sample midterm1
TRANSCRIPT
Sample midterm 1
.
1. Businesses can be organized asA) sole proprietorships B) partnerships C) corporations D) any of the above E) None of the above
Answer: D
2. Generally, a corporation is owned by the: A) Managers B) Board of Directors C) Shareholders D) All of the above.
Answer: C
Shareholders are owners.
3. Limited liability is an important feature of: A) Sole proprietorships B) Partnerships C) Corporations D) All of the above
Answer: C
4. A firm's investment decision is also called the: A) Financing decision B) Capital budgeting decision C) Liquidity decision D) None of the above
Answer: B
5. The goal of a financial manager is to: A) Maximize sales
B) Maximize profitsC) Maximize the value of the shareholders D) Maximize the value of the firm with both bond and stock holders
Answer: C( Many of you chose D)
This is because shareholders are the owners and managers are hired by them.
6. Which of the following is the function of a financial marketA) provide liquidity B) risk management C) efficient allocation of moneyD) provide information. E) all of the above
Answer: E
7. One common reason for partnerships to convert to a corporate form of organization is that the partnership: A) faces rapidly growing marketing requirements. B) wishes to avoid taxation of profits. C) has issued all of its allotted shares. D) agreement expires after ten years of use.E) faces rapidly growing capital needs
Answer: E .
This is the reason for the firm to go public to raise capital.
8. Unlimited liability is faced by the owners of: A) corporations. B) partnerships and corporations. C) sole proprietorships and partnerships. D) all forms of business organization.
Answer: C .
9. A board of directors is elected as a representative of the corporation’s: A) top management. B) stakeholders. C) shareholders.D) customers.E) bond and stock holders
Answer: C
10. Which of the following would be considered a capital budgeting decision? A) Planning to issue common stock rather than issuing preferred stock B) A decision to expand into a new line of products, at a cost of $5 million C) Repurchasing shares of common stock D) Issuing debt in the form of long-term bonds
Answer: B
11. Corporations are referred to as public companies when their: A) shareholders have no tax liability.B) shares are held by the federal or state government. C) stock is widely traded. D) products or services are available to the public.
Answer: C .
12. Which of the following statements best distinguishes the difference between real and financial assets? A) Real assets have less value than financial assets. B) Real assets are tangible; financial assets are not. C) Financial assets represent the voting power on real assets. D) Financial assets claim to cash flows that are generated by real assets. E) Financial assets appreciate in value; real assets depreciate in value.
Answer: D
13. Corporations that do not issue more financial securities such as stock or debt obligations:A) will not be able to increase sales.
B) may have internal cash flows to fulfill their needs C) cannot be profitable.D) generate insufficient funds to fulfill their needs.E) do not face taxation of their profits.
Answer: B To finance good projects, firms can also use internal cash flows.
14. The net present value formula for one period is: A) NPV = PV cash flows/initial investment B) NPV = C0/C1 C) NPV = C0+[C1/(1 + r)] D) Any of the aboveE) None of the above
Answer: C
This is the NPV formula for a project which produces one piece of cash flow in the next period.
15. The managers of a firm are supposed to
A) take all projects with positive NPVs B) take all projects with NPVs greater than the discount rateC) take all projects with NPVs greater than present value of cash flow D) All of the above E) None of the above
Answer: A
16. What is the net present value of the following cash flows at a discount rate on 12%?
t = 0 t = 1 t= 2 t= 3-2 5 0 ,0 0 0 1 0 0 ,0 0 0 1 5 0 ,0 0 0 2 0 0 ,0 0 0
A) $101,221 B) $200,000 C) $142,208 D) None of the above
Answer: A NPV = -250,000 + (100,000/1.12) + (150,000/(1.12^2)) + 200,000/(1.12^3) = 101,221
17. You would like to have enough money saved to receive a perpetuity, with the first payment being $60,000, after retirement so that you and your family can lead a good life. How much would you need to save in your retirement fund to achieve this goal (assume that the perpetuity payments start one year from the date of your retirement. The interest rate is 10%)? A) $7,500,000 B) $1,500,000 C) $600,000 D) None of the above
Answer: CAfter your retirement, you will receive a standard perpetuity.
PV = 60,000/0.1 = 600,000
18. Three yeas from now, if the economy is good, you will receive $100; if the economy is bad, you will receive $50. If the probability for the good economy is 30% and the economy has only two states three years from now: good and bad, what is the present value of this expected payment if the discount rate is 3.5%?
A) $65.00
B) $72.07C) $59.48 D) None of the aboveE) Any of the above
Answer : D First calculate C3, which is the expected cash flows at period three.
C3 = 0.3*100+0.7*50=$65PV= C3/(1+r)3 = 65/1.0353 = $58.63
19. 10 years from now, you will receive a payment, which is 1.5 times the present value of this payment? If the discount rate is the same for every year, what is the annual discount rate ? A) 8.10%B) 8.18%C) 7.18%
D) 4.14%E) none of the above
Answer D.
Let the present value be $1. The future value will be $1.5. Then, we have
1=1.5/(1+r)10. Then (1+r)10=1.5. r = (1.5)1/10 -1 = 4.14%.
20. You have a car loan of $30,000 (which is called the principle) with the interest rate of 6.5%. You decide to pay off this loan in next four years with equal payment each year, what is the remaining principal before the last payment? A) $7,621.03B) $8,757.08C) $9,523.36D) $ 8,222.61E) none of the above
First use the annuity formula to calculate the total payment in each period.
That is, 30000=C(1/r-1/(r.(1+r)4)), where r=0.065. So C=$8,757Let the remaining principal be x before the last payment. Then, the interest payment in
the last period is 0.065x. Since principal + interest payment = total payment, we have x + 0.065x =C=8757. x = 8757/(1+0.065)=$8,222.61
Answer: D.
21.The annual coupon rate of a bond equals:
A) its yield to maturity. B) a percentage of its price. C) the maturity value. D) the ratio of the annual coupon payment to the par value.E) None of the above
Answer: D
22.The face value of a bond is received by the bondholder: A) at the time of purchase. B) annually. C) whenever coupon payments are made. D) at maturity.E) none of the above
Answer: D
23.Which of the following presents the correct relationship? As the coupon rate of a bond decreases, the bond’s: A) face value increases. B) bond price tends to increase. C) interest payments increase. D) maturity date is extended.E) coupon payments decrease
Answer: E
24. How much would an investor expect to pay for a $1,000 par value bond with a 9% annual coupon that matures in 5 years if the interest rate is 9%? A) $696.74 B) $1,075.00C) $1,000.00 D) $1,123.01E) None of the above
Answer: C
25.The current yield of a bond can be calculated by: A) multiplying the price by the coupon rate. B) dividing the price by the annual coupon payments. C) dividing the price by the par value. D) dividing the annual coupon payments by the price. E) none of the above
Answer: D
26. Which of the following statements is correct for a 10% coupon bond that has a current yield of 13%?
A) The face value of the bond has decreased. B) The discount rate is 13%.C) The bond’s price is smaller than the bond’s maturity value (par value). D) The bond has few years remaining until maturity.E) None of the above
Answer: C
27.What is the coupon rate for a bond (par value of $1,000) with three years until maturity, a price of $1,000, and a yield to maturity of 6%? A) 6% B) 7% C) 8% D) 9%E) None of the above
Answer: A
$1,000 = PMT
$60.00 = PMT
6% coupon rate. In fact you don’t need to calculate. Why?
28.What happens to the price of a three-year bond with an 8% coupon when interest rates change from 8% to 6%? A) A price increase of $53.47 B) A price decrease of $51.54 C) A price decrease of $53.47 D) No change in priceE) None of the above
Answer: A
PV = $80
= $80[16.667 – 13.994] +
= $213.84 + $839.63= $1,053.47
This represents a price change of $53.47, since the bond had sold for par.
29.Which of the following bonds would be considered to be of speculative-grade? A) A Caa-rated bond. B) An Aaa-rated bond. C) An AAA-rated bond. D) A Baa-rated bond.E) None of the above
Answer: A
30.What is the rate of return for an investor who pays $1,054.47 for a three-year bond with a 7% coupon and sells the bond one year later for $1,037.19? A) 5.00% B) 5.33% C) 6.46% D) 7.00%E) none of the above
Answer: A Rate of Return = ($70.00 - $17.28)/$1,054.47= $52.72/$1,054.47= 5%
31.According to the dividend discount model, the current value of a stock is equal to the: A) present value of all expected future dividends. B) sum of all future expected dividends. C) next expected dividend, discounted to the present. D) discounted value of all dividends growing at a constant rate.E) none of the above
Answer: A
32.If a stock’s P/E ratio is 13.5 at a time when earnings are $3 per year, what is the stock’s current price? A) $4.50 B) $18.00 C) $22.22 D) $40.50E) None of the above
Answer: D P/E = 13.5Then P = 13.5 x $3Price = $40.50
33. A stock paying $5 in annual dividends sells now for $100 and has an expected return of 20%. What might investors expect to pay for the stock one year from now? A) $182.00 B) $186.00 C) $115.00D) $110.00 E) None of the above
Answer: C .
