mcqs financial management

8/10/2019 MCqs Financial Management

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www.vustudents.ning.comPAPER # 1

FINALTERM EXAMINATIONFall 2009

FIN622- Corporate Finance !e""ion - 1

$%e"tion No& 1 Mar'"& 1 - Plea"e c(oo"e one

A project would be financially feasible in which of the following situations? If Internal Rate of Return of a project is greater than zero If Net Present Value of a project is less than zero If the project has Profitability Index less than one I) t(e pro*ect (a" Pro)ita+ilit, Ine. /reater t(an one$%e"tion No& 2 Mar'"& 1 - Plea"e c(oo"e onehich one of the following state!ents applies to "i#idend $rowth %odel? It is difficult to understand and use It is used for non&listed co!panies It is used for debt securities also It o not con"ier ri"' leel o) a "ec%rit,$%e"tion No& Mar'"& 1 - Plea"e c(oo"e onehich of the following state!ents is true regarding eighted A#erage 'ost of 'apital (A'')? A'' of a le#ered fir! is greater than that of an un&le#ered fir! A'' of a le#ered fir! is lesser than that of an un&le#ered fir! 3ACC o) a leere )ir4 i" e5%al to t(at o) an %n-leere )ir4 An *n&le#ered fir! has zero A''+$%e"tion No& Mar'"& 1 - Plea"e c(oo"e onehich of the following ris,s is independent of capital structure of a fir!? -inancial ris, !,"te4atic ri"' .usiness ris, /otal ris,$%e"tion No& 7 Mar'"& 1 - Plea"e c(oo"e onehich of the following is a di#idend that is paid in the for! of additional shares0 rather than a cash payout? !toc' 8iien 'u! "i#idend 1x "i#idend 1xtra "i#idend$%e"tion No& Mar'"& 1 - Plea"e c(oo"e one

In the for!ula 2 3I

FS20 4I5 denotes which of the following?

Initial cash out flow Interest cost of holding cash In#est!ent re6uired Initial in#est!ent

Pa/e#972 3 7 8 -9 : ihere;9 3 is the a!ount of cash to be used in each period- 3 fixed cost of obtaining new fundsi : intere"t co"t o) (olin/ ca"(2 3 6uantity of cash to be held per period+$%e"tion No& ; Mar'"& 1 - Plea"e c(oo"e one2 (1cono!ic >rder2uantity)+ A ecrea"e No change

An increase 'annot be told without additional infor!ation$%e"tion No& 10 Mar'"& 1 - Plea"e c(oo"e one

All of the following could be an outco!e of financial distress of a fir! EXCEPT; 1!ployees are lea#ing the fir! 9uppliers refuse to supply on credit .an,s do not pro#ide loans

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www.vustudents.ning.com Financial 4ar'et" +eco4e in"ta+le$%e"tion No& 11 Mar'"& 1 - Plea"e c(oo"e one

A fir! can fix effecti#e interest rate on short&ter! borrowings by doing which of the following?


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www.vustudents.ning.com !econar, capital 4ar'et$%e"tion No& 22 Mar'"& 1 - Plea"e c(oo"e onehich of the following is reflected by the price of a share of co!!on stoc,? Earnin/" a)ter ta. iie +, t(e n%4+er o) "(are" o%t"tanin/ /he board of directors assess!ent of the intrinsic #alue of the fir! /he boo, #alue of the fir!s assets less the boo, #alue of its liabilities /he !ar,ets e#aluation of a fir!s present and future perfor!ance

$%e"tion No& 2 Mar'"& 1 - Plea"e c(oo"e oneOou are considering buying co!!on stoc, in 9u!i Inc+ /he fir! yesterday paid a di#idend of Rs++HB+ Oou ha#eprojected that di#idends will grow at a rate of JC per year indefinitely+ If you want an annual return of 8F0 what shouldyou pay for the stoc, now? R"D72D00 Rs+DE+EH Rs+M8+DB Rs+MD+FMPo 3 " : (r Gg)Po 3 +HB : (B+8F GB+BJ) 3 +HB :B +D 3 D8$%e"tion No& 2 Mar'"& 1 - Plea"e c(oo"e onehich of the following capital budgeting !ethods focuses on fir!s li6uidity? Internal Rate of Return Pa,+ac' 4et(o Net Present Value None of the gi#en options$%e"tion No& 27 Mar'"& 1 - Plea"e c(oo"e oneIn deciding the opti!al le#el of current assets for the fir!0 !anage!ent is confronted with ==========+ A trae-o)) +et=een pro)ita+ilit, an ri"' A trade&off between li6uidity and ris, A trade&off between e6uity and debt A trade&off between short&ter! #ersus long&ter! borrowing$%e"tion No& 26 Mar'"& 1 - Plea"e c(oo"e one%r+ oseph 9te#e has changed the wor,ing capital policy of his co!pany recently+ As a result0 the li6uidity for theco!pany has decreased but an increase in profitability has been obser#ed alongside+ -ro! this infor!ation we canconclude that the co!pany !ust ha#e changed hiswor,ing capital policy fro! ======== to ========+ Con"eratie A//re""ie Aggressi#eQ %oderate Aggressi#eQ 'onser#ati#e None of the gi#en options$%e"tion No& 2 Mar'"& 1 - Plea"e c(oo"e onehen the fir! considers wor,ing capital !anage!ent0 the trade&off between ris, and return is affected by all of thefollowingEXCEPT; /he pattern of cash borrowing needs of the fir! /he difference between long&ter! and short&ter! interest rates T(e ratio o) ca"( to 4ar'eta+le "ec%ritie" /he debt !aturity schedule$%e"tion No& 2; Mar'"& 1 - Plea"e c(oo"e one'ash !anage!ent in#ol#es all of the following 1'1P/; 1fficient disburse!ent of cash 1fficient collection of cash ise in#est!ent of te!porarily surplus cash Rai"in/ ca"( t(ro%/( t(e "ale o) ne= "toc' an +on"$%e"tion No& 29 Mar'"& 1 - Plea"e c(oo"e onehich of the following type of custo!ers enjoy co!parati#ely longer credit periods? Corporate c%"to4er" Indi#idual custo!ers .oth corporate and indi#idual custo!ers

Neither corporate nor indi#idual custo!ers$%e"tion No& 0 Mar'"& 1 - Plea"e c(oo"e one/otal credit cost cur#e consists of which of the following? /otal of ordering cost and the opportunity cost of credit policy Total o) carr,in/ co"t an t(e opport%nit, co"t o) creit polic, /otal of opportunity cost of credit policy and the bad debts /otal of production cost and the cost of credit policywww.vustudents.ning.com


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www.vustudents.ning.com$%e"tion No& 2 Mar'"& 1 - Plea"e c(oo"e onehich of the following state!ent is '>RR1'/ regarding 'onglo!erate !ergers? A fir! ac6uires another fir! that is in the sa!e industry but at another stage in the production cycle+ It occurs when one fir! purchases other fir!s that produce si!ilar or co!peting products+ It occ%r" =(en %nrelate +%"ine""e" 4er/eD None of the gi#en options$%e"tion No& Mar'"& 1 - Plea"e c(oo"e one

hich of the following is(are) reason(s) for deter!ining shares #alue in !ergers and ac6uisitions? /o set up the ter!s of ta,eo#ers /o #alue the co!pany for stoc, exchange listing /o #alue shares G for establishing #alue of share of retiring directors All o) t(e /ien option"$%e"tion No& Mar'"& 1 - Plea"e c(oo"e oneValue of fir! 3 =========================================== ?al%e o) all e5%it, )inance )ir4 @ P? o) ta. +ene)it" @ E.pecte (Se#erage .uyout)? New co!!on stoc,s are issued to ac6uire the fir! 9hareholdersT di#idend is used to ac6uire the fir! 'o!panyTs reser#es are used to ac6uire the fir!


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www.vustudents.ning.com.etween HB and JF0 the globally fixed exchange rate was accepted in which the currencies were lin,ed to which ofthe following? Any co!!odity "ia!ond ol heat

PAPER # 2

FINALTERM EXAMINATIONFall 2009

FIN622- Corporate Finance !e""ion -

$%e"tion No& 2 Mar'"& 1 - Plea"e c(oo"e oneA fir! can lower its brea,e#en le#el by doing which of the following actions? Lo=erin/ irect co"t Increasing #ariable cost Increasing direct cost Sowering sales price$%e"tion No& Mar'"& 1 - Plea"e c(oo"e onehich of the following refers to a stoc, issuance process where a co!pany offers its shares to a li!ited nu!ber ofin#estor? Initial Public >ffering Priate Place4ent "irect Public >ffering Pri!ary >ffering$%e"tion No& 7 Mar'"& 1 - Plea"e c(oo"e onehich of the following is the principal ad#antage of high debt financing? Ta. "ain/" Sow .an,ruptcy costs %ini!u! financial ris, Sow financial le#erage$%e"tion No& 6 Mar'"& 1 - Plea"e c(oo"e onehich of the following fir!s would ha#e the highest financial le#erage? A fir! ha#ing debt&to&e6uity ratio of MB;B A fir! ha#ing debt&to&e6uity ratio of FB;EB A fir! ha#ing debt&to&e6uity ratio of DB;DB A )ir4 (ain/ e+t-to-e5%it, ratio o) 60&0$%e"tion No& Mar'"& 1 - Plea"e c(oo"e oneIn which of the following di#idend policies0 the a!ount of di#idend is relati#ely fixed? Con"tant pa,o%t ratio polic, @ybrid di#idend policy Residual di#idend policy !ta+le iien polic,

