Sample midterm 1

. 1. Businesses can be organized as A) 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) B) C) D)

Maximize sales Maximize profits Maximize the value of the shareholders 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 market A) provide liquidity B) risk management C) efficient allocation of money D) 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 corporations: 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 above

E) 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) B) C) D) E) Answer: A 16. What is the net present value of the following cash flows at a discount rate on 12%?
t - 2 = 0 t = 5 0 , 01 0 0 1 t = 2 t = 3 , 01 05 00 , 02 00 00 , 0 0 0

take all projects with positive NPVs take all projects with NPVs greater than the discount rate take all projects with NPVs greater than present value of cash flow All of the above None of the above

A) B) C) D)

$101,221 $200,000 $142,208 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: C After 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) B) C) D) E)

$65.00 $72.07 $59.48 None of the above 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=$65 PV= 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) $7,621.03 B) $8,757.08 C) $9,523.36 D) $ 8,222.61 E) 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=$8,757 Let 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 bonds: 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) $1,075.00 C) $1,000.00 D) $1,123.01 E) 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 bonds price is smaller than the bonds 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

1 .06

.06(1.06)

$1,000 (1.06) 3

$60.00 = PMT

$60 = 6% coupon rate. In fact you dont need to calculate. Why? 1000
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 price E) None of the above Answer: A $1,000 1 1 + PV = $80 3 3 .06 .06i(1.06) (1.06) = $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.

(1.06 ) 3

$1000 ,

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 stocks P/E ratio is 13.5 at a time when earnings are $3 per year, what is the stocks current price? A) $4.50 B) $18.00 C) $22.22 D) $40.50 E) None of the above Answer: D P/E = 13.5 Then P = 13.5 x $3 Price = $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) $115.00 D) $110.00 E) None of the above Answer: C .

Expected return 20% =

Div1 + P1 Po Po

$5 + P1 $100 $100

$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) $43.75 E) None of the above Answer: D Div 3.50 Po = = = $43.75 r .08

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) 0.5 B) 0.2 C) 0.4 D) 0.1 E) 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 stocks required return is 13% and next years 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.

$4.00 Po = (1.13)

$4.00(1.25) (1.13)2 $6.25

$4.00(1.25)2 (1.13) 3 6.56 .08

$4.00(1.25)2 (1.05) .13 .05 (1.13) 3

$5.00 = 3.54 + 1.2769

1.4429

1.4429 = 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 projects 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 project Because 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 nonnormal 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 stocks required return. II. A decrease in the dividend growth rate will increase a stocks 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 project Because there may be chance of rapid growth Because they have invested a lot All 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 value Book value Intrinsic value Fair 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 investors 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 Shareholders 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 options
Question # 2 of 10 ( Start time: 04:05:43 PM ) Total M a r k s: 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 # 3 of 10 ( Start time: 04:06:35 PM ) Total M a r k s: 1 In 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 information

Question # 4 of 10 ( Start time: 04:07:25 PM ) Total M a r k s: 1 A 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 information
Question # 5 of 10 ( Start time: 04:08:40 PM ) Total M a r k s: 1 At 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 value

Question # 6 of 10 ( Start time: 04:09:27 PM ) Total M a r k s: 1 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
Question # 7 of 10 ( Start time: 04:09:56 PM ) Total M a r k s: 1 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
Question # 8 of 10 ( Start time: 04:10:16 PM ) Total M a r k s: 1 Which 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 options
uestion # 9 of 10 ( Start time: 04:10:31 PM ) Total M a r k s: 1 An annuity due is always worth _____ a comparable annuity. Select correct option:

Less than More than Equal to Can not be found from the given information
Question # 10 of 10 ( Start time: 04:10:53 PM ) Total M a r k s: 1 A capital budgeting technique through which discount rate equates the present value of the future net cash flows from an investment project with the projects 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 projects 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 nonnormal 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 investors perception about the companys 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

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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 projects 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 ratios Debt ratios Coverage ratios Profitability ratios A 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 Ratios Common 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 concern 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 Reference 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 F V = PV x e
ixn

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 projects expected cash flows is: Select correct option: Pay back period Internal rate of return Net present value Profitability index A 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 information What 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 debt Preferred stock Common stock None of the given options The value of the bond is NOT directly tied to the value of which of the following assets? Select correct option: Real assets of the business Liquid assets of the business Fixed assets of the business Lon term assets of the business Which of the following is a major disadvantage of the corporate form of organization? Select correct 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 form 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

