Quiz: Investment Banking And Business Finance
Questions and Answers
- 1.
What is another term used to describe the Income Statement?
- A.
Balance Sheet
- B.
Profit or Loss Statement
- C.
Cash Flow Statement
- D.
Capitalization Table
Correct Answer
B. Profit or Loss StatementExplanation
The Income Statement is also known as the Profit or Loss Statement because it provides a summary of a company's revenues, expenses, and net profit or loss over a specific period of time. It shows the financial performance of a business by detailing the income generated and the expenses incurred, ultimately determining whether the company has made a profit or incurred a loss during the specified period.Rate this question:
-
- 2.
What is Revenue?
- A.
The cash that the promoters invested in the company
- B.
The cash that was borrowed from the bank to start the business
- C.
The cash customers pay to buy the company’s products
- D.
The cash the company pays to its suppliers
Correct Answer
C. The cash customers pay to buy the company’s productsExplanation
Revenue refers to the cash that a company receives from its customers in exchange for the products or services it offers. It is an essential component of a company's financial performance and represents the income generated from its primary business activities. Revenue is not related to the cash that the promoters invested in the company, the cash borrowed from the bank, or the cash paid to suppliers.Rate this question:
-
- 3.
How is Operating Income calculated?
- A.
Revenue – Cost of Goods Sold = Operating Income
- B.
Revenue – Gross Margin = Operating Income
- C.
Revenue – Operating Expenses = Operating Income
- D.
Revenue - Cost of Goods Sold - Operating Expenses = Operating Income
Correct Answer
D. Revenue - Cost of Goods Sold - Operating Expenses = Operating IncomeExplanation
Operating income is calculated by subtracting the cost of goods sold and operating expenses from the revenue. This formula takes into account the direct costs of producing goods or services (cost of goods sold) as well as the indirect costs associated with running the business (operating expenses). By subtracting these expenses from the revenue, the calculation provides a measure of the company's profitability before interest and taxes are taken into account.Rate this question:
-
- 4.
Which of the following industries has the highest Gross Margin?
- A.
Retail
- B.
Software Technology / IT
- C.
Manufacturing
- D.
Restaurants
Correct Answer
B. Software Technology / ITExplanation
The software technology/IT industry has the highest gross margin because it typically involves the creation and sale of software products or services, which have high profit margins. Additionally, the IT industry often benefits from economies of scale and low production costs, allowing for higher profit margins compared to other industries such as retail, manufacturing, and restaurants.Rate this question:
-
- 5.
What kind of an expense is Marketing Expense?
- A.
Operating Expense
- B.
Cost of Goods Sold
- C.
Tax Expense
- D.
Interest Expense
Correct Answer
A. Operating ExpenseExplanation
Marketing Expense is classified as an Operating Expense. Operating expenses are the costs incurred by a company to maintain its daily operations and generate revenue. Marketing expenses refer to the costs associated with promoting and advertising a company's products or services to attract customers and increase sales. These expenses include advertising campaigns, public relations activities, market research, and other promotional activities. As marketing expenses are necessary for the ongoing operation and growth of a business, they are considered part of the company's operating expenses.Rate this question:
-
- 6.
What is an Income Statement used for?
- A.
To find out the company’s cash balance
- B.
To find out all the assets a company owns
- C.
To find out how much money the company has borrowed
- D.
To determine the company’s profitability
Correct Answer
D. To determine the company’s profitabilityExplanation
The income statement is used to determine the company's profitability. It provides a summary of the company's revenues, expenses, and net income or loss over a specific period of time. By analyzing the income statement, stakeholders can assess the company's financial performance and its ability to generate profits. It helps in evaluating the company's efficiency, identifying areas of improvement, and making informed decisions regarding investments or lending.Rate this question:
-
- 7.
Which is the easiest way to find a company’s Income Statement
- A.
Google.com
- B.
Call Dezyre.com
- C.
