Financial management

UNIT-IV

MULTIPLE CHOICE QUESTIONS

1. The management of current assets is known as

a. Current asset management b. working capital management c. Both a & b d. None

2. A firm’s working capital consists of investment in

a. Current Assets b. Current liabilities c. Short term assets d. Both a & c

3. Which of the following is not a current asset

a. Cash in hand b. Cash at bank c. Debtors d. Creditors

4. Insufficient working capital results in

a. Block of cash b. Loosing interests c. Lack of production d. Lack of smooth flow of production

5. Excess working capital results in

a. Block of cash b. Loosing interests c. Lack of production d. Lack of smooth flow of production

6. Adequate working capital means

a. Sufficient funds b. Insufficient funds c. Lack of funds d. All of the above

7. An example of current asset

a. Cash b. Debtors c. Marketable securities d. All

8. An example of current liability

a. Creditors b. Outstanding expenses c. Provisions for depreciation d. All

9. The asset which can be converted into cash when ever required with out loosing its

value is

a. Current asset b. Current liability c. Fixed asset d. Variable asset

10. The liability which should be paid within a period of one year is known as

a. Current asset b. Current liability c. Fixed asset d. Variable asset

11. The investment in total current assets is known as

a. Gross working capital b. Permanent working capital c. Temporary working capital d. Net working capital

12. The excess of current assets over current liabilities is known as

a. Gross working capital b. Permanent working capital c. Temporary working capital d. Net working capital

13. The net working capital measures

a. Ability b. Liquidity c. Credibility d. None

14. The regular funds invested in the working capital known as

a. Net working capital b. Fixed working capital

c. Temporary working capital d. Gross working capital

15. A series of activities in an organization related to production is known as

a. Operating cycle b. Working cycle c. Current cycle d. Fixed cycle

16. The length or time period of the operating cycle of any firm can be defined as

a. Operating cycle period b. Inventory conversion period c. Receivable conversion period d. None

17. The time period required for the conversion of raw materials into finished goods

a. Operating cycle period b. Inventory conversion period c. Receivable conversion period d. None

18. The time period required to convert the credit sales into cash

a. Operating cycle period b. Inventory conversion period c. Receivable conversion period d. None

19. A level of working capital which is required by the firm always is knows as

a. Gross working capital b. Permanent working capital c. Temporary working capital d. Net working capital

20. Above permanent working capital which is required by the firm is knows as

a. Gross working capital b. Permanent working capital c. Temporary working capital d. Net working capital

21. The firm can finance the current assets by

a. Long term sources b. Short term sources c. Transactionary sources d. All of the above

22. Long term sources are

a. Retained earnings b. Debentures c. Share capital d. All of the above

23. Short term sources are

a. Bank credit b. Public deposit c. Commercial papers d. All of the above

24. Transactionary sources are

a. Credit allowed by suppliers b. Out standing labor c. Other outstanding expenses d. All of the above

25. The approaches which explains about the working capital mix are

a. Hedging approach b. Conservative approach c. Aggressive approach d. All of the above.

ANSWERS

1. C 2. D 3. D 4. D 5. A 6. A 7. D 8. D 9. A 10. B 11. A 12. D 13. B 14. D 15. A 16. A 17. B 18. C 19. B

20. C 21. D 22. D 23. D 24. D 25. D

FILL IN THE BLANKS

1. working capital is a financial metric which represents ____________________ available to a business.

2. working capital is considered a part of _________________. 3. If current assets are less than current liabilities, an entity has a _______________________. 4. The management of _______________ involves managing inventories, accounts receivable

and payable and cash. 5. The goal of _______________________ is to ensure that the firm is able to continue its

operations. 6. working capital management entails _______________________ decisions. 7. The most useful measure of profitability is ___________________________. 8. _____________Identify the cash balance which allows for the business to meet day to day

expenses, but reduces cash holding costs. 9. ___________________Identify the level of inventory which allows for uninterrupted

production but reduces the investment in raw materials. 10. ___________________ Identify the appropriate credit policy. 11. _______________________ Identify the appropriate source of financing, 12. We can convert debtors to cash through ___________________. 13. The ___________________________ measures how long a firm will be deprived of cash if it

increases its investment in resources in order to expand customer sales. 14. ___________________ is a company's average collection period. 15. A low number of days indicates that the company collects its outstanding

