stocks
D) B and C
3. The market value of the shares is decided by
A) The investment market
B) The government
C) Shareholders
D) The respective companies
4. Which of the following is concerned with the maximization of a firm's earnings after taxes
A) Shareholder wealth maximization
B) Profit maximization
C) Stakeholder maximization
D) EPS maximization.

5. What is the most appropriate goal of the firm

A) Shareholder wealth maximization
B) Profit maximization
C) Stakeholder maximization
D) EPS maximization
6. The repurchase of stock the earnings per share and the market price
of stock.
A) Increases; Increases
B) Decreases; Decreases
C) Increases; Decreases
D) Decreases; Increases
7. What does financial leverage measure
A) No change with EBIT and EPS
B) The sensibility of EBIT with % change with respect to output
C) The sensibility of EPS with % change in the EBIT level
D) % variation in the level of production
8. The term "capital structure" refers to:
A) Current assets & Current liabilities
B) Long-term debt, preferred stock, and common stock equity
C) Total assets minus liabilities
D) Shareholder’s equity
9. The manner in which an organization's assets are financed is referred to as it’s
A) Capital structure
B) Financial structure
C) Asset structure
D) Owners structure
10. Cost of capital is .
A) Lesser than the cost of debt capital.
B) Equal to the last dividend paid to the equity shareholders.
C) Equal to the dividend expectations of equity shareholders for the coming year.
D) None of the above.
11. of debt capital is a factor in favor of using more debt capital.
A) Tax advantage.
B) Debt equity norms.
C) Leverage effect.
D) Security of assets.
12. The dividend policy must be formulated considering two basic objectives, namely

A) Delaying the tax liability of the stockholder and information content.

B) Maximizing shareholder wealth and delaying the tax liability of the stockholder.
C) Maximizing shareholder wealth and providing for sufficient financing.
D) Maintaining liquidity and minimizing the weighted average cost of capital.
13. The residual theory of dividends suggests that dividends are to the value of the
firm.
A) Residual
B) Relevant
C) Irrelevant
D) Integral
14. According to MM approach , the total value of the firm is :
A) Static
B) Increased with increases in WACC
C) Increased with decreases in WACC
D) Variable

15. Which one of the following is / are the relevance theory?

A) Gorden.
B) Walter.
C) Residual.
D) Both (a) and (b)
16. is the minimum required rate of earnings or the cut off rate of capital
expenditure.
A) Cost of capital.
B) Working capital
C) Equity capital.
D) None of the above
17. Financial leverage refers to the rate of change in earnings per share for a given change in
earnings .
 A) Before tax.
B) Before interest.
C) Before interest and tax.
D) After interest and tax.
18. P Ltd. has an EPS of Rs.75 per share. Its Dividend Payout Ratio is 30%. Earnings and
dividends of the company are expected to grow at 6% per annum. Find out the cost of equity
capital if its market price is Rs.300 per share.
(A) 11.5%
(B) 12.5%
(C) 13.5%.
(D) 14.5%
19. A company has expected Net Operating Income – Rs.2,40,000; 10% Debt – Rs.7,20,000 and
Equity Capitalisation rate - 20%. What is the weighted average cost of capital for the
company?
A) 0.15385
B) 0.13585
C) 0.18351
D) 0.15531
20. A firm has sales of Rs.75,00,000, variable cost of Rs.42,00,000 and fixed cost of
Rs.6,00,000. It has a debt of Rs.45,00,000 at 9% interest and equity of Rs.55,00,000. At what
level of sales, the EBIT of the firm will be equal to zero?
A) Rs.28,48,500
B) Rs.28,84,500
C) Rs.22,84,500
D) Rs.26,48,500
21. . E Limited has earnings before interest and taxes (EBIT) of Rs.10 million at a cost of 7%.,
Cost of equity is 12.5%. Ignore taxes. What is the overall cost of capital?
A) 11.26%
B) 11.62%
C) 16.12%
D) 12.61%
22. Which of the following is not very much relevant in dividend decision?
A) Availability of disposable profit
B) Investor’s expectations for dividend
C) Capital market condition
D) Industry practice
23. Stock dividend is also known as :
A) Interim dividend
B) Bonus shares
C) Right shares
D) Property dividend
24. The dividend irrelevance theorem to share valuation was propounded by
A) James .E.Walter
B) Myron Gordon
C) Modigliani and Miller
D) None of the above
25. Which of the following is not an assumption of the Modigliani-Miller model?
A) There are perfect capital market
B) Investors do not behave rationally
C) No floatation and transaction cost
D) No more investors to affect market price of shares
26. security is known as variable income security.
A).Debentures.
B) Preference shares.
C) Equity shares.
D) None of these.

