Strategic Finance - 22

Strategic Finance - 22

Question Any addition or extension to an existing asset which retains a separate identify & is
capable of being used after the existing asset is disposed of :-
Correct Answer Is depreciated independently

Question In market value approach, interested parties never manipulate the stock markets.
Correct Answer False

Question For accounting standard (AS) 27, Significant influence may be gained by :-
Correct Answer Share ownership , Statute , Agreement

Question Accounts payable is also known as :-
Correct Answer Trade credit from suppliers

Question Earning power of the company approach tries to value the ________.
Correct Answer Current value of the assets
Free cash flow theory Enormous conflicts of interest between Stakeholders and shareholders
Enormous conflicts of interest between Stakeholders and shareholders
Net income approach Cost of debt & equity do not change with a change in leverage ratio
Cost of debt & equity do not change with a change in leverage ratio
Net operating income approach The overall capitalization rate remains constant for all levels of
financial leverages The overall capitalization rate remains constant for all levels of financial
leverages
Modigliani - Miller Theory weighted average cost of capital does not change with a change in the
proportion of debt to equity in the capital structure weighted average cost of capital does not
change with a change in the proportion of debt to equity in the capital structure

Question Where the management's estimate of the useful life of an asset of the enterprise is
shorter than that envisaged under the provisions of the relevant statute, the depreciation provision is
approximately computed :-
Correct Answer By applying a higher rate

Question What is a very important factor in any kind of merger?
Correct Answer Exchange ratio

Question Segment expense includes ________.
Correct Answer The relevant portion of enterprise revenue that can be allocated on a
reasonable basis to a segment

Question The depreciable assets are assets which are expected to be used :-
Correct Answer During more than 1 accounting period

Question Arbitrage process implies that security cannot sell at different prices.
Correct Answer True

Question Which is an example out of the following to which special consideration apply for
depreciation :-
Correct Answer Regenerative natural resources

Question Baumul`s Model is similar to EOQ model in inventory management.
Correct Answer True

Question Financial evaluation involves :-
Correct Answer Determining the earnings , Areas of risk , Best way to finance a merger

Question The difference between current assets & current liabilities is known as :-
Correct Answer Net working capital

Question Stock repurchases ________ the debt / equity ratio.
Correct Answer Increases

Question Which of the following systems identifies each of the organizational elements of the
traditional bureaucratic structure and applies the identifiable costs of that element accordingly?
Correct Answer Organization element accounting

Question The major conditions to be fulfilled for buyback of shares as per the legal provisions
include :-
Correct Answer Articles of association should authorize buyback of shares , The shares which
are sought to be bought back should be fully paid up , After the buy back the ratio of debt to total
capital and free reserves should not be more than 2 : 1

Question Determination of residual value of an asset is normally a difficult matter.
Correct Answer True

Question Free Reserves is a component of :-
Correct Answer Equity

Question Short term sources of funds include :-
Correct Answer Current Liabilities

Question To `gather costs', means capturing all relevant expenses that pertain to the selected
model and processes.
Correct Answer True

Question When a company has resorted to buyback of its shares it cannot make a further issue
of the same kind of securities within a period of how many months?
Correct Answer 6 months

Question At times managers invest in projects that improve the company's ________.
Correct Answer Prestige or power

Question It is the activity accountant's job to do the following for the existing organisational
structure :-
Correct Answer To define the costs , To refine the costs , To document the costs

Question One of the important assumptions for capital structure theories is :-
Correct Answer Debt and equity are the 2 kinds of funds used by the firm

Question Assets held as stock - in - trade are also investments.
Correct Answer False

Question As per residual theory of dividends the focus is on ________.
Correct Answer Growth

Question Profitability of a company depends upon :-
Correct Answer Cost of capital

Question HLL the largest FMCG company has a turnover of Rs. ________.
Correct Answer 118 Bn

Question The characteristics of working capital are :-
Correct Answer It is continually required for a going concern , Quantum of working capital
fluctuates depending on the level of activity , It is impacted by numerous transactions on a
continuous basis

Question If a firm diversifies managerial teams formed can be shifted from unproductive
activities to productive ones which leads to :-
Correct Answer Improved profitability , Continuity , Growth of the firm

Question In the tender offer, the purchaser approaches :-
Correct Answer The shareholder

Question To overcome the problems of matching data the actions can be taken as follows :-
Correct Answer Keep extensive records of the process , Maintain detailed procedures , Keep
records of assumptions as an audit trail

