Business Finance MCQs

The optimum capital structure of a company is planned as per considerations of
I. Profitability
II. Solvency
III. Marketability of shares
IV. Control

Match the following:

List-I	List-II
a. Matching approach	1. Dividend Policy
b. Structural ratios	2. Inventory Management
c. Ordering quantity	3. Financing Working Capital
d. Bonus shares	4. Capital Structure

Statement I: Working capital leverage measures the responsiveness of return on equity for changes in current assets.
Statement II: When the annual demand for an item is 3,200 units, unit cost Rs. 6, inventory carrying charges 25% per annum and cost of one procurement Rs. 150, the economic ordering quantity would be 700 units.

Match the following.

List-I (Capital Structure Principles)	List-II (Features)
a. Cost principle	1. Management chooses such combination of sources of financing, which can easily adapt to changes
b. Risk principle	2. While designing the structure, the finance manager remembers that existing management control and ownership remains undisturbed
c. Control principle	3. Reliance is placed more on equity for financing capital requirements than excessive use of debts
d. Flexibility principle	4. Cost of capital structure should be minimised and Earning Per Share (EPS) should be maximised

Assertion (A): Arbitrage keeps the cost of capital constant despite change in the capital structure.
Reason (R): It ensures compensating inverse change in cost of equity capital with a change in the cost of debt capital.

Match the items of List-I with List-II and indicate the correct answer:

List-I	List-II
a. ABC Analysis	1. Dividend Decision
b. Walter Model	2. Capital Budgeting Decision
c. Capital Rationing	3. Capital Structure Decision
d. Net Operating Income Approach	4. Working Capital Management Decision

In the foreign exchange market, factors that shift the expected return schedule for foreign deposits include
1. a change in the foreign interest rate.
2. a change in the expected future exchange rate.
3. a change in the current exchange rate.
Select the correct answer by using the options given below

Which of the terms fill the gaps in the following sentence?
The . . . . . . . . describes the relationship between an individual security'sreturns and returns on the market portfolio. The slope of this line is . . . . . . . .

Assertion (A): Capital Account convertibility is introduced only sometimes, after the introduction of convertibility on the current account, when the exchange rate of the currency of a country is relatively stable.
Reason (R): Capital Account convertibility is necessary for faster growth and development of the economy, and it makes foreign exchange rate more stable.