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intermediate financial management
Taxmans Fundamentals Of Financial Management 14th Edition R.P. Rustagi - Solutions
Current Market Price of a Bond is equal to its Par Value if:(a) Face Value is 1000,(b) Coupon is paid half yearly,(c) Coupon Rate = Current Yield,(d) It is a Government Bond.
In case the maturity period of a bond increases, the volatility:(a) Increases,(b) Decreases,(c) Remains same,(d) Both (a) and (b).
An investor should buy a bond if:(a) Intrinsic Value < Market Value,(b) Intrinsic Value > Market Value,(c) Market Value < Redemption Value,(d) Market Value = Redemption Value.
In a 3 years Bond purchased and held till maturity, the rate earned is called:(a) Coupon Rate,(b) Yield to Maturity,(c) Current Yield,(d) Holding Period Return.
Which of the following is always true for Bonds?(a) FV of a Bond = Issue Price,(b) Redemption Value = Amount received by bondholder at maturity,(c) Bonds are redeemable at market Value,(d) All of the above.
Which of the following will cause an increase in bond values?(a) Decrease in Redemption Amount,(b) Decrease in Coupon Rate,(c) Increase in Redemption Amount,(d) Increase in Redemption Period.
Bonds that are covered by specific collaterals are called:(a) Junk Bond,(b) Floating Rate Bonds,(c) Secured Bonds,(d) Deep Discount Bonds.
Which of the following is a feature of zero-coupon bonds?(a) Sold at Par,(b) Sold at premium,(c) Pays no Interest,(d) Not Redeemable.
Market Price of Bond and Market Rate of Interest have:(a) Inverse relationship,(b) Positive relationship,(c) No relationship,(d) None of the above.
At time to maturity comes closer, than market price of a bond approaches:(a) Face Value,(b) Redemption Value,(c) Issue Price,(d) Zero Value.
A 16% bond with a face value 250 is available for 200 in the market. They yield on the bond is:(a) 16%(b) 20%(c) 80%(d) 32%
Rate of Interest on convertible debenture is generally.......... the rate on non-convertible debentures:(a) Lower than,(b) Higher than,(c) Same as,(d) None of the above.
A company may call the bonds when:(a) Interest rates have dropped,(b) Interest rates have increased,(c) It is not earning profits,(d) None of the above.
A long-term bond issued with collateral is called:(a) Junk Bond,(b) Treasury Bills,(c) Debenture,(d) Preference Share.
The rate of interest payable on a bond is also called:(a) Effective Rate of Interest,(b) Yield to Maturity,(c) Coupon Rate,(d) Internal Rate of Return.
In the formula ke =(D1/P0) + g, D1/P0 refers to:(a) Capital gain yield(b) Dividend yield(c) Interest yield(d) None of the above
If a coupon bond is selling at discount, then which of the following is true ?(a) P0 < Par and YTM < coupon(b) P0 < Par and YTM > coupon(c) P0 > Par and YTM < coupon (d) P0 > Par and YTM > coupon
Market interest rate and bond price have :(a) Positive relationship(b) Inverse relation(c) No relationship(d) Same relationship
If the required rate of return of a particular bond is less than coupon rate, it is known as :(a) Discount Bond(b) Premium Bond(c) Par Bond(d) Junk Bond.
Principal value of a bond is called the :(a) Maturity Value,(b) Issue Price,(c) Par Value,(d) Market Price.
Deep Discount Bonds are issued at :(a) Face Value,(b) Maturity Value,(c) Premium to Face Value,(d) Discount to Face Value.
1.A share of the face value of 100 has current market price of 480.Annual expected dividend is 30%. During the fifth year, the shareholder is expecting a bonus in the ratio of 1:5.Dividend rate is expected to be maintained on the expanded capital base. The shareholder intends to retain the
1.An investor has invested his savings in a company from whom dividends are expected to grow @ 20% for 15 years and thereafter @ 7% forever. Find out the value of the equity share given that the current dividend per share is 1 and the required rate of return of the investor is 9%.
