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This of the following statement refers to the concept of „Hedging and Risk
Management???
  A. Don’t compare apples to oranges
   B. Get insurance because you will break some eggs
   C. A safe rupee is worth more than a risky rupee
Don’t put all your eggs in one basket
A group of assets such as stocks and bonds held by an investor.
   A. Portfolio
   B. Capital Structure
   C. Budget
None of the above
_______________ refers to the risk that the company might go bankrupt or close
down & bonds, or shares issued by the company may collapse
   A. Inflation Risk
   B. Default Risk
   C. Sovereign Risk
Maturity Risk
The following risk is entirely wiped out by Diversification.
   A. Systematic Risk
   B. Unsystematic Risk
   C. Portfolio Risk
   D. Total Risk
The objective for using the concept of Diversification is to :
   A. Minimize the Risk
   B. Maximize the return
   C. A & B
   D. None of the Above
While studying the relationship in risk and return, It is commonly known that:
   A. Higher the risk, lower the return
   B. Lower the risk, higher the return
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   C. Higher the risk, higher the return
   D. None of the above
This type of risk affects almost all types of assets.
   A. Systematic Risk
   B. Unsystematic Risk
   C. Total Risk
   D. Portfolio Risk
-----------are based on the following data:
SNT Corporation has a bond issue outstanding with an annual coupon rate of 7
percent and 4 years remaining until maturity. The par value of the bond is Rs.
1,000. The bond pays interest annually.
 What will be the current value of bond if present market conditions justify a 14
percent required rate of return?
   A. Rs. 975.25
   B. Rs. 795.77
   C. Rs. 840.30
   D. Rs. 610.56
What would be the current value on the same rate if there are 20 years remaining to
maturity?
   A. Rs. 795.77
   B. Rs. 840.30
   C. Rs. 536.16
   D. Rs. 672.25
 According to the data of Question # 8, the bond is selling on _______________ and
according to the data of Question # 9, the bond is selling on _______________.
   A. Premium; Premium
   B. Discount; Discount
   C. Premium; Discount
   D. Discount; Premium
_____________ is a statistical spread of possible returns for a Stock and
____________ is a statistical spread of possible returns for that Stock relative to the
market spread.
   A. Market Risk; Market Beta
   B. Market Risk; Market Return
   C. Market Beta; Market Risk
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   D. Market Return; Market Risk
Capital structure decisions refer to the:
   A. Dividend yield of the firm’s stock
   B. Blend of equity and debt used by firm
   C. Capital gains available on the firm’s stock
   D. Maturity date for the firm’s securities
The company cost of capital for a firm with a 60/40 debt/equity split, 8% cost of
debt, 15% cost of equity, and a 35% tax rate would be:
   A. 7.02 %
   B. 9.12 %
   C. 11.08 %
   D. 13.80 %
 A project with an initial investment of Rs. 1,000 generates a cash flow of Rs. 200 in
year 1, Rs. 300 in year 2, and Rs. 350 in next three years. The Payback for the
project will have NPV of __________ at a 12% required rate of return and payback
period of ______ years.
   A. Rs. 10.87; 3.60
   B. Rs. 15.19; 3.43
   C. Rs. 87.88; 3.60
   D. Rs. 87.88; 3.43
According to CAPM estimates, what is the cost of equity for a firm with beta of 1.5
when the risk-free interest rate is 6% and the expected return on the market
portfolio is 15%?
   A. 19.5 %
   B. 21.0 %
   C. 22.5 %
   D. 24.0 %
Higher operating leverage is related to the use of additional _____________.
   A. Fixed Costs
   B. Variable Costs
   C. Debt Financing
   D. Common Equity Financing
Lower financial leverage is related to the use of additional ______________.
   A. Fixed Costs
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   B. Variable Costs
   C. Debt Financing
   D. Common Equity Financing
Gordon and Lintner Theory is also known as ________________________.
   A. MM Irrelevance Theory
   B. Tax Preference Theory
   C. MM Capital Structure Theory
   D. Bird in the Hand Theory
Relaxed Policy requires ____________ amount of Current Assets whereas
Restricted Policy requires _____________ amount of Current Assets.
   A. Small; Small
   B. Large; Large
   C. Small; Large
   D. Large; Small
Which of the following Cash Management Policy minimize cash holdings when
interest rates are high?
    A. Interest-based Policy
   B. Cash Flow Synchronization Policy
   C. Speed up Cash Collection Policy
   D. Float Policy
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What approximate annual interest rate would you have to earn in order to
double your money in six years?
A) 16 percent
B) 7 percent
C) 10 percent
D) 12 percent

National Automobile Parts had sales of $2 million this year. The marketing
manager expects sales to grow at a 10 percent compound annual rate over the
next 10 years. On this basis, sales in 10 years should be closest to

A) $5,187,485.
B) $2,593,722.
C) $4,622,885.
D) $5,081,309.