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.104.72 FV=(1-(1/(1.05)^8))/0.05 = 6.463212759 1000/ 6.463212759 =147.36 The 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.3,40 Explanation: Formula: PV = FV/(1 + I)^n PV=Present Value, FV future value, n= number of years, and i=interest rate. 5000/(1+10/100)^5 3104.606615 You 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.35.43 http://groups.google.com/group/vuZs What 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 premium http://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 options http://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.104.72 Explanation: PV = r(1-(1+i)^-n)/i) 1000 = r(1-(1+.05)^-8/.05) 1000/(1-(1+.05)^-8/.05) = r 1000/6.463 154.7218 Which 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 liabilities Reference: Page # 39, Lecture 08 Capital budgeting is about investment in fixed assets. http://groups.google.com/group/vuZs 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 Reference: Page # 25, Percentage of sales: Step 1: Estimate year-by-year Sales Revenue and Expenses Step 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 in Step 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 projects expected cash flows is:

Select correct option: Pay back period Internal rate of return Net present value Profitability index Reference & Explanation: http://www.insidus.com/financial.htm Net Present Value (NPV) In simple terms, NPV is the difference between an investments 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 # 41 Net 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/vuZs 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 Explanation: Formula: FV = PV(1+i)^n FV = 20,000(1+0.08)^20 FV= 20,000 (1.08)^20 FV= Rs.93,219 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 Explanation: 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 value

NPV 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 index Assuming 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/vuZs 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 Explanation: 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 Credits Sum of Debits >Sum of Credits Sum of Debits < Sum of Credits None of the given options http://groups.google.com/group/vuZs The 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 Explanation: 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_12/26/667 9/1709885.cw/content/index.html 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 Reference: http://en.wikipedia.org/wiki/Nominal_interest_rate Where 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 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 IRRs Reference: Page # 41 If 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 companys value. This would also increase the market value added and the economic value added for the firm http://groups.google.com/group/vuZs What is the most important criteria in capital budgeting? Select correct option: Return on investment Profitability index Net present value Pay back period Page # 45 Net 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 maximization Maximization of shareholders wealth To collect accurate, systematic, and timely financial data All of the given options

Page # 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 Rate Annual percentage rate Periodic interest rate Required interest rate http://groups.google.com/group/vuZs The 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 liabilities Current assets Fixed assets Long-term liabilities Page 26 Long Term Liabilities: Also, called Discretionary Financing does not grow in proportion to Sales 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 options Companies invest in projects with negative NPV because there is a hidden value in each project. page 52 http://groups.google.com/group/vuZs Which of the following is not the present value of the bond? Select correct option: Intrinsic value Market price Fair price Theoretical price Page # 67 PV = 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 B Both bonds will increase in value, but bond B will increase more than bond A Both bonds will decrease in value, but bond A will decrease more than bond B Both bonds will decrease in value, but bond B will decrease more than bond A http://odin.lcb.uoregon.edu/aemami/318Practice/PRACTICE%207/Chpt07.htm What are the Direct claim securities? Select correct option: The securities whose value depends on the cash flows generated by the underlying assets The securities whose value depends on the value of the underlying assets The securities that do not directly generate any returns for its investors All of the given options Direct claim securities: Stocks (Shares):It is defined as equity paper representing ownership, shareholding. Appears on Liabilities side of Balance Sheet At 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 value http://groups.google.com/group/vuZs Which of the following needs to be excluded while we calculate the incremental cash flows? Depreciation Sunk cost Opportunity cost Non-cash item Page 51 Sunk costs need to be excluded while calculating the incremental cash flows. Sunk costs are the costs that have already incurred in the past Which of the following is NOT true regarding an annuity due? 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 period An 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 share Liquidation value per share Market value per share None of the above http://www.letu.edu/people/juancastro/Finance_files/Investment %20Files/INTERNET%20EXAMS%20AND%20QUIZZES/Practice%20Exam %20-CHAPTER-18.html www2.cob.ilstu.edu/gnnaidu/Tb/Chap018.RTF http://groups.google.com/group/vuZs ______ is paid by companies with lower grade bonds like CC or C ratings. Default risk premium Sovereign Risk Premium Market risk premium Maturity risk premium Page # 19 Default 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 bankrupt Which of the following refers to the risk associated with interest rate uncertainty? Default risk premium Sovereign Risk Premium Market risk premium Maturity risk premium Page # 21 Maturity 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 premium Which 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 diagram Cash budget Cash flow statement None of the given options

http://groups.google.com/group/vuZs 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%
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 ) A . 17=1.1+1.5(x-1.1) 17=1.1+1.5x-1.65 17+1.65-1.1=1.5x X=17.55/1.5=11.7

Which 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 RiskReturn 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.714 Rs.1,462 Rs.322.69 Rs.401.98 PV =1000*(1+0.08)^5 Given no change in required returns, the price of a stock whose dividend is constant will________. 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 Which of the following is NOT a cash outflow for the firm? Select correct MGT201 option: Depreciation