27. According to Walter, the firm should retain the profit if:
A) r = k
B) r > k
C) r< k
D) None of these
28. According to Walter firm should pay 100% dividend if:
A) r = k
B) r> k
C) r< k
D) None of these
29. Which one of the following is not an assumption of Gordon’s relevance theory?
A) Corporate tax exist
B) Rate of return of the firm is remains constant
C) Cost of capital of the firm remain constant
D) The firm has perpetual life
30. Determinants of dividend policy are :
A) Nature of the company
B) Stability of dividend
C) Availability of liquid resources
D) All of the above
31. Which one of the following are sources of dividend?
A) Current year’s profit
B) Past year’s profit
C) Money provided by the government
D) All of the above
32. Dividend pay-out ratio is equal to :
A) Dividend per share divided by face value of share
B) Cost of capital plus dividend
C) Cost of capital minus dividend
D) Yearly dividend divided by EPS
33. Capital gearing refers to relationship between equity and:
A) Long term debt
B) Short term debt
C) Retained earnings
D) goodwill
34. Shareholders wealth increases with the increase in
 A) EPS
B) Market value of the firm
C) Dividend & market value of the firm
D) Market price of the equity share
35. Book value of assets includes
A) Fixed assets, current asset
B) Fixed assets, current asset, intangible asset
C) Fixed assets, current asset, fictitious asset
D) Fixed assets, current asset, intangible asset, fictitious asset
36. Which of the following is not applicable to IRR?
A) Considers all cash flows
B) Based on time value of money
C) Common for all projects
D) Stated in % return
37. In Walter model formula D stands for .
A) Dividend per share.
B) Direct dividend.
C) Direct earnings.
D) None of these.
38. A ‘sale and lease back’ arrangement is more suitable for a lessee having
A) Liquidity crisis
B) Surplus fund
C) High profit
D) No – profit – no loss
39. Which of the following clearly define the Leasing services?
A) One party agrees to rent property owned by another party
B) It guarantees the lessee to use of an asset
C) It guarantees lessor , regular payment from lessee
D) All the above
40. The type of lease that includes a third party, a lender, is called as which of the following?
A) Sale and leaseback
 B) Leveraged lease
C) Direct leasing arrangement
D) Operating lease
41. What are the benefits of leasing to other companies?
A) Interest revenue
B) High residual value
C) Tax incentives
D) All of the above
42. One advantage of a financial lease is that:
A) It has a shorter maturity than term loans.
B) It never appears as a liability on the balance sheet.
C) It eliminate the needs to make periodic payments.
D) It provides a way to indirectly depreciate land.
43. It is a type of acquisition where a group led by people in the current management of a
company buy out majority of the shares from existing shareholders and take control of the
company.
A) Divestiture.
B) Management Buy Out(MBO)
C)The leveraged Buy Out (LBO).
D) The prepackaged reorganization.
44. The ways in which mergers and acquisitions (M&As) occur do not include:
A) Diversification
B) Conglomerate takeover
C) Horizontal integration
D) Vertical integration
45. What is a merger?
A. No difference.
B. A merger is when one firm separates to become two.
C. A merger is when two firms combine and form a new legal entity.
D. A merger is when a firm changes its title.
46. The following are good reasons for mergers:
 A) Surplus funds
B) Eliminating inefficiencies
C) Complementary resources
D) All of the above
47. This merger involves firm engaged in unrelated types of activities.
A) Vertical
B) Horizontal
C) Conglomerate
D) Demerger
48. When existing company is dissolved to form few new companies, it is called as
A) Spin off
B) Split off
C) Split up
D All of the above
49. It means an acquirer takes over the control of the target company.
A). Joint Venture
B) Takeover
C) Disinvestment
D) Demerger
50. It is a merger of two or more companies that compete in the same industry.
A) Vertical
B) Horizontal
C) Co generic
D) Conglomerate
51. In , company distributes its shareholding in subsidiary to its shareholders
there by not changing the ownership pattern.
A) Spin off
B) Split off
C). Split up
D). All of the above
52. Reverse Merger takes place when a healthy company merges with a financially
company.
A) Weak
B) Strong
C) Merged
D) All of the above
53. takeover is the takeover which is affected with the consent of target’s company
executives and management.
A) Hostile
B) Friendly
C) Compulsory
D) Cross Border
54. is the form of demerger where shareholders of existing company form a new
company to takeover specific division of existing company.
A) Spin off
B) Split off
C) Split up
D) All of the above
55. Profit maximization is a ?
A) Long term concept
B) Short term concept
C) Both A & B
D) None of these.
56. Which of the following will not permit a higher internal growth rate ,other things equal?
A) Higher retention ratio
B) Higher debt to asset ratio
C) Higher return on equity
D) Higher
57. The sustainable growth rate of a firm can be calculated as the product of the .
A) Return on assets and the return on equity
B) Dividend payout ratio and leverage
 C) Retention ratio and the return on equity
D) Net profit margin and total sales
58. Which of the following represents the rate at which a company can grow from internal
sources?
A) Return on assets
B) Sustainable growth rate
C) Adjusted EPS
D) Return on equity
59. Earnings Per Share (EPS) is equal to .
A) Profit before tax/No of outstanding shares
B) Profit after tax / No of outstanding shares
C) Profit after tax / amount of equity capital
D) Profit after tax / amount of equity capital
60. A popular defense mechanism against hostile takeover bids is the creation of securities called