The present value of an annuity due exceeds the value of a comparable ordinary
annuity because ------------.

A) Each cash flow occurs at the beginning of the period for an ordinary annuity
B) Each cash flow of the annuity due is compounded one additional period
C) Each cash flow of the annuity due is discontinued one less period
D) Each cash flow of the ordinary annuity is discounted one less period

The buyer of a zero-coupon bond expects to receive

A) Price appreciation.
B) A rate of return equal to zero over the life of the bond.
C) Variable dividends instead of a fixed interest payment annually.
D) All interest payments in one lump sum at maturity

If interest rates rise, which of the following bonds will suffer the greatest decline
in price?

A) An 8 percent bond maturing in 2008
B) A 6 percent bond maturing in 2008
C) An 8 percent bond maturing in 2018
D) A 6 percent bond maturing in 2018




The return to an investor on a share of common stock
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   A) Cannot be related to earnings or earnings payout.
   B) Includes both a dividend yield and a capital gains yield.
   C) Cannot be calculated if dividend growth rate is not constant.
   D) Is zero if dividends are not expected to grow.

   How much should you pay for a bond with a $700 face value, a 5 percent coupon
   rate, and five years to maturity if your appropriate discount rate is 7 percent
   and interest is paid annually? Answers are rounded to the nearest dollar.

   A) $1,000
   B) $761
   C) $643
   D) $918

   If the general level of interest rates rise, the prices of already issued bonds will

   A) Remain unchanged.
   B) Rise.
   C) Fluctuate violently.
   D) Fall.


   The present value of $100 per year received for 10 years discounted at 8 percent
   is closest to

   A) $177.
   B) $362.
   C) $425.
   D) $671.

   An investor holding a well-diversified portfolio will not be exposed to

   A) Unsystematic risk.
   B) Default risk.
   C) Systematic risk.
   D) Inflation risk.



 An investor holding a well-diversified portfolio will not be exposed to
a) Unsystematic risk.
b) Default risk.
c) Systematic risk.
d) Inflation risk
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An investor is considering investing in only one of the following securities:
                                A       B      C
        Expected Return        0.10 0.10 0.15
        Standard Deviation 0.05 0.06 0.09
Which of the following statements is true?
a) Securities B and C are of equal relative risk.
b) Securities A and B are equally desirable if the investor is risk-averse.
c) Security C is more desirable than Security A if the investor is very risk-averse.
d) Security B is relatively less risky than Security C.
 If the expected return on Treasury securities is 7 percent, the expected return on
the market portfolio is 10 percent, and the beta of the Tolliman Lighting Corp. is
1.25, then the required return on TLC stock is
a) 7 percent.
b) 10.75 percent.
c) 3 percent.
d) 3.75 percent.

     In the Capital Asset Pricing Model, the term (Rm - Rf) represents
a)   The unsystematic risk premium for a security.
b)   The security market line.
c)   The market risk premium.
d)   The expected return of a security.

 The risk-free security has a beta equal to ………, while the market portfolio's beta
is equal to …………....
a) One; more than one.
b) One; less than one.
c) Zero; One.
d) Less than zero; more than zero.

 An "aggressive" common stock would have a "beta"
a) Equal to zero.
b) Greater than one.
c) Equal to one.
d) Less than one.

