CHAPTER-9 BUSINESS FINANCE

Explain the term ''Trading on Equity''. Why, when and how it can be used by a company?

A fixed asset should be financed through

(a) a long term liability

(b) a short term liability

(c) a mix of long and short term liabilities

A fixed asset should be financed through

(a) a long term liability

(b) a short term liability

(c) a mix of long and short term liabilities

Higher dividend per share is associated with

(a) high earnings, high cash flows, unstable earnings and higher growth opportunities

(b) high earnings, high cash flows, stable earnings and high growth opportunities

(c) high earnings, high cash flows, stable earnings and lower growth opportunities

(d) high earnings, low cash flows, stable earnings and lower growth opportunities

How does working capital affect both the liquidity as well as profitability of a business?

What are the main objectives of financial management? Briefly explain

Financial management is based on three broad financial decisions. What are these?

Explain the factors affecting the dividend decision.

Define a 'current asset'. Give four examples of such assets.

''A capital budgeting decision is capable of changing the financial fortunes of a business''. Do you agree? Why or why not?

What is financial risk? Why does it arise?

''Capital structure decision is essentially optimisation of risk-return relationship''. Comment.

Discuss the two objective of Financial Planning.

What is working capital? How is it calculated? Discuss five important determinants of working capital requirement.

What is meant by capital structure?

Financial planning arrives at

(a) minimising the external borrowing by resorting to equity issues

(b) entering that the firm always have significantly more fund than required so that there is no paucity of funds

(c) ensuring that the firm faces neither a shortage nor a glut of unusable funds

(d) doing only what is possible with the funds that the firms has at its disposal

Financial planning arrives at

(a) minimising the external borrowing by resorting to equity issues

(b) entering that the firm always have significantly more fund than required so that there is no paucity of funds

(c) ensuring that the firm faces neither a shortage nor a glut of unusable funds

(d) doing only what is possible with the funds that the firms has at its disposal

Current assets are those assets which get converted into cash

(a) within six months

(b) within one year

(c) between one year and three years

(d) between three and five years

Higher working capital usually results in

(a) higher current ratio, higher risk and higher profits

(b) lower current ratio, higher risk and profits

(c) higher equity, lower risk and lower profits

(d) lower equity, lower risk and higher profits

Higher debt-equity ratio results in

(a) lower financial risk

(b) higher degree of operating risk

(c) higher degree of financial risk

(d) higher EPS

Financial leverage is called favourable if

(a) Return on investment is lower than the cost of debt

(b) ROI is higher than the cost of debt

(c) Debt is easily available

(d) If the degree of existing financial leverage is low

Other things remaining the same, an increase in the tax rate on corporate profit will

(a) make the debt relatively cheaper

(b) make the debt relatively the dearer

(c) have no impact on the cost of debt

(d) we can't say

Other things remaining the same, an increase in the tax rate on corporate profit will

(a) make the debt relatively cheaper

(b) make the debt relatively the dearer

(c) have no impact on the cost of debt

(d) we can't say

A decision to acquire a new and modern plant to upgrade an old one is a

(a) financing decision

(b) working capital decision

(c) investment decision

(d) None of the above

The cheapest source of finance is

(a) debenture

(b) equity share capital

(c) preference share

(d) retained earning