A) Shark Repellents
B) Poison Pills
C) Packman defense
D) The Crown Jewel
61. has laid down the guidelines for takeovers in order to protect the interest of the
small investors.
A) SEBI
B) RBI
C) Both (a) & (b)
D) Government
62. Merger takes place upon the combination of two companies which are operating in
the same industry but at different stages of production or distribution system.
A) Vertical
B) Horizontal
C) Co generic
D) Conglomerate
63. A ---------- is the acquisition of a company or division of another company, financed with the
substantial portion of borrowed funds.
A) Leveraged buyout
B) Rehabilitation finance
C) Corporate finance
C) Institutional finance
64. A merger is a merger of business firms who are engaged into same line of
business.
A) Horizontal
B) Vertical
C) Conglomerate
D) Co generic
65. takes place when one company acquires control over other company by way of
purchase or exchange of shares
A) Merger
B) Demerger
C) Takeover
D) Disinvestment
66. When an acquirer company takeovers the control over the other company against the wishes
of targeted company’s management considered as
A) Merger
B) Friendly Takeover
C) Hostile Takeover
D) Demerger
67. The divestiture of major operating unit most converted by the bidder- commonly known as
the
A) Poison Pill
B) Crown Jewel
C) Packman
D) Golden Parachutes
68. A company in one country can be acquired by an entity (another company) from other
countries is called
A) Cross Border Merger
B) Intra Border Merger
C) Poison Pill Merger
D) Demerger
69. Which of the performance evaluation methods takes into consideration tax effects?
A) Economic value added
B) Return on sales
C) Residual income
D) Return on investment
70. Which of the following best describes "Market Value Added"?
A) The value added to the product the firm produces above and beyond the costs of inputs.
B) The difference between book value of equity and debt versus the market value of the firm.
C) The difference between the market value of the firm and the amount of contributed capital.
D) None of the above accurately describes Market Value Added.
71. . What is the value of the firm usually based on?
A) The value of debt and equity.
B) The value of equity.
C) The value of debt.
D) The value of assets plus liabilities.
72. leasing of machinery can be categorized as
a. Fixed asset
b. Investment decisions
c. Financing decisions
d. Capital budgeting decisions
72. According to exercise value and option price, the market value of the option will be zero
when
A) Stock Price Maximum
B) Option price is zero
C) Stock price is zero
 D) Stock price is minimum

73. The combination of two or more firm, the resulting firm maintains the identity of one of the
firm usually the larger?
A) Joint venture
B) Partnership
C) Merger
D) consolidation