 The SML (security market line) equation shows the relationship between a
security‟s market risk and its …………...
a) Intrinsic value
b) Required rate of return
c) Face Value
d) Book Value

A line that describes the relationship between an individual security's returns and
returns on the market portfolio.
a) Characteristic line
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b) Security market line
c) Capital market line
d) Beta

The CAPM can be used to estimate
a) Dividends.
b) The required rate of return on a security.
c) The actual price of a security when the market opens tomorrow morning.
d) Betas.
Holding everything else constant, increasing fixed costs ………. the firm's break-
even point.
a) Decreases
b) Increases the covariance of
c) Increases
d) Does not affect


----------------- reflects the operating efficiency of a company during an accounting
period.
a. Balance Sheet
b. Income Statement
c. Cash Flow statement
d. Cost of Goods Sold

2. In finance we refer to the market for short-term government and
corporate debt                    securities as the __________ market.

a.   Money
b.   Capital
c.   Primary
d.   Secondary

A company reported a net income of Rs 120,000 during 2004-2005 .During that
period the company reported total assets of Rs1, 000,000. What would be the Return
on Assets (ROA) of the company?

a. 12%
 b. 0.12%
 c. 120%
 d. 120

 The future value of a bank deposit of Rs 100,000 after 5 years, if the interest rate is
12% and is compounded semiannually would be --------------.

a. more than Rs 100,000
 b. Less than Rs 100,000
 c. Equal to Rs 100,000
 d. Impossible to calculate future value of the deposit.
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-------------- represents ownership of the holder in a company.

 a. Common Stocks
 b. Debentures
 c. Mortgage bonds
 d. Accounts payable

If the number of outstanding common shares of a company decreases then its EPS --
----------------.
  a. Falls
  b. Rises
  c. Remains unchanged
  d. Non of the above.




Financial Accounting deals with Book Value (historical cost minus accumulated
depreciation) whereas Financial Management focuses on _______________.

a. Market Value
b. Fixed cost
c. Historic cost
d. Accumulated depreciation

 Economic Value Added for a firm is obtained by subtracting cost of capital from ---
-------------------------.
a. Operating Cost
b. Operating profit
c. Net income
d. Revenue

Which group of ratios measures a firm's ability to meet its short-term
obligations?
a.   Debt ratios
b.   Liquidity ratios
c.   Coverage ratios
d.   Profitability

Which of the following is not a cash outflow for a firm?
a. Depreciation
b. Dividends
c. Interest payments
d. Taxes
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Money paid (earned) for the use of money is called ____________.
         a. Inflation
         b. Interest
         c. Earnest money
         d. Non of the above

A person deposited Rs.50,000 in a bank. What would be the worth of this amount
after 5 years, if the bank pays 12% p.a, and is compounded quarterly?
            e. 86,400
            f. 87,400
            g. 100,000
            h. 84,500

Note: The value in above question has been calculated by using financial table. If a
student calculated more accurate value by using scientific calculator, he would also
be given credit.



At 15% discount rate a project has NPV equal to zero, what would be the IRR of this
project.
          i. 10%
          j. 15%
          k. 12%
          l. 14%


A public limited company sold bonds to a firm for Rs.150,000. The company would
retire these bonds for Rs.200,000 at maturity, and would pay no interest to the holder
during this period. Which type of bonds the company issued?
            m. Zero coupon bonds
            n. Debentures
            o. Mortgage Bond
            p. Non of the above

Which of the following capital budgeting technique ignores time value of money?
          q. IRR method
          r. NPV method
          s. Payback period method
          t. Non of the given options




Which of the following have variable future dividends?
          u. Preferred Stock
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          v. Common stock
          w. Bonds
          x. Non of the above

When market interest rate increases, the market price of bonds usually ___________.
        y. Increases
        z. Decreases
        aa. Remains unchanged
        bb. Non of the above

Which of the following is not included in the cash flows of a project?
          cc. Opportunity cost
          dd. Depreciation
          ee. Tax savings
          ff. Sunk costs

Which of the following is not the objective of capital budgeting techniques?
          gg. Financial viability of the project
          hh. To assess working capital requirement
          ii. To evaluate the value of investment
          jj. To measure durability of the project

An ordinary annuity whose payments or receipts continue forever is
called___________.
          kk. Annuity due
          ll. Deferred annuity
          mm.        Perpetuity
          nn. Non of the above




The greater the beta, the_________of the security involved.

            a)   Greater the unavoidable risk
            b)   Greater the avoidable risk
            c)   Less the unavoidable risk
            d)   Less the avoidable risk