1.Calculate the value of equity share from the following:Equity Share Capital ( 20 each) 50,00,000 Reserves and Surplus 5,00,000 15% Secured Loans 25,00,000 12.5% Unsecured Loans 10,00,000 Fixed Assets 30,00,000 Investments 5,00,000 Operating Profit 25,00,000 Tax Rate 50%P/E Ratio
1.A firm had paid dividend at 2 per share last year. The estimated growth of the dividends from the company is estimated to be 5% p.a. Determine the estimated market price of the equity share if the estimated growth rate of dividends (i) rises to 8% and (ii) falls to 3%. Also find out the
1.Zed Ltd. has just paid a dividend of 13 per share. As a part of its major reorganization of its operations it has stated that it does not intend to pay any dividend for the next two years.In three years time it will commence paying dividend at 10 per share and the Directors have indicated
1.The Elu Co. is contemplating a debenture issue on the following terms:Face Value = 100 per Debenture.Term to Maturity = 7 Years.Coupon rate of Interest:Years 1-2 = 8% p.a.3 – 4 = 12% p.a.5 – 7 = 15% p.a.The Current market rate of interest on similar debentures is 15% p.a. The company
1.A 5,000 bond with a 10% coupon rate matures in 8 years and currently sells at 97%. Is this bond a desirable investments for an investor whose required rate of return is 11%.
1.A 1,000 bond matures in 20 years and offers a 9% coupon rate. The required rate of return is 11%. Compute the bonds’s value.
1. How to use basic valuation model for the valuation of fixed charge securities?
1. How to obtain valuation of equity shares under different set of assumptions?
1. Draw the ABC curve for the data given below:Item Quantity consumed Cost per unit No. in a year ()1 2 40 2 200 5 3 30 1,000 4 20 20 5 4 20 6 16 2,000 7 24 50 8 5 40 9 100 8 10 250 4 11 120 8 12 140 7 13 10 10 14 20 10 15 2005 1. What is valuation and what are different concepts of
1. Your factory buys and uses a component for production@ 10 per piece. Annual requirement is 2,000 pieces. Carrying cost of inventory is 10% per annum and ordering cost is 40 per order. The purchase manager suggests that as the ordering cost is very high, it is advantages to place a single
1. A publishing house purchases 2,000 units of a particular item per annum at a unit cost of 20, ordering cost per order is 50 and the inventory carrying cost is 25%.Find the optimal order quantity and the minimum total cost including the purchase cost. If 3% discount is offered by the
Transportation and storage costs would be negligible. The company produces the component from a single raw material in economic lots of 2,000 units at a cost of 2 per unit.Average annual demand is 20,000 units. The annual holding cost is 0.25 per unit and the minimum stock level is set at 400
1. A company is considering the possibility of purchasing from a supplier a component it now makes. The supplier will provide the components in the necessary quantities at a unit price of
1. A materials manager has the following data for procuring a particular item. Annual Demand = 1,000.Ordering cost = 800.Inventory carrying cost = 40%.Cost per item = 60.If the order quantity is more than or equal to 300, a discount of 10% is given. For how much should he place the order in
1. A purchase manager places order, each time for a lot of 500 numbers of a particular item. From the available data, the following results are obtained:Inventory Carrying Cost 40%Ordering cost per order 600 Cost per unit 50 Annual demand 1,000 units Find out the loss of the organization due
Discuss ABC system of inventory management.
Explain the EOQ model of inventory control. What are its shortcomings? [B.Com.(H.), D.U., 2018]
What do you mean by stock-out? Explain the trade-off between stock out and carrying costs of inventory.[B.Com.(H.), D.U. 2014]
Define safety stock. How is it determined? What is the role of safety stock in inventory management?
What are various costs which affect EOQ ?[B.Com.(H.), D.U. 2007]
Explain briefly some of the techniques of inventory management, that may be used in a manufacturing concern.
What are the considerations governing the maximum and minimum level of inventory?
What are the objectives of inventory management? How are they similar to objectives of cash management?
What are the costs and benefits associated with inventory?Explain.
What is the need for holding inventory? Why inventory management is important?
Write short notes on:- ABC Analysis of inventory control.- Economic order quantity.- Stock-out. [B.Com.(H.), D.U. 2013]- Costs associated with inventory management.
What is Economic Order Quantity?(a) Cost of an Order,(b) Cost of Stock,(c) Reorder level,(d) Optimum order size.
