EXAM QUESTIONS --- FINE005

CASE STUDY:
• Total Assets: 0.6
• Debt-Equity Ratio: 0.66
• Stock Turnover: 2.5
• Fixed Asset Turnover: 3

NORMAL QUESTIONS:
1. This ratio measures the overall profitability and operational efficiency of a firm.
Answer: Earnings per share

2. Hostile takeover includes

a. street sweep
b. bear hug
c. brand power
d. All of these

3. A partnership is often motivated by the desire to join and leverage

complementary
Answer: Skills and resource

4. This method is used to arrive at the market price of the equity share:
Answer: Price earnings ratio

5. Twelve months average of the stock exchange prices are used in which method of
valuation?
Answer: Market Value approach

6. A budget is a combination of __ and ___ expressed in financial terms

Answer: Forecasts and plans
7. Buy back of shares are shown under
Answer: Financing activities

8. Group means two/more enterprises which directly/indirectly are in a position to

a. exercise at least 26% of the voting rights
b. appoint more than 51% of the board of directors
c. control the management/ affairs of other enterprise
d. All of these

9. Which term refers to the accuracies, consistencies and authenticity of reported

information?
Answer: Quality of financial reporting

10. Return on asset may not provide correct result when the firms have different:
Answer: Capital Structure
11. Level of interaction between firms in strategic alliance is very high in:
Answer: Joint Venture

12. Alliances are:

Answer: Conventional organizations with fully internalized activities & well-specified
transaction…

13. On which budget that all the other budget are based?
Answer: Sales budget

14. Market Value of the firm’s equity minus equity capital investment is used to
compute
Answer: Market Value added
15. Revenue and expenses are recorded in profit and loss account use the:
Answer: Accrual basis

16. Alliance portfolio often results from a “Sedimentary” accumulation process. That
is,
companies engage in multiple alliances over time and all these partnerships
accumulate .
Answer: Haphazardly

17. The type of financing in which an initial payment (to shareholders of an

acquired firm) is
followed by additional payment in future years based on the target firm’s increase
in earnings is
known as
Answer: Deferred payment plan

18. The free cash flow (fcf) is the legitimate cash flow for the purpose of business
valuation in
that it reflects the cash flows generated by a company’s operation for
Answer: All the capital Providers
19. The following agencies are not responsible for ensuring proper financial
reporting quality:
Answer: Customers

20. Buyouts may be:

Answer: Management or Leveraged buyout

21. Assuming ROA 19.50% and retention ratio as 2/3 what is the expected internal
growth
rate:
Answer: 0.1494
22. is calculated by deducting interest from the EBIT.
Answer: Profit before tax

23. Financial planning may be

Answer: Short & Long term financial planning

24. Which of the following ratio is the used to examine the sustainable growth for a
single
product firm:
Answer: Debt-Equity ratio
25. Main drawback of the financial statement is that they do not cover the changes
in:
Answer: Asset, liabilities and owners liquidity

26. Deducting total external liabilities from total assets will give:
Answer: Net assets

27. Decrease in creditor’s cash.

Answer: Decrease

28. The term real goodwill is the excess of rate of return on invested funds than:
Answer: Similar firms

29. Key business venture of the firms which are not growing and yielding high return
are
known as:
Answer: Cash Cows

30. Cash flow from operating ratio is calculated with the help of which equation?
Answer: Cash flow from operations/Current liabilities
31. If P/E ratio is 8 times and market price per share is 134, what is the EPS:
Answer: 16.75

32. Difficulty in comparison may relate to:

Answer: Difference is the basis of inventory valuation and Different depreciation
methods

33. The common accounting warning signs/red flags do not include:

Answer: Reducing economic life of fixed assets

34. Coverage ratio measure the firm’s ability to pay

Answer: Fixed charges

35. The term valuation implies the task of estimating the worth of an:
Answer: Assets
36. The master budget does not include,
Answer: Earlier Period balance sheet

37. Treat to financial stability and profitability factor giving rise to fraud comes
under:
Answer: Incentive or pressure

38. Which of the following is not the component of financial planning model?
Answer: Value

39. This represents the budget prepared for next financial period:
Answer: Forecast estimates

40. Unpaid dividends on preference shares are reckoned of the firm in asset-based
valuation.
Answer: Liability
41. Return on resources on shareholder’s equity is computed divided by EAT by
Answer: Shareholder’s fund

