19.

Match the items of two lists, giving the correct code:

List I List II
(a) Dividend Capitalisation model (i) John Lintner
(b) Dividend Relevance model (ii) James.E.Walter
(c) Dividend Irrelevance model (iii) Myron Gordon
(d) Dividend payout model (iv) Modigliani & Miller
Codes:
(A) ii i iii iv
(B) i iv ii iii
(C) iii ii iv i
(D) iv iii i ii
16. If a firm raises Rs.1, 00,000 by the issue of debentures at 10% repayable after 10 years, the
rate of return that equates the present value of cash inflows with the present value of cash
outflows is referred to as
(A) Explicit cost (B) Implicit cost (C) Specified cost (D) Future cost
16. Statement I: Bond value would decline when the market rate of interest rises.
Statement II: There is a positive relationship between the value of a bond and the
interest rate.
Select the correct code:
Codes:
(A) Statement I and Statement II both are correct.
(B) Statement I is correct, but Statement II is correct.
(C) Statement II is correct, but statement I is incorrect
(D) Statement I is incorrect while statement II is correct
17. The Capital budgeting appraisal criterion that is most appropriate in the situation of
capital rationing will be
(A) Payback period (B) Internal Rate of Return
(C) Net present value (D) Probitability index
17. Match the following techniques of capital budgeting given in List-I, with one of the
characteristics given in List-II and select the correct code:
List I List II
(a) NPV (i) Under certain circumstances its reciprocal is a good
approximation of the rate of return
(b) IRR (ii) Shareholders wealth maximisation
(c) Profitability Index (iii) Possibility of multiple outcomes in single calculation
(d) Payback period (iv) Measures of projects relative profitability
Codes:
(a) (b) (c) (d)
(A) (i) (ii) (iii) (iv)
(B) (ii) (iii) (iv) (i)
(C) (iii) (iv) (i) (ii)
(D) (iv) (i) (ii) (iii)
16. Match the items of List I with items of List II:

List I List II
a. Net present value (i) Number of years required to recover the
original cash outlay invested in a project
b. Payback period (ii) It is the rate of return which equates the
present value of anticipated net cash
flows with the initial outlay
c. Internal rate of return (iii) It is found out by dividing the average
 after-tax profit by the average
investment
d. Accounting rate of (iv) It is the difference between the present
return value of cash inflows and present value
of cash outflows
Codes:
(a) (b) (c) (d)
(1) (iv) (iii) (ii) (i)
(2) (iii) (i) (iv) (ii)
(3) (iii) (iv) (i) (ii)
(4) (iv) (i) (ii) (iii)
55. Match the following: (paper 3 2012)
(i) Net present value method (I) Inflow after interest and tax
(ii) Average rate of return (II) Discounted cash flow
(iii) Internal rate of return (III) Traditional method
(iv) Pay back method (IV) Decision based on cut-off rate
CODES:
(a) (b) (c) (d)
(A) (IV) (I) (II) (III)
(B) (IV) (III) (II) (I)
(C) (II) (I) (IV) (III)
(D) (I) (III) (IV) (II)

4. Which of the following project appraisal method is not based on time value of money?
(paper 3 dec2012)
(A) Payback method (B) Net present value method
(C) Value added method (D) All of the above
17. Match the items of List-I with the items of List-II (paper 3 july 2016)

List I List - II
(a) IRR (i) Process of analyzing potential fixed asset
investment
(b) NPV is equal to zero (ii) (Proportion of equity) x (Cost of
equity) + (Proportion of debt) x (Cost of
debts)
(c) Cost of capital (iii) Project is acceptable
(d) Capital budgeting (iv)NPV = Zero

Codes:
(a) (b) (c) (d)
(1) (iii) (ii) (iv) (i)
(2) (iv) (iii) (ii) (i)
(3) (iv) (i) (ii) (iii)
(4) (i) (ii) (iii) (iv)
17. The Internal Rate of Return (IRR) is determined where
(A) the Net Present Value is positive (B) the Net Present value is negative
(C) the Net Present value is Zero (D) None of the above