Investor Relations section of a company’s website
- D.
Call the company
Correct Answer
C. Investor Relations section of a company’s websiteExplanation
The easiest way to find a company's Income Statement is by accessing the Investor Relations section of the company's website. This section typically provides financial information, including the Income Statement, to keep investors and stakeholders informed about the company's financial performance. It is a reliable and convenient source as it allows easy access to the required information without the need for external sources or communication with the company.Rate this question:
-
- 8.
Which of the following is a Cost of Goods Sold (COGS) for Dominos Pizza?
- A.
Restaurant rent
- B.
Pizza Ingredients – Cheese, Vegetables etc
- C.
Employee Salaries
- D.
Cost of buying baking ovens and other equipment
Correct Answer
B. Pizza Ingredients – Cheese, Vegetables etcExplanation
The cost of pizza ingredients such as cheese and vegetables is considered a Cost of Goods Sold (COGS) for Dominos Pizza. COGS refers to the direct costs incurred in producing or purchasing the goods that a company sells. In the case of Dominos Pizza, the pizza ingredients are directly related to the production and sale of their main product, which is pizza. Therefore, the cost of these ingredients is considered a COGS for Dominos Pizza.Rate this question:
-
- 9.
Which of the following is an Operating Expense (COGS) for Dominos Pizza?
- A.
Tax
- B.
Pizza Ingredients – Cheese, Vegetables etc
- C.
Employee Salaries
Correct Answer
C. Employee SalariesExplanation
Employee salaries are considered an operating expense (COGS) for Dominos Pizza because they are directly related to the production and delivery of pizzas. Salaries paid to employees involved in the day-to-day operations of the business, such as pizza makers and delivery drivers, are necessary for the company to generate revenue. These expenses are deducted from the company's revenue to calculate its gross profit and determine its operating performance.Rate this question:
-
- 10.
What is Dominos Pizza annual Revenue growth rate % ?
- A.
2%
- B.
35%
- C.
100%
- D.
175%
Correct Answer
B. 35%Explanation
The correct answer is 35%. This means that Dominos Pizza's annual revenue has been growing at a rate of 35% over a specific period of time. This indicates that the company has been experiencing significant growth in its revenue, which is a positive sign for its financial performance.Rate this question:
-
- 11.
Accrual accounting is used because?
- A.
It’s the best representation of the operations of a company
- B.
It’s easier to use
- C.
It’s the most popular accounting method
Correct Answer
A. It’s the best representation of the operations of a companyExplanation
Accrual accounting is used because it provides the best representation of the operations of a company. Unlike cash accounting, which only records transactions when cash is received or paid, accrual accounting records revenue when it is earned and expenses when they are incurred, regardless of when the cash is received or paid. This method provides a more accurate and comprehensive view of a company's financial performance and helps in matching revenues and expenses in the appropriate accounting period. It also enables better tracking of assets, liabilities, and equity, making it the preferred method for financial reporting and decision-making purposes.Rate this question:
-
- 12.
Which industry has a higher Cost of Goods Sold?
- A.
Technology
- B.
Restaurants
Correct Answer
B. RestaurantsExplanation
Restaurants typically have a higher Cost of Goods Sold compared to the technology industry. This is because restaurants need to purchase ingredients and raw materials to prepare their menu items, which directly contribute to their cost of goods sold. Additionally, restaurants often have higher labor costs due to the need for chefs, cooks, and servers. On the other hand, the technology industry primarily deals with the production and sale of software, hardware, and electronic devices, which generally have lower costs associated with their production compared to the food and labor costs in the restaurant industry.Rate this question:
-
- 13.
If Rs. 10,000 is received this month by a company to deliver a product next month. What is the company’s revenue this month?
- A.
Rs.10,000
- B.
Rs.5,000
- C.
Rs. 0
- D.
