STRATEGIC FINANCIAL MANAGEMENT MCQ 2 – Multiple Choice Question

• A Ltd. has an EPS of ₹3 last year and it paid out 60% of its earnings as dividends that year. This growth rate in earnings and dividends in the long term is expected to be 6%. If the required rate of return on equity for Ashrin Ltd. is 14%. Calculate the P/E ratio of A Ltd.
  • 7.50
  • 7.65
  • 7.85
  • 7.95

• The current spot rate for the US$ is ₹50. The expected inflation rate is 6 per cent in India and 2.5 per cent in the US. What will be the expected spot rate of the US$ a year hence?
  • ₹51.71
  • ₹50.71
  • ₹57.01
  • ₹52.71

• DEF Ltd. placed ₹52 Crores in overnight call with a foreign bank for a day in overnight call. The call ruled at 5.65% p.a. What is the amount it would receive from the foreign bank the next day?
  • ₹52,00,70,493
  • ₹52,00,80,493
  • ₹52,00,80,593
  • ₹52,00,80,693

• The rates available in the Kolkata market are: ₹/$ Spot 46.75/78; £/$ 0.5285/86. If an Indian Importer requires pounds, calculate the rate quoted to him?
  • (A) ₹88.51/£
  • (B) ₹85.51/£
  • (C) ₹86.51/£
  • (D) ₹87.51/£

• A Ltd., an export customer who relied on the inter bank rate of ₹/$ 46.50/10 requested his banker to purchase a bill for USD 80,000. Calculate the rate to be quoted to A Ltd., if the banker wants a margin of 0.08%.
  • (A) ₹45.45
  • (B) ₹44.44
  • (C) ₹46.46
  • (D) ₹47.47

•    ……………………..estimate the difference between the required rate of return and the growth rate.
  • Retention ratio
  • Leverage ratio
  • Payout Ratio
  • Dividend yield ratio

• Two Firms P Ltd and M Ltd are similar in all respects expect that M Ltd uses ₹10,00,000 debt in its capital structure. If the corporate tax rate for these firms is 40%, Calculate the value of M Ltd exceeds that of P Ltd?
  • (A) ₹4,00,000
  • (B) ₹4,40,000
  • (C) ₹4,04,000
  • (D) ₹4,00,400

• Annual Cost Saving ₹4,00,000; Useful life 4 years; Cost of the Project ₹11,42,000. The Payback period would be-
  • 2 years 8 months
  • 2 years 11 months
  • 3 years
  • 1 year 10 months

• There are 4 investments

	X	Y	Z	U
The standard deviation is	37,947	44,497	42,163	41,997
Expected Net Present Value(₹)	90,000	1,06,000	1,00,000	90,000

• Which investment has the highest risk?
  • X
  • Y
  • X
  • U

• The spot rate of the US dollar is ₹65.00/USD and the four month forward rate is 65.90/USD. The annualized premium is
  • 4.2%
  • 5.1%
  • 6.0%
  • 6.4%

• A stock is currently sells at ₹350. The put option to sell the stock sells at ₹380 with a premium of ₹20. The time value of option will be
  • ₹10
  • ₹-10
  • ₹20
  • ₹0

• An investor owns a stock portfolio equally invested in a risk free asset and two stocks. If one of the stocks has a beta of 0.75 and the portfolio is as risky as the market, the beta of the stock in portfolio is
  • 2.12
  • 2.25
  • 2.56
  • 2.89

• You are given the following information: required rate of return on risk free security 7%; required rate of return on market portfolio of investment 12%; beta of the firm 1.7. The cost of equity capital as per CAPM approach is
  • 16.3%
  • 18.0%
  • 18.60%
  • 19%

• The following statement is true in the context of rupee-dollar exchange rate with ri denoting interest rate in India and ru denoting interest rate in the US.
  • Rupee will be at forward discount if ri  > ru
  • Rupee will be at forward premium if ru  > ri
  • Rupee will be forward premium if ri  > ru
  • Rupee will be at par with dollar if ri  = ru.

• The following is not a systematic risk.
  • Market Risk
  • Interest Rate Risk
  • Business Risk
  • Purchasing Power Risk

• The following statement is true: (If ‘r’ denotes the correlation coefficient)
  • r = +1 implies full diversification of securities in a portfolio
  • r = -1 implies full diversification of securities in a portfolio
  • r = 0 implies an ideal situation of zero risk
  • ‘r’ is independent of diversification. Nothing can be inferred based on r

• The following is not a feature of Capital Market Line:
  • There is no unsystematic risk
  • The individual portfolio exactly replicates market portfolio in terms of risk and reward
  • Estimates portfolio return based on market return
  • Diversification can minimize the individual portfolio risk

• A project has a 10% discounted pay back of 2 years with annual after tax cash inflows commencing from year end 2 to 4 of ₹400 lacs. How much would have been the initial cash outlay which was fully made at the beginning of year 1?
  • ₹400 lacs
  • ₹452 lacs
  • ₹633.80 lacs
  • ₹497.20 lacs

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