17. Which of the following method of incorporation of risk in the capital budgeting
decision framework is useful for situations in which decisions at one point of time also
affect the decisions of the firm at some later date ?
 (A) Certainty Equivalent Approach (B) Probability Distribution approach
(C) Risk-adjusted Discount rate Approach (D) Decision-tree Approach
18. In the case of redeemable debentures issued at discount and to be redeemed at par,
approximate cost of debenture (before tax adjustment) will be equal to
(A)Rate of interest
(A) amount of interest divided by issue price
(B) amount of interest divided by par value
(C) [par value issue price]
amount of interest + tenure of debenture
(par value + issue price
2
19. While granting the term loan, if lending institution puts a condition to reduce the debt-
equity ratio by issuing additional equity share-capital or preference share capital, it is known
as:
(A) asset-related restrictive covenant (B) cash flow related restrictive covenant
(C) control-related restrictive covenant (D) liability related restrictive covenant
20. According to Lintners model of corporate dividend behaviour, the dividend for the year
t is dependent on :
I. earnings per share for the year t
II. dividend per share for the year t-1
III. adjustment rate
IV. target pay-out ratio
V. market price share
Select the correct code:
(A)I, II and III are correct (B) II, III, IV and V are correct
(C)I, II, III and IV are correct (D) I, II, IV and V are correct

16. State the price of the share for the year t, if the rate of growth of the firm is 10%. EPS and
DPS for the year t+1, are Rs.3 and Rs.2 respectively and the investors required rate of return
is 20%
(1) Rs.30 (2)Rs.20 (3)Rs.25 (4)Rs.10
16. If raw materials are in store for 2 months, processing time 2 months, finished goods remain
in store for 15 days, debtors are allowed 60 days credit and credit received from suppliers of raw
material is one month, the operating cycle period is:
(1) 7 months (2) 6 months (3)6 months (4) 5 months
17. Which of the following is not general disclosure requirement under Account Standard-14 ?
(1) Name and nature of Business (2) Description and number of shares issued
(3) Accounting method followed (4) Particulars of scheme sanctioned
18. Under the Modified Accelerated Cost Recovery System (MACRS) an asset in the 5 year
property class would typically be depreciated over how many years?
(1) 4 years (2) 5 years (3) 6 years (4) 7 years
19. According to the concept of financial signaling, management behaviour results in new debt
issues being regarded as --------------- news by investors.
(1) Non-Event (2) Bad (3) Risk Neutral (4) Good
17. An employee borrowed a 3 year loan of Rs 10,000 at 9% from his employer to buy a
motorcycle. If employer requires three equal end-of-year repayments, then the annual
installment will be __________
(1) Rs 3633 (2) Rs 3951 (3) Rs 3333 (4) Rs 4233
18. Match the items of List I with the items of List II:
List I List II
 a. M.M Hypothesis (i) The cost of debt and cost of equity are assumed to
without taxes be independent to the capital structure
b. Net operating income (ii) In the absence of taxes firms market value and the
approach cost of capital remain invariant to the capital
structures changes
c. M.M Hypothesis under (iii) The cost of equity is assumed to increase
corporate taxes linearly with leverage
d. Net income approach (iv) The value of the firm will increase with debt
due to the deductibility of interest charges for tax
computations and the value of the levered firm will
be higher than the unlevered firm
Codes:
(a) (b) (c) (d)
(1) (ii) (iii) (iv) (i)
(2) (ii) (i) (iv) (iii)
(3) (i) (ii) (iii) (iv)
(4) (iii) (iv) (i) (ii)
19.Explicit Resale Price Valuation method pre-supposes that an investor keeps the share only
for few years and eventually sells the shares. The value of the share, therefore, depends
upon which of the following?
(I): The stream of dividends expected during investors ownership
(II): The price expected to be realized whenever investors sells the share
Codes:
(1) (I) is true, but (II) is false
(2) (I) is false, but (I) is true
(3) Both (I) and (II) are true
(4) Both (I) and (II) are false