Depends on how much work on the product was done this month
Correct Answer
D. Depends on how much work on the product was done this monthExplanation
The company's revenue this month depends on how much work on the product was done. If the company has completed the product and is ready to deliver, then the revenue for this month would be Rs. 10,000. However, if the company has not yet completed the product or has only partially completed it, then the revenue for this month would be less than Rs. 10,000 or even zero. Therefore, the revenue for this month depends on the progress of the work on the product.Rate this question:
-
- 14.
Which Income Statement item is directly affected if a company borrows money?
- A.
Revenue
- B.
Marketing Expense
- C.
Interest Expense
- D.
Tax
Correct Answer
C. Interest ExpenseExplanation
When a company borrows money, it incurs interest expense. Interest expense is the cost of borrowing funds from lenders or financial institutions. It represents the interest payments that the company must make on its outstanding debts. As a result, borrowing money directly affects the company's income statement by increasing its interest expense. This expense is deducted from the company's revenue to calculate its net income. Therefore, the correct answer is Interest Expense.Rate this question:
-
- 15.
Which of the following is too much to pay as salaries in a company?
- A.
5% of Revenue
- B.
25% of Revenue
- C.
40% of Revenue
- D.
90% of Revenue
Correct Answer
D. 90% of RevenueExplanation
Paying 90% of the revenue as salaries in a company is considered too much because it leaves very little or no profit for the company to reinvest or cover other expenses. It indicates that a significant portion of the revenue is being allocated to salaries, which may lead to financial instability and hinder the company's growth and sustainability.Rate this question:
-
- 16.
If a company reports a loss this year, how much Income Tax will the company pay?
- A.
0%
- B.
5%
- C.
15%
- D.
33%
Correct Answer
A. 0%Explanation
If a company reports a loss this year, it means that its expenses exceed its revenue, resulting in a negative net income. In such cases, the company is not required to pay any income tax because it does not have any taxable income. Therefore, the correct answer is 0%.Rate this question:
-
- 17.
Profitability of a Restaurant Company improves as it grows in size, chiefly because?
- A.
It can charge more for its products
- B.
It can borrow more money
- C.
Economies of Scale
Correct Answer
C. Economies of ScaleExplanation
As a restaurant company grows in size, it can benefit from economies of scale. This means that the company can take advantage of cost savings and efficiencies that come with increased production and operations. For example, the company can negotiate better deals with suppliers, purchase ingredients in bulk at lower prices, and spread fixed costs over a larger number of sales. These cost savings ultimately lead to improved profitability for the company.Rate this question:
-
- 18.
Why does a Company need a Balance Sheet?
- A.
To keep track of Profit and Loses
- B.
To keep track of where cash is being spend
- C.
To keep track of what the company owns and owes others
Correct Answer
C. To keep track of what the company owns and owes othersExplanation
A balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It presents a summary of what the company owns (assets) and what it owes to others (liabilities). By having a balance sheet, a company can keep track of its assets and liabilities, which is crucial for understanding its financial health and making informed decisions. It helps in evaluating the company's liquidity, solvency, and overall financial performance.Rate this question:
-
- 19.
The raw materials and ingredients used by Dominos to make Pizzas are?
- A.
Assets
- B.
Liabilities
- C.
Shareholders Equity
Correct Answer
A. AssetsExplanation
The raw materials and ingredients used by Dominos to make pizzas are considered as assets. Assets are the resources owned by a company that have economic value and can be used to generate future benefits. In this case, the raw materials and ingredients are essential resources for Dominos to produce and sell pizzas, contributing to the company's revenue and profitability.Rate this question:
-
- 20.
A Loan taken by a company is a Liability because?
- A.
The loan is used to expand the company’s operations
- B.
The company has to pay back that amount in the future
- C.
