Question

Match the following with the most suitable option.

List-I	List-II
(a) Modigliani-Miller approach	$1.$ Commercial paper
(b) Net Operating income approach	$2.$ Working capital
(c) Short-term money market instrument	$3.$ Capital structure
(d) Factoring	$4.$ Arbitrage

• A. $\left(a\right)-\left(4\right),\left(b\right)-\left(3\right),\left(c\right)-\left(1\right),\left(d\right)-\left(2\right)$
• B. $\left(a\right)-\left(3\right),\left(b\right)-\left(4\right),\left(c\right)-\left(1\right),\left(d\right)-\left(2\right)$
• C. $\left(a\right)-\left(3\right),\left(b\right)-\left(2\right),\left(c\right)-\left(1\right),\left(d\right)-\left(4\right)$
• D. $\left(a\right)-\left(4\right),\left(b\right)-\left(2\right),\left(c\right)-\left(3\right),\left(d\right)-\left(1\right)$

Answer 1

The correct option is A $\left(a\right)-\left(4\right),\left(b\right)-\left(3\right),\left(c\right)-\left(1\right),\left(d\right)-\left(2\right)$

• Arbitrage process is the operational justification for the Modigliani-Miller hypothesis.
• Net Operating Income Approach to capital structure believes that the value of a firm is not affected by the change of debt component in the capital structure.
• Commercial papers can be compared to an unsecured short-term promissory note which is issued by top rated companies with a purpose of raising capital to meet requirements directly from the market. They usually have a fixed maturity period which can range anywhere from 1 day up to 270 days.
  
• FACTORING - Working Capital Management
  It involves an outright sale of the receivable of manufacturing or trading firms to a financial institution called the “Factor” who specializes in the management of trade-credit.