According to the capital-asset pricing model (CAPM), a security's expected
(required) return is equal to the risk-free rate plus a premium

            e)   Equal to the security's beta.
            f)   Based on the unsystematic risk of the security.
            g)   Based on the total risk of the security.
            h)   Based on the systematic risk of the security.
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In Efficient Markets, Price of Stocks is based on ____________.

            i)   Market Risk
            j)   Liquidation Value
            k)   Diversifiable Risk
            l)   Book Value

The SML (security market line) equation shows the relationship between a
security‟s market risk and its ____________.

            m)   Intrinsic value
            n)   Required rate of return
            o)   Face Value
            p)   Book Value

The risk-free security has a beta equal to____________, while the market portfolio's
beta is equal to ____________.

            q)   One; more than one.
            r)   One; less than one.
            s)   Zero; One.
            t)   Less than zero; more than zero.

Plaid Pants, Inc. common stock has a beta of 0.90, while Acme Dynamite Company
common stock has a beta of 1.80. The expected return on the market is 10 percent,
and the risk-free rate is 6 percent. According to the capital-asset pricing model
(CAPM) and making use of the information above, the required return on Plaid
Pants' common stock should be ____________, and the required return on Acme's
common stock should be ____________ .

            u)   3.6 percent; 7.2 percent
            v)   9.6 percent; 13.2 percent
            w)   9.0 percent; 18.0 percent
            x)   14.0 percent; 23.0 percent

Following are the possible one year returns estimates for common stocks of a
corporation.

      Possibility of occurrence       0.1     0.2     0.4         0.2       0.1
      Possible returns                -10%    5%      20%         35%       50%

    The expected return on this common stock would be

            y) 10.45%s
            z) 16.43%
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            aa) 20.75%
            bb) 25%

An "aggressive" common stock would have a "beta"

            cc) Equal to zero.
            dd) Greater than one.
            ee) Equal to one.
            ff) Less than one.


A line that describes the relationship between an individual security's returns and
returns on the market portfolio.

            gg) Characteristic line
            hh) Security market line
            ii) Capital market line
            jj) Beta




Because investors dislike uncertainty, they will require _________ rates of return
from risky investments.
            kk) Higher
            ll) Lower
            mm)      The same
            nn) None of the above


Preferred shareholders' claims on assets and income of a firm come _______ those
of creditors __________those of common shareholders.

          oo) Before; and also before
          pp) After; but before
          qq) After; and also after
          rr) Equal to; and equal to

Which of the following would appear as liability in the balance sheet of a company?

          ss) The value of Bonds purchased for investment purposes
          tt) The value of Bonds issued for raising capital
          uu) The value of Stocks purchased for investment purposes
          vv) None of the given options

Operating leverage may be defined as:
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          ww)        The degree to which debt is used in financing the firm
          xx) The difference between price and variable costs
          yy) The extent to which capital assets and fixed costs are utilized
          zz) The difference between fixed costs and the contribution margin



The ultimate ownership of the firm resides:

          aaa)       With management
          bbb)       With common shareholders
          ccc)       With preferred shareholders
          ddd)       With bondholders

Preferred shareholders:

          eee)        Play a primary role in the financing of the firm
          fff) Have a subordinated claim to dividends
          ggg)        Possess an ownership interest in the firm
          hhh)        Normally have no vote on corporate issues


The cost of each component of a firm's capital structure multiplied by its weight in
the capital structure is called the:
           iii) Marginal cost of capital
           jjj) Cost of debt
           kkk)        Weighted average cost of capital
           lll) None of the above

The cost of new common stock (external equity) is generally higher than the cost of
retained earnings (internal equity) because of:

          mmm)       Tax effects.
          nnn)       Investors’ required returns.
          ooo)       Flotation costs.
          ppp)       Coupon payments

The mix of debt, preferred stock, and common equity with which the firm plans to
raise capital is called the:

          qqq)        Financial risk.
          rrr) Operating leverage.
          sss)        Business risk.
          ttt) Target capital structure.
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Which of the following can be a cause of a high basic business risk?
          uuu)       High operating leverage
          vvv)       Large changes in customers’ demand
          www)       Uncertainty in input costs
          xxx)       All of the above


Which of the following causes an increase in a company diversifiable risk?
          yyy)       Issuance of bonds
          zzz)       Issuance of common stocks
          aaaa)      Investing in short term money market securities
          bbbb)      Non of the given option



   ---------------- refers to the overall cost to an organization of obtaining investment
   funds, including the cost of both debt sources and equity sources.
            a) Operating cost
            b) Cost of outsourcing
            c) Cost of capital
            d) Cost of Debt


q. -------------- represents the risk borne by common stockholders as a result of the
introduction of fixed obligations such as debt and preferred stock in the capital
structure.
             e) Financial risk
             f) Market risk
             g) Operating risk
             h) None of the given options.