In the stable di#idend policy0 !anage!ent !aintains a fixed di#idend per share each year$%e"tion No& ; Mar'"& 1 - Plea"e c(oo"e onehich of the following ser#es as a starting point for preparing functional budgets of a fir!? !ale" +%/et %aster budget Production cost budget 'ash budget$%e"tion No& 9 Mar'"& 1 - Plea"e c(oo"e one

A co!pany is holding cash as a buffer in case of an unexpected need with operations+ /his is an exa!ple of the======== !oti#e for holding cash+ Precautionary !pec%latie

/ransactions 'apital needs$%e"tion No& 10 Mar'"& 1 - Plea"e c(oo"e onehich of the following is an Uinco!e based !ethodU for share #aluation of a target fir!? Replace!ent cost !ethod .rea, up #alue !ethod 8iien al%ation 4et(owww.vustudents.ning.com


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www.vustudents.ning.com Accu!ulated depreciation !ethod$%e"tion No& 12 Mar'"& 1 - Plea"e c(oo"e one

All of the following could be the reasons for a subsidiary buyout 1'1P/; /he parent co!pany is in financial distress /he parent co!pany needs cash T(e parent co4pan, pre)er" to "ell t(e )ir4 rat(er t(at li5%iation /he parent co!pany wants li6uidation

$%e"tion No& 1 Mar'"& 1 - Plea"e c(oo"e oneA fir! has to pay B0BBB to an A!erican co!pany after three !onths+ /he fir! enters into a contract with a foreignexchange dealer to buy B0BBB after three !onths at Rs+E:*9+ /his contract would be beneficial for the fir! if; A)ter t(ree 4ont(" t(e e.c(an/e rate i" R"D60G!J After three !onths the exchange rate is Rs+E:*9 A)ter t(ree 4ont(" t(e e.c(an/e rate i" R"D62G!J After three !onths the exchange rate is Rs+DJ:*9$%e"tion No& 17 Mar'"& 1 - Plea"e c(oo"e one

A fir! can fix effecti#e interest rate on its short&ter! in#est!ent to be !ade at so!e future dateby doing which of the following? .orrowing local currency .orrowing base currency !ellin/ a )or=ar rate a/ree4ent ption? An option creates an obligation for the holder

An option create" a ri/(t an not t(e o+li/ation )or t(e (oler >ption seller is the option holder >ption writer is the option holder$%e"tion No& 20 Mar'"& 1 - Plea"e c(oo"e one/he credit policy of a public co!pany is :B0 net MB+ At present 8DC of the custo!ers ta,e the discount+ hat wouldaccounts recei#able be if all custo!ers too, the cash discount? Acco%nt receia+le =o%l +e lo=er t(an t(e pre"ent leel No change fro! the present le#el Account recei#able would be higher than the present le#el *nable to deter!ine without !ore infor!ation$%e"tion No& 22 Mar'"& 1 - Plea"e c(oo"e one/he efficiency enhancing effect resulting fro! a strategic !erger is called which of the following?

%erger effect Ac6uisition effect !,ner/, e))ect 1fficiency effect$%e"tion No& 2 Mar'"& 1 - Plea"e c(oo"e onehich of the following is !ore appropriate to use while co!paring in#est!ent alternati#es with different co!poundingperiods? 2uoted Interest Rate Annual Percentage Rate E))ectie Ann%al Intere"t Rate No!inal Interest Rate$%e"tion No& 27 Mar'"& 1 - Plea"e c(oo"e one

An in#estor would be exposed to which of the following ris,s0 if he !ay ha#e to sell a bond prior to !aturity and interestrates ha#e risen since the bond was purchased? /he coupon effect ris, Intere"t rate ri"' Inflation ris, *ni6ue ris,$%e"tion No& 26 Mar'"& 1 - Plea"e c(oo"e one



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www.vustudents.ning.comhich of the following focuses on long&ter! in#est!ent decision&!a,ing process? or,ing 'apital %anage!ent Capital RR1'/ regarding ust&In&/i!e (I/)? /he in#entories are ,ept near zero le#el+ /he in#entory is ac6uired in such 6uantity on daily basis that can support the daily production le#el+ /he entire in#entory ac6uired !o#e to the production hall+ Inentor, leel i" nece""aril, 'ept at ero leelD$%e"tion No& Mar'"& 1 - Plea"e c(oo"e onehich of the following type of !ergers occurs when one fir! purchases other fir!s that produce si!ilar or co!peting

products? www.vustudents.ning.com

Koriontal Vertical -inancial 'onglo!erate$%e"tion No& ; Mar'"& 1 - Plea"e c(oo"e onehich of the following #aluation approach allows for specific and direct esti!ation of future benefits to the owners0which is consistent with the theory of #alue? Asset&based !ethod Inco4e-+a"e 4et(o



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www.vustudents.ning.com K,+ri 4et(o None of the gi#en$%e"tion No& 1 Mar'"& 1 - Plea"e c(oo"e oneRecession in econo!y is related to which of the following le#els of financial distress of a fir!? -ir! Se#el Industry Se#el Macro-Leel

All o) t(e /ien option"$%e"tion No& Mar'"& 1 - Plea"e c(oo"e oneIf the stri,e price and current !ar,et price are e6ual0 an option would be ter!ed as; In the !oney >ut of !oney At t(e 4one, None of the gi#en options$%e"tion No& Mar'"& 1 - Plea"e c(oo"e onehich of the following theories states that exchange rates between currencies are in e6uilibriu! when their purchasingpower is the sa!e in each of the two countries? %W% theory P%rc(a"in/ Po=er Parit, t(eor, -isher effect theory Interest rate ris, theory

PAPER #

$%e"tion No& 1 Mar'"& 1 - Plea"e c(oo"e onehich of the following state!ents is /R*1 regarding Profitability Index? It ignores ti!e #alue of !oney It ignores future cash flows It i/nore" t(e "cale o) ine"t4ent It ignores return on in#est!ent$%e"tion No& 2 Mar'"& 1 - Plea"e c(oo"e onehich of the following is a tool that identifies the strengths0 wea,nesses0 opportunities and threats of an organization? !3OT Anal,"i" /rend Analysis -unda!ental Analysis /echnical Analysis$%e"tion No& Mar'"& 1 - Plea"e c(oo"e one/he e!ploy!ent of fixed costs associated with the actual production of goods or ser#ices is ,nown as; -inancial le#erage Volu!e discounting Operatin/ leera/e 'o#ariance9SI"1 M"ue to operating fixed cost is operating le#erage"ue to financial fixed cost is financial le#erage$%e"tion No& 6 Mar'"& 1 - Plea"e c(oo"e onehat will be the taxable inco!e of an *n&le#ered fir!0 if it has 1arning .efore Interest and /ax (1.I/) e6ual toRs+DB0BBB0 and its tax rate is MDC? Rs+8D0BBB Rs+FD0BBB R"D70000 Rs+EB0BBB$%e"tion No& ; Mar'"& 1 - Plea"e c(oo"e onehich of the following describes the hedging approach to financing? %aturity dates of financing instru!ents are spread o#er a period of ti!e so that they !aturein a steady0 predictable fashion+ Eac( a""et i" o))"et =it( a )inancin/ in"tr%4ent o) t(e "a4e appro.i4ate 4at%rit,D 1ach asset is offset with a put or call option+ /he fir! ta,es out insurance to protect itself against une#en cash flows+$%e"tion No& 10 Mar'"& 1 - Plea"e c(oo"e one9uppose that the sale (usage rate) on an ite! gets doubled+ /he 1>2 (1cono!ic >rder 2uantity) for that ite! shouldbe; @al#edwww.vustudents.ning.com
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www.vustudents.ning.com *naffected "ecreased Increa"e$%e"tion No& 11 Mar'"& 1 - Plea"e c(oo"e one

A fir! wants to ac6uire another fir! by purchasing its assets+ hich of the following !ethods fir! can use to e#aluatethe financial aspects of this deal? Replace4ent co"t 4et(o