Dividends Interest Taxes 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 MGT201 option: IRR MIRR PV NPV All of the following are the financial statements used for the purpose of reporting and analysis EXCEPT: Select correct MGT201 option: Balance Sheet Income Statement Cash budget Statement of Retained Earnings http://groups.google.com/group/vuZs How "Shareholder wealth" is represented in a firm? Select correct MGT201 option: The number of people employed in the firm The book value of the firm's assets less the book value of its liabilities The market price per share of the firm's common stock The amount of salary paid to its employees The value of a bond is directly derived from which of the following? Select correct MGT201 option: Cash flows Coupon receipts Par recovery at maturity All of the given MGT201 options What 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 firm The minimization of the amount of taxes paid by the firm The creation of value for shareholders The dollars profits earned by the firm What is difference between shares and bonds? Select correct MGT201 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 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 period Which of the following techniques would be used for a project that has nonnormal cash flows? Select correct MGT201 option: Internal rate of return Multiple internal rate of return Modified internal rate of return Net present value Which of the following is the general assumption of Percent of Sales Forecasting? Select correct MGT201 option: Current Assets usually grow in proportion to Revenues Current Assets usually grow in proportion to Expenses Current Assets usually grow in proportion to Liabilities Current Assets usually grow in proportion to Sales Which type of responsibilities are primarily assigned to Controller and Treasurer respectively? Select correct MGT201 option: http://groups.google.com/group/vuZs Operational; financial management Financial management; accounting Accounting; financial management Financial management; operations Which of the following is FALSE about Perpetuity? Select correct MGT201 option: It is a series of cash flows Cash flows occur for a specific time period Its cash flows are identical None of the given MGT201 options Perpetuity: 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 business Liquid assets of the business Fixed assets of the business Long term assets of the business Nominal Interest Rate is also known as: Select correct MGT201 option: Effective interest Rate Annual percentage rate Periodic interest rate Required interest rate Which of the following refers to time value of money concept? Select correct MGT201 option: A rupee in ones hand at present is worth less than the rupee that one is going to receive tomorrow A rupee in ones hand at present is worth more than the rupee that one is going to receive tomorrow A rupee in ones hand at present is worth same as the rupee that one is going to receive

tomorrow All of the given MGT201 options Which 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 form What are the Indirect securities? Select correct MGT201 option: The securities whose value depends on the cash flows generated by the underlying assets The securities whose value depends on the value of the underlying assets The securities that indirectly generate returns for its investors All of the given MGT201 options Indirect 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 liabilities Investment in fixed assets Investment in current assets Investment in short-term liabilities A technique that tells us the number of years required to recover our initial cash investment based on the projects expected cash flows is: Select correct MGT201 option: Pay back period Internal rate of return Net present value Profitability index

http://groups.google.com/group/vuZs 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 Which of the following are known as Discretionary Financing? Current liabilities Current assets Fixed assets Long-term liabilities Which of the following value of the shares changes with investors perception about the companys future and supply and demand situation? Par value Market value Intrinsic value Face value According to timing difference problem a good project might suffer from ___ IRR even though its NPV is ______. Higher; lower Lower; Lower Lower; higher Higher; higher Which of the following statements is TRUE regarding Permanent Accounts? Select correct MGT201 option: Accounts that are found on Income Statement Accounts that are found on Statement of Retained Earnings Accounts that are found on Balance Sheet All of the given MGT201 options 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 Which of the following is NOT the type of Hybrid organizations. Select correct MGT201 option: http://groups.google.com/group/vuZs S-Type Corporation Limited Liability Partnership Sole Proprietorship Professional Corporation When bonds are issued, under which of the following category the value of the bond appears. Select correct MGT201 option: Equity

Fixed assets Short term loan Long term loan In 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: Fall Rise Remain unchanged Incomplete information Which of the following refers to bringing the future cash flow to the present timeSelect correct MGT201 option: Net present value Discounting Opportunity cost Internal rate of return Discounted 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 flows Timing of expected cash flows Both timing and magnitude of cash flows None of the given MGT201 options Effective interest rate is different from nominal rate of interest because. Select correct MGT201 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 MGT201 options What are the Indirect securities? Select correct MGT201 option: The securities whose value depends on the cash flows generated by the underlying assets The securities whose value depends on the value of the underlying assets The securities that indirectly generate returns for its investors All of the given MGT201 options 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 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.100 Given 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 unchanged

Increase over time at a rate of r% Decrease over time at a rate equal to the dividend growth rate Companies 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/vuZs Life span of the project Cost of the capital Return on asset None of the given MGT201 options When 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 maturity The coupon rate is greater than yield to maturity The 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 maturity 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 options Which 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 Expenses Estimate Levels of Investment Needs required to Meet Estimated Sales Estimate the Financing Needs Estimate the retained earnings Percentage of sales: Step 1: Estimate year-by-year Sales Revenue and Expenses Step 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 in Step 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 period When 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 par Where 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 IRRs Which of the following is not the present value of the bond? Intrinsic value Market price Fair price Theoretical price Which 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.401.98 PV=1000*(1.08)^5 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? Cash budgeting Capital budgeting Capital rationing Capital expenditure Which 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 index Which 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 form Which 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 premium Which of the following is NOT an example of hybrid equity

