Answer in One Sentence (Weightage 5 Marks)
1. Introduction to Corporate Finance
Ans: According to Henry Hoagland, “Corporate finance deals primarily with the acquisition and use of capital by a business corporation.”
2. What is fixed capital ?
Ans: Fixed capital is that portion of capital which is invested in fixed assets such as land, building, furniture, etc.
3. Define working capital.
Ans: Gerstenbergh defines it as “The excess of current assets over current liabilities.”
4. What is production cycle ?
Ans: The process of converting raw material into finished goods is called production cycle.
5. Define capital structure.
Ans: According to R. H. Wessel, “The long term sources of funds employed in a business enterprise.”
2. Sources of Corporate Finance
1. What is a share ?
Ans: Share is the smallest unit of the capital of the company.
2. What are Equity shares ?
Ans: Equity shares are ordinary shares which are not preference shares. Equity share is a risky capital.
3. What are preference shares ?
Ans: Preference shares are those shares which carry preferential rights to receive dividend and return of capital.
4. What are retained earnings ?
Ans: Retained earnings are the earnings of the company which are retained (reinvested) in the business.
5. What is a debentures ?
Ans : Debenture means acknowledgment of debt. Debenture is a borrowed capital.
6. What is a bond ?
Ans: Bond is an interest bearing certificate issued by the government.
7. In which country can ADR be issued ?
Ans: American Depository Receipt (ADR) can be issued in USA.
8. In which country can GDR be issued ?
Ans: Global Depository Receipt (GDR) can be issued in any country other than USA.
9. What are convertible debentures ?
Ans: The debentures which are converted into equity shares are known as convertible debentures.
10. What are cumulative preference shares ?
Ans: Cumulative preference shares are those shares on which dividend goes on accumulating (adding).
3. Issue of Shares
1. When does transmission of share take place ?
Ans: Transmission of share takes place after the death, insolvency, or insanity of the shareholder. Parties involved in transfer.
2. Name the parties involved in transfer of shares.
Ans: The parties involved in the transfer of shares are Transferor and Transferee.
3. What is the time limit to issue share certificate on allotment of shares ?
Ans: The time limit to issue a share certificate on the allotment of shares is of maximum 2 months.
4. What is the time limit for filing Return of Allotment with the Registrar on allotment of shares ?
Ans: The time limit for filing Return of Allotment with the Registrar is 30 days after the allotment of shares
5. When can a company forfeit shares ?
Ans: When the shareholder fails to pay the full amount of share which he agreed to pay in installments, the company can forfeit his shares.
6. What is a share certificate ?
Ans: When the shareholder fails to pay the full amount of share which he agreed to pay in installments, the company can forfeit his shares
7. What is the minimum application money to be collected by company as per the Companies Act ?
Ans: As per the Companies Act, the minimum application money to be collected by the company is 25% of the nominal value of shares.
8. With whom should the prospectus be filed before issuing it to the public ?
Ans: Before issuing it to the public, a copy of the prospectus must be filed with the Registrar of Company (ROC).
9. What is meant by private placement ?
Ans: If a company offers shares to a selected group of investors, not exceeding 200 to raise capital is called private placement.
10. To whom is Sweat Equity Shares offered by a company ?
Ans: Sweat Equity Shares is offered to its Directors or Employees at a discount, by a company.
11. To whom can a company issue Bonus Shares ?
Ans: The company can issue Bonus Shares to its existing equity shareholders.
12. What is the subsequent issue after IPO called as ?
Ans: The subsequent issue after Initial Public Offer (IPO) is called as Further Public Offer (FPO)
13. Name the method under which the issue price of shares is fixed through a bidding process.
Ans: The method under which the issue price of shares is fixed through a bidding process called as ‘Book Building Method’.
14. What is Public Issue ?
Ans: Shares offered to public by a company through the prospectus, is called as a public issue.
15. Name the capital which is mentioned in the capital clause of Memorandum of Association.
Ans: The capital which is mentioned in the capital clause of the Memorandum of Association is called as ‘Authorised Capital.
4. Issue of Debentures
1. Who are debenture holders ?
Ans: Debenture holders are the creditors of the company.
2. What do debenture holders receive as return on investment ?
Ans: Debenture holders receive fixed rate of interest as per quantum as return on investment.
3. Whom does the company appoint to protect the interest of debentureholders ?
Ans: To protect the interest of debenture holders, the company appoints Debenture Trustees.
4. Within what period should secured debentures be redeemed ?
Ans: Secured debentures must be redeemed within 10 years from the date of allotment.
