1. Which one is NOT a property of Cobb-Douglas Production Function?
A. Multiplicative power function can be written in log-linear form
B. Parameters a & b represent elasticity coefficients
C. Constants a & b represent share of inputs
D. Power functions are homogeneous because exponents sum to 1
Answer: D
Explanation: Only if exponents sum to 1 does homogeneity exist; otherwise not.
2. Costs which do not take the form of cash outlays and do not appear in books are called:
A. Sunk Costs
B. Opportunity Costs
C. Accounting Costs
D. Direct Costs
Answer: B
3. Funds From Operations exclude which item?
A. Depreciation
B. Loss on sale of building
C. Profit on sale of land
D. Amortisation of goodwill
Answer: C
Explanation: Non-operating profit deducted in FFO computation.
4. EVA (Economic Value Added) is defined as:
A. Net Profit After Tax
B. Operating profit after tax minus cost of capital
C. Net profit before tax
D. Accounting profit minus expenses
Answer: B
5. Which statement is FALSE regarding CAPM?
A. Required return = risk-free rate + risk premium
B. Relevant risk is contribution to portfolio risk
C. Relevant risk greater than stand-alone risk
D. Different securities have different degrees of relevant risk
Answer: C
6. Beta (β) is a measure of:
A. Systematic risk
B. Unsystematic risk
C. Total risk
D. Business risk
Answer: A
7. When required rate > coupon rate, the bond sells at:
A. Premium
B. Par
C. Discount
D. Book value
Answer: C
8. Value of a bond equals face value when:
A. Required > coupon
B. Required < coupon
C. Required = coupon
D. Risk = zero
Answer: C
9. Capital Budgeting is concerned with:
A. Arranging finances
B. Working capital management
C. Evaluating investment decisions
D. Repairs & renewals
Answer: C
10. DuPont analysis decomposes ROE into:
A. Margin × Turnover × Leverage
B. Profit × Dividends × Risk
C. Revenue × Cost × Time
D. Assets ÷ Liabilities × Turnover
Answer: A
11. Debt Service Coverage Ratio indicates:
A. Effective utilisation of assets
B. Times fixed assets cover borrowed funds
C. Excess of CA over CL
D. Times surplus covers interest + loan instalments
Answer: D
12. Authorised capital ₹5 lakh, 40% paid-up, loss this year ₹50,000 and previous loss ₹2 lakh. Tangible net worth =
A. ₹2,00,000
B. ₹2,50,000
C. ₹–50,000
D. ₹7,50,000
Answer: C
Paid up = 40% × 5,00,000 = 2,00,000 – 2,50,000 loss total = -50,000
13. Liquidity ratios include:
A. Current ratio, Acid Test, Defensive interval
B. Quick ratio, Total asset turnover
C. Asset turnover, Defensive interval
D. Current ratio, Asset turnover
Answer: A
14. Break-Even Q: SP=20, VC=14, Fixed=540000+252000 = 792000
Contribution = 6
Break-even units = 792000 / 6 = 132,000
Units for ₹60000 profit = 792000 + 60000 = 852000 / 6 = 142000
Sales = 142000 × 20 = 28,40,000
Correct answer closest: (3) 26,40,000 & 1,42,000
15. Capital structure M-M assumes:
A. Perfect capital market, equal risk class, nominal taxes
B. Perfect market only
C. Dividend payout 100%
D. High personal tax
Answer: A
16. CAPM was developed by:
A. Sharpe & Lintner
B. Lintner & Treynor
C. Sharpe, Lintner & Treynor
D. Miller & Modigliani
Answer: C
17. Controller function in finance includes:
A. Negotiating loans
B. Advertising public issue
C. Analysing variance standard vs actual cost
D. Estimating future cash flow
Answer: C
18. Match – Cash & Working Capital
Concentration banking – Cash collection
Playing float – Cash disbursement
Optimum cash certainty – Baumol
Uncertainty – Miller Orr
Correct Code: b a d c
19. Credit policy does NOT aim at:
A. Max sales
B. Minimise bad debts
C. Maximise shareholder wealth
D. Minimise adverse effect on sales
Answer: C
20. Non-payment by solvent debtor till due date is:
A. Default cost
B. Delinquency cost
C. Capital cost
D. Extra collection cost
Answer: B
21. Capital budgeting methods include:
A. Payback, PI, IRR
B. Payback, Utility theory
C. Utility theory, IRR
D. PI, Utility theory
Answer: A
22. Acquisition is same as:
A. Merger & Amalgamation
B. Amalgamation & Absorption
C. Takeover & Absorption
D. Merger alone
Answer: C
23. IRR decision:
A. IRR > cost of capital → Accept
B. IRR < cost of capital → Accept
C. IRR = NPV = zero
D. Both A & C
Answer: D