The company has already received the cash
Correct Answer
B. The company has to pay back that amount in the futureExplanation
A loan taken by a company is considered a liability because it represents a financial obligation that the company has to repay in the future. This means that the company has incurred a debt and is obligated to make payments towards the loan amount, typically with interest. The loan increases the company's financial obligations and impacts its financial position, making it a liability on the company's balance sheet.Rate this question:
-
- 21.
If a Company has to pay off a loan this month, is that a ?
- A.
Current Liability
- B.
Non-Current Liability
Correct Answer
A. Current LiabilityExplanation
A company having to pay off a loan this month is considered a current liability because it is a financial obligation that is expected to be settled within the next 12 months. Current liabilities are debts or obligations that are due in the short term and need to be paid off using current assets or by creating new current liabilities. Since the loan is due this month, it falls under the category of current liabilities.Rate this question:
-
- 22.
The main reason for the 2008 financial crisis was?
- A.
Profits of company’s reduced
- B.
Stock Markets crashed
- C.
Company’s had too much debt
Correct Answer
C. Company’s had too much debtExplanation
The main reason for the 2008 financial crisis was that companies had too much debt. This excessive debt burdened the companies and made it difficult for them to meet their financial obligations. As a result, many companies faced financial difficulties and were unable to repay their debts, leading to a domino effect throughout the economy. This ultimately resulted in the collapse of several major financial institutions and triggered a global financial crisis.Rate this question:
-
- 23.
What is a Secured Loan?
- A.
A loan that is backed up using some assets of the company to prevent default
- B.
A special type of loan for a company’s security operations
- C.
A loan that the company has to pay back immediately
Correct Answer
A. A loan that is backed up using some assets of the company to prevent defaultExplanation
A secured loan is a type of loan where the borrower pledges some assets as collateral to the lender. This collateral acts as a security for the lender in case the borrower defaults on the loan. By backing up the loan with assets, the lender has a way to recover their money if the borrower fails to make the required payments. This makes secured loans less risky for lenders and often allows borrowers to access larger loan amounts or lower interest rates compared to unsecured loans.Rate this question:
-
- 24.
Money that the company is storing for anticipated future uses is called?
- A.
Cash
- B.
Reserves
- C.
Shareholders Equity
Correct Answer
B. ReservesExplanation
Reserves refer to the money that a company sets aside for future uses or contingencies. It is a portion of the company's profits that is not distributed as dividends to shareholders but is retained for various purposes such as expansion, investment, or to cover potential losses. Reserves act as a financial cushion for the company and provide stability and flexibility in managing its operations.Rate this question:
-
- 25.
When a restaurant company’s revenue is growing significantly, which of the following will also definitely happen?
- A.
Loans will increase
- B.
Gross Block will increase
- C.
Reserves will decrease
Correct Answer
B. Gross Block will increaseExplanation
When a restaurant company's revenue is growing significantly, it is likely that the company will invest more in its infrastructure and assets to accommodate the increased demand. This investment will lead to an increase in the gross block, which represents the total value of the company's fixed assets. As the company expands its operations and acquires more assets, the gross block will naturally increase. Therefore, when revenue is growing, it is expected that the gross block will also increase.Rate this question:
-
- 26.
In a Balance Sheet, if cash increases by Rs.1 Lakh, which other line item will also increase?
- A.
Current Liabilities
- B.
Non-Current Liabilities
- C.
Shareholders Equity
Correct Answer
C. Shareholders EquityExplanation
When cash increases by Rs.1 Lakh in a balance sheet, the shareholders' equity will also increase. This is because shareholders' equity represents the residual interest in the assets of a company after deducting liabilities. As cash is considered an asset, an increase in cash will lead to an increase in the overall value of the company's assets. To maintain the balance in the balance sheet equation (Assets = Liabilities + Shareholders' Equity), shareholders' equity must also increase.Rate this question:
-
- 27.
In a Balance Sheet, if Loans increases by Rs.5 Lakh, which other line item will also increase?
- A.
Cash
- B.
Inventory
- C.