_______________quickly. 16. An increase in ____________ can result in cash flow problems. 17. An increase in DSO can result in a decision to increase the creditor company's

_________________________. 18. DSO = __________________. 19. DSO can vary from month to month, and over the course of a year with a company's

seasonal _______________________. 20. ______________ is an efficiency ratio that measures the average number of days a company

takes to pay its suppliers.

21. _________________ is an efficiency ratio that measures the average number of days the company holds its inventory before selling it.

22. ____________ are all assets that can readily convert to cash to pay outstanding debts and cover liabilities.

23. _____________is the degree to which an asset or security can be bought or sold in the market without affecting the asset's price.

24. The ability to convert an asset to cash quickly. Also known as _____________. 25. _________________ include most stocks, money market instruments and government

bonds. ANSWERS

1. operating liquidity 2. operating capital 3. working capital deficiency 4. working capital 5. working capital management 6. short term 7. Return on capital 8. Cash management 9. Inventory management. 10. Debtors management. 11. Short term financing. 12. factoring 13. Cash Conversion Cycle (CCC) 14. Days Sales Outstanding 15. receivables 16. DSO 17. bad debt reserve. 18. (Receivables/Sales)*50 Days. 19. business cycle 20. Days payable outstanding 21. Days in inventory 22. current assets 23. Liquidity 24. "marketability". 25. Liquid assets .

UNIT-V

1. An _______________ also known as a takeover or a buyout.

2. An acquisition may be ___________________.

3. A smaller firm will acquire management control of a larger or longer established

company and keep its name for the combined entity. This is known as a

_______________

4. Another type of acquisition is ___________, a deal that enables a private company to

get publicly listed in a short time period.

5. The buyer( Acquirer) buys the assets of the ___________company.

6. In ______________ the assets that Acquirer wants and leave out the assets and

liabilities that it does not.

7. When one company takes over another and clearly establishes itself as the new owner,

the purchase is called an _______________.

8. A _________ happens when two firms agree to go forward as a single new company

rather than remain separately owned and operated.

9. In the 1999 merger of Glaxo Wellcome and SmithKline Beecham, both firms ceased

to exist when they merged, and a new company, _______________________ was created.

10. An example of the ______________ of Chrysler by Daimler-Benz in 1999 which was

widely referred to in the time. 11. Expand LOV _________________________ .

12. __________________This refers to the fact that the combined company can often reduce its fixed costs by removing duplicate departments or operations, lowering the

costs of the company relative to the same revenue stream, thus increasing profit margins.

13. _______________ This refers to the efficiencies primarily associated with demand-

side changes, such as increasing or decreasing the scope of marketing and distribution, of different types of products.

14. Increased _____________ This assumes that the buyer will be absorbing a major competitor and thus increase its market power (by capturing increased market share) to set prices.

15. ______________, managerial economies such as the increased opportunity of

managerial specialization.

16. In Resource transfer, resources are unevenly distributed across firms and the

interaction of target and acquiring firm resources can create value through either

overcoming ___________________ or by combining scarce resources

17. ______________________ occurs when upstream and downstream firms merge (or

one acquires the other).

18. A merger that creates a vertically integrated firm can be _________________.

19. Manager's _______________, manager’s overconfidence about expected synergies

from M&A which results in overpayment for the target company. 20. ________________________, Managers have larger companies to manage and hence

more power.

21. __________________ usually refers to a purchase of a smaller firm by a larger one.

22. In the long run, due to the desire to keep costs low, it was advantageous for firms to

merge and reduce their ___________________.

23. _______________ which is reflected by three determinants: acquisition experience, relative size, cultural compatibility.

24. ____________________ Which is reflected by three determinants: acquisition premium, bidding process, and due diligence.

25. An industry of professional "middlemen" (known variously as intermediaries,

business brokers, and _________________________ exist to facilitate M&A

transactions.