42. Internal growth rate is maximum rate at which a firm can grow without
Answer: External financing

43. The statement of changes in financial position (SCFP) shows:

Answer: How the funds were generated and used during the period

44. The present value of the incremental cash inflows discounted at some specific
rate is:
Answer: Intrinsic value

45. The amount at which the asset is shown in the balance sheet is:
Answer: Book value

46. It is a ratio between net credit purchase and the average amount of creditors
outstanding:
Answer: Creditors turnover ratio

47. Four-times stocks turnover ratio implies months inventory holding period
Answer: 3

48. Which of the following condition is not present when fraud occurs?
Answer: Higher market price of share

49. From the economic point of view, the profit for a firm would be
Answer: Increase in value of the shareholder’s wealth

50. Activities related with the expansion/contraction of a firm’s operations:

Answer: Corporate restructuring
51. Some of the limitations which characterize ratio analysis are:
a. Difficulty in comparison
b. Impact of inflation
c. Conceptual diversity
d. All of these

52. Mergers can be provide tax benefit in the case of of losses

Answer: Set off & Carry forward

53. Debt to total capital ratio expresses the relationship between:

Answer: Long term debt and owner capital

54. The cost of acquiring a new asset of equity utility and usefulness refer to:
Answer: Replacement Value

55. When the firms dealing in different unrelated activities merge together is the
example of:
Answer: Conglomerate merger

56. The term strategic alliance is currently used to describe a variety of inter-firm
corporation
agreements which includes:
Answer: Formal joint venture & Minority equity participation
57. Which of the following items is not included in profit and loss appropriation
account?
a. General reserves
b. Interim Dividend
c. Corporate dividend tax
d. None of these
58. Threat to financial stability and profitability factor giving to fraud come under:
Answer: Incentive or pressure
59. Suppliers evaluate short term liquidity where as long term funds providers
evaluate
Answer: Long term solvency

60. The reciprocal of price earning P/E ratio is the indicative of:
Answer: Capitalisation factor

61. refers to approach of the firm to utilize the resources, core competence and
strengths
of the firms in the available opportunities and risk presented by the environment.
Answer: Strategy

62. Issue of 12% preference shares will debt-equity ratio of a corporate enterprise.
Answer: Decrease

63. An analyst applied the dupont system to the following data of a company (a)
equity
turnover 4.2, (b) net profit margin 5.5%, (c) total assets turnover 2.0 and (d)
dividend payout
ratio 30%, the company’s rate of return on equity
Answer: 0.231 or 23.1 %

64. An alliance opportunity that promises to create value from a perspective may
not
necessarily from an
Answer: Stand-alone, Alliance portfolio perspective
65. Strategy of a firm involves,
Answer: Matching’s of strengths and competencies of the firm with market
opportunities
66. Which of the following techniques used to construct projected financial
statement by use
of specified relationships between parameters?
Answer: Financial modelling

67. Companies are generally remarkably when they go about forming strategic
partnerships.
Answer: Myopic

68. Internal Growth rate is the rate at which the firm can grow without external
financing
of any kind.
Answer: Maximum

69. Evaluation of firm investment options, requirement of funds and sources of

funds refers as:
Answer: Financial Planning
0. Which is the best method among these for valuation of a firm where not much
data about
its net profit is available and its shares are not actively traded?
Answer: Net-asset-based approach

71. Methods in which the reported earnings equality of a firm can be lowered
include
Answer: Recognising revenues too soon & recording fictitious

72. High P/E ratios reflects

Answer: Optimism

73. Reasons that collaborative venture inevitable present some significant

management
challenges include
a. Strategic and environmental disparities among these
b. Lack of a common experience and perception
c. Difficulties in inter-firm communications
d. All of these

74. Decrease in inventory (decrease/Increase) Cash:

Answer: Increases

75. In case of poor financing reporting quality, the following statements may be
falsified:
a. The balance sheet
b. The profit and loss account statement
c. Fund Flow Statement
d. All of these
76. Dividends paid to shareholders are classified as
Answer: Financing activities

77. The key to successful alliance building lies in defining a scope for the
partnership as
is adequate to get the job done
Answer: simple and focused

78. If dividend pay-out ratio is 60%, what amount is the retention ratio?
Answer: 0.4

79. Return on investment is a

Answer: Combined ratio

80. When the control in the another firm is acquired through bidding is called
Answer: Tender offer
81. The value determined after the explicit forecast period is referred to a:
Answer: Continuing value

82. Determine the market price per share of a firm having equity capital of
₹100,000 (face
value of ₹50 per share); the profit after taxes is ₹12,000 & P/E ratio is 5.
Answer: 30

