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ASRB NET and ARS / SMS / STO recruitment Financial Management in Agribusiness: practice questions

ASRB NET and ARS / SMS / STO recruitment · India · Agricultural Scientists Recruitment Board (ICAR)

Original practice questions written to the published syllabus · not past papers
10worked here, free
32written to this exam in this subject
13syllabus units

About ASRB NET and ARS / SMS / STO recruitment

ASRB NET and ARS / SMS / STO recruitment is a professional certification run by Agricultural Scientists Recruitment Board (ICAR), for candidates in India. NET: one paper of 150 objective questions at 1 mark each, 2 hours, -1/3 negative, online, English or Hindi, Master's level. ARS: qualifying prelims, then mains 240 and interview 60.

Official site: pw.live.

We have not been able to confirm these details against the exam body's own specification, so fees, dates and pass marks are left out on purpose. Check the current format, eligibility, fees and dates on the official site.

Financial Management in Agribusiness in ASRB NET and ARS / SMS / STO recruitment

Raising and using money in an agribusiness: investment appraisal, cost of capital, capital structure, dividends, working capital and microfinance models.

Our 32 ASRB NET and ARS / SMS / STO recruitment questions in this subject: 13 easy, 15 medium, 4 hard, across 13 units.

10 practice questions, worked

Choose an answer, then open the working. Each explanation says why the right answer is right and why the others are not.

These 10 were written to ASRB NET and ARS / SMS / STO recruitment and are not shown on any other exam's page.

Question 1 · easy

Holding a large, well-diversified portfolio of shares removes which type of risk?

  1. Systematic (market) risk
  2. Interest-rate risk on all assets
  3. Unsystematic (firm-specific) risk
  4. Inflation risk
Answer and working

C. Unsystematic (firm-specific) risk

Firm-specific events such as a plant fire or a disease outbreak on one estate average out across many holdings. Market-wide risks such as interest rates and inflation affect all assets and remain; that is systematic risk.

Question 2 · easy

A company paid for a market survey last year before deciding whether to build a potato-processing line. In the project's NPV analysis, the survey cost should be:

  1. Included as an initial outflow
  2. Spread over the project life as depreciation
  3. Excluded as a sunk cost
  4. Added to the terminal cash flow
Answer and working

C. Excluded as a sunk cost

Sunk costs have already been incurred and do not change with the decision, so they are not incremental. Only future cash flows that differ between accepting and rejecting count.

Question 3 · medium

A rice-bran oil unit costs 100 million and yields cash inflows of 30, 40, 50 and 20 million in years 1 to 4. At a 10% cost of capital, what is its NPV (approximately)?

  1. 11.56 million
  2. 40.00 million
  3. 27.27 million
  4. 22.71 million
Answer and working

A. 11.56 million

PV = 30/1.1 + 40/1.1^2 + 50/1.1^3 + 20/1.1^4 = 27.27 + 33.06 + 37.57 + 13.66 = 111.56; NPV = 11.56 million. 40 ignores discounting; discounting from year 0 (first inflow not discounted) gives 22.71.

Question 4 · hard

A cold storage project has annual revenue of 500, cash operating costs of 300 and depreciation of 80; the tax rate is 30%. What is the annual operating cash flow?

  1. 140
  2. 84
  3. 164
  4. 200
Answer and working

C. 164

OCF = (500 - 300 - 80)(1 - 0.30) + 80 = 84 + 80 = 164; equivalently (500 - 300)(0.7) + 0.3 x 80 = 140 + 24. 140 ignores the depreciation tax shield; 84 is profit after tax, which leaves out the non-cash depreciation charge; 200 ignores tax.

Question 5 · medium

Farmland is leased for 30,000 a year, with the next rent due in one year; rents are expected to grow 2% a year forever. At a required return of 6%, what is the land worth as a growing perpetuity?

  1. 500,000
  2. 765,000
  3. 750,000
  4. 375,000
Answer and working

C. 750,000

Value = A / (r - g) = 30,000 / (0.06 - 0.02) = 750,000. 500,000 ignores growth; 765,000 wrongly grows the first payment, which is already next year's rent; dividing by (r + g) gives 375,000, a sign error.

Question 6 · hard

A processor issues 5-year bonds of face value 1,000 with a 10% annual coupon, receiving net proceeds of 950 each. The tax rate is 30%. Using the approximation formula, what is the after-tax cost of debt?

  1. 7.00%
  2. 7.90%
  3. 7.37%
  4. 11.28%
Answer and working

B. 7.90%

Before-tax kd = [I + (F - P)/n] / [(F + P)/2] = [100 + 50/5] / 975 = 110/975 = 11.28%; after tax x 0.7 = 7.90%. Using only the coupon rate (7.00%) ignores the discount at issue; 11.28% is before tax. 7.37% is the after-tax coupon over net proceeds (70/950), ignoring the amortised discount.