74. Cost of capital is the rate of return expected by the investor.

A) Minimum
B) Maximum
C) Expected
D) Marginal

75. Degree of financial leverage is a measure of relationship between .

A) EPS and EBIT
B) EBIT and quantity produced
C) EPS and quantity produced
D) EPS and sales
76. How do we calculate economic value added (EVA)?
A) EVA= NOPAT – (WAAC x Capital invested)
B) EVA = NOI- Cost of capital
C) EVA = EPS x WACC
D) EVA= PER x WACC
77. Economic value added indicates….
A)Value added to economy
B) Financial performance based on residual wealth
C) Net profit
D) Expected amount of dividend
78. The positive incremental net gain associated with two firms enter into a merger is called
 A) Goodwill
B) Merger cost
C) Consolidation effect
D) Synergy
79.is the ratio in which an acquiring company will offer its own shares in exchange for
the target company’s share during merger .
A) Swap ratio
B) Price- earnings ratio
C) Pay-out ratio
D) Enterprise value to sales ratio
80. Which of the following is a pre offer take-over defenses?
A) Crown Jewel
B) People pill
C) Poison pill
D) PAC man defense
81. Which of the following is a post offer take- over defense?
A) Poison pills
B) Golden parachute
C) White knight
D) Dual class stock
82. The process by which company or organization is divided and thereby becomes an
independent business is called …..
A) Spin out
B) Spin off
C) Split off
D) Sell off
83. The process of converting a subsidiary into an independent entity is called….
A) Spin out
B) Split off
C) Sell off
D) Spin off
84. LBO stands for….
A) Leveraged borrow outs
B) Leveraged buy outs
C) Leveraged buy offs
D) Long term buy outs
85. NOPAT stands for….
A) Net organisation profit after tax
B) Net operating profit after tax
C) Net operation profit after a term
D) None of the above
86. IGR stands for….
A) Interest growth rate
B) Internal gearing rate
C) Internal growth rate
D) None of the above
87. SGR stands for
A) Sustainable growth rate
B) Statutory growth rate
C) Stable growth rate
D) Suitable growth rate
88. Financial leverage indicates disproportionate change in taxable income as a result of change
in……
A) Operating income
B) Operating leverage
C) Interest
D) Tax
89. The term trading on equity is generally used for ........... financial leverage
 A) Unfavourable
B) Moderate
C) Less than
D) Favourable
90. SVA stands for….
A) Share value accounted
B) Statutory value addition
C) Shareholder value added
D) None of the above
91. Financial risk arises when there is an involvement of ……in the capital structure
A) Debt
B) Equity
C) Right issue
D) Bonus issue
92. The concept of EVA has been developed by …….
A) Alfred marshal
B) Benjamin Fleming
C) Stern Steward
D) Charles H Dow
93. Which of the following is not a feature of an optimal capital structure?
A) Profitability
B) Safety
C) Flexibility
D) Control
94. Which of the following factors is/ are considered when a capital structure decision is taken?
A) Cost of capital
B) Dilution control
C) Floatation cost
D) All of the above
95. Which of the following quantitative aspect of financial planning?
A) Capitalization
 B) Capital structure
C) Organization structure
D) None of these

96. Which of the following qualitative aspect of financial planning?

A) Capitalization
B) Capital structure
C) Organization structure
D) None of these
97. In optimal capital structure the company’s cost of capital will be
A) Minimum
B) Maximum
C) Medium
D) None of these
98. The value of a firm on the basis of net operating income approach can be determined by
dividing the earnings before interest and taxes by
A) Cost of equity
B) Cost of debt
C) Overall cost of capital
D) None of the above
99. A company should follow the policy of ------ gear during deflation or depression period
A) High gear
B) Low gear
C) Medium gear
D) Any of the above
Answers:
1) B 2) D 3) A 4) B
5) A 6) A 7) C 8) B
9) B 10) D 11) A 12) C
13) C 14) A 15) D 16) A
17) C 18) C 19) A 20) C
21) A 22) C 23) B 24) C
25) B 26) C 27) B 28) C
29) A 30) D 31) D 32) D
33) A 34) C 35) B 36) c
37) A 38) A 39) D 40) B
41) D 42) D 43) B 44) A
45) C 46) D 47) C 48) C
49) B 50) B 51) A 52) A
53) B 54) B 55) B 56) B
57) C 58) B 59) B 60) B
61) A 62) A 63) A 64) A
65) C 66) C 67) B 68) A
69) A 70) C 71) B 72) c
73) C 74) C 75) C 76) A
77) A 78) B 79) D 80) A
81) C 82) C 83) A 84) D
85) B 86) B 87) C 88) A
89) A 90) D 91) C 92) A
93) C 94) C 95) D 96) A
97) B 98) A 99) C 100) B

Prepared by : SHAKKEELA .CH ,

Assistant Professor (Guest Faculty,)
DGMMES Mampad College (Autonomous),Mampad