Paid-Up Capital
Correct Answer
A. CashExplanation
When loans increase in a balance sheet, it means that the company has borrowed more money. This increase in loans will result in an increase in cash because the borrowed money will be added to the company's cash reserves. Therefore, the correct answer is Cash.Rate this question:
-
- 28.
Working Capital is used to?
- A.
Fund a company’s expansion plans
- B.
Pay back loans
- C.
Fund day to day operations of a company
Correct Answer
C. Fund day to day operations of a companyExplanation
Working capital is used to fund the day-to-day operations of a company. It represents the amount of money available to cover the company's short-term expenses such as purchasing inventory, paying salaries, and covering utility bills. By having sufficient working capital, a company can ensure smooth operations and meet its financial obligations on time. It is different from long-term capital, which is used for expansion plans or paying back loans.Rate this question:
-
- 29.
Which line item connects the Balance Sheet to the Income Statement?
- A.
Interest Expense
- B.
Net Income
- C.
Taxes
Correct Answer
B. Net IncomeExplanation
Net Income is the line item that connects the Balance Sheet to the Income Statement. Net Income represents the total profit or loss generated by a company during a specific period. This amount is then transferred to the Balance Sheet as retained earnings, which is a component of the owner's equity. Therefore, Net Income directly impacts the Balance Sheet and serves as a link between the two financial statements.Rate this question:
-
- 30.
In a Balance Sheet, if cash increases by Rs.1 Lakh, which other line item will also increase?
- A.
Current Liabilities
- B.
Non-Current Liabilities
Correct Answer
A. Current LiabilitiesExplanation
When cash increases by Rs.1 Lakh in a Balance Sheet, the other line item that will also increase is Current Liabilities. This is because an increase in cash implies that the company has more funds available to pay off its short-term obligations, which are classified as current liabilities. Therefore, as the cash balance increases, the current liabilities will also increase to reflect the additional funds that need to be paid out in the near future.Rate this question:
-
- 31.
If the P/E ratio of a share is 15x and price per share is Rs. 200, what is the earnings per share?
- A.
Rs.14.25
- B.
Rs.15.10
- C.
Rs. 13.33
- D.
Rs. 16.00
Correct Answer
C. Rs. 13.33Explanation
The earnings per share can be calculated by dividing the price per share by the P/E ratio. In this case, the price per share is Rs. 200 and the P/E ratio is 15x. Dividing Rs. 200 by 15 gives us Rs. 13.33, which is the earnings per share.Rate this question:
-
- 32.
If a company dilutes 10% for Rs.50 lakhs, what is the pre-money valuation of the company?
- A.
Rs.5 Crores
- B.
Rs.4 Crores
- C.
Rs.4.5 Crores
- D.
Rs.5.5 Crores
Correct Answer
C. Rs.4.5 CroresExplanation
When a company dilutes 10% for Rs.50 lakhs, it means that the company is selling 10% of its ownership for Rs.50 lakhs. To find the pre-money valuation of the company, we need to divide the amount raised (Rs.50 lakhs) by the percentage sold (10%). This gives us Rs.5 crores as the pre-money valuation of the company. Therefore, the correct answer is Rs.5 crores.Rate this question:
-
- 33.
If a company dilutes 10% for Rs.50 lakhs, what is the post-money valuation of the company?
- A.
Rs.5 Crores
- B.
Rs. 4 Crores
- C.
Rs.4.5 Crores
- D.
Rs.5.5 Crores
Correct Answer
A. Rs.5 CroresExplanation
When a company dilutes 10% for Rs.50 lakhs, it means that the company is selling 10% of its ownership for Rs.50 lakhs. This implies that the value of 10% of the company is equal to Rs.50 lakhs. To find the post-money valuation of the company, we need to determine the value of 100% (i.e., the entire company). Since 10% is equal to Rs.50 lakhs, we can calculate that 100% is equal to Rs.5 crores (10% x 10 = 100%). Therefore, the post-money valuation of the company is Rs.5 crores.Rate this question:
-
- 34.
