FM & F.market

Shalini, after acquiring a degree in Hotel Management and Business Administration took over her family food processing company of manufacturing pickles, jams, and squashes. The business was established by her great-grandmother and was doing reasonably well. However, the fixed operating costs of the business were high and the cash flow position was weak. She wanted to undertake modernization of the existing business to introduce the latest manufacturing processes and diversify into the market of chocolates and candies. She was very enthusiastic and approached a finance consultant, who told her that approximately Rs.50 lakh would be required for undertaking the modernization and expansion program. He also informed her that the stock market was going through a bullish phase. (a) Keeping the above considerations in mind, name the source of finance Shalini should not choose for financing the modernization and expansion of her food processing business.

• Debt

• Equity

• Debt and Equity

• None of the above

Reshu’s father has gifted her shares in a large cement company, with which he had been working. The securities were in physical form. She already has a bank account and does not possess any other forms of securities. She wished to sell the shares and approached a registered broker for the purpose. Mention one mandatory detail that she will have to provide to the broker.

• Permanent Account Number (PAN)

• PASSPORT COPY

• BIRTH CERTIFICATE

• ALL OF THE ABOVE

When is financial leverage favorable?

• When ROI is less than cost of Debt.

• When ROI is higher than cost of Debt.

• When ROI is equal to cost of Debt.

• None of the above

'Unicon Securities Pvt. Ltd‟ was established to deal in securities. It was registered as a stock broker with National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) to trade in securities listed at these exchanges. It is also a depository participant with CDSL and NSDL. In the first three years, it developed its business successfully. After that the composition of Board of Directors changed. Some customers complained to the customer care centre of the company that shares purchased by them and for which the payment has been duly made, were not transferred to their D‟mat Accounts by „Unicon securities Pvt. Ltd‟ . The executive of customer care centre promised the aggrieved customers that their shares will be transferred to their respective D‟mat Accounts very soon. But the company delayed the matter and didn‟t transfer the shares of the customers to their D‟mat Accounts. This eroded investors confidence and multiplied their grievances. Identify the step of trading procedure in a stock exchange which has not been followed by „Unicon Securities Pvt. Ltd

• Delivery of shares in D‟mat form directly to investors D‟mat Account by the broker.

• Registration with broker

• Preparation of contract Note

• Issue of trade confirmation slip

'Unicon Securities Pvt. Ltd‟ was established to deal in securities. It was registered as a stock broker with National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) to trade in securities listed at these exchanges. It is also a depository participant with CDSL and NSDL. In the first three years, it developed its business successfully. After that the composition of Board of Directors changed. Some customers complained to the customer care centre of the company that shares purchased by them and for which the payment has been duly made, were not transferred to their D‟mat Accounts by „Unicon securities Pvt. Ltd‟ . The executive of customer care centre promised the aggrieved customers that their shares will be transferred to their respective D‟mat Accounts very soon. But the company delayed the matter and didn‟t transfer the shares of the customers to their D‟mat Accounts. This eroded investors confidence and multiplied their grievances. Name the Apex statutory body of capital market to whom customer can complain to redress their grievance.

• SEBI

• Money Market

• Capital Market

• None of the above

A business that doesn‟t grow dies‟, says Mr. Shah, the owner of Shah Marble Ltd. with glorious 36 months of its grand success having a capital base of `80 crores. Within a short span of time, the company could generate cash flow which not only covered fixed cash payment obligations but also create sufficient buffer. The company is on the growth path and a new breed of consumers is eager to buy the Italian marble sold by Shah Marble Ltd. To meet the increasing demand, Mr. Shah decided to expand his business by acquiring a mine. This required an investment of `120 crores. To seek advice in this matter, he called his financial advisor Mr. Seth who advised him about the judicious mix of equity (40%) and Debt (60%). Mr. Seth also suggested him to take loan from a financial institution as the cost of raising funds from financial institutions is low. Though this will increase the financial risk but will also raise the return to equity shareholders. He also apprised him that issue of debt will not dilute the control of equity shareholders. At the same time, the interest on loan is a tax deductible expense for computation of tax liability. After due deliberations with Mr. Seth, Mr. Shah decided to raise funds from a financial institution. Identify the concept of Financial Management as advised by Mr. Seth in the above situation.

• Fixed Capital

• Financing Decision

• Capital Structure

• Working Capital

What does a high Debt Service Coverage Ratio indicate ?

• .A high Debt Service Coverage Ratio indicates better ability to meet cash commitments and consequently, the company’s potential to increase debt component in its capital structure

• A high Debt Service Coverage Ratio indicates inability to meet cash commitments and consequently, the company’s potential to decrease debt component in its capital structur

• A high Debt Service Coverage Ratio indicates better ability to meet cash commitments and consequently, the company’s potential to decrease debt component in its capital structure

• .A high Debt Service Coverage Ratio indicates better ability to pay dividend and consequently, the company’s potential to increase equity component in its capital structure

Sherya Ltd. is a large credit-worthy company manufacturing automobiles for the Indian market .It now wants to cater to the other market and decided to invest in new machines. For this, it requires long-term finance. It decides to raise funds by issuing equity shares. The issue of equity shares involves huge floatation cost. To meet the expenses of floatation cost the company decides to tap the money market. Name and discuss the money market instrument the company can use for the above purpose.

• Commercial Paper

• Certificate of deposits

• Commercial bill

• Treasury bill

A decision to acquire a new & modern plant to upgrade an old one is known as __________decision.

• Financing decision;

• working capital decision

• Investment decision

• Dividend decision

ABC Ltd. has Debt Equity ratio of 3:1 whereas XYZ Ltd. has Debt Equity ratio of 1:1. Name the advantage ABC Ltd will have over XYZ Ltd, when the rate of interest is lower than the rate of return on investment of the company.

• (a) Trading on equity;

• (b) Low risk;

• (c) Low cost of equity ;

• (d) Greater flexibility