ANSWERS

1. acquisition,

2. friendly or hostile

3. Reverse takeover.

4. reverse merger

5. target

6. "cherry-pick"

7. Acquisition.

8. merger

9. GlaxoSmithKline,

10. takeover

11. Letter of Opinion of Value

12. Economy of scale

13. Economy of scope

14. revenue or market share

15. Synergy,

16. information asymmetry

17. Vertical integration

18. Profitable.

19. hubris,

20. Empire-building,

21. Acquisition.

22. Transportation costs.

23. Organizational integration.

24. Financial / price perspective.

25. Investment bankers.

MULTIPLE CHOICE QUESTIONS:

1. The situation when two or more firms come together to avail benefits is known as

a. Merger b. Amalgamation c. Take-over d. All

2. An arrangement for bringing the assets of two firms under control of one which may be one

of the two firms

a. Merger b. Negotiations c. Modification d. None

3. In year 2000, the bank merged with HDFC was

a. Icici b. Idbi c. Times bank d. SBI

4. The basic feature of a merger is

a. Transfer of assets b. Transfer of management c. Transfer of control d. All of the above

5. The situation where one company acquires the ownership of the other company is

a. Merger b. amalgamation c. Acquisition d. None

6. The other name for takeover is

a. Merger b. amalgamation c. Acquisition d. None

7. The term merger includes

a. Consolidation b. Amalgamation c. Absorption d. All

8. A merger of a prosperous and profit making company into a loss making company is

a. Reverse merger b. Horizontal merger c. Vertical merger d. Conglomerate merger

9. A merger of a two or more companies which are competitors

a. Reverse merger b. Horizontal merger c. Vertical merger d. Conglomerate merger

10. A merger of a two or more companies which are in the same industry but in different

production levels

a. Reverse merger b. Horizontal merger c. Vertical merger d. Conglomerate merger

11. A merger of two or more companies which are Unrelated

a. Reverse merger b. Horizontal merger c. Vertical merger d. Conglomerate merger

12. The merger which takes place by the negotiations of both the firms known as

a. Negotiated merger b. Tender offer c. Hostile takeover bid d. Arranged merger

13. An offer which is a bid to acquire the target firm is known as

a. Negotiated merger b. Tender offer c. Hostile takeover bid d. Arranged merger

14. The merger which takes place without the willing of the target firm

a. Negotiated merger b. Tender offer c. Hostile takeover bid d. Arranged merger

15. The merger which is arranged by any governing body is

a. Negotiated merger b. Tender offer c. Hostile takeover bid d. Arranged merger

16. The strategy/ strategies which helps a firm to avoid take-over bid

a. Legal strategy b. Tactical strategy c. Defensive strategy d. All

17. The target firm stops the take-over bid by taking injunction against the offer is

a. Legal strategy b. Tactical strategy c. Defensive strategy d. Offensive strategy

18. Defensive strategy is also known as

a. Poison pill b. Pacman strategy c. Legal strategy d. Tactical strategy

19. Offensive strategy is also known as

a. Poison pill b. Pacman strategy c. Legal strategy d. Tactical strategy

20. The motives behind merger is

a. Operating economies b. Diversifications c. Earnings per share d. All

21. The value increased due to a merger is technically known as

a. Synergy b. Synchrony c. Strategy d. None

22. Value of the merged firm should be more than the value of acquiring firm and

a. Target firm b. Acquiring firm c. Merged firm d. None

23. Share exchange ratio is a ratio between the shares of Target firm and

a. Target firm b. Acquiring firm c. Merged firm d. None

24. Share exchange ratio is calculated on the basis of

a. Market price b. E.p.s c. Networth d. All

25. Eps of merged firm should be more than the eps of acquiring firm and

a. Target firm b. Acquiring firm c. Merged firm

d. None ANSWERS

1. D 2. A 3. C 4. D 5. C 6. D 7. D 8. A 9. B 10. C 11. D 12. A 13. B 14. C 15. D 16. D 17. A 18. A 19. B 20. D 21. A 22. A 23. B 24. D 25. A