Select correct MGT201 option: Convertible Bonds Convertible Debenture Common shares Preferred shares Which 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 item Sunk 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 options Which 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 options With 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.52,000 Rs.93,219 Rs.99,061 Rs.915,240 F 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 up Double-taxation Inexpensive to maintain Unlimited liability 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 options Which of the following is NOT true regarding an ordinary annuity? Select correct MGT201 option: It is a series of equal cash flows Cash flows occur for a specific time period Payments are made at the start of each period It is also known as deferred annuity An 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 premium Sovereign Risk Premium Market risk premium Maturity risk premium When the bond approaches its maturity, the market value of the bond approaches to which of the following? Select correct MGT201 option: Intrinsic value Book value Par value Historic cost 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 MGT201 option: Ordinary annuity; ordinary annuity Ordinary annuity; annuity due Annuity due; annuity due Annuity due; ordinary annuity The value of direct claim security is derived from which of the following? Select correct MGT201 option: Fundamental analysis Underlying real asset Supply and demand of securities in the market All 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 firm The stock exchange on which the stock is listed The president of the company Individuals buying and selling the stock 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 business Liquid assets of the business Fixed assets of the business Long term assets of the business Why we need Capital rationing? Select correct MGT201 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 When 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 value Book value Par value Historic 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 premium Sovereign Risk Premium Market risk premium Maturity risk premium Which of the following equation is NOT correct? Select correct MGT201 option: Gross Revenue Admin & Operating Expenses = Operating Revenue Other Expenses + Other Revenue = EBIT EBIT Financial Charges & Interest = EBT Net Income Dividends = Retained Earning Operating 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 rate Profitability index Internal rate of return Multiple Internal rate of return When 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 maturity The coupon rate is greater than yield to maturity The 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 maturity What 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 debt Preferred stock Common stock None of the given MGT201 options Which of the following is type a Temporary Account? Select correct MGT201 option: Asset Liability Reserves Revenue What are the Direct claim securities? Select correct MGT201 option: The securities whose value depends on the cash flows generated by the underlying assets The securities whose value depends on the value of the underlying assets The securities that do not directly generate any returns for its investors All of the given MGT201 options Hand outs, page 121 Which 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 cost Opportunity cost Externalities Contingencies Externalities 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 options As interest rates go up, the present value of a stream of fixed cash flows ___. Select correct MGT201 option: Goes down Goes up Stays the same Can not be found from the given information ______ are also known as Spontaneous Financing. Select correct MGT201 option: Current liabilities Current assets Fixed assets Long-term liabilities Spontaneous Financing is Trade credit, and other payables and accruals, that arise spontaneously in the firms 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 securitys price will increase in a year Both represent the securitys annual income divided by its price Both are an accurate representation of the total annual return an investor can expect to earn by owning the security Both are quarterly yields that must be annualized Who 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 trustee The objective of financial management is to maximize _______ wealth. Select correct MGT201 option: Stakeholders Shareholders Bondholders Directors What are the Indirect securities? Select correct MGT201 option: The securities whose value depends on the cash flows generated by the underlying assets The securities whose value depends on the value of the underlying assets

The securities that indirectly generate returns for its investors All of the given MGT201 options Which of the following is NOT an example of a financial intermediary? Select correct MGT201 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 Which 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 share Liquidation value per share Market value per share None of the above Which 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 stocks required return. II. A decrease in the dividend growth rate will increase a stocks 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. 5,850 Rs.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 than More than Equal to Can 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 value Discounting Opportunity cost Internal rate of return Which 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 market Which of the following is NOT true regarding the capital market? Select correct MGT201 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

What is difference between shares and bonds? Select correct MGT201 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 Which 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 liabilities Sell fixed assets to reduce accounts payable When bonds are issued, under which of the following category the value of the bond appears? Select correct MGT201 option: Equity Fixed assets Short term loan Long term loan How 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 stock A 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.184.08 A 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=170.44 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 MGT201 option:

IRR MIRR PV NPV Handouts 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 market Money market Real asset market Handouts Lecture 08 For 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? Indenture Debenture Bond Bond trustee MIRR (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 zero Which 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 item Which of the following would generally have unlimited liability? Select correct MGT201 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)

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 taxes Cash outflow to shareholders as dividends Cash outflow to lenders as interest Cash outflow to purchase bonds issued by another company An 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 investor A return less than required by investor A return equal to or more than required by investor 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 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.100 The 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.840 Rs.858 Rs.1,032 Rs.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 money Tricky and complicated methods All 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