Classical

June 2015 - Paper 2

31:  

In capital budgeting, the term capital rationing implies:

A.

that no retained earnings are available.

B.

that limited funds are available for investment.

C.

that no external funds can be raised.

D.

that no fresh investment is required in current year.

 
 

Option: B

Explanation :

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32:  

In certainty equivalent approach, adjusted cash flows are discounted at:

A.

Accounting Rate of Return

B.

Internal Rate of Return

C.

Hurdle Rate

D.

Risk Free Rate

 
 

Option: D

Explanation :

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33:  

Combined leverage is calculated as:

A.

Operating Leverage + Financial Leverage

B.

Operating Leverage - Financial Leverage

C.

Operating Leverage x Financial Leverage

D.

Operating Leverage / Financial Leverage

 
 

Option: C

Explanation :

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34:  

Which of the following is not true with reference to capital budgeting?

A.

Capital budgeting is related to asset replacement decisions.

B.

Cost of capital is equal to minimum required return.

C.

Existing investment in a project is not treated as sunk cost.

D.

Timing of cash flows is relevant.

 
 

Option: C

Explanation :

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35:  

What is Economic Order Quantity?

A.

Cost of an order 

B.

Cost of stock

C.

Reorder level 

D.

Optimum order size

 
 

Option: D

Explanation :

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