83. The term fund can be defined as financial resources generated by

Answer: Both current and non-current items

84. Which of the following is the part of victims of fraud?

a. Shareholders see huge amount of drop in share prices
b. Employees face non-payment of salaries
c. Client of firm showed lack of trust by cancellation of contracts
d. All of these

85. The financial planning ends with

Answer: comparison of actual parameters with projected

86. Incremental budgeting approach is applied in the preparation of:

Answer: Master budget

87. The 2011 joint venture between China's Lenovo and Japan's NEC is the example
of:
Answer: Global competition

88. Ratio of net profit before interest and tax to sales is

Answer: Operating profit ratio
89. Recorded facts, accounting conventions and personal judgments best defines
the:
Answer: Meaning of financial statements

90. ____ are cash flows associated with purchase/sale of both fixed assets and
business interest
a. Operating cash flows
b. Financing cash flows
c. Extraordinary items
d. None of these
91. Ratio used for comparing the firm with those of the other firms in the same line
of
business
Answer: Inter firm ratio

92. The method of valuation is affected by the financial fundamentals and

speculative factors:
Answer: Market based approach
93. Method used to arrive at market price of an equity share:
Answer: Price earnings ratio

94. The acquisition/takeover bids fall under the purview of the

Answer: SEBI

95. When the operating expenses and depreciation are deducted from gross profit,
the result
would be
Answer: PBIT

96. Types of mergers are

a. Horizontal
b. Vertical
c. Conglomerate
d. All of these
97. The main steps involved in financial planning include
a. analysis of firm's earlier periods' performance
b. understanding the firm's operating characteristics
c. deciding the financial sources
d. All of these

98. The process of preparing projected financial statement generally begins with the
projection
of
Answer: Sales

99. The long term solvency of a firm can be examined by using which ratio?
Answer: Leverage ratios

100. The benefits that a new alliance can create on the alliance portfolio level
mainly stem from
ways in which the new alliance and existing ones can enhance each other. The
types of synergy
include
Answer: Sharing or recombining know-how & Reinforcing existing coalitions

101. Firms ability to make contractual interest payment is measured by:

Answer: Internal coverage ratio

102. Firm A acquires Firm B, MPS of B is ₹20 and EPS is ₹5. For an exchange rate of
1.5:1,
what is the P/E ratio used in acquiring B?
Answer: 6
103. Which of the following statement is provided in the annual report of the firm?
a. Balance Sheet
b. P&L A/C
c. Cash Flow statement
d. All of these

104. The funds flow statement

a. show changes in the working capital of firms during a financial period
b. helps the firm to plan its future working capital requirements
c. can be represented in vertical and horizontal form
d. All of the above

105. The common accounting warning signs/red flags that a stakeholder, analyst
and other user
of FS must be aware of include:
a. aggressive revenue recognition
b. abnormal sales growth
c. abnormal inventory growth
d. All of the above

106. The following information is given about a company: (a) current assets = Rs.
900 lakh and
current liabilities = Rs 450 lakh in current yr (b) current assets =₹1,100 lakh and
current
liabilities = ₹530 lkh in prev yr the approximate percentage decrease in current
ratio is
Answer: 4% or 0.04
107. Dividend per share is computed by dividing - dividend paid to ordinary
shareholders by
Answer: Number of new share capital issues

108. Cash payments to suppliers for goods & services are shown under:
Answer: operating activities

109. Operating budgets pertain to various activities and operations of the firm. This
includes?
a. Sales
b. Purchases
c. Productions
d. All of these

110. In the context of fraud, main objectives of the auditor include the following:
a. To identify and assess the risk of material miss-statement is FS
b. Obtain sufficient audit evidence about assessed risks
c. Respond appropriately to identified and suspected fraud
d. All of these
111. The funds flow statement helps the firm to plan its
Answer: Working capital requirement

112. Financial statements of a firm include the following:

a. Balance Sheet
b. Profit & Loss account
c. Cash Flow Statement
d. All of these

113. Return on investment include:

a. Return on current assets
b. Return on capital employed
c. Return on shareholders' equity
d. All of these

114. Key motivations that are driving the formation of strategic alliances include
a. technology exchange
b. industry convergence
c. economies of scale
d. All of these

115. Academic research has also shown that managers frequently behave and use
alliance
formation as ways to improve freedom of action.
Answer: opportunistically, their own

116. In case of poor financial reporting quality, the following statements can be
falsified
a. The Balance Sheet
b. The Profit & Loss account
c. Fund Flow statement
d. All of these

