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Thursday, April 26, 2012

Finance Quiz - 8

1. Under which of the following factoring arrangements does the factor not make any prepayment to the client?
[A]Recourse factoring
[B]Invoice discounting
[C]Maturity factoring
[D]Non-recourse factoring


2. Which of the following statements is/are true?
I. Collection float indicates the amount of cheques issued by a company, awaiting payment by the bank.
II. If the collection float is more than the payment float, the company is said to have positive net float.
III. When the bank balance as per the books of the company is less than that in the bank’s books, the company can play the float.
[A]Only (II) above
[B]Only (III) above
[C]Both (II) and (III) above
[D]Both (I) and (III) above


3. Which of the following statements is/are true as per the Net Operating Income Approach?
I. Overall capitalization rate remains constant for all degrees of leverage.
II. Cost of equity remains constant for all degrees of leverage.
III. Cost of equity is a constant linear function of the debt-equity ratio.
IV. Cost of debt remains constant for all degrees of leverage.
[A]Only (III) above
[B]Only (IV) above
[C]Both (I) and (II) above
[D](I), (III) and (IV) above


4. Which of the following is not the source of long-term finance?
[A]Secured Premium Notes
[B]Fully Convertible Debentures
[C]Cumulative Preference Shares
[D]Commercial Paper


5. Which of the following will increase the duration of the operating cycle?
[A]Increase in the raw material storage period
[B]Decrease in the average collection period
[C]Increase in the average payment period
[D]Decrease in the conversion period


6. Which of the following appraisal criteria is useful for evaluating mutually exclusive projects providing similar service but having differing patterns of cost and unequal life spans?
[A]Net Present Value
[B]Internal Rate of Return
[C]Accounting Rate of Return
[D]Annual Capital Charge


7. Which of the following approaches to compute the cost of equity capital assumes that actual returns will be in line with the expected returns?
[A]Realized Yield Approach
[B]Bond Yield Plus Risk Premium Approach
[C]Earnings-Price Ratio Approach
[D]Dividend Capitalization Approach


8. Which of the following is/are not true?
I. If credit standards are made more stringent, sales are likely to decrease and less amount of money will be locked up in receivables.
II. If credit period is lengthened, sales are likely to increase but bad debt losses are likely to decrease.
III. If cash discount is increased, discount paid is likely to increase and amount of receivable is likely to reduce.
[A]Only (II) above
[B]Only (III) above
[C]Both (I) and (II) above
[D]Both (II) and (III) above


9. Which of the following is not an assumption made under the Modigliani and Miller approach for explaining the irrelevance of dividends policy for a firm?
[A]Existence of perfect capital markets
[B]Non-existence of differential tax rates for the dividend income and capital gains
[C]Non-influence of single investor on the share value
[D]Higher growth rate of dividends compared to cost of equity capital


10. Which of the following is spontaneous source of financing current assets?
[A]Note lending
[B]Trade credit
[C]Cash credit
[D]Letter of credit


11. Consider the following projects.
I. Project B which has a Net Benefit Cost Ratio less than one but more than zero.
II. Project C whose present value of inflows is less than the present value of outflows.
III. Project D which has a cost of capital less than the internal rate of return.
IV. Project E which has the highest annual capital charge compared to all other projects.
Which of the projects mentioned above could be accepted?
[A]Only (I) above
[B]Both (I) and (III) above
[C]Both (III) and (IV) above
[D](II), (III) and (IV) above


12. Which of the following statements is true about the terms of trade credit 4/10, net 30?
[A]A 10% cash discount is offered for payment before 30 days
[B]A 4% cash discount can be taken for payment before the 10th of the following month after invoicing
[C]A 10% cash discount can be taken if paid by the fourth day after invoicing
[D]No cash discount is offered from the eleventh day onwards after the date of purchase


13. Which of the following statements is true in case of a direct quote?
[A]Exchange margin is to be added to the bid rate and ask rate
[B]Exchange margin is to be added to the bid rate and deducted from the ask rate
[C]Exchange margin is to be deducted from the bid rate and the ask rate
[D]Exchange margin is to be deducted from the bid rate and added to the ask rate


14. Which of the following is not an appropriate hedging strategy for a likely devaluation of a currency?
[A]Reduce the level of cash
[B]Reduce the local borrowing
[C]Delay accounts payable
[D]Sell the weak currency forward


15. The following are the exchange rates quoted in NewYork:
CHF / $ 1.3591 / 93
$ / CAD 0.6570 / 72
The synthetic quotes of Swiss Franc per Canadian dollar are
[A]CHF / CAD 0.8929 / 33
[B]CHF / CAD 0.8930 / 32
[C]CHF / CAD 2.0683 / 86
[D]CHF / CAD 2.0680 / 89


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