"i#idend #aluation !ethod Present #alue !ethod Price earning ratio !ethod$%e"tion No& 1 Mar'"& 1 - Plea"e c(oo"e onehich one of the following state!ents is '>RR1'/ regarding exercise price? E.erci"e price i" t(e price 4entione in t(e option at =(ic( t(e (oler e.erci"e" (i" ri/(t 1xercise price is the price !entioned in the option at which the holder exercises his obligation 1xercise price is the price !entioned in the option at which the option seller exercises his right 1xercise price is the price !entioned in the option at which the option writer exercises his right$%e"tion No& 17 Mar'"& 1 - Plea"e c(oo"e oneIf !ar,et interest rate increases abo#e the agreed rate in an interest rate option0 the effecti#einterest rate for the option holder would be; Le"" t(an t(e 4ar'et rate $reater than !ar,et rate 16ual to the !ar,et rate Xero$%e"tion No& 21 Mar'"& 1 - Plea"e c(oo"e onehich of the following state!ents would be CORRECT regarding no!inal interest rate when inflationsis expected to occur o#er the foreseeable future? Noni!al interest rate would be e6ual to real interest rate Noni4al intere"t rate =o%l +e 4ore t(an real intere"t rate Noni!al interest rate would be half of real interest rate Noni!al interest rate would be less than the real interest rate$%e"tion No& 2 Mar'"& 1 - Plea"e c(oo"e onehich of the following state!ents best describes the ter! %ar,et 'orrection? Mar'et Correction re)er" to t(e "it%ation =(ere e5%ili+ri%4 o) "%ppl, e4an o) "(are" occ%r" in t(e4ar'et %ar,et correction refers to the situation where sharesT intrinsic #alues beco!es e6ual to face #alues %ar,et 'orrection refers to the situation when there is a boo! in the econo!y %ar,et 'orrection refers to the situation where inflation rate is abo#e the !ar,et interest rate$%e"tion No& 27 Mar'"& 1 - Plea"e c(oo"e onehich of the following could be used to calculate the cost of co!!on e6uity? Interpolation !ethod 8iien i"co%nt 4oel O/% (Oield&to&%aturity) !ethod 'apital structure #aluation$%e"tion No& 0 Mar'"& 1 - Plea"e c(oo"e one

/he a!ount of current assets that #aries with seasonal re6uire!ents is referred to as ========== wor,ing capital+ Per!anent Net Te4porar, $ross$%e"tion No& 1 Mar'"& 1 - Plea"e c(oo"e one*nder which of the following concepts0 each asset is offset with a financing instru!ent of the sa!e !aturity? %W% proposition 'lientele effect Ke/in/ approac( .au!ol %odel$%e"tion No& 2 Mar'"& 1 - Plea"e c(oo"e one

hich of the following is N>/ one of the co!!on !oti#es of holding cash? Per"onal Motie" 9afety %oti#es /ransactions %oti#es 9peculati#e %oti#es$%e"tion No& 6 Mar'"& 1 - Plea"e c(oo"e onehich of the following is N>/ an objecti#e of ust&In&/i!e (I/)?www.vustudents.ning.com


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www.vustudents.ning.com /o increase the producti#ity To increa"e t(e inentorie" /o increase the 6uality /o increase the flexibility$%e"tion No& Mar'"& 1 - Plea"e c(oo"e one4If the people are not able to wor, together0 the !erger will not succeed+5 hich of the following cause(s) of failureis(are) being depicted in this state!ent?

Sac, of planning Corporate c%lt%re /alent departure All of the gi#en options$%e"tion No& 9 Mar'"& 1 - Plea"e c(oo"e one'orporate restructuring in#ol#es the restructuring of; All o) t(e /ien option" /he assets and liabilities of the co!pany /he debt to e6uity structures of the co!pany 'ost !ini!ization by the co!pany$%e"tion No& 1 Mar'"& 1 - Plea"e c(oo"e onehich of the following is N>/ a!ong the categories of foreign ris,? /ransaction exposure /ranslation exposure Local e.po"%re 1cono!ic exposure$%e"tion No& Mar'"& 1 - Plea"e c(oo"e onehich of the following is the purpose of a -orward Interest Rate Agree!ent? /o fix the interest rate /o esti!ate the exchange rate /o esti!ate the interest rate To )i. t(e )orei/n e.c(an/e rate$%e"tion No& Mar'"& 1 - Plea"e c(oo"e onehich of the following state!ents is INCORRECT regarding forward contracts? Re#ersing forward contract is difficult+ Partie" (ae to p%t an initial 4ar/in in )or=ar contract"D No size restriction is placed in forward contract+ -orward contract is !ade between parties and each party needs to confir! the credit

$%e"tion No& 6 Mar'"& 1 - Plea"e c(oo"e oneAn in#estor buys D options on shares of at a price of Rs DB per share+ 1ach option consists of BB shares and pre!iu!paid is Rs+ 8 per share+ hat would be the total option cost for in#estor if the share price is Rs+ DD at the expiry ofoption? Rs+ 0BBB Rs+ 0DBB Rs+ 80DBB Rs+ 80DBBBTotal "(are": 7 100 :700Total co"t o) option i" 7002:1000$%e"tion No& Mar'"& 1 - Plea"e c(oo"e one

An in#estor buys D options on shares at a price of Rs DB per share+ 1ach option consists of BB shares and pre!iu!paid is Rs+ 8 per share+ hat would be the net gain for in#estor if the share price is Rs+ DD at the expiry of option? R"D 1700 Rs+ 80DBB Rs+ 0BBB R"D 27000/otal share is D YBB 3DBB/otal cost of option is DBBYD838E0BBB/otal 9ale Value 3 DBB Y DD 3 8DBB

Net $ain 3 8DBB G 8EBBB3 DBB

PAPER # -INAS/1R% 1A%INA/I>N

-all 8BBJ-INE88& 'orporate -inance (9ession & )



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www.vustudents.ning.com2uestion No; ( %ar,s; ) & Please choose oneIn M years you are to recei#e Rs+D0BBB+ hat will be the effect on the present #alue of that future a!ount to you if theinterest rates increase suddenly? Re!ain unchanged Rise Fall 'an not be deter!ined

2uestion No; 8 ( %ar,s; ) & Please choose oneIf you in#est Rs+FBB today in a sa#ings account paying H percent interest per year0 how !uch will you ha#e in theaccount at the end of three years if the interest is co!pounded annually? Rs+M8D Rs+08JJ R"D70 Rs+EBJ3 FBB Y(B+BH)ZM 3DBF2uestion No; M ( %ar,s; ) & Please choose onehich of the following conditions0 if exist0 will !a,e the di#ersification of stoc,s !ore effecti#e? 9ecurities contained in a portfolio are positi#ely correlated 9ecurities contained in a portfolio are negati#ely correlated 9ecurities contained in a portfolio ha#e high !ar,et #alues 9ecurities contained in a portfolio ha#e low !ar,et #alues2uestion No; F ( %ar,s; ) & Please choose onehich of the following is considered as a ris, free financial asset? oern4ent T-+ill" un, bonds Preferred stoc, 9ecured bonds2uestion No; D ( %ar,s; ) & Please choose oneIf the co!!on stoc,s of a co!pany ha#e beta #alue !ore than 0 then such stoc,s refer to which of the following? Nor!al stoc,s A//re""ie "toc'" "efensi#e stoc,s Inco!e stoc,s2uestion No; H ( %ar,s; ) & Please choose one/he National 'o+ is holding cash to !eet the cash needs on a day&to&day basis for nor!al operations+/his is anexa!ple of the ======== !oti#e for holding cash+ 'apital needs Tran"action" Precautionary 9peculati#e2uestion No; J ( %ar,s; ) & Please choose one'urrency futures do not pro#ide a clean hedge because; Contract "ie i" "tanarie 9ettle!ent date is fixed 'urrency futures are cash settled 'urrency futures are a#ailable in *92uestion No; B ( %ar,s; ) & Please choose onehich of the following is a potential ris, associated with a 9AP?T(e partie" inole n a !3AP 4a, e)a%lt 9AP !ay change floating rates into fixed rates 9AP pro#ide access to the !ar,et 9AP !ay change fixed rates into floating ratespage [FF@owe#er0 there are so!e ris,s associated with swaps as well+ /here !ay be so!e probability of default by either partybefore the swap expiry+2uestion No; ( %ar,s; ) & Please choose one

hich of the following is the basis of Purchasing Power Parity /heory? T(e La= o) one price /he Saw of de!and W supply 1fficient !ar,et theory 1fficient portfolio theory2uestion No; 8 ( %ar,s; ) & Please choose onehich of the following will i!pro#e a co!panys wor,ing capital !anage!ent position?www.vustudents.ning.com


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www.vustudents.ning.com An increa"e in t(e creit perio allo=e +, "%pplier" An increased le#el of bad debts An increased debtor collection period An increase in the length of the production process2uestion No; F ( %ar,s; ) & Please choose one@ow should a successful ac6uisition be e#aluated in the long&run? /he ac6uisition is successful if the ac6uirer is able to increase its earnings per share (1P9)0 relati#e to what it would

ha#e been without the ac6uisition /he ac6uisition is successful if the ac6uirer is able to reduce its debt&to&total asset ratio0 and hence ris,0 relati#e towhat it would ha#e been without the ac6uisition /he ac6uisition is successful if the ac6uirer is able to di#ersify its asset base and reduce its o#erall ris, T(e ac5%i"ition i" "%cce"")%l i) t(e 4ar'et price o) t(e ac5%irer>" "toc' increa"e" oer =(at it =o%l (ae+een =it(o%t t(e ac5%i"ition2uestion No; E ( %ar,s; ) & Please choose one

