Avatto>>UGC NET Management>>PREVIOUS YEAR SOLVED PAPERS>>UGC NET Management July 2016

3. Match the items of List–I with the items of List-II and select the code of correct matching:

(a) Sales Revenue Maximization1. Williamson’s Model
(b) Maximization of a firm’s growth rate2. Cyert-March Hypothesis
(c) Maximization of Managerial Utility function3. Baumol’s Theory
(d) Satisficing behavior model4. Marri’s Theory

  • Option : A
  • Explanation : > Baumol stressed that in competitive markets, firms would aim at maximizing revenue, through maximization of sales. According to him, sales volumes and not profit volumes, determine market leadership in competition.
    > According to Marris, owners (shareholders) aim at profit and market share, whereas managers aim at better salary, job security and growth. These two sets of goals can be achieved by maximizing the balanced growth of the firm.
    > Oliver Williamson’s model is a combination of the objectives of profit maximization and growth maximization, which proposes that managers would apply their discretionary power in such a way, as to maximise their own utility function, with the constraint of maintaining minimum profit to satisfy shareholders.
    > Herbert Simon’s Satisficing Model says that a firm has to operate under “bounded rationality” and can only aim at achieving a satisfactory level of profit, sales, and growth.
    > Cyert and March propose that businesses have to satisfy a variety of stakeholders, who have different and often conflicting goals; hence a firm has to aim at a multidimensional goal and exhibit a ‘satisficing behavior’.
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5. Statement–I: The accept-reject approach is adopted generally when a firm has a large amount of funds to invest in several projects at the same time.
Statement–II: Both the NPV and the IRR methods of investment appraisal are based on a discounted cash flow approach.

  • Option : D
  • Explanation : Net Present Value Method: A simple method to accommodate the uncertainty inherent in estimating future cash flows is to adjust the minimum desired rate of return. Discounted Cash Flow (DCF) techniques, which consider the time value of money, were developed to compensate for the weakness of the payback method. Two examples of DCF techniques include (1) the net present value (NPV) method and (2) the internal rate of return (IRR) method.
    NPV is equal to the present value of future net cash flows, discounted at the marginal cost of capital. The approach calls for finding the present value of cash inflows and cash outflows, discounted at the project’s cost of capital, and adding these discounted cash flows to give the project’s NPV. The rationale for the NPV method is that the value of a firm is the sum of the values of its parts.
    NPV = (After-tax cash flows) × (Present value of annuity) – (Initial investment).
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