Fundamentals of Financial Management, Third Edition

OBJECTIVE-TYPE QUESTIONS

1. Mark true or false.
   1. Financial distress occurs when the IRR is greater than the cost of capital.
   2. Insolvency occurs when cash in the firm is not sufficient to meet contractual obligations at a particular point of time.
   3. Insolvency occurs when the firm’s liabilities exceed its total assets.
   4. Fast erosion in earning power leads to corporate failure.
   5. Contingency plan is primarily concerned with the mobilisation of resources.
   6. Extension means extension of time for making payments to the creditors.
   7. Composition refers to the making of payments to the creditors on a pro rata basis.
   8. Most often there is a clash of the interest of the creditors and the shareholders.
   9. Liabilities are increased for the purpose of writing off of losses. ...