5. Name the document which is an agreement between the debenture trustee and company.
Ans : Debenture Trust Deed is an agreement between the debenture trustee and the company.
6. Who has the authority to create charge on assets of a company ?
Ans: Debenture Trustees has the authority to create charge on assets of a company.
7. Name the meeting in which approval for increasing the borrowing powers of Board of
directors is passed.
Ans: In Extra-Ordinary General Meeting the approval for increasing the borrowing powers of the board of directors is passed.
8. Within what period should the debenture certificate be issued ?
Ans: Within 6 months the debenture certificate should be issued
9. What is the minimum subscription that a company must collect for an issue of debentures
of ` 100 crores ?
Ans: The minimum subscription that a company must collect for an issue of debentures of Rs.100 crores is 75% of the base issue size.
10. When should a company appoint a credit rating agency ?
Ans: A company should appoint a credit rating agency at the time of Public Issue or Rights Issue.
5. Deposits
1. Which companies can accept deposits from public ?
Ans: Eligible public and government companies can accept deposit.
2. What is the maximum deposit the Government company can collect ?
Ans: The maximum deposit the Government company can collect is not more than 35% of paid up capital and free reserves.
3. What is the tenure of a deposit ?
Ans:
4. Who are Deposit Trustees ?
Ans: Deposit Trustees are the trustees who protect the interest of the Depositor.
5. What is Deposit Trust Deed?
Ans: The Deposit Trust deed contains the terms and conditions agreed upon or between the company and the Trustee.
6. When does a company create charge on its tangible assets ?
Ans: Company create charge on assets when company wants to issue secured debentures or deposits.
7. With in what period should a company issue Deposit Receipt ?
Ans: Company has to issue Deposit Receipt within 21 days from the date of receipt of the money or realisation of cheque
8. When should a company file Return of Deposit ?
Ans: Company should file Return of Deposits on or before 30th June, every year.
9. What is Deposit Repayment Reserve Account ?
Ans: Deposit Repayment Reserve Account is an account opened by company only for repayment of deposit money
10. What is Register of Deposit?
Ans: Deposit Register is a register having details like Name of the Depositors, Address, Investment period, repayment, etc.
6. Correspondence with Members
1. What is dividend warrant ?
Ans: A dividend warrant is a cheque sent by a company to a shareholder for payment of dividend to the registered address of the shareholder.
2. What is capitalisation of reserve ?
Ans: Capitalisation of reserves is to capitalise profits of the company and to provide additional (bonus) shares to the existing equity shareholders without any additional cost.
3. What is Dividend ?
Ans: Dividend is the portion or part of the profits of the company which is distributed to the equity shareholders of the company.
4. Who recommends the rate of dividend ?
Ans: Board of Directors recommends rate of dividend.
5. Which type of shareholders enjoy the benefit of Bonus Shares ?
Ans: Existing equity shareholders of the company enjoy the benefits of Bonus Shares.
6. What is meant by payment of dividend electronically ?
Ans: A company can use an online payment facility to make payments of dividends to their shareholders i.e. electronically through ECS, NEFT, etc. It is known as the payment of dividends electronically.
7. Correspondence with Debentureholders
1. Who is debenture holder ?
Ans: Debenture holder is a creditor of a company.
2. What is the income of debenture holder ?
Ans: Debenture holder is a fixed rate of interest as income on his investment in debenture
3. What is debenture ?
Ans: The debt acknowledged by a company by issuing debenture certificate is called debenture.
4. What is convertible debentures ?
Ans: Convertible debenture are converted into Equity Shares on the expiry of specific period and at a specific rate.
5. Who takes decision to allot the debentures ?
Ans: Board of directors take decision to allot the debenture.
6. Which form is enclosed along with the letter of redemption of debentures ?
Ans: Debenture Redemption form is enclosed along with the letter of debentures.
7. Which certificate will be issued after allotment of debentures ?
Ans: Debenture Certificate will be issued after allotment of Debentures.
8. Correspondence with Depositors
1. Who is depositor ?
Ans. Depositors are the creditors of the company.
2. What is the return on deposit ?
Ans. Interest is the return on deposit.
3. What is Interest Warrant ?
Ans. Interest warrant is used for making payment of interest to the depositors (creditors).
4. What is renewal of deposit ?
Ans. Renewal of deposit means acceptance of the same deposit by the company for further period.
5. Which document is enclosed along with the Renewal Letter ?
Ans. A Renewal Deposit Receipt is enclosed along with the renewal letter.