A firm has inventory turnover of 6 and cost of goods sold is 7,50,000. With better inventory management, the inventory turnover is increased to 10. This would result in :(a) Increase in inventory by 50,000,(b) Decrease in inventory by 50,000,(c) Decrease in cost of goods sold,(d) Increase in
System of procuring goods when required, is known as :(a) Free on Board (FOB),(b) Always Better Control (ABC),(c) Just in Time (JIT),(d) Economic Order Quantity.
Which of the following is not a standard method of inventory valuation?(a) First in First out,(b) Standard Cost,(c) Average Pricing,(d) Realizable Value.
Which of the following is not a benefit of carrying inventories?(a) Reduction in ordering cost,(b) Avoiding lost sales,(c) Reducing carrying cost,(d) Avoiding Production Shortages.
Cost of not carrying sufficient inventory is known as :(a) Carrying Cost,(b) Holding Cost,(c) Total Cost,(d) Stock-out Cost
Which of the following is not included in cost of inventory?(a) Purchase cost,(b) Transport in Cost,(c) Import Duty,(d) Selling Costs.
Inventory is generally valued as lower of :(a) Market Price and Replacement Cost,(b) Cost and Net Realizable Value,(c) Cost and Sales Value,(d) Sales Value and Profit.
If A = Annual Requirement, O = Order Cost and C =Carrying Cost per unit per annum, then EOQ is :(a) (2AO/C),2(b) 2 AO/C,(c) 2A ÷ OC,(d) 2 AOC.
ABC Analysis is useful for analyzing the inventories :(a) Based on their Quality,(b) Based on their Usage and value,(c) Based on Physical Volume,(d) All of the above.
EOQ determines the order size when :(a) Total Order cost is Minimum,(b) Total Number of order is least,(c) Total inventory costs are minimum,(d) None of the above.
In the EOQ Model :(a) EOQ will increase if order cost increases,(b) EOQ will decrease if holding cost decreases,(c) EOQ will decrease if annual usage increases,(d) None of the above.
Which of the following is true for a company which uses continuous review inventory system :(a) Order Interval is fixed,(b) Order Interval varies,(c) Order Quantity is fixed,(d) Both (a) and (c).
Use of safety stock by a firm would :(a) Increase Inventory Cost,(b) Decrease Inventory Cost,(c) No effect on cost,(d) None of the above.
Inventory holding cost may include :(a) Material Purchase Cost,(b) Penalty charge for default,(c) Interest on loan,(d) None of the above.
In ABC inventory management system, class A items may require :(a) Higher Safety Stock,(b) Frequent Deliveries,(c) Periodic Inventory system,(d) Updating of inventory records.
If no information is available, the General Rule for valuation of stock for balance sheet is :(a) Replacement Cost,(b) Realizable Value,(c) Historical Cost,(d) Standard Cost.
ABC Analysis is used in :(a) Inventory Management,(b) Receivables Management,(c) Accounting Policies,(d) Corporate Governance.
EOQ is the quantity that minimizes :(a) Total Ordering Cost,(b) Total Inventory Cost,(c) Total Interest Cost,(d) Safety Stock Level.
A company currently has annual sales of 5,00,000 and an average collection period of 30 days. It is considering a more liberal credit policy. If the credit period is extended, the company expects sales and bad debt losses to increase in the following manner :Credit Increase in credit Increase in
Super Sports Co., dealing in sports goods, have an annual sale of 50,00,000 and are currently extending 30 day’s credit to the dealers. It is felt that sales can pick up considerably if the dealers are willing to carry increased stock, but the dealers have difficulty in financing their
ABC company’s present annual sales amount to 30 lacs at 12 per unit. Variable costs are 8 per unit and fixed costs amount to 2.50 lacs per annum. Its present credit period of one month is proposed to be extended to either 2 or 3 months, whichever appears to be more profitable.The
A company’s present sale is 40 lacs per annum with 20 days credit period, present variable cost are 70% of sales and total fixed cost 6 lacs per annum. The company expects pretax return on investment @ 25%.Some other details in respect to increase in the credit period with a view to increase
PQR Ltd. is considering relaxing its credit policy and evaluating two proposed policies. Currently, the firm has annual credit sales of 50 lacs and Accounts receivables of 12,50,000. The current level of loss due to bad debts is 1,50,000. The firm is to give a return of 20% on investment in
ABC Ltd. has currently an annual credit sales of 8,00,000. Its average age of accounts receivables is 60 days. It is contemplating a change in its credit policy that is expected to increase sales to 10,00,000 and increase the average age of accounts receivables to 72 days. The firm’s sale
A company sells a product @ 30 per unit with a variable cost of 20 per unit. The fixed costs amount to 6,25,000 per annum and the total annual sales to 75 lacs. It is estimated that if the present credit facility of one month is doubled, sales could be increased by 6,00,000 per annum, the
Discuss the consequences of lengthening and shortening of the credit period by a firm.
