Test 653 Welcome to your International Navodaya Chamber of Commerce (INCOC) Platform ! Subject: Strategic Financial Management Total Number of Question: 40 Time: 41 Minutes Please check your email after completion of test for result. All the best... Name Phone No Email Area Pin Code 1. Which of the following is not an assumption of Modigliani and Miller's Proposition I without taxes? No transaction costs exist. All firms have the same cost of equity. Investors can borrow and lend at the same rate as firms. No bankruptcy costs exist. None 2. The primary purpose of financial risk management is to: Eliminate all types of risks. Minimize the potential loss arising from financial risks. Achieve the highest return on investments. Ensure liquidity is maintained None 3. In portfolio theory, diversification helps to reduce Systematic risk. Unsystematic risk. Market risk. Interest rate risk. None 4. Which one of the following is the correct formula for calculating the Weighted Average Cost of Capital (WACC)? WACC = (E/V) * Re + (D/V) * Rd * (1 - T) WACC = (E/D) * Rd + (V/E) * Re WACC = (D/V) * Re + (E/V) * Rd WACC = Rd * T + Re * (1 - T) None 5. The Sharpe ratio measures: Total risk of the portfolio Excess return per unit of standard deviation. Excess return per unit of beta. Market return relative to risk-free rate. None 6. The term "arbitrage" in finance refers to: Speculative buying and selling of assets. Simultaneous buying and selling of assets to profit from price differences Hedging risk exposure Portfolio diversification None 7. Which of the following is a non-diversifiable risk? Business risk. Financial risk. Market risk. Credit risk. None 8. CAPM (Capital Asset Pricing Model) is used to determine: The cost of equity capital. The beta of a portfolio The risk-free rate of return The optimal capital structure. None 9. In options, the "strike price" is The price at which the option can be sold. The price at which the underlying asset can be bought or sold. The market price of the option. The price paid to buy the option. None 10. A project’s net present value (NPV) will increase if: The discount rate decreases. Initial investment cost increases. Cash flows are deferred. The project’s risk increases. None 11. The beta of a stock measures its: Total risk. Systematic risk relative to the market. Unsystematic risk. Volatility in absolute terms. None 12. A swap in finance is best described as: An option to buy or sell an asset. An agreement to exchange cash flows in the future. A bond with a variable interest rate. A security that pays fixed returns None 13. The Gordon Growth Model is used to determine the value of: Bonds. Common stock based on dividend growth. Preferred stock. Options None 14. The internal rate of return (IRR) is defined as the discount rate at which: The NPV of a project is zero. The profitability index is zero. The payback period equals the project's life. The discounted cash inflows exceed the outflow None 15. Which of the following is a limitation of the Payback Period method? It ignores cash flows after the payback period It considers the time value of money. It is more accurate than NPV It provides information about project profitability None 16. The efficient market hypothesis (EMH) suggests that Investors cannot consistently outperform the market Stocks are always overvalued or undervalued. Technical analysis can predict stock price movements. Markets react slowly to new information None 17. Which type of financing will not change the ownership structure of a company? Equity issuance. Debt financing. Convertible debentures. Rights issue. None 18. When a firm is operating at the optimal capital structure, the: WACC is minimized WACC is maximized. Cost of equity is equal to the cost of debt. Return on equity is minimized None 19. The use of derivatives for hedging purposes involves: Reducing risk exposure to adverse price movements Taking on additional risk to increase returns Investing in high-risk securities Eliminating all types of financial risk None 20. Which of the following is a key feature of preference shares? Voting rights similar to common stock Fixed dividends that are paid before common dividends No risk to the investor They cannot be redeemed None 21. Which of the following is not a characteristic of an efficient portfolio? Maximizes expected return for a given level of risk Minimizes risk for a given level of return Contains assets with zero correlation Achieves the highest Sharpe ratio None 22. Which of the following is a measure of systematic risk? Alpha Beta Standard deviation Correlation coefficient None 23. The Black-Scholes model is used to: Calculate bond prices. Determine the cost of capital Assess portfolio risk Value European call and put options. None 24. Which of the following best describes financial leverage? The use of equity capital to finance assets The use of debt to increase potential return to shareholders The use of retained earnings for expansion The allocation of funds to short-term investments None 25. A firm’s degree of operating leverage (DOL) is calculated as % Change in EBIT / % Change in Sales. % Change in Net Income / % Change in Sales. % Change in EPS / % Change in Sales % Change in Sales / % Change in EBIT None 26. Which of the following is true about a forward contract? It is traded on an exchange It involves a standardized contract It is a customized, over-the-counter agreement It can be settled daily None 27. Which ratio indicates a company’s ability to meet its long-term obligations? Current ratio Quick ratio Debt-to-equity ratio Inventory turnover ratio None 28. The primary benefit of a corporate bond rating is: Determining the bond’s coupon rate Assessing the bond’s market value Evaluating the credit risk of the issuer Setting the bond’s maturity date None 29. The term “securitization” refers to: Issuing new equity shares to the public. Converting illiquid assets into marketable securities Using derivatives for speculation. Diversifying an investment portfolio None 30. Which of the following best describes a zero-coupon bond? It pays interest annually It is sold at a premium It does not pay periodic interest. It has a floating interest rate None 31. Which valuation method considers both risk and time value of money? Payback period Discounted cash flow (DCF) Book value Market value None 32. A company’s cost of retained earnings is equal to: The cost of debt The dividend yield plus growth rate. The cost of issuing new equity The WACC. None 33. Which of the following statements about venture capital is correct? It is used for funding mature companies It involves low risk and low return It is primarily for startup and early-stage businesses It requires a fixed interest payment None 34. The primary objective of a share buyback is to: Increase the company’s leverage Reduce the number of shares outstanding Increase the company’s debt ratio Decrease the stock price None 35. The debt-equity ratio is a measure of Liquidity Leverage Profitability Efficiency None 36. Which of the following is not a source of long-term finance? Debentures Bank overdraft Equity shares. Bonds None 37. Which of the following is a key component of working capital management? Capital budgeting Dividend policy Inventory management Capital structure None 38. The pecking order theory suggests that: Firms prefer internal financing first, then debt, and issue equity as a last resort Firms always prefer equity financing over debt Firms should maintain a constant debt-equity ratio Firms should not use retained earnings for expansion None 39. Which of the following best describes a callable bond? A bond that can be exchanged for shares A bond that pays no interest until maturity A bond that can be repurchased by the issuer before maturity A bond with a floating interest rate None 40. The profitability index is calculated as: Total Cash Inflows / Initial Investment Present Value of Cash Inflows / Initial Investment Initial Investment / Present Value of Cash Inflows D. Net Present Value / Initial Investment None 1 out of 4 Great job on taking the INCOC Test! We appreciate your interest in test. Look out for results and future opportunities. Stay Connected !! Your quiz time is about to finish. Few seconds left. 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