According to the ========== theory of di#idends0 if the a#ailable retained earnings are in excess of the need0 thesurplus should be distributed as di#idends+ U.ird&in&the handU Re"i%al 'lientele effect "i#idend irrele#ancy2uestion No; ( %ar,s; ) & Please choose onehich of the following !ethods would be !ost suitable for calculating the return on stoc,s of a no listed co!pany? 8iien ro=t( Moel 'apital Asset Pricing %odel 9ecurity %ar,et Sine 'haracteristics Sine2uestion No; H ( %ar,s; ) & Please choose onehich of the following reasons justifies the need for -inancial 9tate!ent Analysis ? It i!pro#es capital budgeting process of the co!pany It (elp" i4proe )%t%re plannin/ It helps i!pro#e accounting policies of the co!pany It helps i!pro#e purchasing polices of the co!pany2uestion No; J ( %ar,s; ) & Please choose one/he long&ter! creditors are li,ely to be least interested in which of the following ratios of a fir!? Si6uidity ratios Profitability ratios 'o#erage ratios 8e+t ratio"2uestion No; 8B ( %ar,s; ) & Please choose one@ow !uch should you pay for a bond with Rs+0BBB face #alue0 a B percent coupon rate0 and se#en years to !aturity ifyour appropriate discount rate is H percent and interest is paid annually?(Answers are rounded to the nearest dollar) Rs+DEB Rs+0BBB Rs+JBM R"D1103 BBY\&K: (B+BH)L]:B+BHBBB: (B+BH)3 BBY D+8BEM DHM+DB3 0BF2uestion No; 8 ( %ar,s; ) & Please choose onehen the !ar,ets re6uired rate of return for a particular bond is !uch less than its coupon rate0 the bond will be sellingat which one of the following? At pre4i%4 At discount At par 'annot be deter!ined without !ore infor!ation

2uestion No; 88 ( %ar,s; ) & Please choose oneIf a bond sells at a high pre!iu!0 then which of the following relationships holds true? (P represents the price of a bondand O/% is the bonds yield to !aturity+) P ^ par and O/% ^ the coupon rate+ P ^ par and O/% _ the coupon rate+ P _ par and O/% _ the coupon rate+ P par an TM Q t(e co%pon rateD



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www.vustudents.ning.com2uestion No; 8M ( %ar,s; ) & Please choose onehich of the following techni6ues of stoc, e#aluation considers 6uantitati#e factors as well as 6ualitati#efactors for#aluation? /echnical Analysis F%na4ental Anal,"i" 'onstant $rowth %odel No $rowth %odel

2uestion No; 8F ( %ar,s; ) & Please choose one/he ter! 4Valuation5 co#ers which of the following tas,s? 1sti!ating the worth of an asset 1sti!ating the #alue of a security 1sti!ating the worth of a business All o) t(e /ien option"2uestion No; 8D ( %ar,s; ) & Please choose oneIn which of the following stage of financial planning process0 the financial planner should clearly explain or docu!entthe ser#ices to be pro#ided ? E"ta+li"(in/ an e)inin/ t(e client-planner relation"(ip $athering client data0 including goals Analyzing and e#aluating financial data2uestion No; 8H ( %ar,s; ) & Please choose onehich of the following illustrates the use of a hedging (!aturity !atching) approach to financing? Per4anent =or'in/ capital )inance =it( lon/-ter4 lia+ilitie" 9hort&ter! assets financed with e6uity All assets financed with DB percent e6uity0 DB percent long&ter! debt !ixture 9hort&ter! assets financed with long&ter! liabilities2uestion No; 8J ( %ar,s; ) & Please choose onehich of the following is the correct definition for UspreadU in cash !anage!ent? T(e i))erence +et=een %pper li4it an lo=er li4it o) ca"( +alance" /he difference between opti!al cash balance and No!inal 'ash balance /he difference between opening cash balance and ending cash balance /he difference between opti!al cash balance and ending cash balance2uestion No; MB ( %ar,s; ) & Please choose oneIf the 1>2 (1cono!ic >rder 2uantity) for an ite! decreases0 the a#erage le#el of in#entory will; Increase Re!ain the sa!e /here is no relationship between the 1>2 and in#entory le#els 8ecrea"e2uestion No; M ( %ar,s; ) & Please choose one

According to %iller&>rr %odel for cash !anage!ent0 the upper li!its and lower li!its of cash balances depends upon; Variance of cash flow /ransaction cost Interest rate All o) t(e /ien option"Page [JE!prea 3 M(B+D x transaction cost x #ariance of daily cash flows : daily interest rate) Z (:M)2uestion No; M8 ( %ar,s; ) & Please choose onehich of the following is(are) the way(s) to e#aluate the credit worthiness of custo!er? -inancial state!ent %ar,et reputation Pre#ious pay!ent record All o) t(e /ien option"2uestion No; MM ( %ar,s; ) & Please choose oneIn which of the following type of !ergers0 one fir! ac6uires another fir! that is in the sa!e industry but at anotherstage in the production cycle? @orizontal ?ertical

-inancial 'onglo!erate2uestion No; MF ( %ar,s; ) & Please choose one

A !erger between two co!panies that sell the sa!e products in different !ar,ets0 would be ,nown as; Mar'et-e.ten"ion 4er/er Product&extension !erger 'onglo!erationwww.vustudents.ning.com


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www.vustudents.ning.com None of the gi#en options2uestion No; ME ( %ar,s; ) & Please choose oneho a!ong the following can perfor! as a 4white ,night5 in an ant ta,eo#er !easure? A corporation A pri#ate co!pany A person All o) t(e /ien option"

2uestion No; M ( %ar,s; ) & Please choose onehich of the following type of exposures can be safeguarded by using hedging instru!ents? Tran"action e.po"%re /ranslation exposure 1cono!ic exposure None of the gi#en options2uestion No; MJ ( %ar,s; ) & Please choose onehich of the following state!ent is IN'>RR1'/ regarding Interest Rate -utures? /hese contracts are si!ilar to currency futures+ /hese are traded in standardized for! on future exchanges+ !(ort Ter4 Intere"t Rate )%t%re" are "ettle t(ro%/( p(,"ical elier,D Interest rate future0 li,e currency futures !ay be settled before the !aturity date+

2uestion No; F ( %ar,s; ) & Please choose oneAn in#estor buys B options on shares of at a price of Rs BB per share+ 1ach option consists of BB shares andpre!iu! paid is Rs+ D per share+ hat would be the total gain for in#estor if the share price is Rs+ B at the expiry ofoption? R"D 7000 Rs+ H0BBB Rs+ B0BBB Rs+ BB0BBB2uestion No; F8 ( %ar,s; ) & Please choose oneIn the calculations of Interest Rate >ption0 effecti#e interest is co!puted by; Adding net interest expense and loan a!ount 9ubtracting loan a!ount fro! net interest expense %ultiplying loan a!ount fro! net interest expense 8iiin/ net intere"t e.pen"e +, t(e loan a4o%nt2uestion No; FM ( %ar,s; ) & Please choose onehich of the following is the ris, of loss of control0 business !ay be ta,en o#er by the local go#ern!ent orinter#entionand interference by the local authorities? Interest rate ris, -inancial ris, Con)i"cation ri"' 'o!!ercial ris,2uestion No; FF ( %ar,s; ) & Please choose one'ountries with ====== interest rate register capital inflow and result in appreciation in exchange rate+ Ki/(

Sow %oderate None of the gi#en optionsPage[ FE'ountries with (i/( interest rate will register capital inflow and will result in appreciation inexchange rate+

PAPER # 7FINALTERM EXAMINATION

-all 8BBH-INE88& 'orporate -inance (9ession & )

$%e"tion No& 1 Mar'"& 1 - Plea"e c(oo"e one

/he gross profit !argin is unchanged0 but the net profit !argin declined o#er sa!e period+ /his could ha#e happeneddue to which one of the following reasons?'ost of goods sold increased relati#e to sales9ales increased relati#e to expensesT(e ta. rate (a" +een increa"e"i#idends were decreased

$%e"tion No& Mar'"& 1 - Plea"e c(oo"e one



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www.vustudents.ning.comA 'o!panys co!!on stoc, is currently selling at Rs+M+BB per share0 its 6uarterly di#idend is Rs+B+B0 and the stoc, isexpected to rise to Rs+M+MB in a year+ hat is its expected rate of return?J+MCJ+MC10D0+BC


A co!pany has a di#idend yield of HC+ If its di#idend is expected to grow at a constant rate of DC0 what !ust be theexpected rate of return on the co!pany s stoc,?FC18CBC

$%e"tion No& 7 Mar'"& 1 - Plea"e c(oo"e one9ince the capital budgeting techni6ues use cash flows instead of accounting flows0 therefore0 the financial !anager!ust add bac, which one of the following to the analysis?/he cost of fixed assets/he cost of accounts payableIn#est!ents8epreciation

$%e"tion No& 6 Mar'"& 1 - Plea"e c(oo"e onehich of the following state!ents is correct for a project with a positi#e Net Present Value (NPV)?Internal rate o) ret%rn IRR e.cee" t(e co"t o) capitalDAccepting the project has an indeter!inate effect on shareholders+/he discount rate exceeds the cost of capital+/he profitability index e6uals one+

$%e"tion No& Mar'"& 1 - Plea"e c(oo"e oneA fir! with EBC of sales going to #ariable costs0 +D !illion fixed costs0 and DBB0BBB depreciation would show whataccounting profit with sales of M !illion? (Ignore taxes)Xero lossMB0BBB lossEEE0EE lossJ;00000 lo""