“Average age of receivables is an important yardstick of testing the efficiency of receivables management.” Explain.
What are the techniques of control of receivables ?Explain the “Aging Schedule”.
State the role which receivables play in the overall financial picture of the firm.
What are credit terms ? Explain the role of credit terms in a credit policy.
What are the costs and benefits associated with a change in credit policy ? [B.Com. (H), D.U., 2013]
What are the costs and benefits associated with liberal credit policy ? [B.Com. (H), D.U., 2011]
What is credit policy ? What are the elements of a credit policy ?
Explain the objectives of credit policy of a firm.[B.Com. (H), D.U., 2008]
Write short notes on :(a) Credit evaluation of customers.(b) Optimal credit policy.(c) Annualised cost of cash discount.(d) Credit policy. [B.Com. (H), D.U., 2015]
Receivables Management deals with :(a) Receipts of raw materials(b) Debtors collection(c) Creditors Management(d) Inventory Management
If cash discount is offered to customers, then which of the following would increase ?(a) Sales(b) Debtors(c) Debt collection period(d) All of the above
If the sales of the firm are 60,00,000 and the average debtors are 15,00,000 then the receivables turnover is :(a) 4 times(b) 25%(c) 400%(d) .25 times
Cash Discount term 3/15, net 40 means:(a) 3% Discount if payment in 15 days, otherwise full payment in 40 days,(b) 15% Discount of payment in 3 days, otherwise full payment in 40 days,(c) 3% Interest if payment made in 40 days and 15%interest thereafter,(d) None of the above.
If a company sells its receivable to another party to raise funds, it is known as:(a) Securitization,(b) Factoring,(c) Pledging,(d) None of the above.
In response to market expectations, the credit period has been increased from 45 days to 60 days. This would result in:(a) Decrease in Sales,(b) Decrease in Debtors,(c) Increase in Bad Debts,(d) Increase in Average Collection Period.
80% of sales of 10,00,000 of a firm are on credit. It has a Receivable Turnover of 8.What is the Average collection period (360 days a year) and Average Debtors of the firm?(a) 45 days and 1,00,000,(b) 360 days and 1,00,000,(c) 45 days and 8,00,000,(d) 360 days and 1,25,000.
Securitization is related to conversion of:(a) Receivables,(b) Stock,(c) Investments,(d) Creditors.
If the average balance of debtors has increased, which of the following might not show a change in general?(a) Total Sales,(b) Average Payables,(c) Current Ratio,(d) Bad Debt loss.
If the closing balance of receivables is less than the opening balance for a month then which one is true out of:(a) Collections > Current Purchases,(b) Collections > Current Sales,(c) Collections < Current Purchases,(d) Collections < Current Sales.
Payment to creditors is a manifestation of cash held for:(a) Transactionery Motive,(b) Precautionary Motive,(c) Speculative Motive,(d) All of the above.
Out of the following, what is not true in respect of factoring?(a) Continuous Arrangement between Factor and Seller,(b) Sale of Receivables to the factor,(c) Factor provides cost free finance to seller,(d) None of the above.
Credit Policy of a firm should involve a trade-off between increased:(a) Sales and Increased Profit,(b) Profit and Increased Costs of Receivables,(c) Sales and Cost of goods sold,(d) None of the above.
Which is not a service of a factor?(a) Administrating Sales Ledger,(b) Advancing against Credit Sales,(c) Assuming bad debt losses,(d) None of the above.
Which of the following is not a part of credit policy?(a) Collection Effort,(b) Cash Discount,(c) Credit Standard,(d) Paying Practices of debtors.
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