Expected return =
20% =
$115 = P1
34.How much should you pay for a share of stock that offers a constant dividend growth rate of 10%, has a discount rate of 16%, and pays a dividend of $3 next year? A) $42.00 B) $45.00 C) $45.45 D) $50.00 E) none of the above
Answer: D
P0=C1/(r-g)=3/0.06=$50
35.The price of a stock will likely increase if: A) the investment horizon decreases. B) the growth rate of dividends increases. C) the discount rate increases. D) dividends are discounted back to the present.E) none of the above
Answer: B
36.What should be the price for a common stock paying $3.50 annually in dividends if the growth rate is zero and the discount rate is 8%? A) $22.86 B) $28.00 C) $42.00 D) $43.75E) None of the above
Answer: D
Po =
37.What is the plowback ratio for a stock with current price of $30, earnings of $5 per share next year, a discount rate of 20% , and a rate of return on equity of 25% ? A) 0.5B) 0.2 C) 0.4D) 0.1E) None of the above
The idea to solve this problem is that you suppose that the plow-back ratio is the ratio in each choice, then you use the dividend growth model ( P0 = Div1/(r-g) ) to calculate the current stock price. If the calculated stock price is the same as the given stock price of $30, then that choice is the answer.
For example, suppose that the plow-back ratio is 0.5 in choice A. Then the dividend growth rate g = plow-back ratio * the rate of return on equity (ROE) =0.5*0.25=12.5%. Div1 =earnings1 * payout ratio =5*(1-plow-back ratio)=$2.5. P0 =Div1/(r-g)=2.5/(0.2-0.125)=$33.3, which is not the same as $30. So choice A is not the answer. Then use the above procedure to test choice B and you will find out P0=4/(0.2-0.5)=$26.7 < $30. So Choice B is not the answer. For choice C,
g= 0.4*0.25=10%; P0=Div1/(r-g)=0.6*5/0.1=$30. So choice C is the answer.
38.What is the expected constant growth rate of dividends for a stock currently priced at $50, that is expected to pay a dividend of $5 next year, and has a required return of 20%? A) 13% B) 10% C) 11% D) 12% E) none of the above
Answer: B By using the dividend growth model, P0 =div1/(r-g), we have
$50 = $5/(.2 – g). g = 0.1=10%
39.If the (current) dividend yield is 5% and the stock price is $25, what will the year three dividend be if dividends grow at a constant 6%? A) $1.33 B) $1.40 C) $1.58 D) $1.67 E) none of the above
Answer: B
Dividend yield is Div1/P0, which is 5%. So Div1=.05 x 25 = 1.25 then, Div3 = div1*(1+g)2=1.25 x (1.06)2 = $1.4045
40.What would be the current price of a stock when dividends are expected to grow at a 25% rate for three years, then grow at a constant rate of 5%, if the stock’s required return is 13% and next year’s dividend will be $4.00?
A) $61.60 B) $62.08 C) $68.62 D) $79.44 E) None of the above
Answer: C
The idea to solve this problem is to assume that you hold the stock for three years and sell the stock at the end of year 3. After year 3, the dividends have a constant growth rate of 5%. By observing this constant growth rate of dividends, you can use the dividend growth model to calculate the stock price at year 3, which is P3=Div4/(r-g), where r=13% and g =5%.
Then the current stock price is the present value of three dividends received in each year in the next three years, and the stock price at year 3.
Po =
= 3.54 +
= 3.54 + 3.92 + 4.33 + 56.83= $68.62
Mgt201 mcqzz Q#1: Which of the following is the Double Entry Principle? Select correct option:
Assets + Liabilities = Shareholders’ Equity Assets = Liabilities + Shareholders’ Equity Liabilities = Assets + Shareholders’ Equity None of the given options
Q#2 Given no change in required returns, the price of a stock whose dividend is constant will________. Select correct option:
Decrease over time at a rate of r% Remain unchanged Increase over time at a rate of r% Decrease over time at a rate equal to the dividend growth rate
Q#3: Nominal Interest Rate is also known as: Select correct option:
Effective interest Rate Annual percentage rate Periodic interest rate Required interest rate
Q#4: Which one of the following selects the combination of investment proposals that will provide the greatest increase in the value of the firm within the budget ceiling constraint? Select correct option:
Cash budgeting Capital budgeting Capital rationing Capital expenditure
Q#5: MIRR (discount rate) equates which of the following? Select correct option:
Future value of cash inflows to the present value of cash outflows Future value of cash flows to the present value of cash flows Future value of all cash flows to zero Present value of all cash flows to zero
Q#6: With continuous compounding at 8 percent for 20 years, what is the approximate future value of a Rs. 20,000 initial investment? Select correct option:
Rs.52,000 Rs.93,219 Rs.99,061 Rs.915,240
Q#7:Which of the following is a capital budgeting technique that is NOT considered as discounted cash flow method? Select correct option:
Payback period
Internal rate of return Net present value Profitability index
Q#8 A 5-year annuity due has periodic cash flows of Rs.100 each year. If the interest rate is 8 percent, the future value of this annuity is closest to which of the following equations? Select correct option:
(Rs.100)(FVIFA at 8% for 5 periods) (Rs.100)(FVIFA at 8% for 4 periods)(1.08) (Rs.100) (FVIFA at 8% for 5 periods)(1.08) (Rs.100)(FVIFA at 8% for 4 periods) + Rs.100
Q#9 What is difference between shares and bonds? Select correct option:
Bonds are representing ownership whereas shares are not Shares are representing ownership whereas bonds are not Shares and bonds both represent equity Shares and bond both represent liabilities
Q#10 All of the following are the financial statements used for the purpose of reporting and analysis EXCEPT: Select correct option:
Balance Sheet Income Statement Cash budget Statement of Retained Earnings
Q#11he statement of cash flows reports a firm's cash flows segregated into which of the following categorical order? Select correct option:
Operating, investing, and financing Investing, operating, and financing Financing, operating and investing Financing, investing, and operating
Q#12 When the zero coupon bond approaches to its maturity, the market value of the bond approaches to which of the following? Select correct option:
Intrinsic value Book value
Par value Historic cost
Q#13 What is potentially the biggest advantage of a small partnership over a sole proprietorship? Select correct option:
Unlimited liability Single tax filing Difficult ownership resale Raising capital
Q#14 Why we need Capital rationing? ( Select correct option:
Because, there are not enough positive NPV projects Because, companies do not always have access to all of the funds they could make use of Because, managers find it difficult to decide how to fund projects Because, banks require very high returns on projects
Q#15 ______ are also known as Spontaneous Financing. Select correct option:
Current liabilities Current assets Fixed assets Long-term liabilities
Q#16 Which of the following would be considered a cash-flow item from an "operating" activity? Select correct option:
Cash outflow to the government for taxes Cash outflow to shareholders as dividends Cash inflow to the firm from selling new common equity shares Cash outflow to purchase bonds issued by another company
Q#17 ______ is paid by companies with lower grade bonds like CC or C ratings. Select correct option:
Default risk premium Sovereign Risk Premium Market risk premium Maturity risk premium
Q#18 A capital budgeting technique through which discount rate equates the present value of the future net cash flows from an investment project with the project’s initial cash outflow is known as: Select correct option:
Payback period Internal rate of return Net present value Profitability index
Q#19 If we were to increase ABC company cost of equity assumption, what would we expect to happen to the present value of all future cash flows? Select correct option:
An increase A decrease No change Incomplete information
Q#20 Which of the following includes the planning, directing, monitoring, organizing, and controlling of the monetary resources of an organization? Select correct option:
Financial accounting Financial management Financial engineering Financial budgeting
Q#21 What is the long-run objective of financial management? Select correct option:
Maximize earnings per share Maximize the value of the firm's common stock Maximize return on investment Maximize market share
Q#22 Why companies invest in projects with negative NPV? Select correct option:
Because there is hidden value in each projectBecause there may be chance of rapid growth Because they have invested a lot All of the given options
Q#23 Which of the following is NOT the step of Percentage of sales to be used in Financial Forecasting?
Select correct option:
Estimate year-by-year Sales Revenue and Expenses Estimate Levels of Investment Needs required to Meet Estimated Sales Estimate the Financing Needs Estimate the retained earnings
Q#24 The logic behind _______is that instead of looking at net cash flows you look at cash inflows and outflows separately for each point in time. Select correct option:
IRR MIRR PV NPV
Q#25 Which of the following is NOT the type of Hybrid organizations? Select correct option:
S-Type Corporation Limited Liability Partnership Sole Proprietorship Professional Corporation
Q#26 Which of the following techniques would be used for a project that has non–normal cash flows? Select correct option:
Internal rate of return Multiple internal rate of return Modified internal rate of return Net present value
Q#27 Which if the following is (are) true? I. The dividend growth model holds if, at some point in time, the dividend growth rate exceeds the stock’s required return. II. A decrease in the dividend growth rate will increase a stock’s market value, all else the same. III. An increase in the required return on a stock will decrease its market value, all else the same. Select correct option:
I, II, and III I only III only II and III only
Q#28 In which of the following approach you need to bring all the projects to the same length in time? Select correct option:
MIRR approach Going concern approach Common life approach Equivalent annual approach
Q#29 Why companies invest in projects with negative NPV?Select correct option:
Because there is hidden value in each projectBecause there may be chance of rapid growth Because they have invested a lotAll of the given options Q@30 At the termination of project, which of the following needs to be considered relating to project assets?
