Corporate Finance Quiz

Attempt the objective questions below. Each question carries two marks.

1. Apollo Tires has decided to acquire US Based Cooper Tires for $ 2.5 billion dollars. If it plans to finance the acquisition partly by debt. What do you think, will be the ideal instrument for raising debt?

a. INR Loanb. INR NCDc. ECB Loan / FCCB Loand. QIB Issue

2. An already listed company wants to raise money from equity markets for capacity expansion; however the quantum is not very large. Few large institutional investors have shown interest in subscribing equity of the company. Which route the company should tap to raise equity?

a. Follow-on public offerb. Bonus Issuec. Rights Issued. QIB Issue

3. XYZ firm is rated BBB-, would you advise the company to raise NCD for its long term debt requirement? Yes

4. ABC announced dividend on 1st November, the ex dividend date is 10th November, what do you think will be the record date?

a. 11th Novemberb. 20th Octoberc. 12th Novemberd. 15th November

5. Dividend payout ratio is defined as total dividend paid divided by a. Total share capitalb. Profit after taxc. Total capitald. EBIDTA

6. Most dividend paying Indian companies give dividend yield in the range of a. 0% - 3%b. Above 5%c. Above 10%d. Between 5% - 6%

7. Which of the following is an advantage of “sole proprietorship” over that of a “company”? a. The owners of the corporation have unlimited liability for the firm's debts b. It is the simplest to start c. The corporation has an unlimited life

d. Dividends received by the corporation's shareholders are tax-exempt e. It is more difficult to transfer ownership in a corporation

8. Which of the following is not an advantage of “company” over that of a “sole proprietorship”?

a. The owners of the corporation have limited liability for the firm's debts b. The corporation has an unlimited life and allows access to permanent capitalc. Its helps you increase scaled. It is more difficult to transfer ownership in a corporatione. It can also reward employees via ESOPs

9. The following statements regarding the NPV rule and the IRR rule are true except: a. Accept a project if its NPV > 0 b. Reject a project if its NPV < 0 c. Accept a project if its IRR > 0 d. Accept a project if its IRR > opportunity cost of capital

10. Dividend policy answers the following question: a. What proportion of the deficit should be financed by borrowing rather then by an

equity issue? b. How different patterns of corporate financing influence proportion of deficit that is

financed by equity issue?c. How much profit should be paid out as dividends rather than plowed back into the

business?11. The appropriate rate used in calculating NPV of a project is

a. The Fixed Deposit rate of SBI b. Government Security Yield c. The cost of capital representing or mirroring the risk in that projectd. None of the above

12. If a firm’s profitable investment opportunities exceed the amount of funds it has – the firm has to prioritize its expenditure. This method is called

a. Capital budgetingb. Capital rationing

13. For assessing NPV of a give project which is riskier than average, one should always decrease the cost of capital. (True or False)

14. When interest rates increase, the price of already trading bond a. increase b. decrease

15. In CAPM – capital asset pricing model, rf + B ( rm - rf ), B i.e beta denotesa. Volatility in share priceb. EPS c. PE

16. What is not the form of capital budgeting exercisea. Buying a machineryb. Purchasing landc. Paying wages to labour

17. It is prudent for a company to invest the surplus received from efficient working capital management in plant and machinery. (True or False)

18. Apart from Dividend, Which is the other way by which company’s shares cash with shareholder

a. Stock Splitb. Stock Repurchasec. Bonus Shares

19. Which of the following is included in working capital management? a. Credit from suppliersb. Investment in subsidiary companyc. Raw material Inventoryd. Both A & C

20. If the current assets and current liabilities are Rs. 2,000 crores and Rs. 1,200 crores respectively, how much amount can be borrowed on a short term basis without reducing the current ration below 1.5, since short term borrowing is part of current liabilities?

a. Rs. 400 croresb. Rs. 1000 croresc. Rs. 1200 croresd. Rs. 2000 crores