9ales G (Variable cost EBC of sales fixed cost "eprecation)M0BBB0BBB G (0HBB0BBB0DBB0BBBDBB0BBB)Soss3 HBB0BBB$%e"tion No& ; Mar'"& 1 - Plea"e c(oo"e one9uppose a stoc, is selling today for Rs+MD per share+ At the end of the year0 it pays a di#idend of Rs+8+BB per share andsells for Rs+MJ+BB+ hat is the di#idend yield on thisstoc,?8CMCFC7

$%e"tion No& 9 Mar'"& 1 - Plea"e c(oo"e one9uppose a stoc, is selling today for Rs+EB per share+ At the end of the year0 it pays a di#idend of Rs+8+BB per share andsells for Rs+EE+BB+ what is the capital gain yield on thestoc,?CHCJC10

'apital gain yield 3 EE&EB : EB3 BC$%e"tion No& 11 Mar'"& 1 - Plea"e c(oo"e onehich of the following transactions would occur in a pri!ary financial !ar,et?Initial P%+lic O))erin/

`.uying %utual -unds 'ertificates9elling old shares.uying .onds issued in pre#ious year

$%e"tion No& 1 Mar'"& 1 - Plea"e c(oo"e oneith respect to a 'ash flow state!ent0 "ecrease in current assets would be considered as a;Ca"( o%t)lo='ash inflow



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www.vustudents.ning.com9o!eti!es considered as cash outflow and so!eti!e as cash inflow'an not be deter!ined

$%e"tion No& 1; Mar'"& 1 - Plea"e c(oo"e oneAccording to the %iller %odel0 upper li!it for cash balance is e6ual to which of the following?

Lo=er li4it @ !prea9pread Sower li!it>pti!al li!it Sower li!it

`

Sower li!it 9pread$%e"tion No& 20 Mar'"& 1 - Plea"e c(oo"e oneA !erger results in a reduction of a#erage production costs+ In this case0 which of the following is '>RR1'/?

/he !erger !ust ha#e been conglo!erateEcono4ie" o) "cale e.i"t/he !erger !ust ha#e been #ertical/he ac6uired fir! had net operating losses

$%e"tion No& 22 Mar'"& 1 - Plea"e c(oo"e one1!ployees buyout occurs through which of the following?E4plo,ee "toc' o=ner"(ip plan1!ployees di#idend sche!e1!ployee e!power!ent sche!e1!ployee long&ter! benefit sche!e

$%e"tion No& 2 Mar'"& 1 - Plea"e c(oo"e onehich of the following is an exa!ple of a !anage!ent .uy In?%anage!ent of a -ir!&A purchases !ajority shares fro! the shareholdersMana/e4ent o) a Fir4-A ac5%ire" 4a*orit, "(are" in anot(er Fir4-RR1'/ regarding currency options?In a currency option0 the seller has the right to sell currencyIn a c%rrenc, option t(e (oler (a" t(e ri/(t to "ell+%, c%rrenc,In a currency option0 the seller has the right to buy currencyIn a currency option0 the holder has the obligation to buy

$%e"tion No& 0 Mar'"& 1 - Plea"e c(oo"e oneA currency option will N>/ be exercised if;

/he exchange rate is abo#e the agreed rateT(e e.c(an/e rate i" +elo= t(e a/ree rate/he exchange rate is e6ual to the agreed rate

`/he exchange rate is e6ual to the option cost$%e"tion No& 1 Mar'"& 1 - Plea"e c(oo"e onehich one of the following state!ents is '>RR1'/ regarding option cost?>ption cost is paid by the option writer to option seller>ption cost is paid by the option writer to option holderOption co"t i" pai +, t(e option (oler to option "eller>ption cost is paid by the option seller to option writer



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www.vustudents.ning.com$%e"tion No& Mar'"& 1 - Plea"e c(oo"e onehich of the following situations would result in wea,ening the local currency against a foreign currency?"e!and for foreign currency decreases9upply of local currency decreases"e!and W 9upply are in balance8e4an )or )orei/n c%rrenc, increa"e"


hich of the following would be consistent with an aggressi#e approach to financing wor,ing capital?Financin/ "(ort-ter4 nee" =it( "(ort-ter4 )%n"-inancing per!anent in#entory buildup with long&ter! debt-inancing seasonal needs with short&ter! funds-inancing so!e long&ter! needs with short&ter! funds

$%e"tion No& 7 Mar'"& 1 - Plea"e c(oo"e oneIdentify the IN'>RR1'/ state!ent in connection with wor,ing capital !anage!ent+/he objecti#es of wor,ing capital !anage!ent are profitability and li6uiditySong&ter! funds are !ore expensi#e than short&ter! funds but also ris,ierAggressi#e financing policies increase profitability at the cost of higher ris,Con"eratie )inancin/ policie" %"e "(ort-ter4 )%n" to )inance onl, part o) )l%ct%atin/ c%rrent a""et"

$%e"tion No& 6 Mar'"& 1 - Plea"e c(oo"e oneAll of the following are /R*1 regarding the in#esting acti#ity section of the cash flow state!ent EXCEPT;

In#esting acti#ities include the purchase and sale of inco!e&producing assets9elling off capital assets !ay be good news if the co!pany is getting rid of unprofitable di#isionsLar/e p%rc(a"e" o) capital a""et" 4a, "i/nal an e4er/enc,In#esting acti#ities re6uire analysis of long&ter! asset accounts

$%e"tion No& Mar'"& 1 - Plea"e c(oo"e onehich of the following is a reason for high P:1 ratio of a co!pany?Sow profit W losses !ix in recent past1xpected future lossesSow securityKi/( !(are price" %e to a ta'eoer +iD

$%e"tion No& 9 Mar'"& 1 - Plea"e c(oo"e one9uppose that a fir! sells goods on ter!s of 8:B0 net 8B+ >n %arch 0 8BBH you buy goods fro! the co!pany with anin#oice #alue of Rs+DB0 BBB+ @ow !uch discount would you get0 if you too, the cash discount?R"D 1000Rs+ 80BBBRs+ F0BBBRs+ D0BBB

DB0BBB Y8:BB 3 BBB$%e"tion No& 0 Mar'"& 1 - Plea"e c(oo"e one

All of the following are the !ethods to e#aluate the credit worthiness in business EXCEPT;%ar,et reputationPre#ious pay!ent recordPro%ction plant capacit,-inancial strength

$%e"tion No& 2 Mar'"& 1 - Plea"e c(oo"e onehich of the following is the !ost co!!on reason for a capital expenditure?9afety de#ice installationE.pan"ionRenewalReplace!ent

PAPER # 6FINALTERM EXAMINATION

-all 8BBJ-INE88& 'orporate -inance (9ession & )

$%e"tion No& 1 Mar'"& 1 - Plea"e c(oo"e onehich one of the following is an offering in which the shares of a co!pany are offered to a li!ited nu!ber of in#estors?

Initial Public >ffering Priate Place4ent "irect Public >ffering Pri!ary >ffering2uestion No; F ( %ar,s; ) & Please choose onehich of the following is a !ain purpose of the 9ensiti#ity Analysis? /o find out the opti!al le#el of capital budget+www.vustudents.ning.com


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www.vustudents.ning.com /o find out that how price changes affect brea,&e#en #olu!e+ /o find out the seasonal #ariation in product de!and+ To )in o%t t(at (o= aria+le" in a pro*ect a))ect pro)ita+ilit,$%e"tion No& 7 Mar'"& 1 - Plea"e c(oo"e onehich of the following refers to the budgetary constraint placed by a fir! on its in#est!ent projects? Capital rationin/ or,ing capital !anage!ent

'ash budgeting None of the gi#en options$%e"tion No& 6 Mar'"& 1 - Plea"e c(oo"e one/he percentage change in a fir!s operating profit (1.I/) resulting fro! a C change inoutput (sales) is ,nown as the ========+ 8e/ree o) operatin/ leera/e "egree of profit le#erage "egree of total le#erage "egree of financial le#erage">S ("egree of >perating Se#erage) is a 6uantitati#e !easure of the 4sensiti#ity5 of a fir!Ts operating profit to a changein the fir!Ts sales+ /he closer that a fir! operates to its brea,&e#en point0 the higher is the absolute #alue of its ">S+hen co!paring fir!s0 the fir! with the highest ">S is the fir! that will be !ost 4sensiti#e5 to a change in sales+ /he">S percentage in change in a fir!Ts 1.I/ resulting for! a percent change in 6uantity (sales);2uestion No; ( %ar,s; ) & Please choose onehat will be the ris, pre!iu! if the !ar,et portfolio has an expected return of BC and the ris, free rate is FC? FC DC 6 C$%e"tion No& 9 Mar'"& 1 - Plea"e c(oo"e one

A fir! had an interest expense of Rs+FBB0BBB on its outstanding debt during the financial year 8BBE&8BB+ If the fir!!arginal tax rate is FBC0 what was the total tax sa#ings of the fir! during the period 8BBE&8BB? Rs+DB0BBB R"D160000 :00000 X 0100 Rs+B0BBB Rs+HB0BBB$%e"tion No& 12 Mar'"& 1 - Plea"e c(oo"e one

All of the following factors !ust be considered while !a,ing short&ter! in#est!ents EXCEPT; Si6uidity 9afety Profitability Inentor,2uestion No; M ( %ar,s; ) & Please choose one

