MCQs On VALUATION APPLICATION SITUATION SPECIFIC VALUATION part - 4

Q.1:- As a Ronnie searches for firms in need of additional funding to achieve their goals. In return for his investment, Ronnie becomes a part owner in the business. Ronnie operates as a(n):

• corporate raider.
• securities trader.
• venture capitalist.
• investment analyst.

Q.2:- Which of the following method is most preferable method used in valuation of the cyclical firms:

• Replacement cost method
• Venture capital method
• Discounted cash flow method
• Book value method

Q.3:- An investment entity evaluates the performance of its investments on.........................value basis:

• Market
• Fair
• Use
• Book

Q.4:- The result of the recent liquidity calculation indicates that since last year the insurer's liquidity has____

• Degraded
• No change
• Same
• Improved

Q.5:- Example of Asset that meet the definition of financial assets:Investment in share or other equity instrument of other

• Land
• Machinery
• entity
• Building

Q.6:- The Free cash flow to the Firm is reported Rs. 198 lacs. The interest expense to the firm is Rs. 15 lacs. If the tax rate is 35% and the net debt of the firm increase by Rs. 20 lacs, what is the market value, or the the firm if the FCFE growth is 3% and the cost of equity is 14%

• Rs.3,098 lacs
• Rs.2,585 lacs
• Rs.2,497 lacs
• Rs.l,803 lacs

Q.7:- Karan bought 1000 share of Infosys limited at Rs. 910/- from his broker excludin2 brokerage and taxes however current market price of that share was Rs. 915/-. In this statement amount of Rs. 915/- reflects:

• Investment value
• Value of share
• Price of transaction
• Cost of investment

Q.8:- Which of the following provides better estimate of value in case of valuation of firms for take overs?

• Free cash flows
• Free cash flow to equity
• Cash flows
• Future cash flows

Q.9:- When British Airways merged with Iberia, the Spanish airline, what kind of merger was this?

• Horizontal
• Conglomerate
• Vertical
• Joint venture.

Q.10:- The "information effect" refers to the notion that ..................:

• management is reluctant to provide financial information that is not required by law.
• the financial manager should attempt to manage sensitive information about the firm.
• a corporation's actions may convey information about its future prospects.
• agents incur costs in trying to obtain information.

Q.11:- Which of the following is NOT likely to be a source of synergy in mergers and acquisition?

• Elimination of waiting time in the supply chain.
• Having the best work culture from the two companies.
• Economies of scale in operations.
• Combining new expertise and resources.

Q.12:- Bringing together companies with businesses that bear no relation to one another

• Forming conglomerate
• Amalgamations
• Circular expansion
• Vertical integration

Q.13:- In determination of ‘value’ which of the following is/are key element?

• Fundamentals are the key
• Preciseness with a static figure
• Both (b) & (c)
• Value is ‘should be price’.

Q.14:- Kent is going to start his own business. He is concerned that the merchandise he wants to carry will go out of style soon after opening his business. Which type of risk must he prepare for?

• Natural
• Human
• Economic
• Incompetence

Q.15:- An incubator is:

• A center that offers new businesses low-cost offices with basic business services.
• A government agency that advises and assists small businesses.
• A specific geographic area to which governments try to attract private businesses by a variety of means.
• A program through which private investment companies licensed by the S.B.A. lend money to small businesses.

Q.16:- Financial feasibility analysis can be done by comparing ................. with the estimated sales figure.

• profit and loss statement
• break-even point
• cash flow statement
• balance sheet

Q.17:- __________ requires proper review and reconsideration of the selected alternative before implementing it.

• Checking the decision
• Developing possible alternatives
• Exploring the developed alternatives
• Selecting the best alternative

Q.18:- Which of the following is a reason why a person might prefer to purchase a franchise rather than open a completely new business?

• reduced royalty fees.
• higher failure rate.
• increased independence
• ability to benefit from previous experience.

Q.19:- Entrepreneurs are best as ________________

• Doers
• Planners
• Venture capitalists
• Managers

Q.20:- ____recognize the fact that the startup is a high-risk investment and there is high probability that the startup will grow beyond expectation and have equal chance that it may fail badly:

• Comparable method
• The book value method
• Valuation by stage
• First Chicago method

Q.21:- _____assigns a range of values to the valuation of the startup based on the progress that the startup owners have achieved in getting the startup off to a start:

• Cost-to duplicate method
• Berks method
• Risk factor summation method
• Scorecard valuation method

Q.22:- While using the discounted cash flow method for the valuation of a startup, the rate of discount used is always:

• Same as in any other similar business
• High
• Rate as suggested by the valuer.
• Low

Q.23:- Which of the following cannot be used as basis of loan?

• Perishable asset
• Worth of the business
• Fixed asset
• All of the given options

Q.24:- ....................... refers to an unincorporated business owned by an individual for profit.

