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 Loan
b. INR NCD
c. ECB Loan / FCCB Loan
d. 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 offer
b. Bonus Issue
c. Rights Issue
d. 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 November
b. 20th October
c. 12th November
d. 15th November
5.

Dividend payout ratio is defined as total dividend paid divided by

a. Total share capital
b. Profit after tax
c. Total capital
d. 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 taxexempt
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 capital
c. Its helps you increase scale
d. It is more difficult to transfer ownership in a corporation
e. 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 project
d. None of the above
12.If a firms profitable investment opportunities exceed the amount of funds
it has the firm has to prioritize its expenditure. This method is called
a. Capital budgeting
b. 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 denotes
a. Volatility in share price
b. EPS
c. PE
16.What is not the form of capital budgeting exercise
a. Buying a machinery
b. Purchasing land
c. 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 companys shares
cash with shareholder
a. Stock Split
b. Stock Repurchase
c. Bonus Shares
19.Which of the following is included in working capital management?
a. Credit from suppliers
b. Investment in subsidiary company
c. Raw material Inventory
d. 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 crores
b. Rs. 1000 crores
c. Rs. 1200 crores
d. Rs. 2000 crores