All of the following can be used as hedging tool against interest rate ris, EXCEPT; -orward rate agree!ents Interest rate futures Interest rate options C%rrenc, )%t%re"$%e"tion No& 16 Mar'"& 1 - Plea"e c(oo"e one/he restructuring of a fir! should be underta,en if ; /he restructuring is expected to increase earnings per share (1P9) next year T(e re"tr%ct%rin/ i" e.pecte to create al%e )or "(are(oler" /he restructuring is expected to increase the fir!s !ar,et share power within the industry /he current e!ployees will recei#e additional stoc, options to align e!ployeeinterest$%e"tion No& 1 Mar'"& 1 - Plea"e c(oo"e onehich of the following is NOT a reason for deter!ining shares #alue in !ergers and ac6uisitions? To i4pee t(e anti ta'eoer +i o) t(e preator co4pan, /o set up the ter!s of ta,eo#ers

/o #alue the co!pany for stoc, exchange listing /o #alue shares G for establishing #alue of share of retiring directors$%e"tion No& 19 Mar'"& 1 - Plea"e c(oo"e one1xpansion of credit period by a fir! in#ol#es which of the following types of ris,? Additional cost of production Aitional co"t o) )%n" an +a e+t" pa/e 106S Additional cost of ad#ertisingwww.vustudents.ning.com


19/30

www.vustudents.ning.com Additional cost of business$%e"tion No& 20 Mar'"& 1 - Plea"e c(oo"e one/he present #alue of Rs+BB per year recei#ed for B years discounted at H percent is closest to which of the followinga!ounts? Rs+ Rs+ME8 Rs+F8D

R"D61Reference;PVoa 3 P%/ K( & ( : ( i)n)) : iLPVoa 3 BB K( & ( : ( B+BH)B)) : B+BHLPVoa 3 BB K( & ( : (+BH)B)) : B+BHLPVoa 3 BB K( & ( : (8+DHJ8FJJ)) : B+BHLPVoa 3 BB K( G B+FEMJMFHH: B+BHLPVoa 3 BB KB+DMEHBED8: B+BHLPVoa 3 BB KE+BBLP#oa 3 E$%e"tion No& 22 Mar'"& 1 - Plea"e c(oo"e onehich of the following is a long&ter! source of financing for a fir!? Corporate +on" %oney !ar,et instru!ents /rade credit Accounts payables$%e"tion No& 2 Mar'"& 1 - Plea"e c(oo"e onehich of the following is not one of the ,inds of di#idend policies in practice? Residual di#idend policy "i#idend growth policy Pre!iu! di#idend policy 8i"co%nt iien polic,

residual di#idend policyQ stable or di#idend growth policyQ stable net profit:di#idend pay!ent ratio di#idend policyQ Pre!iu! di#idend policy+

$%e"tion No& 2 Mar'"& 1 - Plea"e c(oo"e onehich of the following functions behind budget acti#ity refers to !onitoring0 co!paringinfor!ation to a standard and ta,ing correcti#e action? Planning Control %anage!ent None of the gi#en options$%e"tion No& 27 Mar'"& 1 - Plea"e c(oo"e onehich of the following !ethods show(s) each !ajor class of gross cash receipts andgross cash pay!ents? 8irect 4et(o

Indirect !ethod .oth direct and indirect !ethod Neither direct nor indirect !ethod/he irect 4et(o shows each !ajor class of gross cash receipts and gross cash pay!ents$%e"tion No& 26 Mar'"& 1 - Plea"e c(oo"e onehich of the following !ethod adjust(s) accrual basis net profit or loss for the effects of non&cash transactions? "irect !ethod Inirect 4et(o .oth direct and indirect !ethod Neither direct nor indirect !ethod/he inirect 4et(o adjusts accrual basis net profit or loss for the effects of non&cash transactions+2uestion No; 8 ( %ar,s; ) & Please choose one

%r+ 9alee! buys in#entory on credit on an+ B0 8BBJ worth Rs+B0BBB settle the creditor on %ar+ B0 8BBJ+ After a!onth (on Apr+ B0 8BBJ)0 a debtor buys finished goods Rs+F0BBB and pays for that on %ay D0 8BBJ+ hat is theoperating cycle in the gi#en scenario? EB days JB days 8B days 17 a,"



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www.vustudents.ning.comOperatin/ C,cle : a/e o) inentor, @ collection perioD$%e"tion No& 29 Mar'"& 1 - Plea"e c(oo"e one%r+ ohn 9!ith has changed the wor,ing capital policy of his co!pany recently+ As a result0 the li6uidity for the co!panyhas increased but a decrease in profitability has been obser#ed alongside+ -ro! this infor!ation0 we can conclude thatthe co!pany !ust ha#e changed his wor,ing capital policy fro! ======== to ========+ 'onser#ati#eQ Aggressi#e 'onser#ati#eQ %oderate

A//re""ie Con"eratie %oderateQ Aggressi#e$%e"tion No& 2 Mar'"& 1 - Plea"e c(oo"e onehich of the following are properly !anaged by a good 'ash %anage!ent 9yste!? 'ollections0 disburse!ents0 cash balances0 and capital in#est!ent Collection" i"+%r"e4ent" ca"( +alance" an 4ar'eta+le "ec%ritie" ine"t4ent >nly collections0 disburse!ents0 and cash balances >nly collections and disburse!ents$%e"tion No& 7 Mar'"& 1 - Plea"e c(oo"e one9uppose you ha#e !ade a purchase of Rs+ DB0BBB today on ter!s of 8:B0 net MB+ @ow !uch would you need to pay ifyou pay after se#en days of purchase? R"D 9000 Rs+ D0BBB Rs+ B0BBB Rs+ MD0BBBDB0BBBx+B83BBB$%e"tion No& 6 Mar'"& 1 - Plea"e c(oo"e one4/wo co!panies A W . ha#e been ac6uired by a brand new co!pany '+5 /his infor!ation refers to which of thefollowing ter!s? Purchase !ergers Con"oliation 4er/er" New !ergers .rand !ergers$%e"tion No& Mar'"& 1 - Plea"e c(oo"e onehich of the following is(are) re6uired to be decided while considering ac6uisition? hether shares or assets to be purchased /ype of consideration 9hare #aluation issues All o) t(e /ien option"$%e"tion No& ; Mar'"& 1 - Plea"e c(oo"e onehich of the following is an Uasset based !ethodU for share #aluation of a target fir!? Replace4ent co"t 4et(o "i#idend #aluation !ethod Present #alue !ethod Price earning ration !ethod$%e"tion No& 9 Mar'"& 1 - Plea"e c(oo"e one4/he !anagers of A.' 'o!pany are going to buy !ajority shares of the OX 'o!pany+5 /his practice de!onstrateswhich of the following ac6uisition types? %anage!ent .uyout Mana/e4ent


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www.vustudents.ning.comIf the exercise price !entioned in the option is fa#orable than the !ar,et price of the underlying co!!odity0 an optionwould be ter!ed as; In t(e 4one, >ut of !oney At the !oney None of the gi#en options

PAPER #

FINALTERM EXAMINATION-all 8BBJ

-INE88& 'orporate -inance (9ession & D)

$%e"tion No& 1 Mar'"& 1 - Plea"e c(oo"e oneSast year A.' 'o!pany had a J+BBC net profit !argin based on Rs+880BBB0BBB in sales and Rs+D0BBB0BBB of totalassets+ "uring the co!ing year0 the president has set a goal of attaining a FC return on total assets+ @ow !uch !ustfir! sales e6ual0 other things being the sa!e0 for the goal to be achie#ed? Rs+880BBB0BBB Rs+8E0880JE Rs+8D0EBM0EE R"D2R>A 3 NI:/AB+F 3 (NI):(D0BBB0BBB)(B+F)(D0BBB0BBB) 3 NINI 3 80BB0BBBNP% 3 NI:9alesB+BJ 3 (80BB0BBB):9alesB+BJ9ales 3 80BB0BBB9ales 3 (80BB0BBB):(B+BJ) 3 8M0MMM0MMM$%e"tion No& 2 Mar'"& 1 - Plea"e c(oo"e one-elton -ar! 9upplies0 Inc+0 has an H percent return on total assets of Rs+MBB0BBB and a net profit !argin of DC+ hatare its sales? Rs+M0DB0BBB R"D;0000 Rs+MBB0BBB Rs+0DBB0BBBR>I : NP% 3 /A/+BH : +BD 3 +E/A/ Y /A 3 9AS19+E Y MBB0BBB 3 FHB0BBB$%e"tion No& Mar'"& 1 - Plea"e c(oo"e onehich of the following is deter!ined by #ariance of an in#est!ents returns? ?olatilit, o) t(e rate" o) ret%rnD Probability of a negati#e return+ @istoric return o#er long periods+ A#erage #alue of the in#est!ent+$%e"tion No& Mar'"& 1 - Plea"e c(oo"e onehich one of the following will precede 4-11".A'


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www.vustudents.ning.com 'ash outflow Ca"( in)lo=$%e"tion No& 9 Mar'"& 1 - Plea"e c(oo"e one/he !erger of the two co!puter !anufacturing fir!s0 'o!pa6 and "ell 'orporation0 would be classified as which of thefollowing types of !erger? Koriontal 4er/er %onopolistic !erger

'onglo!erate !erger Vertical !erger@orizontal !erger & /wo co!panies that are in direct co!petition and share the sa!e product lines and !ar,ets$%e"tion No& 10 Mar'"& 1 - Plea"e c(oo"e onehich of the following state!ents applies to e!ployeesT buyout? 1!ployees are pro!oted to the higher positions 1!ployees are gi#en !ore responsibilities E4plo,ee" +%, 4a*orit, "(are" in t(e )ir4 1!ployees buy shares of a co!peting fir!