6. When will the company return the deposit ?
Ans. On the maturity of tenure, the company will return the deposit.
7. What is minimum and maximum period of deposit ?
Ans. Minimum and maximum period of deposit is 6 months and 36 months respectively.
9. Depository System
1. What is Depository System ?
Ans. Depository system hold securities in electronic form, where transfer and settlements of securities are done electronically.
2. Give examples of action termed as corporate action.
Ans. Examples of corporate actions are Payment of dividend, issue of bonus shares, Offering of rights shares, Merger and Acquisitions, etc.
3. When was Depository Act passed in India ?
Ans. In India, Depository act was passed in 1996.
4. What is a DP ?
Ans. D.P. is the agent of depository registered under the SEBI Act and acts as a link between Depository and the Investor.
5. What is Dematerialisation ?
Ans. Dematerialisation is a process whereby a client can get physical certificates converted into electronic mode.
6. What is Rematerialisation ?
Ans. Rematerialisation is the process where by a client can get his electronic securities converted into physical certificates.
7. What is ISIN ?
10. Dividend and Interest
1. What is Dividend ?
Ans. Dividend is that part of the profit of the company which is distributed amongst its shareholders by the company.
2. Who has right to recommend Dividend ?
Ans. Board of Directors has right to recommend dividend.
3. What is final Dividend ?
Ans. Final Dividend is paid on actual profits arrived at after closure of books of accounts at the end of the financial year.
4. What is Interim Dividend ?
Ans. Interim Dividend is a part of final dividend and is paid during the year i.e. before the finalization of annual accounts for the year.
5. Who declares Interim Dividend ?
Ans. Interim Dividend is declared by Board of Directors in Board Meeting.
6. Which shares get dividend at a fixed rate ?
Ans: Preference shares get dividend at a fixed rate.
7. Which shares get dividend at a fluctuating rate ?
Ans: Equity shares get dividend at a fluctuating rate.
8. At which Meeting Interim Dividend is decided and declared ?
Ans. Interim Dividend is decided and declared in a Board Meeting by passing a resolution.
9. What is Interest ?
Ans. Interest is an obligation paid by company when it raises borrowing in the form of debentures, deposits, loans etc.
10. State the time within which Unpaid Dividend be transferred to unpaid dividend Account ?
Ans. Unpaid Dividend is transferred to ‘Unpaid Dividend Account’ within 37 days from the declaration of dividend.
11. Financial Market
1. What is financial market ?
Ans: A financial market Is a market In which peoples trade financial securities and derivatives at low transaction costs.
2. What is call money market ?
Ans: In call money market, funds are lent or borrowed for very short periods I,e. One day.
3. What is Certificate of Deposits ?
Ans: Ms. Certificate of Deposits are, unsecured negotiable promissory notes usually Issued by Commercial Banks and Financial Institutions.
4. What is Trade Bill ?
Ans: Trade Bills are negotiable instruments or bills drawn by a seller on the buyer for value of goods sold under credit sales.
5. What is new issue market ?
Ans: Companies sell their Shares, Debentures, etc for the first time to raise fresh capital In a new Issue market.
12. Stock Exchange
(1) What Is Stock Exchange ?
Ans. Stock Exchange is a specific place where trading of the securities is arranged in an organised manner.
(2) Who is Broker ?
Ans. Broker Is a member of a Stock Exchange who has license by stock exchange to buy or sell shares on behalf of his clients.
(3) Who is Jobber ?
Ans: A Jobber is a dealer in Stock Exchange who trades In securities in his own name.
(4) Who Is Bull ?
Ans. A Bull is a speculator who purchase the securities with the Intention to sell them higher price later to earn profits.
(5) Who Is Bear ?
Ans. A Bear Is a speculator who expects fa the price of a security and sells his security avoid further fall In prices.
(6) Who Is Lame Duck ?
Ans. A Lame Duck Is a bear broker whose expectations have gone wrong and makes a loss In his dealings.
(7) What Is Trading Ring ?
Ans. The trading or auction of shares takes place on the floor of the Stock Exchange Is known as Trading Ring.
(8) What Is Sensex ?
Ans. Sensex Is the Index of the BSE which represents the Increase or decrease In the price of stocks of selected 30 companies.
(9) What is Rally ?
Ans. If the Sensex or NIFTY moves in upward direction over a period of 14 to 20 trading sessions It Is called Rally.
(10) What is Crash ?
Ans. If the Sensex or NIFTY moves In downward direction, It is called Crash.