• Corporation
• Association
• Partnership
• Proprietorship

Q.25:- An entrepreneurial team is:

• a group from the Small Business Administration which consults with small business owners.
• a group of managers who get together to find creative solutions to problems.
• a group of experienced people who join together to develop and market a new product.
• a group of people who work within a corporation to launch new products.

Q.26:- Which one of the following is the main problem for the entrepreneur in the beginning stages of creating a new venture?

• Limited resources
• Lack of education
• Lack of experience
• None of the given options

Q.27:- Which of the following techniques are employed to measure the normalized value of cyclical companies:

• Relative average over time
• Sector average
• Absolute average over time
• All of the above

Q.28:- Firms that specialize in helping company raised capital by selling securities are called: investors in

• Investment banks
• Commercial banks
• Financial institution
• Mutual fund

Q.29:- A closed end mutual fund has a fixed

• Charges
• Fund Size
• Investor
• Scripts

Q.30:- Babba, a licensed real estate broker, received notification that his application for a business loan was denied. The bank refused his request because he failed to provide a blueprint identifying the intended target market and competitive strategy. In order secure a bank loan Babba evidently needs a:

• venture capitalist.
• loan advocate.
• business plan.
• bankruptcy lawyer.

Q.31:- Why should an entrepreneur do a feasibility study for starting a new venture?

• To explore potential customers
• To estimate the expected sales
• To identify possible sources of funds
• To see if there are possible barriers to success

Q.32:- A high p/E Multiple of a fund in comparison to average market multiple could be of

• Income fund
• Balanced fund
• Growth fund
• All of the above

Q.33:- Which of the following factors is not required to be considered in establishing the replacement or reinstatement cost:

• Historical cost of the property
• Design of-building including soil type, special footing
• Inflationary provisions
• Fees associated with reconstruction, architects, survey and engineering

Q.34:- Financial assets are also called:

• Security receipt
• Securities
• Investment
• Current assets

Q.35:- Which one of the following is a common term for the market consensus value of the required return on a stock?

• Plowback ratio
• Market capitalization rate
• Dividend payout ratio
• Intrinsic value

Q.36:- Unity private limited has an expected ROE of 15%. If the Pays Out 30% of its earnings as dividends, its dividend growth rate will be:

• 15%
• 30%
• 10.5%
• 4.5%

Q.37:- Which of the following would he considered a risk-free investment?

• High-grade corporate bonds
• Gold
• Treasury bills.
• Equity in a house.

Q.38:- A disadvantage of the EV method for valuing equity is that the following information may be difficult to obtain:

• Market value of equity,
• Cash 8c cash equivalent
• Operating income.
• Market value of debt,

Q.39:- Which of following benefit of issuer:

• Sinking fund provision
• Conversion provisions
• Call provision
• Put provision

Q.40:- Private Equity differs from Public Equity investing on the following grounds

• Investors in PE are generally active as compared to public equity
• Expectation of returns in PE is generally high
• Private Equity is not organized and illiquid
• All the above

Q.41:- Merger of two or more companies belonging to same company but different field is called ..................:

• Vertical Merger
• Co – Generic Merger
• Conglomerate Merger
• Horizontal Merger

Q.42:- Which of the following would not be acquired from a target company in the event of a takeover?

• Target company asset.
• Target company share price premium
• Target company equity.
• Target company liabilities.

Q.43:- When two firms are combined together, the value of synergy is obtained by

• Value of combined entity and value of other two entities on standalone basis
• Value of combined entity
• Value of separate entity
• Any of the above

Q.44:- When you state that the market is strong, under the Efficient Market Hypothesis, it means

• Market includes only that information which is ‘private’
• Market is strong as compared to weak and semi strong market.
• Market includes only that information which is ‘public’
• Market includes all information ‘public and private’

Q.45:- You have 100 shares of ABC Company. If the company makes a 1:4 bonus issue, how many shares of ABC Company will you own after the distribution?

• 120
• 125
• 20
• 25

Q.46:- A manufacturing enterprise is considered as small enterprise:

• Where the investment in plant and machinery is more than 25 lakh but does not exceed Rs. 5 Crore
• Where the investment in plant and machinery is 10 crore
• Where the investment in plant and machinery does not exceed Rs. 25 lakh.
• None of the above

Q.47:- Which one of the following is a business arrangement in which someone else is allowed to use something of the company?

• Licensing
• Copy right
• Trade mark
• Patent

Q.48:- Which of the following statistical measure can be used in estimating the future possible cash flows in the Valuation of cyclical firms:

• Averages
• normal distribution
• Probability distribution
• Both a and c

Q.49:- IFRS 10.27 defines Investment entity as an entity that:

• Commits to its investors that its business purpose is to invest fund solely for returns from capital appreciation, investment income or both
• Measure and evaluates the performance of substantially all of its investment on a firm value basis
• Obtain funds from one or more investors for the purpose of providing those investors with investment management services
• All of the above

Q.50:- Licensing is a significant marketing strategy to:

• Grow the business in new markets
• Control the costs
• Pirate others’ patents
• Use intellectual property of others