A restructuring strategy in which e!ployees buy a !ajority sta,e in their own fir!s+ /his for! of buyout is often done byfir!s loo,ing for an alternati#e to a le#eraged buyout$%e"tion No& 11 Mar'"& 1 - Plea"e c(oo"e onehich of the following is a fir! le#el cause of financial distress? .argaining power of suppliers "ifficulty in producing 6uality products Intensi#e !ar,et co!petition 8i))ic%lt, in ca"( )lo= /eneration$%e"tion No& 16 Mar'"& 1 - Plea"e c(oo"e one/he a!ount of current assets re6uired to !eet a fir!s long&ter! !ini!u! needs is referred to as ========== wor,ingcapital+ Per4anent /e!porary Net $rossPer!anent wor,ing capital is the !ini!u! in#est!ent in current assets that is re6uired support long&ter! !ini!u!need+$%e"tion No& 1 Mar'"& 1 - Plea"e c(oo"e onehich of the following best represents the opti!al econo!ic order 6uantity (1>2)0 where total usage of the in#entoryite! is BB0BBB units for the planning period0 the cost per order is Rs+HB and the carrying costs per unit for each periodis Rs+? 6000 %nit" F08FM units DDE units F0BBB units92R 8xR*x>':''92R 8xBB0BBBxHB: 3 EBBB$%e"tion No& 20 Mar'"& 1 - Plea"e c(oo"e one

/he total return on a share of co!!on stoc, is co!prised of which of the following? 'apital gains yield and a di#idend growth rate 'apital gains growth rate and a di#idend growth rate "i#idend yield and a re6uired rate of return 8iien ,iel an a capital /ain" ,iel$%e"tion No& 21 Mar'"& 1 - Plea"e c(oo"e one

A decrease in the fir!s recei#able turno#er ratio !eans that ==========+ It is collecting credit sales !ore 6uic,ly than before It i" collectin/ creit "ale" 4ore "lo=l, t(an +e)ore 9ales ha#e gone down In#entories ha#e gone up$%e"tion No& 22 Mar'"& 1 - Plea"e c(oo"e one

hich of the following co!panies !ay be considered as a Pure Play in the be#erages industry in Pa,istan? Coca Cola Pepsi 9hezan Nestl$%e"tion No& 2 Mar'"& 1 - Plea"e c(oo"e onehich one of the following types of business enjoys the ad#antage of Si!ited Siability?www.vustudents.ning.com


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www.vustudents.ning.com 9ole&proprietorship Partnership Co4pan, None of the gi#en options$%e"tion No& 2 Mar'"& 1 - Plea"e c(oo"e onehich of the following would be a conse6uence of a high In#entory /urno#er Ratio? Sow le#el of in#entory and fre6uent stoc,&outs

9easonal ele!ents peculiar to the business E))icient inentor, 4ana/e4ent Any of the gi#en option$%e"tion No& 26 Mar'"& 1 - Plea"e c(oo"e onehich of the following refers to the #alue at which an asset is carried on a balance sheet?


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www.vustudents.ning.comSe#erage ris, is related to which of the following le#els of financial distress of a fir!? Fir4 Leel pa/e 12S Industry Se#el %acro&Se#el All of the gi#en options$%e"tion No& 9 Mar'"& 1 - Plea"e c(oo"e onehich of the following is an internal !ethod to reduce the transaction exposure?

-orward contract M%ltilateral nettin/ pa/e 11S %oney !ar,et hedges 'urrency futures$%e"tion No& Mar'"& 1 - Plea"e c(oo"e onehich of the following is(are) the way(s) through which a !ulti&national fir! could reduce political ris,? @igh gearing @igh local finances 9hare in e6uity fro! local resources All o) t(e /ien option" pa/e 170S$%e"tion No& Mar'"& 1 - Plea"e c(oo"e one4/he exchange rate between two countries should e6ual the ratio of the two countries price le#el of a fixed bas,et ofgoods and ser#ices+5 /his state!ent belongs to which of the following theory? %W% theory Interest rate ris, theory P%rc(a"in/ Po=er Parit, t(eor, pa/e 17S -isher effect theory

PAPER # ;FINALTERM EXAMINATION

Fall 2010FIN622- Corporate Finance !e""ion -

2uestion No; ( %ar,s; ) & Please choose onehich of the following state!ents is /R*1 regarding .alance 9heet of a fir!? It reports how !uch of the fir!Ts earnings were retained in the business ratherthan paid out in di#idends+ It reports the i!pact of a fir!Ts operating0 in#esting0 and financing acti#ities oncash flows o#er an accounting period+ It "(o=" t(e )ir4" )inancial po"ition at a "peci)ic point in ti4eD It su!!arizes the fir!Ts re#enues and expenses o#er an accounting period$%e"tion No& Mar'"& 1 - Plea"e c(oo"e oneIf you want to earn H percent0 approxi!ately how !uch should you pay for a security which !atures in one year at Rs+0BBB? Rs+ 0BHB Rs+ JFB Rs+ J8B R"D 926Re)erence&P? : F?1@i$%e"tion No& 7 Mar'"& 1 - Plea"e c(oo"e onehich of the following state!ents applies to 9ecurity %ar,et Sine (9%S)? 9ecurity %ar,et Sine (9%S) shows the relationship between expected rate of return and re6uired rate of return of asecurity+ 9ecurity %ar,et Sine (9%S) shows the relationship between .eta and !ar,et #alue of a security+ !ec%rit, Mar'et Line !ML "(o=" t(e relation"(ip +et=een re5%ire rate o) ret%rn an +eta coe))icient o) a"ec%rit,D 9ecurity %ar,et Sine (9%S) shows the relationship between %ar,et #alue and face #alue of a security+$%e"tion No& 6 Mar'"& 1 - Plea"e c(oo"e one

A.' 'o!pany will pay a di#idend of Rs+8+FB per share at the end of this year+ Itsdi#idend yield is HC+ At what price is the stoc, selling? FB MD 0 8DRe)erence&



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www.vustudents.ning.comPrice per "(are : Ann%al iien" per "(are iien ,iel3 8+FB: B+BH3 MB$%e"tion No& ; Mar'"& 1 - Plea"e c(oo"e onehich of the following is tax deductible? "i#idend on preferred shares "i#idend on co!!on stoc,s

Co%pon pa,4ent" on +on" 'apital gain on co!!on stoc,s$%e"tion No& 12 Mar'"& 1 - Plea"e c(oo"e onehich of the following types of bonds pays no annual interest to the holder0 but is soldat discount below the par #alue? An original !aturity bond A floating rate bond A fixed !aturity date bond A ero co%pon +on$%e"tion No& 1 Mar'"& 1 - Plea"e c(oo"e one

A public li!ited 'o!pany had sales of Rs+8 !illion this year+ /he !ar,eting !anager expects sales to grow at a Bpercent co!pound annual rate o#er the next B years+ >n this basis0 which of the following is the closest a!ount ofsales in B years? R"D71;;7D Rs+80DJM088+ Rs+F0E880HHD+ Rs+D0BH0MBJReference;-# 3 PV(i)Zn2uestion No; F ( %ar,s; ) & Please choose oneIf the intrinsic #alue of a stoc, is greater than its !ar,et #alue0 then which of the following is a reasonable conclusion?/he stoc, has a low le#el of ris,+/he stoc, offers a high di#idend payout ratio+T(e 4ar'et i" %neral%in/ t(e "toc'D/he !ar,et is o#er#aluing the stoc,+2uestion No; D ( %ar,s; ) & Please choose oneIn which of the following conditions a stoc, is said to be under#alued?I) t(e "toc' (a" 4ar'et al%e le"" t(an t(e e.pecte al%eIf the stoc, has !ar,et #alue !ore than the expected #alueIf the stoc, has !ar,et #alue e6ual to the expect #alueIf the stoc, has !ar,et #alue !ore that intrinsic #alue2uestion No; E ( %ar,s; ) & Please choose onehich of the following change will occur if a bonds yield&to&!aturity increases0 ,eeping other factors constant?Its price will riseIts price will re!ain unchangedIt" price =ill )allD'an not be deter!ined$%e"tion No& 2 Mar'"& 1 - Plea"e c(oo"e one

A fir! has MB days collection period and it is offering ter!s of 8:B0 net MB+ /he esti!ations shows that around BCcusto!ers will a#ail this opportunity by paying within B days whereas re!aining will pay after MB days+ hat would bethe A#erage 'ollection Period (A'P) of the fir!? B days 8 days 16 a," H daysBC x B days MBC x MB days3 J 3 E days2uestion No; MD ( %ar,s; ) & Please choose oneProfitability and li6uidity !o#e in ======== direction whereas ris, and profitability and ris, !o#e in =========

direction+ 9a!eQ in#erse Iner"e "a4e pa/e ;9S In#erseQ opposite 9a!eQ opposite$%e"tion No& 7 Mar'"& 1 - Plea"e c(oo"e one-or financial state!ent purposes0 the accounting #alue of fixed assets is based upon which of the following?www.vustudents.ning.com