Select correct option:Salvage valueBook valueIntrinsic valueFair value
Identify the option that best describes the simple rule of a journal entry.
Sum of Debits = Sum of Credits
Sum of Debits > Sum of Credits
Sum of Debits < Sum of Credits
None of the given options
When bonds are issued, under which of the following category the value of
the bond appears?
Equity
Fixed assets
Short term loan
Long term loan
What is the present value of Rs. 3,500,000 to be paid at the end of 50 years
if the correct risk adjusted interest rate is 18%?
Rs.105,000
Rs.1,500,000
Rs.3975,000
Rs. 350,000
Who or what is a person or institution designated by a bond issuer as the
official representative of the bondholders?
Indenture
Debenture
Bond
Bond trustee
The value of the bond is NOT directly tied to the value of which of the
following assets?
Real assets of the business
Liquid assets of the business
Fixed assets of the business
Long term assets of the business
The current yield on a bond is equal to ________.
Annual interest divided by the current market price
The yield to maturity
Annual interest divided by the par value
The internal rate of return
With continuous compounding at 8 percent for 20 years, what is the
approximate future value of a Rs. 20,000 initial investment?
Rs.52,000
Rs.93,219
Rs.99,061
Rs.915,240
Independent projects refer to:
One can invest in one of the projects and not in both
Cash flows of the two projects are not linked to each other
Cash flows of the two projects are linked to each other
None of the given options
Which of the following refers to a highly competitive market where good
business ideas are taken up immediately?
Capital market
Efficient market
Money market
Real asset market
Which of the following refers to the cost of taking up one option while
sacrificing the other?
Opportunity cost
Operating cost
Sunk cost
Floatation cost
Company ABC is analyzing some projects amongst which one project will be
selected. In your opinion which project is best for the company?
Project W with pay back period of 6.55 years
Project X with pay back period of 3.75 years
Project Y with pay back period of 4.08 years
Project Z with pay back period of 5 years
Why we need Capital rationing?
Because, there are not enough positive NPV projects
Because, companies do not always have access to all of the funds they
could make use of
Because, managers find it difficult to decide how to fund projects
Because, banks require very high returns on projects
All are the advantages of sole proprietorship, except:
Easiest and least expensive to form
Limited liability ownership
Single person receives all incomes/ profits
Easy to dissolve business; if required
What additional risk exists if investor invests in foreign bonds?
Additional cost involve due to cross boundaries arrangements
Bonds are dominated in currency other then investor’s home currency
Foreign governments are not much reliable due to different laws
Market risk of foreign government is fluctuating drastically
Identify the component(s) of working capital management.
Fixed assets
Current assets and current liabilities
Fixed assets and long-term liabilities
Shareholder’s equity
The formula to calculate future value of an amount using simple interest is:
F V = PV (1+ i * n)
F V = PV (1 + i) n
F V = PV x (e) i x n
F V = PV /(1 + i) n
How can a company improve (lower) its debt-to-total asset ratio?
By borrowing more
By shifting short-term to long-term debt
By shifting long-term to short-term debt
By selling common stock
Nominal Interest Rate is also known as:
Effective interest Rate
Annual percentage rate
Periodic interest rate
Required interest rate
When the bond approaches its maturity, the market value of the bond
approaches to which of the following?
Intrinsic value
Book value
Par value
Historic cost
While calculating the YTM, bond that sells at price other then par, YTM is
equal to interest yield plus
Negative or positive capital margin
Negative or Positive capital gain
Negative or Positive capital premium
Negative or Positive capital discount
Why companies invest in projects with negative NPV?Select correct option:
Because there is hidden value in each project
Because there may be chance of rapid growth
Because they have invested a lot
All of the given optionsQuestion # 2 of 10 ( Start time: 04:05:43 PM ) Total M a r k s: 1To increase a given future value, the discount rate should be adjusted __________.
Select correct option:
Upward
Downward
First upward and then downward
None of the given optionsQuestion # 3 of 10 ( Start time: 04:06:35 PM ) Total M a r k s: 1In 2 years you are to receive Rs.10,000. If the interest rate were to suddenly decrease, the present value of that future amount to you would __________.
Select correct option:
Fall
Rise
Remain unchanged
Incomplete informationQuestion # 4 of 10 ( Start time: 04:07:25 PM ) Total M a r k s: 1A 5-year annuity due has periodic cash flows of Rs.100 each year. If the interest rate is 8 percent, the present value of this annuity is closest to which of the following equations?
Select correct option:
(Rs.100)(PVIFA at 8% for 4 periods) + Rs.100
(Rs.100)(PVIFA at 8% for 4 periods)(1.08)
(Rs.100)(PVIFA at 8% for 6 periods) - Rs.100
Can not be found from the given informationQuestion # 5 of 10 ( Start time: 04:08:40 PM ) Total M a r k s: 1At the termination of project, which of the following needs to be considered relating to project assets?
Select correct option:
Salvage value
Book value
Intrinsic value
Fair valueQuestion # 6 of 10 ( Start time: 04:09:27 PM ) Total M a r k s: 1What is the long-run objective of financial management?
Select correct option:
Maximize earnings per share
Maximize the value of the firm's common stock
Maximize return on investment
Maximize market shareQuestion # 7 of 10 ( Start time: 04:09:56 PM ) Total M a r k s: 1What is potentially the biggest advantage of a small partnership over a sole proprietorship?
Select correct option:
Unlimited liability
Single tax filing
Difficult ownership resale
Raising capitalQuestion # 8 of 10 ( Start time: 04:10:16 PM ) Total M a r k s: 1Which of the following effects price of the bond?
Select correct option:
Market interest rate
Required rate of return
Interest rate risk
All of the given optionsuestion # 9 of 10 ( Start time: 04:10:31 PM ) Total M a r k s: 1An annuity due is always worth _____ a comparable annuity.
Select correct option:
Less than
More than
Equal to
Can not be found from the given informationQuestion # 10 of 10 ( Start time: 04:10:53 PM ) Total M a r k s: 1A capital budgeting technique through which discount rate equates the present value of the future net cash flows from an investment project with the project’s initial cash outflow is known as:
Select correct option:
Payback period
Internal rate of return
Net present value
Profitability index
1. Which of the following is NOT the step of Percentage of sales to be used in Financial Forecasting? Select correct option:
Estimate year-by-year Sales Revenue and Expenses Estimate Levels of Investment Needs required to Meet Estimated Sales Estimate the Financing Needs Estimate the retained earnings
Question # 2 of 15 ( Start time: 06:56:39 AM ) Total Marks: 1 A technique that tells us the number of years required to recover our initial cash investment based on the project’s expected cash flows is: Select correct option:
Pay back period Internal rate of return Net present value Profitability index
Question # 3 of 15 ( Start time: 06:57:11 AM ) Total Marks: 1 Which of the following allows to graphically depicting the timing of the cash flows as well as their nature as either inflows or outflows? Select correct option:
Cash flow diagram Cash budget Cash flow statement None of the given options
Question # 4 of 15 ( Start time: 06:57:35 AM ) Total Marks: 1 Which of the following would generally have unlimited liability? Select correct option:
A limited partner in a partnership A shareholder in a corporation The owner of a sole proprietorship
A member in a limited liability company (LLC)
Question # 5 of 15 ( Start time: 06:57:57 AM ) Total Marks: 1 Which of the following is NOT true regarding the capital market? Select correct option:
Where long-term funds can be raised Money is invested for periods longer than a year Where TFCs and NIT are exchanged and traded Where overnight lending & borrowing takes place
Question # 7 of 15 ( Start time: 06:59:27 AM ) Total Marks: 1 Who determine the market price of a share of common stock? Select correct option:
The board of directors of the firm
The stock exchange on which the stock is listed
The president of the company
Individuals buying and selling the stock
Question # 8 of 15 ( Start time: 07:00:10 AM ) Total Marks: 1 Which of the following techniques would be used for a project that has non–normal cash flows? Select correct option:
Internal rate of return Multiple internal rate of return Modified internal rate of return
Net present value
Question # 9 of 15 ( Start time: 07:01:20 AM ) Total Marks: 1 If we were to increase ABC company cost of equity assumption, what would we expect to happen to the present value of all future cash flows? Select correct option:
An increase A decrease No change Incomplete information
Question # 10 of 15 ( Start time: 07:02:12 AM ) Total Marks: 1 The current yield on a bond is equal to ______. Select correct option:
Annual interest divided by the current market price The yield to maturity Annual interest divided by the par value The internal rate of return
Question # 11 of 15 ( Start time: 07:02:40 AM ) Total Marks: 1 Choose the correct statement regarding the calculations of NPV (Net Present Value). Select correct option:
Exclude sunk costs and include opportunity costs and externalities Exclude sunk costs and externalities and include opportunity costs Include sunk costs, opportunity costs, and externalities Exclude sunk costs and opportunity costs and include externalities
Question # 12 of 15 ( Start time: 07:04:12 AM ) Total Marks: 1 To increase a given future value, the discount rate should be adjusted ________. Select correct option:
Upward
Downward
First upward and then downward None of the given options
Question # 13 of 15 ( Start time: 07:05:09 AM ) Total Marks: 1 Which of the following is the main objective of ‘Financial Accounting’? Select correct option:
Profit maximization Maximization of shareholders wealth To collect accurate, systematic, and timely financial data All of the given options
Question # 14 of 15 ( Start time: 07:05:35 AM ) Total Marks: 1 Which of the following value of the shares changes with investor’s perception about the company’s future and supply and demand situation? Select correct option:
Par value Market value Intrinsic value Face value
Question # 15 of 15 ( Start time: 07:06:08 AM ) Total Marks: 1 MIRR (discount rate) equates which of the following? Select correct option:
Future value of cash inflows to the present value of cash outflows Future value of cash flows to the present value of cash flows Future value of all cash flows to zero Present value of all cash flows to zero
o Share Share this post on
Digg
Technorati
Urgent call: 03455242488. | Virtual University AssignmentsVirtual University GDBs | Virtual University Papers | Vu Projects | Vu HandoutsAbout Expert
Reply With Quote
2.[3.] 11-24-2010 09:22 AM#2
Xpert
Administrator
Join DateMay 2010
LocationJhelum
Posts5,774
Thanks4Thanked 45 Times in 40 Posts
Question # 1 of 15 ( Start time: 07:08:57 AM ) Total Marks: 1 Which of the following is NOT an example of a financial intermediary? Select correct option:
Wisconsin S&L, a savings and loan association
Strong Capital Appreciation, a mutual fund
Microsoft Corporation, a software firm
College Credit, a credit union
Question # 2 of 15 ( Start time: 07:09:09 AM ) Total Marks: 1 A technique that tells us the number of years required to recover our initial cash investment based on the project’s expected cash flows is: Select correct option:
Pay back period Internal rate of return Net present value Profitability index
Question # 3 of 15 ( Start time: 07:09:29 AM ) Total Marks: 1 Which of the following are the approaches used to make two projects with different life spans comparable? Select correct option:
Modified internal rate of return and equivalent annual annuity Common life and equivalent annual annuity Common life and modified internal rate of return None of the given options
Question # 4 of 15 ( Start time: 07:10:18 AM ) Total Marks: 1 When the bond approaches its maturity, the market value of the bond approaches to which of the following? Select correct option:
Intrinsic value Book value Par value Historic cost
Question # 5 of 15 ( Start time: 07:10:45 AM ) Total Marks: 1
Study the time line and accompanying 5-period cash-flow pattern below. 0 1 2 3 4 5 6 Time line |--------|--------|--------|--------|--------|--------| Rs.10 Rs.10 Rs.10 Rs.10 Rs.10 Cash flows ¦ ¦ A B The present value of the 5-period annuity shown above as of Point A is the present value of a 5-period ______________ , whereas the future value of the same annuity as of Point B is the future value of a 5-period ______________ . Select correct option:
Ordinary annuity; ordinary annuity Ordinary annuity; annuity due Annuity due; annuity due Annuity due; ordinary annuity
Question # 6 of 15 ( Start time: 07:11:23 AM ) Total Marks: 1 As interest rates go up, the present value of a stream of fixed cash flows ___. Select correct option:
Goes down
Goes up
Stays the same
Can not be found from the given information
Question # 7 of 15 ( Start time: 07:12:41 AM ) Total Marks: 1 An investment proposal should be judged in whether or not it provides: Select correct option:
A return equal to the return require by the investor A return more than required by investor A return less than required by investor A return equal to or more than required by investor
Question # 8 of 15 ( Start time: 07:13:30 AM ) Total Marks: 1 Which of the following is the main objective of ‘Economics’? Select correct option:
Profit maximization Maximization of shareholders wealth Collection of accurate, systematic, and timely financial data All of the given options
Question # 9 of 15 ( Start time: 07:14:29 AM ) Total Marks: 1 If we were to increase ABC company cost of equity assumption, what would we expect to happen to the present value of all future cash flows? Select correct option:
An increase A decrease No change Incomplete information
Question # 10 of 15 ( Start time: 07:14:54 AM ) Total Marks: 1 When the zero coupon bond approaches to its maturity, the market value of the bond
approaches to which of the following? Select correct option:
Intrinsic value Book value Par value Historic cost
Question # 11 of 15 ( Start time: 07:15:16 AM ) Total Marks: 1 Which of the following equations is the correct one? Select correct option:
Net incremental after tax cash flows = net operating income + depreciation +Tax savings from depreciation + net working capital + other cash flow Net incremental after tax cash flows = net operating income - depreciation +Tax savings from depreciation + net working capital + other cash flow Net incremental after tax cash flows = net operating income + depreciation -Tax savings from depreciation - net working capital + other cash flow Net incremental after tax cash flows = net operating income + depreciation +Tax savings from depreciation + net working capital - other cash flow
Question # 12 of 15 ( Start time: 07:15:28 AM ) Total Marks: 1 Which type of responsibilities are primarily assigned to Controller and Treasurer respectively? Select correct option:
Operational; financial management
Financial management; accounting
Accounting; financial management
Financial management; operations
Question # 13 of 15 ( Start time: 07:15:56 AM ) Total Marks: 1 To increase a given future value, the discount rate should be adjusted __________. Select correct option:
Upward
Downward
First upward and then downward None of the given options
Question # 14 of 15 ( Start time: 07:16:17 AM ) Total Marks: 1 ________ is paid by companies with lower grade bonds like CC or C ratings. Select correct option:
Default risk premium Sovereign Risk Premium Market risk premium Maturity risk premium
Question # 15 of 15 ( Start time: 07:16:39 AM ) Total Marks: 1
Effective interest rate is different from nominal rate of interest because: Select correct option:
Nominal interest rate ignores compounding Nominal interest rate includes frequency of compounding Periodic interest rate ignores the effect of inflation All of the given options
Which group of ratios measures a firm's ability to meet short-term obligations?Select correct option:Liquidity ratiosDebt ratiosCoverage ratiosProfitability ratiosA class of financial metrics that is used to determine a company's ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts. Liquidity RatiosCommon liquidity ratios include the current ratio, the quick ratio and the operating cash flow ratio. Different analysts consider different assets to be relevant in calculating liquidity. Some analysts will calculate only the sum of cash and equivalents divided by current liabilities because they feel that they are the most liquid assets, and would be the most likely to be used to cover short-term debts in an emergency.A company's ability to turn short-term assets into cash to cover debts is of the utmost importance when creditors are seeking payment. Bankruptcy analysts and mortgage originators frequently use the liquidity ratios to determine whether a company will be able to continue as a going concernWhich one of the following selects the combination of investment proposals that will provide the greatest increase in the value of the firm within the budget ceiling constraint?Select correct option:Cash budgetingCapital budgeting Capital rationingCapital expenditureReferenceWith continuous compounding at 8 percent for 20 years, what is the approximate future value of a Rs. 20,000 initial investment?Select correct option:Rs.52,000Rs.93,219Rs.99,061Rs.915,240F V = PV x ei x n
FV= 20,000*2.718(.08*20)
A project that tells us the number of years required to recover our initial cash investment based on the project’s expected cash flows is:Select correct option:Pay back periodInternal rate of returnNet present valueProfitability indexA 5-year annuity due has periodic cash flows of Rs.100 each year. If the interest rate is 8 percent, the present value of this annuity is closest to which of the following equations?Select correct option:(Rs.100)(PVIFA at 8% for 4 periods) + Rs.100(Rs.100)(PVIFA at 8% for 4 periods)(1.08)(Rs.100)(PVIFA at 8% for 6 periods) - Rs.100Can not be found from the given informationWhat type of long-term financing most likely has the following features: 1) it has an infinite life, 2) it pays dividends, and 3) its cash flows are expected to be a constant annuity stream?Select correct option:Long-term debtPreferred stockCommon stockNone of the given optionsThe value of the bond is NOT directly tied to the value of which of the following assets?Select correct option:Real assets of the businessLiquid assets of the businessFixed assets of the businessLon term assets of the businessWhich of the following is a major disadvantage of the corporate form of organization?Select correct option:Double taxation of dividendsInability of the firm to raise large sums of additional capitalLimited liability of shareholdersLimited life of the corporate formthe current yield on a bond is equal to ________.Select correct option:Annual interest divided by the current market priceThe yield to maturityAnnual interest divided by the par valueThe internal rate of returnAn 8-year annuity due has a present value of Rs.1,000. If the interest rate is 5 percent, the amount of each annuity payment is closest to which of the following?Select correct option:
Rs.154.73Rs.147.36Rs.109.39Rs.104.72FV=(1-(1/(1.05)^8))/0.05= 6.4632127591000/ 6.463212759=147.36The present value of Rs. 5,000 received at the end of 5 years, discounted at 10 percent, is closest to______.
