EP–FSM–December 2022 62
FINANCIAL AND STRATEGIC MANAGEMENT
Time allowed : 3 hours Maximum marks : 100
PART I
1. Which of the following does not fall within the ambit of investment decisions ?
(A) Inventory Management
(B) Strategic Investment
(C) Replacement Investment
(D) None of the above
2. Which of the following is/are key factors that influence investment decisions of a
firm ?
(A) Capital Outlays and future earnings of the proposed project
(B) Availability of Capital and considerations of Cost of Capital
(C) A set of standards by which a project is selected for implementation and
maximizing returns therefrom
(D) All of the above
3. Which of the following scholar commented :
‘‘Cost of Capital is the rate of return the firm required from investment in order to
increase the value of the firm in the market place’’ ?
(A) Ezra Solomon
(B) John J. Hampton
(C) James C. Van Horne
(D) I.M. Pandey
4. Though the cost of retained earnings is generally as equal to the cost of equity
capital, it is not to be adjusted for :
(A) Tax
(B) Floatation cost
(C) Under-pricing
(D) All of the above
62
, 63 EP-FSM–December 2022
5. Which of the following statements is true ?
(A) There is no restriction on a company to be an all debt company. Debt can be
raised even without any equity base in the company
(B) Debt can be raised by a company only on an adequate equity base which
serves as a cushion for debt financing
(C) The component of debt and equity mix in capital structure has been prescribed
by the Companies Act, and it is mandatory for companies to adhere to it.
(D) All the above are false.
6. Which of the following statements regarding liquidity ratios is true ?
(A) Higher the current ratio of a firm is, greater is its ability to pay off its current
liabilities.
(B) Current ratio is a crude ratio and it does not take into account the differences
amongst different categories of current assets.
(C) To assess the quick liquidity position (liquidity ratio) of the firm, inventory is
excluded from the calculation.
(D) All the above are true
7. Which of the following is not a dimension of liquidity management of firms ?
(A) Management of Cash and Marketable Securities
(B) Credit Policy Decision
(C) Management and Control of Inventories
(D) Investment in Fixed Assets
8. Which of the following statements is false ?
(A) There is an inverse relationship between Liquidity and Profitability and these
two are competing goals for a finance manager
(B) While the immediate survival of a firm depends on profitability, its long term
survival depends on liquidity
(C) Liquidity and Profitability both are important for a firm to survive
(D) A firm should maintain a trade-off situation where it maintains its optimum
liquidity for greater profitability, and the finance manager has to strike a
balance between two conflicting objectives.
9. The total capital invested in Firm A is `500 Crore, including 40% of borrowed
funds. The total capital invested in Firm B is `500 Crore, including 20% of borrowed
funds. There are no preference shares in both the firms. If the rate of operating
earnings (EBIT) for both the firms is l8%, applicable income tax rate is 30% and
rate of interest is l2% p.a., which of the follwing statements is true in the light of
this information ?
(A) Return on Equity of firm A will be higher as compared to that of firm B
,EP–FSM–December 2022 64
(B) Return on Equity of firm B will be higher as compared to that of firm A
(C) Both the firms are indifferent in terms of rate of return on equity
(D) None of the above
10. Which of the following statements is False ?
(A) A Finance Manager can take the financial decisions of the firm by considering
the return dimension only
(B) Usually, as the return from an investment increases, the risk associated
with it also increases, and in his attempt to increase the return, the finance
manager will also have to undertake greater degree of risk
(C) At the time of taking financial decisions, the finance manager tries to achieve
proper balance between consideration of risk and return to maximize the
market value of the firm
(D) All the above are true
11. Economic Order Quantity of a product is 3000 units. Its cost per unit is `1.50
and ordering cost is ` 18 per order. If the carrying cost per annum is 20% per
annum for average inventory value, annual consumption in units is :
(A) 50000 units
(B) 60000 units
(C) 75000 units
(D) 90000 units
12. Which of the following is not an example of Systematic Risk ?
(A) Changes in Laws/Regulations
(B) Natural Disasters
(C) Entry of a new competitor in market
(D) Volatility in Currency Value
13. The total amount of shareholders' equity of a company is `1,50,00,000. It owns
20000 preference shares of ` 100 each and 5,00,000 equity shares of ` 20 each.