117. Reasons that collaborative venture inevitable present some significant

management
challenges include
a. strategic and environmental disparities among the partners
b. lack of a common experience and perception base
c. difficulties in inter-firm communication
d. All of these

118. The fund flow statement:

a. Shows changes in the working capital firms during
b. Helps the firm to plan its future working capital
c. Can be Presented in vertical & horizontal form
d. All of these

119. The Earning power of a firm has the following elements:

Answer: Profitability on sales & Profitability of assets
120. The overall ability of a firm to service outside liabilities is reflected in the:
Answer: Total Cash flow ratio

121. If the future cash earnings are well predictable then the most suitable
approach of
valuation of business is:
Answer: Discounted cash flow approach

122. Price Earnings ratio can be calculated by

Answer: Market price of share/EPS

123. Concept of profit does not include

Answer: Future expected profit

124. We add back depreciation in Cash Flow Statement due to

Answer: non-cash flow expense

125. The sustainable growth rate is the maximum rate at which the company can
grow by using:
Answer: retained earnings and additional external debt

126. Predicting and estimating future outcomes based on past trends and current
actions is
called
Answer: Financial forecasting
127. Takeovers can be
a. negotiated/friendly
b. open markets/ hostile
c. bail out
d. All of these
128. Mergers can provide tax benefits in the case of____ of losses
Answer: Set off and carry forward

129. Value determined by dividing net worth by the no. of equity shares outstanding
is known
as
Answer: book value

130. The type of financing in which the purchaser approaches the shareholders
directly instead
of the mgmt to acquire interest in acquired firm is known as
Answer: tender offer

131. Erosion of profits could be caused by

a. the actions of competitors
b. the bargaining power of customers and suppliers
c. the bargaining power of govts
d. all of the above
132. The MVA approach _____ be used for all types of firms
Answer: cannot

133. The following firm is not involved in accounting scandal:

Answer: L&T
134. Cash planning is done through
Answer: Cash budgets

135. Forecasting is best achieved with the

Answer: financial models

136. Forecasts are based on past performance of the firm which

Answer: may not be necessarily repeated in future

137. Key business venture of the firm which are growing and yielding high profit
margins are
Answer: star

138. Which of the following is/are a more rigorous test of the solvency position of a
business
firm?
Answer: Debt-service coverage ratio

139. Purchase of T-bills will _____ acid-test ratio

Answer: not affect
140. Current ratio and acid-test ratio of a business firm are virtually the same. This
implies that
the
Answer: Firm has low investment in inventory

141. The Balance Sheet

Answer: gives a snapshot of financial health of the firm

142. This method of valuation is affected by the financial fundamentals and

speculative factors:
Answer: Market Based Approach
143. All those assets which are converted into cash in the normal course of business
within one
year are known as:
Answer: Current Assets

144. Sustainable growth refers to growth in sales which can be achieved without:
Answer: Fresh equity

145. Sarbanes-oxley act of 2002-sox aims at restoring investor confidence in

security market in
Answer: U.S

146. Cash Flow statement (base on as- 3) indicates change in

Answer: Cash and cash equivalent

147. Preparation of cash flow statement is mandatory for all the listed companies as
well as for
all enterprises which have turnover of more than
Answer: 50 crores

148. MRTP stands for

Answer: Monopolies and Restrictive practices

149. Vertical merger is the merger of two firms which are involved:
Answer: In different stages of distribution and production in the same business
activity