Assume a Venture Capitalist invests Rs.10 crores in a company and has a 1x liquidation preference and 20% equity. If the company is sold for Rs.20 crores, how much does the Venture Capitalist make?
- A.
Rs.10 Crores
- B.
Rs.20 Crores
- C.
Rs.18 Crores
- D.
Rs.12 Crores
Correct Answer
D. Rs.12 CroresExplanation
The venture capitalist invested Rs.10 crores in the company and has a 1x liquidation preference, which means they are entitled to receive their initial investment back before any other distributions are made. The company is sold for Rs.20 crores, so the venture capitalist receives their initial investment of Rs.10 crores plus 20% of the remaining Rs.10 crores (20% equity). Therefore, the venture capitalist makes Rs.12 crores.Rate this question:
-
- 35.
What is the typical dilution a company takes during an IPO offering?
- A.
0-5%
- B.
10-15%
- C.
30-40%
- D.
60-70%
Correct Answer
B. 10-15%Explanation
During an Initial Public Offering (IPO), a company typically takes a dilution of 10-15%. This means that the company offers a portion of its ownership to the public in the form of shares, resulting in a decrease in the existing shareholders' ownership percentage. This dilution allows the company to raise capital by selling shares to investors, enabling them to fund their expansion plans, repay debts, or invest in new projects. A dilution of 10-15% strikes a balance between raising necessary funds and maintaining a significant stake for existing shareholders.Rate this question:
-
- 36.
Assume you are an Investment Banker advising a technology start-up to raise Rs.10 Crores from investors. How would you recommend that they raise the money?
- A.
Debt or Loan from bank
- B.
Equity Shares
Correct Answer
B. Equity SharesExplanation
The recommended way for the technology start-up to raise Rs.10 Crores from investors would be through issuing equity shares. This means that the company would sell ownership stakes in the form of shares to investors in exchange for the capital they need. By doing so, the start-up would not have to repay the money as they would with a loan, but instead, the investors would become shareholders and have a claim on the company's profits and assets. This method allows the start-up to raise funds without incurring debt and provides potential for future growth and value creation.Rate this question:
-
- 37.
What is the highest rating possible for debt?
- A.
AAAA+
- B.
AAA
- C.
AA+
- D.
A+
Correct Answer
B. AAAExplanation
The highest rating possible for debt is AAA. This rating indicates that the issuer has a very low risk of defaulting on their debt payments. It signifies a high level of creditworthiness and financial stability. AAA-rated debt is considered to be of the highest quality and is typically issued by governments and large corporations with strong financial positions.Rate this question:
-
- 38.
What is the yield of a bond with a Rs.1,000 face value and 10% interest?
- A.
11%
- B.
Rs.1,100
- C.
10%
- D.
Rs.990
Correct Answer
C. 10%Explanation
The yield of a bond is the annual return on investment expressed as a percentage of the bond's face value. In this case, the bond has a face value of Rs.1,000 and a 10% interest rate. Therefore, the yield of the bond is 10%, as the interest rate matches the percentage of the face value.Rate this question:
-
- 39.
Which of these sectors is best suited to be valued using Discounted Cash Flow Analysis ?
- A.
Steel Industry
- B.
Technology Industry
Correct Answer
A. Steel IndustryExplanation
The Steel Industry is best suited to be valued using Discounted Cash Flow Analysis because it is a capital-intensive industry with long-term projects and significant cash flow fluctuations. Discounted Cash Flow Analysis takes into account the time value of money and provides a more accurate valuation of companies with unpredictable cash flows. The Steel Industry often requires substantial investments in infrastructure and equipment, and its profitability is closely tied to economic cycles. Therefore, Discounted Cash Flow Analysis can help assess the present value of future cash flows and determine the intrinsic value of steel companies.Rate this question:
-
- 40.
