ICAR AICE-JRF/SRF (PhD admission and fellowship) · India · National Testing Agency for ICAR
Original practice questions written to the published syllabus · not past papersRaising and using money in an agribusiness: investment appraisal, cost of capital, capital structure, dividends, working capital and microfinance models.
In the exams: agribusiness management PhD entrance and fellowship examinations, financial management (heavy); agricultural scientist eligibility tests (heavy)
ICAR AICE-JRF/SRF (PhD) Agri-Business Management
Financial management and managerial accounting unit: capital structure theories by author (Durand, MM 1958/1963, Miller 1977, pecking order), dividend models (Walter, Gordon, MM 1961, Lintner), CAPM and beta, NPV versus IRR, cost of capital and WACC, leverage measures, working capital approaches, cash models (Baumol, Miller-Orr), EOQ, and microfinance models.
How our questions for ICAR AICE-JRF/SRF spread across the units of Financial Management in Agribusiness. Difficulty: 7 easy, 17 medium, 17 hard.
| Capital budgeting techniques | 5 | |
| Capital structure theories | 5 | |
| Risk and return | 4 | |
| Cost of capital | 4 | |
| Finance functions | 3 | |
| Venture capital and its stages | 3 | |
| International financial management | 3 | |
| Dividend policy | 3 | |
| Working capital management | 3 | |
| Microfinance models: SHG, JLG, Grameen, credit union, cooperative, village banking | 3 | |
| Leverage | 2 | |
| Money and capital markets | 1 | |
| Financial institutions | 1 | |
| Receivables and the cash budget | 1 |
Choose an answer, then open the working. Each explanation says why the right answer is right and why the others are not.
An agribusiness share's expected return plots above the security market line. What does this imply under the CAPM?
C. It is undervalued: it offers more return than its beta requires
The SML gives the return required for each beta. An expected return above the line is more than required, so the price is too low (undervalued) and will rise as investors buy. Position above the line says nothing about whether beta exceeds 1.
The capital asset pricing model was developed mainly by which group of economists?
C. William Sharpe, John Lintner and Jan Mossin
Sharpe (1964), Lintner (1965) and Mossin (1966) developed CAPM on the foundation of Markowitz's 1952 portfolio theory. Modigliani and Miller are known for capital structure and dividend irrelevance; Myers and Majluf for the pecking order.
Why can a bank lend more cheaply to many small agribusinesses than each depositor could by lending directly, according to intermediation theory?
A. As a delegated monitor it spreads screening and monitoring costs over many loans and diversifies default risk
Information asymmetry makes screening and monitoring costly; a bank does it once for many depositors (delegated monitoring, formalised by Diamond, 1984) and diversifies across borrowers, lowering cost per unit lent. Banks still bear credit risk and charge interest.
A mining-style agribusiness project (for example a plantation needing a large replanting outlay in mid-life) has cash flow signs of -, +, +, -, +. What problem may arise?
D. More than one internal rate of return
Each change of sign in the cash-flow series can create another IRR (Descartes' rule of signs), so an unconventional series may have multiple IRRs or none. NPV at the cost of capital remains well defined, which is another reason to rely on it.
Under the certainty-equivalent method of handling project risk, the certainty-equivalent cash flows are discounted at:
C. The risk-free rate
Risk is already removed by converting each uncertain flow into its certain equivalent, so discounting at a risk-adjusted rate would count risk twice.
A dairy company with a WACC of 11% is evaluating a much riskier venture into branded plant-based drinks. Which discount rate is appropriate?
D. A rate for the venture's own risk, such as one built from pure-play betas adjusted for leverage
WACC is right only for projects with the firm's existing risk. A riskier venture needs a higher, project-specific rate, often built from a pure-play beta. Using the WACC would accept projects that destroy value; the financing source does not set the project's risk.
The degree of operating leverage of a firm is highest when:
D. Sales are just above the operating break-even point
DOL = contribution/EBIT; near break-even EBIT is very small, so DOL is very large, and it falls as sales rise. With zero fixed costs DOL equals 1. Debt affects financial, not operating, leverage.
Under the net income (NI) approach to capital structure set out by Durand, what happens to firm value as the proportion of debt increases?
A. Firm value rises continuously because the overall cost of capital falls
The NI approach assumes constant costs of debt and equity; since debt is cheaper, more debt lowers WACC and raises value. Constant value is the NOI approach; rise-then-fall is the traditional approach.
Modigliani and Miller's 1958 proof that capital structure is irrelevant relies centrally on which mechanism?
C. Investor arbitrage using homemade leverage to replicate a levered firm
If two identical firms differing only in leverage had different values, investors could borrow personally, buy the cheaper firm's shares, and earn the same income for less; arbitrage equalises values. Tax deductibility was added in 1963, and bankruptcy costs belong to trade-off theory.
Which description best fits the village banking model of microfinance?
D. A community group of roughly 20 to 50 members, mostly women, that manages its own affairs, receives initial external loan capital and builds an internal account from members' savings
Village banking, usually traced to Latin America in the mid-1980s, uses larger self-managed groups with an external account (agency loan capital) and an internal account (members' savings lent within the group). Groups of five meeting at centres describe classic Grameen.
Ten here, 41 in the app. The Laisha app has every practice question we have written to ICAR AICE-JRF/SRF in this subject, marked as you go, with timed papers, a jump-to-unanswered list and a certificate when you pass at 70 per cent.
Free for ten days, then one subscription of US$10 a month. We would rather say so here than have you find it later.
An AI operating system for agriculture: free guides, manuals and tools written for every country.