Fundamentals of Financial Management, Third Edition

OBJECTIVE-TYPE QUESTIONS

1. Mark true or false.
   1. Capitalisation rate is the reciprocal of average price-earning ratio.
   2. The lower the asset turnover, the higher is the rate of return on investment.
   3. Over-capitalisation exists when the real value of shares is higher than their book value.
   4. Under-capitalisation exists when the market price of shares is higher than their par value.
   5. Share split reduces the earnings of the shareholders.
2. Choose the most suitable answer.
   1. Capitalisation includes:
      1. long-term capital only
      2. short-term capital only
      3. both of the above
   2. Cost theory suggests that the amount of capital should be equal to:
      1. value of total assets
      2. value of fixed assets only
      3. value of fixed assets minus value of current assets
   3. Capitalisation rate ...