The current market price of equity shares is ` 35 each and that of preference
shares is ` 110. The Aggregate of ‘‘Market Value Added" of the company is :
(A) ` 25,00,000
(B) ` 47,00,000
(C) ` 20,00,000
(D) ` 27,00,000
14. A wants to invest ` 10,000 for a period of 3 years. The rate of return on amount
to be invested is 10% p.a. compounded annually. By how much amount the
, 65 EP-FSM–December 2022
return will differ approximately, if the rate of return been 10% p.a. compounded
quarterly ?
(A) `130
(B) `140
(C) `150
(D) `160
15. What is the future value of an annuity amount of `2,000 payable at the beginning
of each of the next 5 years, if the rate of return is 10% p.a. ?
(A) `13,410 approx.
(B) `11,230 approx.
(C) `12,210 approx.
(D) `11,110 approx
16. A company has invested `7,00,000 in a project, `5,00,000 initially and remaining
at the end of first year. It also invested `2,00,000 in working capital at the end of
2nd year, which released back by the end of project life of 5 years. The scrap
value realized from project at the end was `1,50,000. The project generated
Cash inflows of `2,00,000 p.a. through years 1 to 5. If the required rate of return
is 12% p.a., the approx. NPV of the project is :
(A) `81,500
(B) `83,809
(C) `44,217
(D) The project has a negative NPV
17. Pay-back Period method of capital budgeting is not suitable in which of the
following circumstances ?
(A) Where the firm is more interested in quick recovery of funds than profitability
(B) Where the expected returns from the projects are highly uncertain
(C) Under conditions of political and economic pressures
(D) None of the above
18. A project has an outlay of `14,100 in the beginning. It generated annual cash
flows of `4,500 during its useful life of 4 years. The Internal Rate of return of the
project will be between :
(A) 11% and 10%
(B) 12% and 13%
(C) 11% and 12%
(D) 13% and 14%
FINANCIAL AND STRATEGIC MANAGEMENT
Time allowed : 3 hours Maximum marks : 100
PART I
1. Which of the following does not fall within the ambit of investment decisions ?
(A) Inventory Management
(B) Strategic Investment
(C) Replacement Investment
(D) None of the above
2. Which of the following is/are key factors that influence investment decisions of a
firm ?
(A) Capital Outlays and future earnings of the proposed project
(B) Availability of Capital and considerations of Cost of Capital
(C) A set of standards by which a project is selected for implementation and
maximizing returns therefrom
(D) All of the above
3. Which of the following scholar commented :
‘‘Cost of Capital is the rate of return the firm required from investment in order to
increase the value of the firm in the market place’’ ?
(A) Ezra Solomon
(B) John J. Hampton
(C) James C. Van Horne
(D) I.M. Pandey
4. Though the cost of retained earnings is generally as equal to the cost of equity
capital, it is not to be adjusted for :
(A) Tax
(B) Floatation cost
(C) Under-pricing
(D) All of the above
62
, 63 EP-FSM–December 2022
5. Which of the following statements is true ?
(A) There is no restriction on a company to be an all debt company. Debt can be
raised even without any equity base in the company
(B) Debt can be raised by a company only on an adequate equity base which
serves as a cushion for debt financing
(C) The component of debt and equity mix in capital structure has been prescribed
by the Companies Act, and it is mandatory for companies to adhere to it.
(D) All the above are false.
6. Which of the following statements regarding liquidity ratios is true ?
(A) Higher the current ratio of a firm is, greater is its ability to pay off its current
liabilities.
(B) Current ratio is a crude ratio and it does not take into account the differences
amongst different categories of current assets.
(C) To assess the quick liquidity position (liquidity ratio) of the firm, inventory is
excluded from the calculation.
