UGC NET/JRF EXAM, (MANAGEMENT) December 2019

Total Questions: 100

21. The Total Asset Turnover Ratio and Total Assets to Networth Ratio of Kuber Ltd. are 1.75 and 2 respectively. If the Net Profit Margin of this company is 8%. What is the Return on Equity (ROE)?

Correct Answer: (d) 0.28
Solution:As per On-post Analysis ROE (Return on Equity) = Net Profit Margin Assets Turnover ratio × Assets to Turnover ratio

⇒ 8% × 2 x 1.75
= 28% ROE = 0.28

22. Net Income approach to valuation is based on which of the following assumption?

Correct Answer: (d) There are no taxes and cost of debt is less than the cost of equity and the use of debt does not change the rişk perception of investors.
Solution:Net Income Theory was introduced by David Durand. Assumption of NI approach -
(i) There are no taxes.
(ii) The cost of debt in less than the cost of the equity.
(iii) The use of debt does not change the risk perception of the investors.

23. Which of the following is aptly described by '2/10, net 30'?

Correct Answer: (c) Credit terms
Solution:Credit terms indicate when payment is due for sales that made on credit, possible discount or late fess payment For example the credit terms might be 2/10 net 30. This means the amount is due in 30 days, however if the amount is paid in 10 days a discount of 2% will be permitted.

24. The major factor that allowed Portfolio Theory to develop into Capital Market Theory is

Correct Answer: (a) Risk free asset
Solution:The major factor that allowed portfolio theory to develop into capital market theory is Risk free asset. Portfolio theory provides a logical/mathematical framework in which investors can optimize their risk and return.

25. When managers commit errors of over optimism in evaluating merger opportunities due to excessive pride or animal spirit is termed as

Correct Answer: (c) Hubris Hypothesis
Solution:Hubris Hypothesis is implies when the company managers become over-optimistic in evaluating potential targets because of their overconfidence about their ability to make accurate decisions.

26. Which of the following methods of capital budgeting is best suited for leveraged projects?

Correct Answer: (a) Net present value
Solution:Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time.

It is used in capital budgeting and investment planning to analyze the profitability of a projected investment or project. It is best suited for leveraged projects.

27. When each coupon payment and the redemption value of bond are detached and are issued as separate and independent instruments are called

Correct Answer: (b) Strips
Solution:STRIPS- (Separate trading of registered interest and principal of securities) are debt securities that are created through the process of coupon stripping.

28. The effect of continuous compounding is captured by

Correct Answer: (a) Present Value × eʳᵗ
Solution:The present value with continuous compounding formula is used to calculate the current value of a future amount that has earned at a continuously compounded rate. There are 3 concepts to consider in the present value with continuous compounding formula - time value of money, present value and continuous compounding.

Continuous compounding = PV × eʳᵗ
PV = Present value
r = Rate
t = time

29. Public Relations as a partof promotion in marketing refers to

Correct Answer: (a) Management of reputation of the company
Solution:Public Relation as a part of promotion in marketing refers to Management of reputation of the company, Hence the public relations creating relationship between the press and other media, so that companies can relate the customers, the general public and govt.

Regulators. It includes unfavorable events and paid from the advertising. It manages the reputation of the company.

30. Which of the following is NOT the characteristic of "Hyper Competition"?

Correct Answer: (d) Financing cost becomes high
Solution:"Financing cost becomes high" is not the characteristics of "Hyper Competition".

Hyper competition is the term that refers to a situation in the market at the time when technology or supply of the companies are so new that standard rules of mutual are still produced. Thus competitive advantages rise, however they are not sustainable.