Question In the shareholding pattern of a company, the promoter's holding includes________.
Correct Answer Foreign Promoters

Question A current investment is an investment that is by nature :-
Correct Answer Readily realisable , Intended to be held for not more than 1year from the date
on which investment is made

Question Trade credit creates book debts which the firm is expected to collect in the near
future.
Correct Answer True

Question The chance of bankruptcy is small when the leverage of a firm is small.
Correct Answer True

Question The 3 groups of participants in a firm are :-
Correct Answer Suppliers of equity , Debt suppliers , Firm Managers

Question The financial managers of a company consume a great deal of their time in activities
like :-
Correct Answer Monitoring the investment in inventories , Negotiating favourable credit terms
, Administrating Accounts receivables

Question Appraisal value of a firm can be acquired from an independent appraisal agency.
Correct Answer True

Question The following categories of personnel are taken into account to calculate the actual
manpower strength :-
Correct Answer Full time equivalents , Temporary staff , Part time personnel

Question Accrued expenses represent :-
Correct Answer Costless financing , An interest free source of financing

Question There is a ________ relationship between the number of employees & the use of
operating supplies.
Correct Answer Natural
Mechanisms Performs or provides energy to an activity Performs or provides energy to an
activity. Inputs Information or material used to produce the output of an activity Information or material used to produce the output of an activity
Controls Information or material that constrains an activity Information or material that
constrains an activity. Outputs Information or material produced by an activity Information or material produced by an activity.

Question Value added analysis :-
Correct Answer Helps to identify potential activities that may be omitted immediately
Question Notes payable means the buyer signs a note that evidences a debt to the seller.
Correct Answer True
Strategic Finance - 21
Question Accounting standards (AS - 13) is now mandatory.
Correct Answer True

Question Exit costs are classified into 3 categories namely :-
Correct Answer Lost efficiency prior to separation , Job vacancy cost during the new search ,
Termination pay

Question A firm's current assets include :-
Correct Answer Marketable securities , Receivables , Inventory

Question In a merger decision, the value of a firm depends upon:-
Correct Answer Earnings , Operating characteristics of acquiring firm , Financial
characteristics of acquiring firm

Question A company is permitted to buy back its shares through stock exchange in the
following situations :-
Correct Answer The company shall complete the verification of acceptances within 15 days of
the payout , The identity of the company as a purchaser shall appear on the electronic screen when
the order is placed , The buy back shall be made only on stock exchanges with electronic trading
facility

Question A merger will make sense to the acquiring firm if its shareholders benefit.
Correct Answer True

Question ________ Assets in the balance sheet are normally excluded from the value of total
assets.
Correct Answer Intangible

Question What is a very important factor in any kind of merger?
Correct Answer Exchange ratio

Question A shareholder expects a higher rate of return as a firm's compensation for ________.
Correct Answer Increased risk

Question Usually cost data is perfect for ABC Analysis & distribution.
Correct Answer False

Question Forward or backward integration is a characteristic of ________.
Correct Answer Vertical Mergers

Question Segment assets are determined after :-
Correct Answer Deducting related allowances / provisions reported as direct offsets

Question Acceptable audit requirements cannot be overlooked even under the pressure of :-
Correct Answer Timeliness & turnaround

Question Which of the following is NOT a disadvantage of deferred payment plan to the
acquiring firm?
Correct Answer There is built - in cushion to the acquiring firm as total payment is not made at
the time of acquisition

Question A single organisation model serves to keep all individual initiatives to be targeted into
a co-ordinated plan.
Correct Answer True

Question Assets held as stock - in - trade are also investments.
Correct Answer False

Question In an aggressive approach :-
Correct Answer There is a very large risk of shortage of funds

Question Organisational changes are similar to mission changes.
Correct Answer True

Question The internal staffing performance indicators are :-
Correct Answer Sales per employee , Recovery rate , Utilization %

Question The most popular kind of dividend policy is one that pays a ________.
Correct Answer Regular, steady dividend
Amount involved in buy backNot to exceed 25 % of the total paid up capital Not to exceed 25
% of the total paid up capital
Articles of Association Authorize buy back of securities Resolution permitting the buy
back of shares
Board of Directors Resolution permitting the buy back of sharesAuthorize buy back of securities
Shares to be bought back Fully paid up Fully paid up