Paper 3
5. The factors affecting to P/E multiple are (2012)
(A) Dividend pay-out ratio and required return
(B) Required return and expected growth rate
(C) Dividend pay-out ratio and expect growth rate
(D) Dividend pay-out ratio, required return and expected growth rate.
29. Incase where the investment can be made in stages and is dependent on the future
outcomes, the capital budgeting technique that can be adopted will be
(A) Cost-Leadership strategy (B) Differentiation strategy
(C) Decision-tree analysis (D) Scenario analysis
37.The optimal pay-out ratio for growth firm is nil and declining firm is 100%is established
by
(A) Gordon model (B) Walter model (C) Both (A) and (B) (D) None of the above
52. Financial Risk arise from
(A) R& D and operations stages of value chain
(B) GNP growth rate and competitive environment
(C) Volatility of interest rates, currency rates, commodities prices and stock prices
(D) Changes in laws and regulations
44. The model that applies to Economic Order Quantity for Inventory Management, was
proposed to be applied to Cash Management by
(A) Miller and Orr (B) William J Baumol (C) William sharpe (D) David Durand
68. Match the following :
 (a) Hary Markowitz (i) Dividend Theory
(b) David Durand (ii) CAPM
(c) Dow (iii) Capital Structure
(d) M.J.Gordon (iv) Technical Analysis
CODES:
(a) (b) (c) (d)
(A) (4) (3) (2) (1)
(B) (2) (3) (4) (1)
(C) (2) (1) (3) (4)
(D) (3) (2) (4) (1)

18. Which one is false statement?

(1) Pure risks are risks that offer only the prospect of loss
(2) Speculative risks are situations that offer the chance of a gain but might result in a loss
(3) Liability risks are associated with products, and not with service, or with employee
actions
(4) Environmental risks include risks associated with polluting the environment
19. Which one is correct statement?
(1) When the required rate of return is more than the stated coupon rate, the value of the
bond will be less than its face value
(2) A bond is said to be selling at a premium when the required rate of return is less tyan
stated coupon rate
(3) The value of the bond will equal to its face value when the required rate of return equals
the stated coupon rate
(4) If interest rates rise so that the required rate of return increases, then the bond will
increase in value

1. Which one of the following statement is not correct?

(1) The return from holding a security is simply the change in market price, plus any cash
payments received from the company, divided by the beginning price
(2) A key factor in the valuation of any financial instrument is an implied positive
relationship between risk and expected return
(3) The risk that cannot be avoided by diversification of the securities one holds, is called
unavoidable risk
(4) The slope of the security market line tells the degree to which investors are not risk
62. Match the items of List-I with the items of List-II
List I List - II
(a) A moderate approach Continually recurring short-term liabilities
current asset financing
(b) Short-term credit Some permanent current asset and even
some fixed assets, are financed with short-
term debt
(c) Accrued liabilities Involves matching the maturities of assets
and liabilities
(d) Aggressive approach Any liability originally scheduled for
current approach payment within one year
financing
Codes:
(a) (b) (c) (d)
(1) (iv) (ii) (iii) (i)
(2) (iii) (iv) (i) (ii)
 (3) (ii) (iii) (i) (iv)
(4) (i) (iii) (ii) (iv)
63. Debt management ratio do not include
(1) Times-interest-earned ratio
(2) EBITDA Coverage ratio
(3) Debt ratio
(4) Price/cash flow ratio
64. The current market price of a companys share is Rs 90 and the expected dividend per share
next year is Rs 4.50. If the dividends are expected to grow at a constant rate of 8%, the
shareholders required rate of return is
(1) 8.88% (2) 13% (3) 5% (4) 4.5%
65. A project costs Rs 3000 now is expected to generate year-end flow of Rs 500, Rs 1000, Rs
1000 and Rs 1100 in years first through four. This discounting factor for those 4 years at
projects opportunity cost of 10% is 0.91, 0.83, 0.75 and 0.68 respectively. The Net present
Value of project is
(1) + Rs 310 (2) Rs 310 (3) Rs 217 (4) + Rs 600
66. Which one is false statement?
(1) Net Operating working capital is the difference between the current assets necessary to
operate the business and those current liabilities on which no interest is charged (generally
accounts payable and accruals)
(2) Operating assets are current assets and fixed assets necessary to operate the business
(3) Economic value added is the difference between after-tax operating profit and the total
cost of capital, including the cost of equity capital
(4) Economic value added does not differ from accounting profit
67. Which statement is false?
(1) Capital Asset Pricing Model (CAPM) is based on the proposition that any stocks
required rate of return is equal the risk-free return plus a risk premium that reflects only the
risk remaining after diversification
(2) The relevant riskiness of an individual stock is its contribution to the riskiness of a
well-diversified portfolio
(3) A stocks relevant risk is greater than its stand-alone risk
(4) Different stock will affect the portfolio differently, so different securities have different
degrees of relevant risk
68. From the following particulars, determine funds from operations:

Rs
Salaries & Wages expenses 7000
Profit on sale of land 25000
Loss on sale of building 13000
Net loss as per P & L a/c 3200
Depreciation on machinery 16000
Amortization of goodwill 8000
Stationary expenses 5000

(1) Rs 77,200 (2) Rs 8800 (3) Rs 3200 (4) Rs 25,000

31. Time value of an option is :
(1) Price of the option Intrinsic value of option
(2) Intrinsic value of option Price of the option
(3) Current Market price Exercise price
(4) Exercise price current market price
32. According to the CAPM, overpriced securities have
 (1) Zero Betas (2) Negative Betas (3) Zero Alphas (4) Negative Alphas
JULY 2016
16. Frequently, maximization of profits is regarded as the proper objective of the firm, but it is
not as inclusive a goal as that of maximizing shareholder wealth because
(1) Total profits are not as important as earnings per share
(2) Earnings per share are most important than total profits
(3) maximizing of earnings per share is not a fully appropriate objective because it does not
specify the duration of expected returns
(4) Maximization of earnings per share is not a fully appropriate objective because it does
not specify the timing of expected returns
December 2012
23. If risk free rate of return is 5%, market return is 10% and the cost of equity is 13%, the
value of beta () is:
(1) 1.2 (2) 1.5 (3) 1.6 (4) 1.8
24. The company has been buying an item in lots of 2,400 units which is six months supply,
the cost per unit is Rs.12, order cost is Rs.8 per order and the carrying cost is 25%. The Economic
Order Quantity is :
(1) 392 (2) 39 (3) 160 (4) 200
25.A Company issue 11% debentures of Rs.100each for an amount aggregating Rs.2,00.000 at
10% premium, redeemable at par after 5 years. The company tax rate is 40%. The cost of debt is:
(1) 4.38% (2) 11% (3) 5.5% (4) 10%
26. Determine the market price of a share using Gordons model of Dividend, if total investment
in asset is Rs.10,00,000 number of shares is 50,000 with a total earning of rs.2,00,000. The
cost of capital is 16% and payout ratio is 40%.
(1) Rs.45 (2) Rs.60 (3) Rs.40 (4) Rs.38
27.A Company wishes to raise Rs.30,00,000 through a right offering. It has 2,40,000 shares
outstanding, which have been most recently trading between Rs.106 and Rs.116 per share. On the
advance of the SBI caps, the company has set the subscription price for the rights at Rs.100 per
share. What will be the theoretical value of a right if the current market price is Rs.109 with rights
and the subscription price is Rs.100?
(1) Return (2) Risk (3) Return and risk (4) None of the above
28. The public sale of common stock in a subsidiary in which the parent company usually
retains majority control is called:
(1) A pure play (2) A spin-off (3) A partial sell-off (4) An equity
carve-out
29. The ________ is especially well suited to offer hedging protection against transaction risk
exposure.
(1) Forward market (2) Spot market (3) Transaction market(4) Inflation Rate Market
30. Match the following :
List I List II
(Items/Methods) (Used/Application)
(a) Purchase consideration (i) Marketing
(b) Written Down value method (ii) Store Recording
(c) LIFO Method (iii) Depreciation
(d) Rate of Return method (iv) Capital budgeting
(v) Merger
Codes:
(a) (b) (c) (d)
(A) (iv) (iii) (v) (i)
(B) (i) (iii) (iv) (v)
(C) (i) (v) (ii) (iii)
(D) (v) (iii) (ii) (iv)