►Rs.3,105►Rs.823►Rs.620►Rs.3,40Explanation:Formula:PV = FV/(1 + I)^nPV=Present Value, FV future value, n= number of years, and i=interest rate.5000/(1+10/100)^53104.606615You are considering buying common stock in Grow On, Inc. The firm yesterday paid a dividend of Rs. 7.80. You have projected that dividends will grow at a rate of 9.0% per year indefinitely. If you want an annual return of 24.0%, what is the most you should pay for the stock now?►Rs.52.00►Rs.56.68►Rs.32.50►Rs.35.43http://groups.google.com/group/vuZsWhat is the additional amount a borrower must pay to lender to compensate for assuming the risk associated with non-payment? Select correct option:Default risk premium Sovereign Risk Premium Market risk premium Maturity risk premiumhttp://www.investopedia.com/terms/d/defaultpremium.asp 1st..Which of the following is the Double Entry Principle? Select correct option:
Assets + Liabilities = Shareholders’ Equity Assets = Liabilities + Shareholders’ Equity Liabilities = Assets + Shareholders’ Equity None of the given optionshttp://groups.google.com/group/vuZs
An 8-year annuity due has a present value of Rs.1,000. If the interest rate is 5 percent, the amount of each annuity payment is closest to which of the following? Select correct option:
Rs.154.73 Rs.147.36 Rs.109.39 Rs.104.72Explanation:PV = r(1-(1+i)^-n)/i)1000 = r(1-(1+.05)^-8/.05)1000/(1-(1+.05)^-8/.05) = r1000/6.463154.7218Which if the following refers to capital budgeting? Select correct option:
Investment in long-term liabilities Investment in fixed assets Investment in current assets Investment in short-term liabilitiesReference:Page # 39, Lecture 08Capital budgeting is about investment in fixed assets.http://groups.google.com/group/vuZsWhich of the following is NOT the step of Percentage of sales to be used in Financial Forecasting? Select correct option:Estimate year-by-year Sales Revenue and Expenses Estimate Levels of Investment Needs required to Meet Estimated Sales Estimate the Financing Needs Estimate the retained earningsReference:Page # 25,Percentage of sales:Step 1: Estimate year-by-year Sales Revenue and ExpensesStep 2: Estimate Levels of Investment Needs (in Assets) required meeting estimated sales (using Financial Ratios). That how the Assets of the company changes with the change inStep 3: Estimate the Financing Needs (Liabilities)A technique that tells us the number of years required to recover our initial cash investment based on the project’s expected cash flows is:Select correct option:Pay back periodInternal rate of return
Net present valueProfitability indexReference & Explanation:http://www.insidus.com/financial.htmNet Present Value (NPV)In simple terms, NPV is the difference between an investment’s market value and its costs. The “P” in NPV means that we will derive a single dollar value for the investment today even though the life of the project may span many years. Page # 41Net Present Value (NPV):NPV is a mathematical tool which uses the discounting process, something that we have found missing in the aforementioned capital budgeting techniques. Net Present Value is defined as the value today of the Future Incremental After-tax Net Cash Flows less the initial investment.http://groups.google.com/group/vuZsWith continuous compounding at 8 percent for 20 years, what is the approximate future value of a Rs. 20,000 initial investment?Select correct option:Rs.52,000Rs.93,219Rs.99,061Rs.915,240Explanation:Formula:FV = PV(1+i)^nFV = 20,000(1+0.08)^20FV= 20,000 (1.08)^20FV= Rs.93,219Which of the following is a capital budgeting technique that is NOT considered as discounted cash flow method? Select correct option:
Payback period Internal rate of return Net present value Profitability indexExplanation:Internal rate of return The internal rate of return (IRR) is a rate of return used in capital budgeting to measure and compare the profitability of investments. It is also called the discounted cash flow rate of return (DCFROR) or simply the rate of return (ROR).Net present valueNPV is a central tool in discounted cash flow (DCF) analysis, and is a standard method for using the time value of money to appraise long-term projects.Payback period
While the payback period is a simple and straightforward method for analyzing a capital budgeting proposal, it has certain limitations. First and the foremost problem is that it does not take into account the concept of time value of money. The cash flows are considered regardless of the time in which they are occurring. You must have noticed that we have not used any interest rate while making calculation.Profitability indexAssuming that the cash flow calculated does not include the investment made in the project, a profitability index of 1 indicates breakeven.http://groups.google.com/group/vuZsA 5-year annuity due has periodic cash flows of Rs.100 each year. If the interest rate is 8 percent, the future value of this annuity is closest to which of the following equations? Select correct option:(Rs.100)(FVIFA at 8% for 5 periods) (Rs.100)(FVIFA at 8% for 4 periods)(1.08) (Rs.100) (FVIFA at 8% for 5 periods)(1.08) (Rs.100)(FVIFA at 8% for 4 periods) + Rs.100Explanation:Equivalent Annual Annuity Approach: The other approach is to calculate the NPVs of the projects and multiply the result with the annuity factor. This method converts the projects of different lives into annuity of the same duration in time.Choose among the followings, the correct statement regarding every journal entry.Select correct option:Sum of Debits = Sum of CreditsSum of Debits >Sum of CreditsSum of Debits < Sum of CreditsNone of the given optionshttp://groups.google.com/group/vuZsThe statement of cash flows reports a firm's cash flows segregated into which of the following categorical order?Select correct option:Operating, investing, and financingInvesting, operating, and financingFinancing, operating and investingFinancing, investing, and operatingExplanation:Components of Cash Flow Statement
Cash flow statement is divided into three components • Cash Flow from Operating Activities • Cash Flow from Investing Activities • Cash Flow from Financing Activities
Also check this link:http://wps.pearsoned.co.uk/ema_uk_he_wachowicz_fundfinman_12/26/6679/1709885.cw/content/index.htmlEffective interest rate is different from nominal rate of interest because:Select correct option:Nominal interest rate ignores compoundingNominal interest rate includes frequency of compoundingPeriodic interest rate ignores the effect of inflationAll of the given optionsReference:http://en.wikipedia.org/wiki/Nominal_interest_rateWhere there is single period capital rationing, what is the most sensible way of making investment decisions?Select correct option:Choose all projects with a positive NPVGroup projects together to allocate the funds available and select the group of projects with the highest NPVChoose the project with the highest NPVCalculate IRR and select the projects with the highest IRRsReference:Page # 41If two or more projects under contemplation, then the one with the higher NPV, should be accepted. When a company invests in projects with positive NPV, they raise the shareholders’ wealth or company’s value. This would also increase the market value added and the economic value added for the firmhttp://groups.google.com/group/vuZsWhat is the most important criteria in capital budgeting?Select correct option:Return on investmentProfitability indexNet present valuePay back periodPage # 45Net Present value (NPV): The most important skill in this course is to understand the NPV equation and to calculate NPV as reliably as possible. It is also the most important criteria in capital budgeting.Which of the following is the main objective of ‘Financial Accounting’?Select correct option:Profit maximizationMaximization of shareholders wealthTo collect accurate, systematic, and timely financial dataAll of the given optionsPage # 8, lesson 2
The objective of financial accounting is to collect accurate, systematic, and timely financial data and other financial information, and to compile and consolidate it in an organized and systematic way, according to the principles and rules of accounting, for external reporting purpose.Nominal Interest Rate is also known as:Select correct option:Effective interest RateAnnual percentage ratePeriodic interest rateRequired interest ratehttp://groups.google.com/group/vuZsThe nominal rate, in simple terms, is the rate of interest for a particular compounding period. The effective rate of interest (also known as effective annual yield or annualized interest rate) is the interest rate applied per year.
Which of the following are known as Discretionary Financing?Select correct option:Current liabilitiesCurrent assetsFixed assetsLong-term liabilitiesPage 26Long Term Liabilities: Also, called Discretionary Financing does not grow in proportion to SalesWhy companies invest in projects with negative NPV?Select correct option:Because there is hidden value in each projectBecause there may be chance of rapid growthBecause they have invested a lotAll of the given optionsCompanies invest in projects with negative NPV because there is a hidden value in each project.page 52http://groups.google.com/group/vuZsWhich of the following is not the present value of the bond?Select correct option:Intrinsic valueMarket priceFair priceTheoretical pricePage # 67PV = Intrinsic Value of Bond or Fair Price (in rupees) paid to invest in the bond. It is the Expected or Theoretical Price and NOT the actual Market Price.Consider two bonds, A and B. Both bonds presently are selling at their par value of Rs. 1,000. Each pays interest of Rs. 120 annually. Bond A will mature in 5 years while bond B will mature in 6 years. If the yields to
maturity on the two bonds change from 12% to 10%, __________.Select correct option:Both bonds will increase in value, but bond A will increase more than bond BBoth bonds will increase in value, but bond B will increase more than bond ABoth bonds will decrease in value, but bond A will decrease more than bond BBoth bonds will decrease in value, but bond B will decrease more than bond Ahttp://odin.lcb.uoregon.edu/aemami/318Practice/PRACTICE%207/Chpt07.htmWhat are the Direct claim securities?Select correct option:The securities whose value depends on the cash flows generated by the underlying assetsThe securities whose value depends on the value of the underlying assetsThe securities that do not directly generate any returns for its investorsAll of the given optionsDirect claim securities:Stocks (Shares):It is defined as equity paper representing ownership, shareholding. Appears on Liabilities side of Balance SheetAt the termination of project, which of the following needs to be considered relating to project assets?Select correct option:Salvage valueBook valueIntrinsic valueFair valuehttp://groups.google.com/group/vuZsWhich of the following needs to be excluded while we calculate the incremental cash flows?