Question A good accounting system does NOT have the characteristics such as :-
Correct Answer Does not cover decisions over the life cycle

Question Fixed price tender offers are accompanied by an abnormal announcement period
return of :-
Correct Answer 8 - 10 %

Question The external staffing performance indicators include :-
Correct Answer Compensation per Re. Profit , Personnel services head count , Profit per head
Trust receipt Specifically identified by serial number or other means Specifically identified by
serial number or other means
Terminal warehouse receipt Inventory is stored with a public or terminal warehousing company
Inventory is stored with a public or terminal warehousing company
Floating lien Loose arrangement as the lender may find it difficult to police Well suited for
financial good inventories of capital goods
Chattel mortgage Well suited for financial good inventories of capital goods Affords a higher
degree of control over the collateral

Question In today's fast moving world, the quickest way to get information on a firm is through
________.
Correct Answer Internet

Question Companies often need to value its own :-
Correct Answer Shares

Question Long term financing strategy is used by a firm to meet :-
Correct Answer Fixed assets requirements , Permanent working capital requirements , Portion
of fluctuating working capital requirement

Question For determining exchange ratio, the model developed by Conn & Nielson is used.
CorrectAnswer True

Question usually credit lines are established for a period of ________.
Correct Answer 1 year

Question Shortcomings of accounting numbers consist of the following :-
Correct Answer Firms use different kind of accounting methods , Business risk and financial
risk do not have any influence on accounting numbers

Question Investors can reduce the company related risk by diversification of their investments
in ________.
Correct Answer Shares of a large number of companies

Question Making decision on dividend is a very crucial area of financial management for a
firm.

Question The following is not a factor for reduction in the life of an asset by obsolescence :-
Correct Answer No study of market demand for a product / service

Question Due to diversification employees seek:-
Correct Answer Job security , Better opportunities within the firm , Higher compensation

Question Research into true human resources accounting began in :-
Correct Answer 1960`s

Question Segment assets are ________.
Correct Answer Directly attributable to the segment

Question AS 13 statement does not deal with operating or finance leases.
Correct Answer True

Question The costs should be gathered & allocated within the organisation at the ________
structural layer.
Correct Answer Lowest possible

Question Value implies that something has :-
Correct Answer Worth

Question Examples of accounting methods used by firm are :-
Correct Answer FIFO , LIFO , Accrual Accounting

Question The main assumptions for stock repurchase models are as follows :-
Correct Answer The market is efficient , There is perfect competition in the securities market

Question As a general rule, an asset is :-
Correct Answer A good or a right that a firm owns in a determined moment , Prepayment
adjustments , Capitalized expenses

Question It is easy to find a risk free security.
Correct Answer False

Question The earning power of the company approach includes :-
Correct Answer Mainly discounting of all future earnings

Question During the costing process, we look at ________.
Correct Answer Resource consumption

Question Mature companies with stable earnings generally pay out ________.
Correct Answer A high proportion of earnings
Strategic Finance - 20
Question A firm can manage with small inventory if the supply is :-
Correct Answer Prompt & adequate

Question A transport corporation has a substantial working capital requirement.
Correct Answer False

Question Implicit claims are non written promises and rights such as :-
Correct Answer Right to provide service to customers , Job security for the employees

Question As per NOI Approach - the overall capitalization rate remains ________ for all levels
of financial leverage.
Correct Answer Constant

Question When a firm invests in human resources by acquisition & training, it anticipates a
________
Correct Answer Future generation of profits & services

Question While accounting for human assets, the following data is to be considered :-
Correct Answer Full time equivalent staff , Revenues , Expenses
Free cash flow theory Enormous conflicts of interest between Stakeholders and shareholders
Firms have preferences by choosing a way to finance their projects
Net income approach Cost of debt & equity do not change with a change in leverage ratio
weighted average cost of capital does not change with a change in the proportion of debt to
equity in the capital structure
Net operating income approach The overall capitalization rate remains constant for all levels of
financial leverages The overall capitalization rate remains constant for all levels of financial
leverages
Modigliani - Miller Theory weighted average cost of capital does not change with a change in the
proportion of debt to equity in the capital structure Cost of debt & equity do not change with a
change in leverage ratio

Question The processes to be identified & focused should to be on the basis of not adhering to
benchmarks, bottlenecks, quality not met, time problems etc. This is called as ________.
Correct Answer Process analysis

Question The following is not a method of payment to the acquired firm:-
Correct Answer Fixed deposits of the acquiring firm