Question 7 · hard

A cold-chain firm needs 20 million. Plan A: issue 2 million equity shares at 10. Plan B: borrow 10 million at 10% and issue 1 million shares at 10. The tax rate is 30%. At what EBIT are the two plans' EPS equal?

  1. 1.0 million
  2. 4.0 million
  3. 2.0 million
  4. 1.4 million
Answer and working

C. 2.0 million

Set EPS equal: EBIT(1 - 0.3)/2 = (EBIT - 1.0)(1 - 0.3)/1. The tax factor cancels: EBIT = 2(EBIT - 1.0), so EBIT = 2.0 million. Check: at EBIT 2.0, EPS A = 1.4/2 = 0.70, EPS B = 0.7 x 1.0/1 = 0.70. 1.0 million is just the interest; above 2.0 million Plan B gives higher EPS. 4.0 million charges interest on the full 20 million.

Question 8 · medium

A juice unit has fixed costs of 360,000 a year, a selling price of 50 per carton and variable cost of 32 per carton. What is its operating break-even volume?

  1. 7,200 cartons
  2. 11,250 cartons
  3. 4,390 cartons
  4. 20,000 cartons
Answer and working

D. 20,000 cartons

Break-even units = fixed costs / contribution per unit = 360,000 / (50 - 32) = 360,000/18 = 20,000 cartons. Dividing by price (7,200) or by variable cost (11,250) ignores that only the contribution margin covers fixed costs. 4,390 adds variable cost to price (360,000/82).

Question 9 · medium

An unlevered agribusiness is worth 50 million. It replaces equity with 20 million of permanent debt; the corporate tax rate is 30%. Under Modigliani-Miller with corporate taxes (1963), what is the levered firm's value?

  1. 56 million
  2. 50 million
  3. 70 million
  4. 44 million
Answer and working

A. 56 million

VL = VU + tD = 50 + 0.30 x 20 = 56 million; the tax shield on interest adds value. 50 is the no-tax MM result; adding the whole debt (70) confuses financing with value creation. 44 subtracts the tax shield instead of adding it.

Question 10 · hard

A farm equipment dealer considers relaxing credit: sales would rise from 6,000,000 to 7,200,000, the average collection period from 30 to 60 days, and bad debts by 2% of the extra sales. Variable costs are 75% of sales and the required return on investment in receivables is 15%. Using a 360-day year and valuing receivables at variable cost, what is the net gain from the change?

  1. 171,000
  2. 197,250
  3. 221,250
  4. 300,000
Answer and working

B. 197,250

Extra contribution = 1,200,000 x 25% = 300,000. Receivables at variable cost: old = 6,000,000/360 x 30 x 0.75 = 375,000; new = 7,200,000/360 x 60 x 0.75 = 900,000; increase 525,000; cost at 15% = 78,750. Extra bad debts = 2% x 1,200,000 = 24,000. Net gain = 300,000 - 78,750 - 24,000 = 197,250. Valuing receivables at sales value gives 171,000; ignoring bad debts gives 221,250.

A study plan for Financial Management in Agribusiness in ASRB NET and ARS / SMS / STO recruitment

This plan follows where our questions actually fall, so the time goes where the marks are likely to be. It is our reading of the syllabus, not the exam body's weighting.

  1. First, the heavy units (53% of the 32 questions): Capital budgeting techniques (5, 16%); Cost of capital (3, 9%); Leverage (3, 9%); Receivables and the cash budget (3, 9%); Working capital management (3, 9%).

    Read the manual chapters for these first and do every worked question you can find on them.

  2. Then the middle band: Capital structure theories (2, 6%); Dividend policy (2, 6%); Finance functions (2, 6%); International financial management (2, 6%); Money and capital markets (2, 6%).

    Aim for one sitting per unit, then mixed questions across them.

  3. Then the lighter units: Risk and return (2, 6%); Venture capital and its stages (2, 6%); Financial institutions (1, 3%).

    Learn the definitions, classifications and standard numbers; these units are more often recalled than worked.

  4. Leave time for the hard ones: Cost of capital (1 hard of 3), Leverage (1 hard of 3), Receivables and the cash budget (1 hard of 3).

    Come back to these after a first pass, untimed, and read every explanation, including for the options you rejected.

  5. Bank the easy marks: Money and capital markets (2 easy of 2); Venture capital and its stages (2 easy of 2).

    Do these early in revision so they are fast on the day.

  6. Finish timed. Sit the subject as a timed set without notes, mark it, and send each wrong answer back to its unit above.

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