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Multiple choice functional area of management financial management nature and significance of management organisation of commerce and management business studies

What is the break-even point?

  1. Cost received is more then revenue.

  2. Cost received is less then revenue.

  3. Gains are more then losses.

  4. The point where there is no gain no loss.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

In simple words, the break-even point can be defined as a point where total costs (expenses) and total sales (revenue) are equal. Break-even point can be described as a point where there is no net profit or loss. The firm just “breaks even.” Any company which wants to make normal profit, desires to achieve the break-even point. Graphically, it is the point where the total cost and the total revenue curves meet.

Multiple choice functional area of management financial management nature and significance of management organisation of commerce and management business studies

A firm can only issue debt or equity as a source of finance. It cannot issue both at the same time.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

False.

Firm can issue equity and debt at the same time.
Debt financing is capital acquired through the borrowing of funds to be repaid at a later date. Common types of debt are loans. The benefit of debt financing is that it allows a business to leverage a small amount of money into a much larger sum, enabling more rapid growth than might otherwise be possible.
Equity financing refers to funds generated by the sale of stock.

Multiple choice functional area of management financial management nature and significance of management organisation of commerce and management business studies

Who formulated the following model for estimating the market price of equity share?
$P = \dfrac {D + \dfrac {R _{a}}{R _{c}}(E - D)}{R _{c}}$
Where, $P =$ Market price of equity share
$D = DPS$
$E = EPS$
$E - D =$ Retained earning per share
$R _{a} =$ Internal rate of return on investment
$R _{c} =$ Cost of capital.

  1. Modigliani-Miller

  2. Myron-Gordon

  3. James E. Walter

  4. Clarkson and Elliot
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation
Professor James E. Walter that the choice of dividend policies almost always affects the value of the enterprise. His model shows clearly the importance of the relationship between the firm’s internal rate of return (r) and its cost of capital $(k)$ in determining the dividend policy that will maximize the wealth of shareholders.

Walter’s formula to calculate the market price per share (P) is:

$P=\cfrac {\cfrac {D}{k}+\cfrac {E-D}{k} \times r} {k}$

P = market price per share
D = dividend per share
E = earnings per share

Multiple choice functional area of management financial management nature and significance of management organisation of commerce and management business studies

Which one of the following is not among the assumptions of the Modigliani-Miller model?

  1. Perfect capital market

  2. Equivalent risk classes

  3. Unity for dividend payout ratio

  4. Absence of taxes
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

According to Modigliani and Miller (M-M), dividend policy of a firm is irrelevant as it does not affect the wealth of the shareholders. They argue that the value of the firm depends on the firm’s earnings which result from its investment policy. 
Modigliani and Miller model is based on the following assumptions : 
1. The firm operates in perfect capital market.

2.The firm has a fixed investment policy.
3. Absence of taxes.
4. Risk of uncertainty does not exist. That is, investors are able to forecast future prices and dividends with certainty and one discount rate is appropriate for all securities and all time periods.

Multiple choice functional area of management financial management nature and significance of management organisation of commerce and management business studies

Dividend warrants must be posted within ______ days from the date of declaration of dividend.

  1. 24

  2. 34

  3. 30

  4. 45
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Under standard corporate law regulations, companies are required to dispatch dividend warrants within 30 days of the declaration date to ensure timely payment to shareholders.