(D) All the above are true
7. Which of the following is not a dimension of liquidity management of firms ?
(A) Management of Cash and Marketable Securities
(B) Credit Policy Decision
(C) Management and Control of Inventories
(D) Investment in Fixed Assets
8. Which of the following statements is false ?
(A) There is an inverse relationship between Liquidity and Profitability and these
two are competing goals for a finance manager
(B) While the immediate survival of a firm depends on profitability, its long term
survival depends on liquidity
(C) Liquidity and Profitability both are important for a firm to survive
(D) A firm should maintain a trade-off situation where it maintains its optimum
liquidity for greater profitability, and the finance manager has to strike a
balance between two conflicting objectives.
9. The total capital invested in Firm A is `500 Crore, including 40% of borrowed
funds. The total capital invested in Firm B is `500 Crore, including 20% of borrowed
funds. There are no preference shares in both the firms. If the rate of operating
earnings (EBIT) for both the firms is l8%, applicable income tax rate is 30% and
rate of interest is l2% p.a., which of the follwing statements is true in the light of
this information ?
(A) Return on Equity of firm A will be higher as compared to that of firm B
,EP–FSM–December 2022 64
(B) Return on Equity of firm B will be higher as compared to that of firm A
(C) Both the firms are indifferent in terms of rate of return on equity
(D) None of the above
10. Which of the following statements is False ?
(A) A Finance Manager can take the financial decisions of the firm by considering
the return dimension only
(B) Usually, as the return from an investment increases, the risk associated
with it also increases, and in his attempt to increase the return, the finance
manager will also have to undertake greater degree of risk
(C) At the time of taking financial decisions, the finance manager tries to achieve
proper balance between consideration of risk and return to maximize the
market value of the firm
(D) All the above are true
11. Economic Order Quantity of a product is 3000 units. Its cost per unit is `1.50
and ordering cost is ` 18 per order. If the carrying cost per annum is 20% per
annum for average inventory value, annual consumption in units is :
(A) 50000 units
(B) 60000 units
(C) 75000 units
(D) 90000 units
12. Which of the following is not an example of Systematic Risk ?
(A) Changes in Laws/Regulations
(B) Natural Disasters
(C) Entry of a new competitor in market
(D) Volatility in Currency Value
13. The total amount of shareholders' equity of a company is `1,50,00,000. It owns
20000 preference shares of ` 100 each and 5,00,000 equity shares of ` 20 each.
The current market price of equity shares is ` 35 each and that of preference
shares is ` 110. The Aggregate of ‘‘Market Value Added" of the company is :
(A) ` 25,00,000
(B) ` 47,00,000
(C) ` 20,00,000
(D) ` 27,00,000
14. A wants to invest ` 10,000 for a period of 3 years. The rate of return on amount
to be invested is 10% p.a. compounded annually. By how much amount the
, 65 EP-FSM–December 2022
return will differ approximately, if the rate of return been 10% p.a. compounded
quarterly ?
(A) `130
(B) `140
(C) `150
(D) `160
15. What is the future value of an annuity amount of `2,000 payable at the beginning
of each of the next 5 years, if the rate of return is 10% p.a. ?
(A) `13,410 approx.
(B) `11,230 approx.
(C) `12,210 approx.
(D) `11,110 approx
16. A company has invested `7,00,000 in a project, `5,00,000 initially and remaining
at the end of first year. It also invested `2,00,000 in working capital at the end of
2nd year, which released back by the end of project life of 5 years. The scrap
value realized from project at the end was `1,50,000. The project generated
Cash inflows of `2,00,000 p.a. through years 1 to 5. If the required rate of return
is 12% p.a., the approx. NPV of the project is :
(A) `81,500
(B) `83,809
(C) `44,217
(D) The project has a negative NPV
17. Pay-back Period method of capital budgeting is not suitable in which of the
following circumstances ?
(A) Where the firm is more interested in quick recovery of funds than profitability
(B) Where the expected returns from the projects are highly uncertain
(C) Under conditions of political and economic pressures
(D) None of the above
18. A project has an outlay of `14,100 in the beginning. It generated annual cash
flows of `4,500 during its useful life of 4 years. The Internal Rate of return of the
project will be between :
(A) 11% and 10%
(B) 12% and 13%
(C) 11% and 12%
(D) 13% and 14%