150. If dividend pay-out ratio is 60% what amount is the retention ratio:
Answer: 0.4
FINANCIAL ANALYSIS & BUSINESS VALUATION
1. Is that acquisition of an enterprise by a person or merger
Ans. Combination
2. Information that goes into can be used to help prepare
Ans. cash budget forecast financial statements
3. involves predicting and estimating future outcomes based on past trends and
current actions
Ans. financial forecasting
4. capital invested is a measure of
Ans. economic value added
5. Which Is not the category of return on investment
Ans. return on turnover
6. which of the following is an example of cash flow from financial activity
Ans. Dividend received
7. which is not that tax concessions to amalgamated company
Ans. Free of capital gain tax
8. In a merger the
Ans. stockholders of the target farm have little if any say as to whether or not the
merger occurs
9. Is that acquisition of entertainers or person or merger
Ans. Combinations
10. information that goes into can use to help prepare
Ans. forecast income statement a cash budget
11. which of the following is an example of horizontal merger
Ans. All of these
12. Involves predicting an estimated future outcome based on past trends and
current actions
Ans. Financial Forecasting
13. NOPAT (Capital Invested xWACC) is measures of
Ans. Economic value added
14. it is not applications of fund
Ans. long term borrowing
15. Which represents the budget prepared for the next financial period
Ans. Budget estimates
16. In indirect method of calculating operation cash flow which of the following will
be added to the
net profit
Ans. Gain on sale of asset
17. Which is not the tax concessions to amalgamated company
Ans. free of capital gains tax
18. A snapshot of the financial condition of the farm at a particular time
Ans. balance sheet
19. In a merger the
Ans. Acquiring farm returns its name and legal status
20. The firm which was involved in accounting scandal
Ans. Satyam
21. Quick assets is
Ans. Current assets - inventory - prepaid expense
22. The positive incremental net gain associated with the combination of two farms
through a
merger or acquisition is called
Ans. Synergy
23. Which of the following is not a cash outflow for the firm
Ans. Depreciation
24. A public offer by one form to directly buy the shares of another form is called
Ans. Merger
25. Which of the following is a measure of liquidity
Ans. Current ratio
26. Which of the following items can be found on an income statement
Ans. Sales
27. the uprising at which an asset can be sold in the firms is liquidated is
Ans. liquidation value
28. in a merger or acquisition a form should be acquired if it
Ans. it generates a positive net present value to the shareholder of an acquiring firm
29. Which statement is prepared in the process of funds flow analysis
Ans. fund flow statement
30. Unrealised gains and losses arising from foreign exchange rates are
Ans. not cash flows
1. A budget which includes activities relating to the capital expenditure during the
positive period
Ans. Capital budgeting
32. Industries has an equity market capitalization of 5000 lakh in current year
resume for that its
equity share capital is 1500 lakh and its retained earnings is 900 lakhs
Ans. 2600
33. operating profit is
Ans. Gross profit - operating expense - depreciation
34. Which of the following denotes the firm with high market growth rates and high
market share
Ans. Star
35. Merger of firms engaged at a different stage of production but in the same
industry is called
Ans. vertical mergers
36. Which ratio is the best-known measure of financial strength
Ans. Current ratio
37. Which analysis helps in assessing the effect of changes in input of parameters of
the financial
parameters contained in projected financial statement
Ans. sensitivity analysis
38. Ordinary equity is also called
Ans. net worth of the firm
39. Which of the following is not a cash outflow for the firm
Ans. Depreciation
40. The statements helps in analysing the changes in the working capital position
of the firm is
Ans. Fund flow statement
41. The process of developing strategy for a business by researching the businesses
and the
environment in which its function is called
Ans. strategic analysis
42. The ideal quick ratio is
Ans. 01:01
43. Principal revenue generating activities often enterprises are called as
Ans. operating activity
44. What remains after we subtract operating cost and capital expenditures
necessary to at least
sustain cash flows from total firm revenues
Ans. free cash flow

45. Which is not the tax concessions to amalgamated company

Ans. bad debts
46. Which is not bad vantage of merger
Ans. Simplification
47. Cash cows are businesses with
Ans. high market share and low market growth
48. the value at which assets are shown in balance sheet is
Ans. book value
49. Going private transactions in which a large percentage of the money used to
buy the outstanding
stock is borrowed is called
Ans. tender offer
50. so

1) The method of valuation is affected by the financial fundamental and speculative

factors
a) Price earning ratio
b) Market based approach
c) Discounted Cash Flow
d) Market to book value

2) The acquisition takeover bids fall under the purview of the

a) RBI
b) IRDA
c) EXIM
d) SEBI

3) Which of the following is/are more rigorous test of the solvency position of a
business firm?
a)Interest Coverage Ratio
b)Debt Service Coverage Ratio
c) Both are Rigorous
d)None of these

4) From the economic point of view the profit for a firm would mean
a) Increase in value of the shareholders wealth
b) Profit worked out by accounting professional while preparing the financial
statements
c) All of these
d) None of these

5) Cash Flow statement (base on as- 3) indicates change in

a) Bank and cash equalent
b) Cash and cash

6) A budget is a combination of ______________________ and__________________

expressed in financial term
a) Forecast & asset
b) Plans& asset
c) Forecast& Plans
d) None of these

7) Return on resources on shareholders equity is computed divided EAT by

a) Share Capital
b) Total asset
c) Shareholders Fund
d) None of these
8) Preparation of cash flow statement is mandatory for all the listed companies as
well as for
all enterprises which have turnover of more than
a) 40 Crores
b) 50 Crores
c) 10 Crores