If a company has 10 lakh shares outstanding and price per share is Rs.550, what is the market value of the company ?
- A.
Rs.56 Crores
- B.
Rs.15 lakhs
- C.
Rs.5.5 Crores
- D.
Rs.55 Crores
Correct Answer
D. Rs.55 CroresExplanation
The market value of a company is calculated by multiplying the number of shares outstanding by the price per share. In this case, the company has 10 lakh shares outstanding and the price per share is Rs.550. Therefore, the market value of the company would be 10 lakh shares multiplied by Rs.550 per share, which equals Rs.55 Crores.Rate this question:
-
- 41.
Typically a early stage startup that is raising Rs.50 lakhs from angel investors will dilute how much equity ?
- A.
10-15%
- B.
25-35%
- C.
40-55%
- D.
55-65%
Correct Answer
A. 10-15%Explanation
When a startup raises Rs.50 lakhs from angel investors, it typically dilutes around 10-15% of its equity. This means that the angel investors will receive 10-15% ownership of the company in exchange for their investment. Dilution of equity is a common practice in startups, as it allows them to secure funding while giving investors a stake in the company's success.Rate this question:
-
- 42.
In an IPO, a company raises money mostly from -
- A.
The Public
- B.
Venture Capital Funds
- C.
Private Equity Funds
- D.
Pension Funds
Correct Answer
A. The PublicExplanation
In an IPO, a company raises money mostly from the public. This means that the company offers its shares to individual investors, who can purchase them through the stock market. By doing so, the company can generate a large amount of capital from a wide range of investors. This allows the company to fund its operations, invest in growth opportunities, and potentially increase its market value. Public investors have the opportunity to become shareholders and potentially benefit from any future profits or increase in the company's stock price.Rate this question:
-
- 43.
If a new company has Rs.5 lakh loss in 2010 and Rs.11 lakh loss in 2011, how much income tax will it pay on a profit of Rs.2 lakhs in 2012 ?
- A.
Rs.60,000
- B.
Rs.59,850
- C.
Rs.61,243
- D.
Rs.0
Correct Answer
D. Rs.0Explanation
The company had a loss of Rs.5 lakh in 2010 and Rs.11 lakh in 2011. This means that it has accumulated losses of Rs.16 lakh over the two years. According to tax laws, a company can carry forward its losses for a maximum of 8 years and set them off against future profits. Since the company has accumulated losses, it can set off the profit of Rs.2 lakh in 2012 against these losses. As a result, it will not have to pay any income tax on the profit of Rs.2 lakh in 2012. Therefore, the correct answer is Rs.0.Rate this question:
-
- 44.
Which is the most important metric to consider while buying shares in a company?
- A.
Revenue growth rate
- B.
Profitability
- C.
P/E ratio
- D.
Number of Customers
Correct Answer
C. P/E ratioExplanation
The P/E ratio, or price-to-earnings ratio, is a crucial metric to consider when buying shares in a company. It indicates the price investors are willing to pay for each dollar of earnings generated by the company. A low P/E ratio suggests that the stock is undervalued, while a high P/E ratio may indicate that the stock is overvalued. Therefore, the P/E ratio helps investors assess the company's current valuation and potential for future growth.Rate this question:
-
- 45.
Assume you own 35% of the shares in your start-up. If your start-up is sold for Rs.300 crores how much money will you make ?
- A.
35% of Rs.300 crores
- B.
Depends on the companys current year profits
- C.
Depends on the liquidation preference clause
- D.
Depends on the board of directors voting
Correct Answer
C. Depends on the liquidation preference clauseExplanation
The correct answer is "Depends on the liquidation preference clause." This means that the amount of money the person will make from selling their start-up depends on the specific terms outlined in the liquidation preference clause. The liquidation preference clause determines the order in which shareholders receive their payouts in the event of a sale or liquidation of the company. Therefore, without knowing the details of the liquidation preference clause, it is not possible to determine the exact amount of money the person will make from the sale of their start-up.Rate this question:
-
- 46.