DepreciationSunk costOpportunity costNon-cash itemPage 51Sunk costs need to be excluded while calculating the incremental cash flows. Sunkcosts are the costs that have already incurred in the pastWhich of the following is NOT true regarding an annuity due?
It is a series of equal cash flowsIt is also known as deferred annuityCash flows occur for a specific time periodPayments are made at the start of each periodAn annuity due consists of a series of equal payments at the beginning of each period.
_______ is equal to (common shareholders' equity/common shares outstanding).
Book value per shareLiquidation value per shareMarket value per shareNone of the abovehttp://www.letu.edu/people/juancastro/Finance_files/Investment%20Files/INTERNET%20EXAMS%20AND%20QUIZZES/Practice%20Exam%20-CHAPTER-18.htmlwww2.cob.ilstu.edu/gnnaidu/Tb/Chap018.RTFhttp://groups.google.com/group/vuZs______ is paid by companies with lower grade bonds like CC or C ratings.
Default risk premiumSovereign Risk PremiumMarket risk premiumMaturity risk premiumPage # 19Default risk refers to the risk that the company might go bankrupt or close down & bonds, or shares issued by the company may collapse. Default Risk Premium is charged by the investor, as compensation, against the risk that the company might goes bankruptWhich of the following refers to the risk associated with interest rate uncertainty?
Default risk premiumSovereign Risk PremiumMarket risk premiumMaturity risk premiumPage # 21Maturity Risk Premium (MR):The maturity risk premium is linked to the life of that security. For example, if you purchase the long term Federal Investment Bonds issued by the government of Pakistan, you are assuming certain isk, because changes in the rates of inflation or interest rates would depreciate the value of your investment. These changes are more likely in the long term and less likely in the short term. Maturity Risk Premium is linked to life of the investment. The longer the maturity period, the higher the maturity risk premiumWhich of the following allows to graphically depicting the timing of the cash flows as well as their nature as either inflows or outflows?
Cash flow diagramCash budgetCash flow statementNone of the given options
http://groups.google.com/group/vuZsGiven no change in required returns, the price of a stock whose dividend is constant will________. Select correct option:
Decrease over time at a rate of r% Remain unchanged Increase over time at a rate of r% Find the Expected Return on the Market Portfolio given that the Expected Return on Stock is 17%, the Risk-Free Rate is 1.1%, and the Beta for Stock is 1.5.► 11.7%► 12.14%► 13.23%► 13.82%rA = rRF + (rM - rRF ) β A .17=1.1+1.5(x-1.1)17=1.1+1.5x-1.6517+1.65-1.1=1.5xX=17.55/1.5=11.7Which of the following represent all Risk –Return Combinations for the efficient portfolios in the capital market?► Parachute graph► CML straight line equation► Security market line ► All of the given MGT201 options Parachute Graph: and Efficient Frontier (Hook Shaped Curve) shows ALL possible Risk-Return Combinations for ALL combinations of stocks in the Portfolio – whether efficient or not.CML Straight Line Equation: (T-Bill Portfolio and Optimal Portfolio Mix on Efficient Frontier Curve) connects rRF (Risk-free or T-Bill return) to the Tangent Point on the Efficient Frontier Curve. It represents all Risk-Return Combinations for Efficient Portfolios in the Capital Market.SML (Security Market Line): Cornerstone of CAPM: It represents all Risk-Return Combinations for ALL Efficient Stocks in the Capital Market.What is the present value of Rs.1,000 to be paid at the end of 5 years if the correct risk adjusted interest rate is 8%?
Rs.714Rs.1,462Rs.322.69Rs.401.98PV =1000*(1+0.08)^5Given no change in required returns, the price of a stock whose dividend is constant will________.
Decrease over time at a rate of r%Remain unchangedIncrease over time at a rate of r%Decrease over time at a rate equal to the dividend growth rateWhich of the following is NOT a cash outflow for the firm?Select correct MGT201 option:
DepreciationDividendsInterestTaxesThe logic behind _______ is that instead of looking at net cash flows you look at cash inflows and outflows separately for each point in time.Select correct MGT201 option:
IRRMIRRPVNPVAll of the following are the financial statements used for the purpose of reporting and analysis EXCEPT:
Select correct MGT201 option:Balance SheetIncome StatementCash budgetStatement of Retained Earningshttp://groups.google.com/group/vuZsHow "Shareholder wealth" is represented in a firm?Select correct MGT201 option:
The number of people employed in the firmThe book value of the firm's assets less the book value of its liabilitiesThe market price per share of the firm's common stockThe amount of salary paid to its employeesThe value of a bond is directly derived from which of the following?Select correct MGT201 option:
Cash flowsCoupon receiptsPar recovery at maturityAll of the given MGT201 optionsWhat should be the focal point of financial management in a firm?Select correct MGT201 option:
The number and types of products or services provided by the firmThe minimization of the amount of taxes paid by the firmThe creation of value for shareholdersThe dollars profits earned by the firmWhat is difference between shares and bonds?Select correct MGT201 option:
Bonds are representing ownership whereas shares are notShares are representing ownership whereas bonds are notShares and bonds both represent equityShares and bond both represent liabilitiesWhich of the following is NOT true regarding an annuity due?Select correct MGT201 option:
It is a series of equal cash flows
It is also known as deferred annuityCash flows occur for a specific time periodPayments are made at the start of each periodWhich of the following techniques would be used for a project that has non–normal cash flows?Select correct MGT201 option:Internal rate of returnMultiple internal rate of returnModified internal rate of returnNet present valueWhich of the following is the general assumption of Percent of Sales Forecasting?Select correct MGT201 option:
Current Assets usually grow in proportion to RevenuesCurrent Assets usually grow in proportion to ExpensesCurrent Assets usually grow in proportion to LiabilitiesCurrent Assets usually grow in proportion to SalesWhich type of responsibilities are primarily assigned to Controller and Treasurer respectively?Select correct MGT201 option:http://groups.google.com/group/vuZsOperational; financial managementFinancial management; accountingAccounting; financial managementFinancial management; operationsWhich of the following is FALSE about Perpetuity?Select correct MGT201 option:
It is a series of cash flowsCash flows occur for a specific time periodIts cash flows are identicalNone of the given MGT201 optionsPerpetuity:“It is defined as an annuity with an infinite life making continual payments.” The value of the bond is NOT directly tied to the value of which of the following assets?Select correct MGT201 option:
Real assets of the businessLiquid assets of the businessFixed assets of the businessLong term assets of the businessNominal Interest Rate is also known as:Select correct MGT201 option:
Effective interest RateAnnual percentage ratePeriodic interest rateRequired interest rateWhich of the following refers to time value of money concept?Select correct MGT201 option:
A rupee in one’s hand at present is worth less than the rupee that one is going to receive tomorrowA rupee in one’s hand at present is worth more than the rupee that one is going to
receive tomorrowA rupee in one’s hand at present is worth same as the rupee that one is going to receive tomorrowAll of the given MGT201 optionsWhich of the following is a major disadvantage of the corporate form of organization?Select correct MGT201 option:
Double taxation of dividendsInability of the firm to raise large sums of additional capitalLimited liability of shareholdersLimited life of the corporate formWhat are the Indirect securities?Select correct MGT201 option:
The securities whose value depends on the cash flows generated by the underlying assetsThe securities whose value depends on the value of the underlying assetsThe securities that indirectly generate returns for its investorsAll of the given MGT201 optionsIndirect Securities: Indirect securities include derivatives, Futures and MGT201 options. The securities do not generate any cash flow; however, its value depends on the value of the underlying asset.Which if the following refers to capital budgeting?Select correct MGT201 option:
Investment in long-term liabilitiesInvestment in fixed assetsInvestment in current assetsInvestment in short-term liabilitiesA technique that tells us the number of years required to recover our initial cash investment based on the project’s expected cash flows is:Select correct MGT201 option:
Pay back periodInternal rate of returnNet present valueProfitability index
http://groups.google.com/group/vuZsHow can a company improve (lower) its debt-to-total asset ratio?
By borrowing moreBy shifting short-term to long-term debtBy shifting long-term to short-term debtBy selling common stockWhich of the following are known as Discretionary Financing?
Current liabilitiesCurrent assetsFixed assetsLong-term liabilitiesWhich of the following value of the shares changes with investor’s perception about the
company’s future and supply and demand situation?
Par valueMarket valueIntrinsic valueFace valueAccording to timing difference problem a good project might suffer from ___ IRR even though its NPV is ______.
