Possible questions on Corporate Finance

1. Capital budgeting methods – relative advantages and disadvantages

2. Why NPV is a better method than IRR?

3. What is WACC and how do you calculate WACC?

4. How should you finance Fixed Assets and Current Assets?

5. What are the sources of finance for a corporate to finance working capital requirements?

6. Is dealer deposits collected from dealers long term sources or short term sources?

7. What are the types of financial ratios?

8. What is Debt-Equity ratio, Debt Service Coverage Ratio, etc?

9. What are liquidity ratios? What are turnover ratios?

10. How do you compute Break even level of operations?

11. What are fixed costs, variable costs and semi-variable/semi-fixed/step up costs? Give examples

12. What is operating leverage and financial leverage?

13. How do you calculate the cost of debt and cost of equity?

14. To calculate the cost of equity using CAP-M model, what inputs do you require?

15. What is beta?

16. What is alpha? (alpha is the difference between expected return and the required rate of return)

17. Where from will you get the risk free return (you can tell them that in the Indian context you can use the 10 year bench mark security which is currently 7.8% 2020 G-Sec)

18. What are fixed income securities? What are T-Bills?

19. What is Price Earnings Ratio? What is trailing P/E, forward P/E ?

20. What is rule of 72 (number of years for principal to double for a given rate of interest)

21. What are the components of working capital? What is gross working capital, net working capital?

21. What is operating cycle wrt working capital management?

22. What is cash credit limit and bank overdraft?

23. How will you monitor and control receivables (Debtors)

24. What is the objective of financial management?

25. In a company like Asian Paints, what do you think will be the biggest cost item? (Raw materials-Chemicals). In a company like Infosys, what do you think will be biggest cost item (Employee costs). In a company like Hindalco, what do you think will be the biggest cost item (Power and Fuel)

26. What is Dividend Payout ratio?

27. What would happen to the market price of the shares if the company comes out with a 1:1 bonus issue or stock split?

28. What is the difference between bonus issue and stock split in India? What is the difference between bonus issue in India and Stock split in the USA (no difference)

29. What are cash and cash equivalents? What is a cash flow statement? What are the components of a cash flow statement (cash flow from operating activities, investing activities and financing activities)

30. Where will you find dividend paid in a cash flow statement? Or Interest earnings ? or fixed assets purchased? (any question is possible on these lines)

31. Why equity is the costliest source of funds? (due to 1. Carries highest risk and unlike interest, dividend, which is compensation to equity shareholders, is not tax deductible)

32. Give an example of quasi equity (preference shares)

33. What are the advantages of Preference Shares over Debentures or Equity capital?

34. Forex risks – what are the risks corporates face in respect of forex fluctuations? What are the products available to Companies to hedge their risks?

35. How are options different from futures? How are futures different from forwards?

36. Why should companies hedge their risks? What are the advantages and disadvantages with hedging?

37. What is PPP model? What is BOLT, BOOT, BOT, etc?

38. Where do you think Government should invest to give fillip to infrastructure industry? (bring out the role of investment in education and healthcare)

39. What do you understand by Investment banking/commercial banking/merchant banking?

40. What are capital adequacy norms? What is Tier 1, Tier 2 capital?

41. What is NPA? Why banks are required to make provisions?

42. What are Basel Norms?

43. Heads of various important institutions such as Heads of SEBI, SEC, Planning Commission, Bank of England, European Central bank, Fed, PBOC

44. I have to pay my vendor in USD 2,455 (or I have to receive $ 3,000 from my customer) next month. I want to hedge this risk. What product/products should I use?

45. Should I use Treasury Bills rate or Long term Govt Securities rate for CAPM model, if I were to value equity shares? Why?

46. What is the equity risk premium in India? (look at Damodaran’s web site)

47. What are various components of working capital? When calculating working capital cycle, should you take weighted working capital or non-weighted working capital?

48. The net working capital, as disclosed in the annual reports of companies such as Hero Honda (now Honda MotoCorp) and Hindustan Lever is negative. Why? Do you think these companies are, therefore, managing their working capital very aggressively?

49. There are three companies – A, B and C. All with Fixed Assets of Rs.50 crores and Gross working capital of Rs.50 crores. Therefore, total assets are Rs.100 crores. A has net worth of Rs.75 crores and bank overdraft of Rs.25 crores; B has net worth of Rs. 65 crores and bank overdraft of Rs.35 crores and C has net worth of Rs.40 crores and bank overdraft of Rs.60 crores. How will you evaluate the financial structure of these three companies?

50. What are the current tax rates for corporate and individuals?

51. What is WPI? CPI? What are the current rates? How are these calculated?

52. Give some illustrations of direct and indirect taxes. Why income tax Implications are important to businesses?

53. What is the difference between FDI and FII?

54. What is a letter of credit? How is it different from a Guarantee? What are the different types of Letters of credit?

CURRENT AFFAIRS

1. Current inflation rates, current interest rates (check RBI website www.rbi.org.in – you will find all interest rates, including bank rate, repo, reverse repo)

2. Current exchange rates between the Rupee and the major 4 currencies. Where do you think Rupee is headed?

3. Current SENSEX and NIFTY index levels. What is your opinion about the recent gyrations in these indices and where do you see these indices heading?

4. Current level of Forex Reserves held by RBI? What do you think RBI should do with this?

5. What is your view on the way RBI has managed the interest and inflation rates in the country? How many times has RBI revised interest rates in the recent past? Are you happy with Duvvy Subba Raos approach to inflation management? What would you do if you were in his position?

6. What is the planned Fiscal Deficit (% of GDP) planned for the year? Do you think the FM will be able to manage it within the target? What is the role of recent 3G auction collections to managing fiscal deficit?

7. What was the recent issue with credit ceiling in the US? Explain the implications for the global markets. What is the impact for India?

8. How do you see the European crisis going from here?

9. Considering the current growth rates, do you think India will be able to grow at 8%-9% during the current financial year?

10. When do you think the inflation rates will stabilize to around 5-6% (desired levels)? Why?