Business Finance Old Question Paper Year 2018

Brief answer questions: [10*1=10]

Indicate whether the following statements are True or False. Support your answer with reason. [10*1=10]

The investment decision of a firm is concerned with deciding on which financing sources are to be used to finance an asset.
Preferred stockholders have prior claim to debt holders.
If we deposit Rs 1000 today at an annual interest rate of 10 percent, it is compounded to Rs 1331 at the end of year 3.
The risk-free rate and expected market return are 6 percent and 12respectively. If Star Company’s stock has a beta of 15, required rate of return should be 15 percent.
When required rate of return is greater than the coupon rate, the bond will sell at premium.
Standard deviation is used to compare systematic risk associated with the securities.
Increase in the working capital is considered as cash inflow at the beginning.
Net cash flow differs from net income
Effective annual rate is always higher than nominal rate when compounding period is less than a year.
Higher day’s sales is outstanding desirable.