Business Finance MCQs

Match the correct combination for Assertion and Reason as argued by Shapiro and Titman:
Assertion (A): Management decisions to insure or hedge asset appear at best neutral mutation.
Reason (R): The price of systematic risk is identical for all the participants in the financial market.

Who formulated the following model for estimating the market price of equity share?
$$P = \frac{{D + \frac{{{R_A}}}{{{R_C}}}\left( {E - D} \right)}}{{{R_C}}}$$
Where,
P = Market price of equity share
D = DPS
E = EPS
E - D = Retained earnings per share
R_A = Internal rate of return on investment
R_C = Cost of capital

Assertion (A): The financial statements prepared on a historical cost basis, results in an erosion of capital in the long run.
Reason (R): Maintaining the books of accounts as per the current purchasing power technique only may contain the inflationary pressure.
Which is the correct statement?

Match the following.

List-I (Forms of Dividend Payment)	List-II (Features)
a. Cash dividend	1. This type of dividend is rarely opted by companies
b. Stock dividend	2. The companies whose liquidity position is sound also prefer distribution of this dividend
c. Bond dividend	3. Companies which are short of cash resources for dividend payment can distribute this dividend
d. Property dividend	4. It is distributed only when the company is capable of bearing the increased burden of interest on bonds

Match List-I with List-II and select the correct answer:

List-I	List-II
a. Realised yield method	1. Cost of equity share capital
b. Taxation	2. Cost of equity capital
c. Cost of total capital employed	3. Cost of debt capital
d. Dividend growth is a consideration	4. Weighted cost of capital

Match the following.

List-I (Forms of Dividend Payment)	List-II (Features)
a. Cash dividend	1. The fair value of the additional shares issued is based on their fair market value when the dividend is declared
b. Stock dividend	2. On the date of payment, the company issues dividend payments
c. Property dividend	3. It creates a note payable
d. Scrip dividend	4. You record this distribution at the fair market value of the assets distributed

Match List-I with List-II and select the correct answer:

List I	List II
a. Extended Fund Facility	1. 1986
b. Compensatory Financing Facility	2. 1963
c. Compensatory and Contingency Facility	3. 1988
d. Structural Adjustment Facility	4. 1974

Indicate the incorrect statement
(i) Credit risk is a loss on account of a default of repayment of a loan.
(ii) Liquidity risk is the risk on account of the mismatches of cash inflow and outflow in a firm.
(iii) Basic risk is the risk in a firm owing to the differences in the index to which financial assets and liabilities are tied up.
(iv) Hedging risk for a long position is accomplished by taking a short position and vice versa.

Match the items of List-I with the items of List-II.

List-I	List-II
a. Maturity Financing	1. Trade credit and other payables that arise in the firm's day-to-day operations.
b. Factoring	2. Financing and asset needs over time.
c. Spontaneous Financing	3. A tool for accelerating the collection from the customers.
d. Lockbox System	4. Seeking financial service to finance on its debtor's balances.