If your company buys 20 laptops this year for employee use at a cost of Rs. 20 lakhs, then your company’s
- A.
Technology expense increases by Rs.20 lakhs
- B.
Infrastructure expense increases by Rs.20 lakhs
- C.
Capital Expenditure increases by Rs.20 lakhs
- D.
Employee expense increases by Rs.20 lakhs
Correct Answer
C. Capital Expenditure increases by Rs.20 lakhsExplanation
When a company buys assets such as laptops, it is considered a capital expenditure. Capital expenditures are investments made by a company to acquire or improve long-term assets, such as equipment or property, that will benefit the company over an extended period of time. In this case, purchasing 20 laptops for employee use at a cost of Rs. 20 lakhs would increase the company's capital expenditure by Rs. 20 lakhs.Rate this question:
-
- 47.
The Working Capital of a company indicates
- A.
Marketing Expenses
- B.
Day to Day operating expenses
- C.
Tax Expenses
- D.
Interest Expenses
Correct Answer
B. Day to Day operating expensesExplanation
The working capital of a company refers to the amount of money available to cover day-to-day operating expenses. It represents the company's short-term financial health and ability to meet its current obligations. Working capital is used to pay for inventory, salaries, rent, utilities, and other expenses required to keep the business running smoothly. It does not include marketing expenses, tax expenses, or interest expenses, as these are separate categories of expenses that are not directly related to the company's day-to-day operations.Rate this question:
-
- 48.
Free Cash Flow of a company is
- A.
Revenue
- B.
Revenue – Operating Expenses
- C.
Revenue – Operating Expenses - Taxes
- D.
Revenue – Operating Expenses – Taxes + Depreciation – Capex + Change in working Capital
Correct Answer
D. Revenue – Operating Expenses – Taxes + Depreciation – Capex + Change in working CapitalExplanation
The correct answer is "Revenue – Operating Expenses – Taxes + Depreciation – Capex + Change in working Capital". This formula calculates the Free Cash Flow of a company by subtracting operating expenses and taxes from revenue, and then adding depreciation, capital expenditures, and changes in working capital. Free Cash Flow is an important measure of a company's financial health and represents the amount of cash it generates after accounting for all expenses and investments.Rate this question:
-
- 49.
The DCF Valuation method is used to arrive at the
- A.
Enterprise Value
- B.
Equity Value
- C.
Enterprise Value – Net Debt
- D.
Free Cash Flow
Correct Answer
B. Equity ValueExplanation
The DCF (Discounted Cash Flow) Valuation method is used to estimate the intrinsic value of a company's equity. It calculates the present value of the company's expected future cash flows, discounted at an appropriate rate. By using this method, analysts can determine the fair value of a company's equity, taking into account its future earnings potential. Therefore, the correct answer is Equity Value.Rate this question:
-
- 50.
If you hired a Vice President – Marketing for your startup and gave him/her shares in your company. The rate of return of his/her shares upon exit will depend on
- A.
Number of other employees to whom shares were granted
- B.
Pre-money valuation of the company when shares were granted
- C.
Number of Outstanding shares in the company
- D.
Number of years the Vice President has been working for your company
Correct Answer
B. Pre-money valuation of the company when shares were grantedExplanation
The rate of return of the Vice President's shares upon exit will depend on the pre-money valuation of the company when the shares were granted. This means that the value of the company at the time the shares were given will determine the potential return on investment for the Vice President. If the company's valuation increases over time, the Vice President's shares will also increase in value, resulting in a higher rate of return. Conversely, if the company's valuation decreases, the rate of return on the shares will be lower. The other factors mentioned, such as the number of employees with shares, the number of outstanding shares, and the number of years the Vice President has been working, do not directly affect the rate of return.Rate this question:
-
Back to top