Question

1. A potential investor in your airline wants to know how his investment would compare with the share market as a whole. To do this, what ratio would he use? a) Dividend cover b) Dividend per share on historical basis c) Price earnings ratio d) Asset test e) None of the above

2.Return on equity should be above whic of these? a) Variable mortgage rates b) Fixed Mortgage rates c) Bank interest on long term deposits d) Bank interest on short term deposits e) None of the above

3.What is operating revenue in terms of aviation business? a) All except interline sales b) Revenue from frequent flyer sales c) Sub-leasing terminal space d) Interline sales e) Duty free sales f) All of the above g) Revenue from passenger services

4.In financial terms a Discounted cash flow valuation is mainly concerned with: a) Both selling cheaply and capital budgeting b) Capital budgeting c) Revenue from fare discounting d) Selling cheaply

5.Shares in a company entitle the owners of the shares to a proportional share of the profits, which is paid as a dividend. The level of the dividend is determined by the directors, who may elect to pay some or all of the profits. In general, what should they pay as dividends? a) They should defer dividends until realising two consecutive profit announcements b) The percentage depends on the number of directors c) At least some of the profits- but they can retain profits against future risk d) All of the profits. Thats what shareholders demand e) None of the profits. They are perfectly entitled to retain all profits for the future

Answer 1

1. C) Price Earning Ratio

Reason:Price Earning Ratio is used by Investor to calculate the relative worth of Company's Share. Price earning is calculated with the help of following formula:

Price Earning Ratio=Market Price Per Share/Earning Per Share

So A potential Investor can know his investment by using Price Earning Ratio to compare with the share market as a whole.

2. e) None of these

Reason:Return on Equity is calculated to measure the financial performance of the Company. It is Calculated with the help of following formula.

Return on Equity=Net Income/Shareholders Equity(Net Assets)

Shareholders Equity=Total Assets-Debt-Current Liabilities

3. g) Revenue from Passenger Services

Reason:Operating Revenue refers to revenue which is generated through Primary Business Activities that is Revenue from Passenger Services which includes airline ticket charges, Food and beverages charges etc.

4. b) Capital Budgeting

Reason:Discounting Cash flow is mainly concerned with Capital Budgeting as Discounting Cash Flow helps us to determine the long term economic viability of project or investment.

5. C) At least some of the Profits-but they can retain profit against future risk.

Reason:Part of the Profit given to the Shareholders of the company is referred as Dividend. Remaining Part of the Profit after declaring dividend which is invested in the business or which is retained against future risks is referred as Retained Earning.

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