Higher; lowerLower; LowerLower; higherHigher; higherWhich of the following statements is TRUE regarding Permanent Accounts?Select correct MGT201 option:Accounts that are found on Income StatementAccounts that are found on Statement of Retained EarningsAccounts that are found on Balance SheetAll of the given MGT201 optionsWhich group of ratios shows the extent to which the firm is financed with debt? Select correct MGT201 option:
Liquidity ratiosDebt ratiosCoverage ratiosProfitability ratiosWhich of the following is NOT the type of Hybrid organizations. Select correct MGT201 option:http://groups.google.com/group/vuZsS-Type CorporationLimited Liability PartnershipSole ProprietorshipProfessional CorporationWhen bonds are issued, under which of the following category the value of the bond appears. Select correct MGT201 option:
EquityFixed assetsShort term loanLong term loanIn 2 years you are to receive Rs.10,000. If the interest rate were to suddenly decrease, the present value of that future amount to you would ________. Select correct MGT201 option:
FallRiseRemain unchangedIncomplete informationWhich of the following refers to bringing the future cash flow to the present timeSelect correct MGT201 option:
Net present valueDiscountingOpportunity costInternal rate of returnDiscounted cash flow methods provide a more objective basis for evaluating and selecting an investment project. These methods take into account: Select correct MGT201 option:
Magnitude of expected cash flowsTiming of expected cash flowsBoth timing and magnitude of cash flowsNone of the given MGT201 optionsEffective interest rate is different from nominal rate of interest because. Select correct MGT201 option:
Nominal interest rate ignores compoundingNominal interest rate includes frequency of compoundingPeriodic interest rate ignores the effect of inflationAll of the given MGT201 optionsWhat are the Indirect securities? Select correct MGT201 option:
The securities whose value depends on the cash flows generated by the underlying assetsThe securities whose value depends on the value of the underlying assetsThe securities that indirectly generate returns for its investorsAll of the given MGT201 optionsA 5-year annuity due has periodic cash flows of Rs.100 each year. If the interest rate is 8 percent, the future value of this annuity is closest to which of the following equations? Select correct MGT201 option:
(Rs.100)(FVIFA at 8% for 5 periods)(Rs.100)(FVIFA at 8% for 4 periods)(1.08)(Rs.100) (FVIFA at 8% for 5 periods)(1.08)(Rs.100)(FVIFA at 8% for 4 periods) + Rs.100Given no change in required returns, the price of a stock whose dividend is constant will__________Select correct MGT201 option:
Decrease over time at a rate of r%Remain unchangedIncrease over time at a rate of r%Decrease over time at a rate equal to the dividend growth rateCompanies and individuals running different types of businesses have to make the choices of the asset according to which of the following. Select correct MGT201 option:http://groups.google.com/group/vuZsLife span of the projectCost of the capitalReturn on assetNone of the given MGT201 optionsWhen a bond will sell at a discount. Select correct MGT201 option:
The coupon rate is greater than the current yield and the current yield is greater than
yield to maturityThe coupon rate is greater than yield to maturityThe coupon rate is less than the current yield and the current yield is greater than the yield to maturityThe coupon rate is less than the current yield and the current yield is less than yield to maturityWhich of the following allows to graphically depicting the timing of the cash flows as well as their nature as either inflows or outflows. Select correct MGT201 option:
Cash flow diagramCash budgetCash flow statementNone of the given MGT201 optionsWhich of the following is NOT the step of Percentage of sales to be used in Financial Forecasting. Select correct MGT201 option:
Estimate year-by-year Sales Revenue and ExpensesEstimate Levels of Investment Needs required to Meet Estimated SalesEstimate the Financing NeedsEstimate the retained earningsPercentage of sales:Step 1: Estimate year-by-year Sales Revenue and ExpensesStep 2: Estimate Levels of Investment Needs (in Assets) required meeting estimated sales (usingFinancial Ratios). That how the Assets of the company changes with the change inStep 3: Estimate the Financing Needs (Liabilities)Which of the following is NOT true regarding an annuity due? Select correct MGT201 option:
It is a series of equal cash flows It is also known as deferred annuity Cash flows occur for a specific time period Payments are made at the start of each periodWhen coupon bonds are issued, they are typically sold at which of the following value? Select correct MGT201 option:
Above par value Below par At or near par value At a value unrelated to parWhere there is single period capital rationing, what is the most sensible way of making investment decisions? Select correct MGT201 option:
Choose all projects with a positive NPV Group projects together to allocate the funds available and select the group of projects with the highest NPV Choose the project with the highest NPV Calculate IRR and select the projects with the highest IRRsWhich of the following is not the present value of the bond?
Intrinsic valueMarket priceFair priceTheoretical priceWhich is the present value of Rs.1,000 to be paid at the end of 5 years if the correct risk adjusted interest rate is 8%?Rs.714 Rs.1,462 Rs.322.69 Rs.401.98PV=1000*(1.08)^5Which one of the following selects the combination of investment proposals that will provide the greatest increase in the value of the firm within the budget ceiling constraint? Cash budgeting Capital budgeting Capital rationing Capital expenditureWhich of the following is a capital budgeting technique that is NOT considered as discounted cash flow method? Select correct MGT201 option:
Payback period Internal rate of return Net present value Profitability indexWhich of the following is a major disadvantage of the corporate form of organization? Select correct MGT201 option:
Double taxation of dividends Inability of the firm to raise large sums of additional capital Limited liability of shareholders Limited life of the corporate formWhich of the following is the risk of investing funds in another country? Select correct MGT201 option:
Default risk premium Sovereign Risk Premium Market risk premium Maturity risk premiumWhich of the following is NOT an example of hybrid equity Select correct MGT201 option:
Convertible Bonds Convertible Debenture Common shares Preferred sharesWhich of the following needs to be excluded while we calculate the incremental cash flows? Select correct MGT201 option:
Depreciation Sunk cost
Opportunity cost Non-cash itemSunk costs need to be excluded while calculating the incremental cash flows.Which of the following affects price of the bond? Select correct MGT201 option:
Market interest rate Required rate of return Interest rate risk All of the given MGT201 optionsWhich of the following is/are the characteristic(s) of Perpetuity? Select correct MGT201 option:
It is an annuity It has no definite end It is a constant stream of identical cash flows All of the given MGT201 optionsWith continuous compounding at 8 percent for 20 years, what is the approximate future value of a Rs. 20,000 initial investment?Select correct MGT201 option:
Rs.52,000Rs.93,219Rs.99,061Rs.915,240F V = PV x e i x n=20000*(2.718)^1.6
Which of the following is a limitation of a Corporation?Select correct MGT201 option:
Easy to set upDouble-taxationInexpensive to maintainUnlimited liabilityWhich of the following affects price of the bond?Select correct MGT201 option:
Market interest rateRequired rate of returnInterest rate riskAll of the given MGT201 optionsWhich of the following is NOT true regarding an ordinary annuity?Select correct MGT201 option:
It is a series of equal cash flowsCash flows occur for a specific time periodPayments are made at the start of each periodIt is also known as deferred annuityAn ordinary annuity, also known as deferred annuity, consists of a series of equal payments at the end of each period.
The return in excess to risk free rate that investors require for bearing the market risk is known as:
Select correct MGT201 option:Default risk premiumSovereign Risk PremiumMarket risk premiumMaturity risk premiumWhen the bond approaches its maturity, the market value of the bond approaches to which of the following?Select correct MGT201 option:
Intrinsic valueBook valuePar valueHistoric costStudy the time line and accompanying 5-period cash-flow pattern below. 0 1 2 3 4 5 6 Time line |--------|--------|--------|--------|--------|--------| Rs.10 Rs.10 Rs.10 Rs.10 Rs.10 Cash flows ¦ ¦ A B The present value of the 5-period annuity shown above as of Point A is the present value of a 5-period ____________ , whereas the future value of the same annuity as of Point B is the future value of a 5-period ____________ .