---------------increases financial risk and bankruptcy risk of a firm.
              i) Debt financing
              j) Equity financing
              k) Spontaneous financing
              l) All of the above options


   In calculating the costs of the individual components of a firm's financing, the
   corporate tax rate is important to which of the following component cost
   formulas?

           m) Common stock.
           n) Debt.
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           o) Preferred stock
           p) None of the given options




Which of the following sources of financing involve no transactions costs?
          q) Common shares
          r) Preferred shares
          s) Retained earnings
          t) All of the above options


Optimal capital structure refers to the particular combination that minimizes the ---
------------while maximizing the------------.
             u) Operating cost, sales
             v) Taxes, Interest expense
             w) Cost of capital, Stock price
             x) None of the given options


The -------------- is the interest rate that it is assumed can be obtained by investing in
financial instruments with no risk.
            y) Risk-free interest rate
            z) Effective interest rate
            aa) Nominal interest rate
            bb) All of the above options


According to signaling theory of capital structure, if future prospects of a firm
genuinely looks good then financial managers of the firm would prefer to raise
financing through --------------.
           cc) Equity capital
           dd) Borrowed capital
           ee) Issuance of preferred stock
           ff) None of the given options.


The extent to which fixed-income securities (debt and preferred stock) are used in a
firm's capital structure is called ------------.
           gg) Financial risk
           hh) Financial leverage
           ii) Cost of capital
           jj) None of the given options
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---------------- refers to the net income expressed as a percentage of average equity.
              kk) Capital gain
              ll) Return on equity
              mm)         EBIT
              nn) Tax shield


   In finance, "working capital" means the same thing as

           a.   Total assets.
           b.   Fixed assets.
           c.   Current assets.
           d.   Current assets minus current liabilities

   Permanent working capital

           e. Varies with seasonal needs.
           f. Includes fixed assets.
           g. Is the amount of current assets required to meet a firm's long-term
              minimum needs.
           h. Includes accounts payable.

Moving from a relaxed working capital policy to a Restrictive (lean and mean)
policy will result an increase in the _____________.

           i.   Level of current assets of a firm
           j.   Level of current liability of a firm
           k.   Profitability of a firm
           l.   Level of Equity of a firm

The opportunity cost of holding cash rises when

           m.   Interest rates are high
           n.   Interest rates are low
           o.   Central bank issue more bank notes
           p.   None of the given options

The term "capital structure" refers to:

           q.   Long-term debt, preferred stock, and common stock equity.
           r.   Current assets and current liabilities.
           s.   Total assets minus liabilities.
           t.   Shareholders' equity.
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The dividend-payout ratio is equal to

          u.   The dividend yield plus the capital gains yield.
          v.   Dividends per share divided by earnings per share.
          w.   Dividends per share divided by par value per share.
          x.   Dividends per share divided by current price per share.

A payment of additional shares of common stock to shareholders is called
___________.

          y. Stock repurchase
          z. Stock addition
          aa. Stock dividend
          bb. Initial public offering

   Which of the following would be consistent with a more aggressive approach to
   financing working capital?

          cc. Financing short-term needs with short-term funds.
          dd. Financing permanent inventory buildup with long-term debt.
          ee. Financing seasonal needs with short-term funds.
          ff. Financing some long-term needs with short-term funds.

Receiving a required inventory item at the exact time needed is called ____________
inventory system.

          gg. ABC
          hh. JIT
          ii. FOB
          jj. PERT

The cost of monitoring management is considered to be a (an):

          kk. Bankruptcy cost.
          ll. Transaction cost.
          mm.          Agency cost.
          nn. Institutional cost.
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A debenture

a) is an agreement between the trustee and the firm which guarantees the
   marketability
b) Of the bond issue.
c) Is an unsecured bond.
d) May be changed by the firm if it gives the trustee 90 days written notice.