Question ________ is never a part of the output.
Correct Answer Mechanisms

Question Short term financing is meant for funding working capital of a company.
Correct Answer True

Question One of the bases for determining the residual value of similar assets is :-
Correct Answer Realizable value

Question In case of direct placement of commercial papers it may be issued for maturities
________ from the date of issue.
Correct Answer Between 15 days to 1 year
Earning per share Acquisition is considered to be a function of the impact of the merger on the
EPS Divide net worth by the number of equity shares outstanding
Book value Divide net worth by the number of equity shares outstanding Evaluate the
impact of the merger on EPS & price - earning ratio
Appraisal value Provides a list of the reasonableness of results obtained through methods base
upon the going concern concept Indicate the consensus of the investors
Market value Indicate the consensus of the investors Provides a list of the reasonableness of
results obtained through methods base upon the going concern concept

Question Book value is relevant to determine the firm's value because of the following reasons
except:-
Correct Answer It cannot be used as a starting point to be compared & complimented by other
analysis

Question Receivables constitutes a substantial portion of current assets of several firms.
Correct Answer True
Question Odd lots purchase is not a method of buy back of shares.
Correct Answer False

Question A company is prohibited to buy back its own shares in the following circumstances :-
Correct Answer Through any subsidiary company , Through any investment company , If a
company defaults in repayment of deposits or interest due thereon

Question An activity model is a tool to assist in understanding & defining the organisation.
Correct Answer True

Question A quantity discount is offered :-
Correct Answer On large shipments

Question According to NI Approach, decrease in leverage decreases the overall cost of capital
and increases the firm's value.
Correct Answer False

Question Human Assets accounting stands for :-
Correct Answer Measurement & reporting of the cost and value of people as organisational
resources

Question Shareholders returns consists of 2 components :-
Correct Answer Dividend , Capital gains

Question In value of assets method the following is also to be included as they are also of value
to the company :-
Correct Answer Non trading assets

Question Usually only a single method is used for valuation of shares.
Correct Answer False

Question Where the management's estimate of the useful life of an asset of the enterprise is
shorter than that envisaged under the provisions of the relevant statute, the depreciation provision is
approximately computed :-
Correct Answer By applying a higher rate

Question ForM & As, the acquiring firm needs industry data on :-
Correct Answer Market growth , Nature of competition , Degree of regulation

Question Increase in cost of capital means decrease in ________.
Correct Answer Profitability

Question Investments having no physical existence includes :-
Correct Answer Shares , Debentures , Bonds

Question Long term cash forecasting is generally for a period of ________ years.
Correct Answer 3 to 5 years

Question The number of bidding centers shall not be less than ________ for buy back through
book building.
Correct Answer 30

Question The following of the depreciable asset may undergo subsequent changes arising due
to price adjustments :-
Correct Answer Historical cost

Question The 3 groups of participants in a firm are :-
Correct Answer Suppliers of equity , Debt suppliers , Firm Managers

Question A company that comes to the rescue of a firm that is being targeted for a takeover is
called :-
Correct Answer White knight

Question ________ is not a example of segment asset.
Correct Answer Customer advances

Question Risk appetite decides the rate of capitalization.
Correct Answer True

Question usually the `controlling block' tends to be between :-
Correct Answer 20 & 40 percent

Question Sometimes the mechanisms may appear to be inputs for an activity.
Correct Answer True

Question AS 23 - Accounting for investments in associates in consolidated financial statements
comes into effect in respect of accounting periods commencing on or after ________.
Correct Answer 01.04.2002

Question The direct costs tier normally only includes the following :-
Correct Answer The personnel payroll , Supplies , Individual rental equipment

Question The following categories of personnel are taken into account to calculate the actual
manpower strength :-
Correct Answer Full time equivalents , Temporary staff , Part time personnel

Question Debt reduces :-
Correct Answer Agency cost of free cash flow , Commitment to pay in time to all lenders ,
Freedom of decisions

Question A firm using a conservative policy for determining the requirements of current assets
:-
Correct Answer Has fewer production stoppages , Ensures quick deliveries to customers ,
Stimulates sales

Question Valuation of current investments on overall basis is not considered appropriate.
Correct Answer True

Question The advantage of ________ is that the company is not required to wait for the
payment by the bill issuer.
Correct Answer Bill discounting

Question A single business segment does not include products & services :-
Correct Answer With significantly differing risks & returns