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www.vustudents.ning.com /heir esti!ated li6uidation #alue /heir relati#e i!portance to the co!pany T(eir act%al p%rc(a"e price /heir current !ar,et price$%e"tion No& Mar'"& 1 - Plea"e c(oo"e oneIn )inance U=or'in/ capitalU 4ean" t(e "a4e t(in/ a"total assets+

fixed assets+C%rrent a""et"'urrent assets !inus current liabilities+$%e"tion No& ; Mar'"& 1 - Plea"e c(oo"e onehich of the following state!ent is /R*1 regarding a fir! adopting a conser#ati#e financing policy?9elect correct option;Fir4 4a, (ae to pa, intere"t on e+t at ti4e" =(en t(e )%n" are not neee-ir! would be !ore profitable than a fir! adopting an aggressi#e financing policy+-ir! would ha#e to be a public utility+-ir! would ha#e higher financial ris, than if it adopted an aggressi#e financing policy+$%e"tion No& 70 Mar'"& 1 - Plea"e c(oo"e onehich of the following is the first step in the financial planning process?9elect correct option;Ienti),in/ o+*ectie" an tar/et"1#aluating different alternati#e'hoosing a course of actionPro#iding feedbac,

PAPER # 9FINAL TERM EXAMINATION

!prin/ 2011FIN622- Corporate Finance

!e""ion - 2uestion No; 8 ( %ar,s; ) & Please choose onehich one of the following ter!s refers to the #ariability of return on stoc,s or portfolios0 associated with changes inreturn on the !ar,et as a whole? *nsyste!atic ris, *ni6ue ris, !,"te4atic ri"' 'o!pany specific ris,2uestion No; 88 ( %ar,s; ) & Please choose onehich of the following is an expected rate of return on a bond if bought at its current !ar,et price and held to !aturity? iel to 4at%rit, 'urrent yield 'oupon yield 'apital gains yield2uestion No; 8H ( %ar,s; ) & Please choose onehich of the following is a re&structuring strategy in which e!ployees buy a !ajority share in their own fir!? 1!ployee "i#idend 9che!e E4plo,ee


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www.vustudents.ning.com/he experts hired in e#aluation stage of a public ta,e o#er process "> N>/ include which of the following? Segal consultants Accountants !(are(oler" 9toc, .ro,ers2uestion No; MH ( %ar,s; ) & Please choose oneIn which of the following for!s of ac6uisition0 a co!panys existing !anagers ac6uire a large part or all of the

co!pany? Mana/e4ent


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www.vustudents.ning.com /e!porary wor,ing capital should be financed with bonds or co!!on stoc,2uestion No; 8 ( %ar,s; ) & Please choose oneIn which of the following ac6uisition strategies0 a purchaser has co!plete ,nowledge of the ac6uiring fir!? %anage!ent .uy&In Mana/e4ent +%,o%t 'onsolidation A!alga!ation

2uestion No; F ( %ar,s; ) & Please choose onehich one of the following state!ents is '>RR1'/ regarding >ptions 'ontacts? A p%t option /ie" t(e (oler a ri/(t to "ell %nerl,in/ ite4 at a "peci)ie price A put option gi#es its writer the right to sell underlying ite! at a specified price A call option gi#es its writer a right to sell underlying ite! A call option gi#es its holder a right to sell underlying ite!2uestion No; E ( %ar,s; ) & Please choose onehich one of the following techni6ues can reduce the ris,s and disad#antages of share purchase !ethod in !ergersand ac6uisitions? 9pin&off Kie-o=n @ubris >ff&shoot2uestion No; ( %ar,s; ) & Please choose one/he financial consideration to be paid to target co!pany in !ergers can be classified in to the following categories1'1P/; 'ash A""et" 9hare G ordinary or preference "ebt2uestion No; H ( %ar,s; ) & Please choose onehich of the following types of di#idend policies results in the !ost #olatile di#idend pay!ents and stoc,holderdisco!fort? /arget di#idend&payout policy Sow&regular&and&extra di#idend policy Regular di#idend policy Con"tant pa,o%t-ratio iien polic,2uestion No; J ( %ar,s; ) & Please choose one9uppose you in#ested Rs+ H0BBB in a sa#ings account paying D percent interest a year0 co!pounded annually+ @ow!uch a!ount your account will ha#e at the end the end of four years? Rs+B08BH R"D9 2; Rs+B0HHB Rs+J0E8F2uestion No; 8B ( %ar,s; ) & Please choose oneIf you deposit Rs+ 80BBB per year for E years (each deposit is !ade at the beginning of each year) in an account thatpays an annual interest rate of DC0what will your account be worth at the end of E years? Rs+ H80EH+FF Rs+ 0FDB+H8 R"D 6;901D12 Rs+ EEH0EBJ+E-# 3 p Y ((( i) Z n & ) : i) Y ( i)P 38BBBi 3 DCn 3 E-# 3 p Y ( B+D) Z E & ) : B+D) Y ( B+D)8BBB Y ( +D) Z E & ) : B+D) Y ( +D)8BBB Y (J+MDE8BHM & ) : B+D) Y ( +D)8BBB Y (H+MDE8BHM) : B+D) Y ( +D)

8BBB Y (DD+F8FJ) Y ( +D)8BBB Y (EF+BDBJMME)EHJB2uestion No; 8 ( %ar,s; ) & Please choose onehich of the following state!ents would be '>RR1'/ regarding no!inal interest rate when inflations is expected tooccur o#er the foreseeable future? Noni!al interest rate would be e6ual to real interest ratewww.vustudents.ning.com


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www.vustudents.ning.com Noni4al intere"t rate =o%l +e 4ore t(an real intere"t rate Noni!al interest rate would be half of real interest rate Noni!al interest rate would be less than the real interest rate2uestion No; 88 ( %ar,s; ) & Please choose onehich of the following is a !ethod of e#aluating securities by analyzing statistics generated by !ar,et acti#ity0 such aspast prices and #olu!e? Tec(nical anal,"i"

-unda!ental analysis 'o!!on size analysis Ratio analysis2uestion No; 8F ( %ar,s; ) & Please choose onehich of the following state!ents is '>RR1'/ regarding the funda!ental analysis? -unda!ental analysts use only 1cono!ic indicators to e#aluate a stoc, -unda!ental analysts use only financial infor!ation to e#aluate a co!panyTs stoc,s F%na4ental anal,"t" %"e )inancial an non-)inancial in)or4ation to eal%ate a co4pan," "toc'" -unda!ental analysts use only non&financial infor!ation to e#aluate a co!panyTs stoc,s2uestion No; 8E ( %ar,s; ) & Please choose onehen faced with !utually exclusi#e options0 which project should be accepted under the Paybac, %ethod? /he one with the longest paybac, period /he one with the shortest Paybac, period It oe"nt 4atter +eca%"e t(e pa,+ac' 4et(o i" not t(eoreticall, correct None of the gi#en options2uestion No; 8 ( %ar,s; ) & Please choose onehich of the following IA9 (International Accounting 9tandard) deals with cash flow state!ent? IA9 IA! IA9 E IA9 8H2uestion No; 8J ( %ar,s; ) & Please choose one4/he fir! has #ery little net wor,ing capital so!eti!es e#en negati#e net wor,ing capital that can be #ery ris,y+5 /heabo#e state!ent belongs to; A//re""ie =or'in/ capital polic, 'onser#ati#e wor,ing capital policy %oderate wor,ing capital policy /he state!ent is not related to any of the wor,ing capital policies2uestion No; M ( %ar,s; ) & Please choose one*nder which of the following concepts0 each asset is offset with a financing instru!ent of the sa!e !aturity? %W% proposition 'lientele effect Ke/in/ approac( .au!ol %odel2uestion No; MD ( %ar,s; ) & Please choose onehich of the following ter! refers to the !ini!u! in#entory a!ount needed for an ite!? 9toc,&out .uffer 9toc, @olding 9toc, !a)et, !toc'2uestion No; MH ( %ar,s; ) & Please choose onehich of the following is an anti ta,eo#er strategy in which the target co!pany !a,e significant efforts to resist ata,eo#er bid e+g+ by a !ajor ac6uisition0 issue new shares? 9har, repellent Pac&!an Poison pill Political pre""%re2uestion No; F8 ( %ar,s; ) & Please choose onehich of the following is N>/ an external !ethod to reduce the transaction exposure? Inoicin/ in (o4e c%rrenc, %oney !ar,et hedges 'urrency futures 'urrency swaps2uestion No; FD ( %ar,s; ) & Please choose oneIf the exercise price of an option is not fa#orable than the !ar,et price of the underlying ite!0 an option would beter!ed as;www.vustudents.ning.com


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www.vustudents.ning.com In the !oney O%t o) 4one, At the !oney None of the gi#en options2uestion No; FH ( %ar,s; ) & Please choose onehich of the following is the '>RR1'/ state!ent regarding the Saw of >ne Price? T(e la= o) one price applie" to onl, traa+le /oo"

/he law of one price applies to all goods /he law of one price applies to i!!o#able goods /he law of one price applies to ser#ices only

TKE EN8

mcqs financial management

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