Select correct MGT201 option:Ordinary annuity; ordinary annuityOrdinary annuity; annuity dueAnnuity due; annuity dueAnnuity due; ordinary annuity
The value of direct claim security is derived from which of the following?Select correct MGT201 option:
Fundamental analysisUnderlying real assetSupply and demand of securities in the marketAll of the given MGT201 options
Who determine the market price of a share of common stock?Select correct MGT201 option:
The board of directors of the firmThe stock exchange on which the stock is listedThe president of the companyIndividuals buying and selling the stockThe value of the bond is NOT directly tied to the value of which of the following assets?Select correct MGT201 option:
Real assets of the businessLiquid assets of the businessFixed assets of the businessLong term assets of the business
Why we need Capital rationing? Select correct MGT201 option:
Because, there are not enough positive NPV projectsBecause, companies do not always have access to all of the funds they could make use ofBecause, managers find it difficult to decide how to fund projectsBecause, banks require very high returns on projectsWhen the zero coupon bond approaches to its maturity, the market value of the bond approaches to which of the following?Select correct MGT201 option:
Intrinsic valueBook valuePar valueHistoric cost
What is the additional amount a borrower must pay to lender to compensate for assuming the risk associated with non-payment?Select correct MGT201 option:
Default risk premiumSovereign Risk PremiumMarket risk premiumMaturity risk premium
Which of the following equation is NOT correct?Select correct MGT201 option:
Gross Revenue – Admin & Operating Expenses = Operating RevenueOther Expenses + Other Revenue = EBITEBIT – Financial Charges & Interest = EBTNet Income – Dividends = Retained EarningOperating Revenue – Other Expenses + Other Revenue = EBIT
Which of the following will NOT equate the future value of cash inflows to the present value of cash outflows?Select correct MGT201 option:
Discount rateProfitability indexInternal rate of returnMultiple Internal rate of returnWhen a bond will sell at a discount?Select correct MGT201 option:
The coupon rate is greater than the current yield and the current yield is greater than yield to maturityThe coupon rate is greater than yield to maturityThe coupon rate is less than the current yield and the current yield is greater than the yield to maturity
The coupon rate is less than the current yield and the current yield is less than yield to maturityWhat type of long-term financing most likely has the following features: 1) it has an infinite life, 2) it pays dividends, and 3) its cash flows are expected to be a constant annuity stream?Select correct MGT201 option:
Long-term debtPreferred stockCommon stockNone of the given MGT201 optionsWhich of the following is type a Temporary Account?Select correct MGT201 option:
AssetLiabilityReservesRevenue
What are the Direct claim securities?Select correct MGT201 option:
The securities whose value depends on the cash flows generated by the underlying assetsThe securities whose value depends on the value of the underlying assetsThe securities that do not directly generate any returns for its investorsAll of the given MGT201 optionsHand outs, page 121Which of the following term may be defined as incidental cash flows that arise because of the effect of new project on the running business?Select correct MGT201 option:
Sunk costOpportunity costExternalitiesContingenciesExternalities in financial terms may be defined as incidental cash flows that arise because of the effect of new project on the existing or running business.Which of the following allows to graphically depicting the timing of the cash flows as well as their nature as either inflows or outflows? Select correct MGT201 option:
Cash flow diagram Cash budget Cash flow statement None of the given MGT201 optionsAs interest rates go up, the present value of a stream of fixed cash flows ___.Select correct MGT201 option:Goes downGoes upStays the same
Can not be found from the given information
______ are also known as Spontaneous Financing.Select correct MGT201 option:
Current liabilitiesCurrent assetsFixed assetsLong-term liabilitiesSpontaneous Financing is Trade credit, and other payables and accruals, that arise spontaneously in the firm’s day-to-day operations.How dividend yield on a stock is similar to the current yield on a bond?Select correct MGT201 option:
Both represent how much each security’s price will increase in a yearBoth represent the security’s annual income divided by its priceBoth are an accurate representation of the total annual return an investor can expect to earn by owning the securityBoth are quarterly yields that must be annualizedWho or what is a person or institution designated by a bond issuer as the official representative of the bondholders? Select correct MGT201 option:
Indenture Debenture Bond Bond trusteeThe objective of financial management is to maximize _______ wealth.Select correct MGT201 option:
StakeholdersShareholdersBondholdersDirectorsWhat are the Indirect securities?Select correct MGT201 option:
The securities whose value depends on the cash flows generated by the underlying assetsThe securities whose value depends on the value of the underlying assetsThe securities that indirectly generate returns for its investorsAll of the given MGT201 optionsWhich of the following is NOT an example of a financial intermediary?Select correct MGT201 option:
Wisconsin S&L, a savings and loan associationStrong Capital Appreciation, a mutual fundMicrosoft Corporation, a software firmCollege Credit, a credit unionWhich of the following refers to the risk associated with interest rate uncertainty? Select correct MGT201 option:
Default risk premium Sovereign Risk Premium Market risk premium Maturity risk premium ______ is equal to (common shareholders' equity/common shares outstanding).Select correct MGT201 option:Book value per shareLiquidation value per shareMarket value per shareNone of the aboveWhich of the following can not be the drawback of using payback period technique of capital budgeting? Select correct MGT201 option:
It does not account for time value of money It neglects cash flows after the payback period It does not use interest rate while making calculations It is a tricky and complicated method Which if the following is (are) true?
I. The dividend growth model holds if, at some point in time, the dividend growth rate exceeds the stock’s required return. II. A decrease in the dividend growth rate will increase a stock’s market value, all else the same. III. An increase in the required return on a stock will decrease its market value, all else the same. Select correct MGT201 option:
I, II, and III I only III only II and III only
Which group of ratios shows the extent to which the firm is financed with debt? Select correct MGT201 option:
Liquidity ratios Debt ratios Coverage ratios Profitability ratios What is the present value of Rs.8,000 to be paid at the end of three years if interest rate is 11%? Select correct MGT201 option:
Rs. 5,850Rs.4,872 Rs.6,725 Rs.1,842
Which type of responsibilities are primarily assigned to Controller and Treasurer respectively? Select correct MGT201 option:
Operational; financial management
Financial management; accounting Accounting; financial management Financial management; operations Nominal Interest Rate is also known as: Select correct MGT201 option:
Effective interest Rate Annual percentage rate Periodic interest rate Required interest rate The nominal interest rate is the periodic interest rate times the number of periods per year.
An annuity due is always worth ___ a comparable annuity. Less thanMore thanEqual toCan not be found from the given information
Which of the following refers to bringing the future cash flow to the present time? Select correct MGT201 option:
Net present valueDiscountingOpportunity costInternal rate of returnWhich of the following market in finance is referred to the market for short-term government and corporate debt securities? Select correct MGT201 option:
Money market Capital market Primary market Secondary marketWhich of the following is NOT true regarding the capital market? Select correct MGT201 option:
Where long-term funds can be raisedMoney is invested for periods longer than a yearWhere TFCs and NIT are exchanged and tradedWhere overnight lending & borrowing takes placeWhat is difference between shares and bonds? Select correct MGT201 option:
Bonds are representing ownership whereas shares are notShares are representing ownership whereas bonds are notShares and bonds both represent equityShares and bond both represent liabilitiesWhich of the following would NOT improve the current ratio? Select correct MGT201 option:
Borrow short term to finance additional fixed assets
Issue long-term debt to buy inventory Sell common stock to reduce current liabilitiesSell fixed assets to reduce accounts payableWhen bonds are issued, under which of the following category the value of the bond appears? Select correct MGT201 option:
EquityFixed assetsShort term loanLong term loanHow can a company improve (lower) its debt-to-total asset ratio? Select correct MGT201 option:
By borrowing more By shifting short-term to long-term debt By shifting long-term to short-term debt By selling common stockA 5-year ordinary annuity has a present value of Rs.1,000. If the interest rate is 8 percent, the amount of each annuity payment is closest to which of the following? Select correct MGT201 option:
Rs. 250.44 Rs. 231.91 Rs.181.62 Rs.184.08A 5-year ordinary annuity has a future value of Rs.1,000. If the interest rate is 8 percent, the amount of each annuity payment is closest to which of the following?► Rs.231.91► Rs.184.08► Rs.181.62► Rs.170.44
FV= PV/( 1+ i )^n -1 / i= (1.08)^5-1
=5.867=1000/5.867=170.44The logic behind _______ is that instead of looking at net cash flows you look at cash inflows and outflows separately for each point in time.Select correct MGT201 option:
IRRMIRRPVNPVHandouts Lecture 11
Which of the following refers to a highly competitive market where good business ideas are taken up immediately?Select correct MGT201 option:
Capital market
Efficient marketMoney marketReal asset marketHandouts Lecture 08For Company A, plow back ratio is 30%. What will be its Pay-out ratio? Select correct MGT201 option:
3.33% 30% 31% 70%What is a legal agreement, also called the deed of trust, between the corporation issuing bonds and the bondholders that establish the terms of the bond issue?
IndentureDebentureBondBond trusteeMIRR (discount rate) equates which of the following? Select correct MGT201 option:
Future value of cash inflows to the present value of cash outflows Future value of cash flows to the present value of cash flows Future value of all cash flows to zero Present value of all cash flows to zeroWhich of the following needs to be excluded while we calculate the incremental cash flows?Select correct MGT201 option:
DepreciationSunk costOpportunity costNon-cash itemWhich of the following would generally have unlimited liability?Select correct MGT201 option:A limited partner in a partnershipA shareholder in a corporationThe owner of a sole proprietorshipA member in a limited liability company (LLC)
Which of the following would be considered a cash-flow item from an "investing" activity?Select correct MGT201 option:
Cash outflow to the government for taxesCash outflow to shareholders as dividendsCash outflow to lenders as interestCash outflow to purchase bonds issued by another companyAn investment proposal should be judged in whether or not it provides:Select correct MGT201 option:
A return equal to the return require by the investor
A return more than required by investorA return less than required by investorA return equal to or more than required by investorA 5-year annuity due has periodic cash flows of Rs.100 each year. If the interest rate is 8 percent, the future value of this annuity is closest to which of the following equations? Select correct MGT201 option:
(Rs.100)(FVIFA at 8% for 5 periods) (Rs.100)(FVIFA at 8% for 4 periods)(1.08) (Rs.100) (FVIFA at 8% for 5 periods)(1.08) (Rs.100)(FVIFA at 8% for 4 periods) + Rs.100The RBS pays 5.60%, compounded daily (based on 360 days), on a 9-month certificate of deposit, if you deposit Rs.20, 000 you would expect to earn around ________ in interest.Select correct MGT201 option:Rs.840Rs.858Rs.1,032Rs.1,121{ [ 1 + (.056/360) ] ^ [270] - 1 } = .042891 or 4.2891%. Thus, $20,000 (.042891) =$857.82.Which of the following is similar between Return on investment and Payback period techniques of Capital budgeting?
Involvement of interest rate while making calculations
Do not account for time value of moneyTricky and complicated methodsAll of the given MGT201 options
Which of the following would be considered a cash-flow item from an "operating" activity?
Select correct MGT201 option:
Cash outflow to the government for taxes Cash outflow to shareholders as dividends Cash inflow to the firm from selling new common equity shares Cash outflow to purchase bonds issued by another company