$1,000 face value convertible bond can be converted into 20 shares of
common stock. If the market price of the common stock is $40, the
conversion price per share is

a)   75
b)   50
c)   35
d)   20

Interest rate risk on ling term bonds is ___________ than the interest
rate risk for short term risk.

a)   Less
b)   More
c)   None of the above
d)   All of the given options

Bonds which are backed by real assets are called ________________

a)   Debentures
b)   Junk Bonds
c)   Convertible bonds
d)   Mortgage Bonds




 When required rate of return is equal to coupon rate then market value
is ___________ par value.

a)   Greater than
b)   Less than
c)   Equal to
d)   None of the given option
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 If market price of bond is less than its par value then this bond is selling at
a __________

      a)   Premium
      b)   Discount
      c)   Face value
      d)   Market price

     _________ receives a fixed regular dividend.

     a)   Common shareholder
     b)   Preferred shareholder
     c)   Bondholder
     d)   None of the given options


     __________ is issued from foreign country.

     a)   Eurobond
     b)   Junk bond
     c)   Zero bond
     d)   None of the given options

Which of the following is not considered as bond?

     a)   Term Finance Certificate
     b)   T-Bill
     c)   Defense Saving Certificate
     d)   None of the given options


      Which of the following is the fair price of a preferred stock (perpetual
     investment)?
         If Dividend of the preferred stock = Rs. 2 / share
                                  Par Value = Rs. 10/ share
                Expected price after 2 years =Rs. 13
                    Required rate of Return = 15%

a)   Rs. 12.99
b)   Rs. 13.33
c)   Rs. 13.08
d)   None of the given options
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You are considering buying common stocks in GTC Corporation. The firm
yesterday paid a dividend of Rs.5.5. you have projected that dividends will grow at a
rate of 10% per year indefinitely. If you want an annual return of 20%, what is the
most you should pay per share of these common stocks?

a)   Rs.60.50
b)   Rs.80.00
c)   Rs.70.50
d)   Rs.55.43

You are considering buying common stocks in ZTC Corporation. You have
projected that the next dividend the company will pay will equal Rs.6.00 and that
dividends will grow at a rate of 8% per year thereafter. If you want an annual
return of 16%, what is the most you should pay per share of these common stocks?
a) Rs.80.00
b) Rs.75.00
c) Rs.85.00
d) Rs.81.00

How much should you pay for the preferred stock of the ETC Corporation, if it has
Rs.100 par value, pays Rs.10 a share in annual dividends, and your required rate of
return is 10%.

a)   Rs.85.00
b)   Rs.75.00
c)   Rs.100.00
d)   Rs.60.00

If the intrinsic value of a stock is greater than its market value, which of the
following is a reasonable conclusion?

a)   The stock has a low level of risk.
b)   The stock offers a high dividend payout ratio.
c)   The market is overvaluing the stock.
d)   The market is undervaluing the stock.



Just today ABC Corporation paid an annual dividend of Rs.1.00 per share on its
common stocks. The stock market analysts have estimated a fair price of Rs.20.00
per share for these stocks. Assume that the market expects this company‟s annual
dividend to grow at a constant rate of 6% indefinitely. The expected Dividend Yield
for these common stocks would be:

a) 5.3%
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b) 6.5%
c) 7.5%
d) None of the given options

A measure of “risk per unit of expected return.”

a)   Standard deviation
b)   Coefficient of variation
c)   Correlation Coefficient
d)   Beta

An investor places 40% of his funds in security A and the balance in security B. The
expected returns on A and B are 12% and 18% respectively. The standard
deviations of returns on A and B are 20% and 15% respectively. The expected
return on this 2-stock portfolio would be:

a)   20%
b)   17%
c)   15.6%
d)   It can not be determined

This type of risk is avoidable through proper diversification
.
a) Portfolio risk
b) Systematic risk
c) Total risk
d) Unsystematic risk

XYZ Airlines will pay a Rs.4.00 dividend next year on its common stock, which is
currently selling at Rs.100 per share. What is the market’s required return on this
investment if the dividend is expected to grow at 5% forever?
a) 9%
b) 4%
c) 5%
d) 7%


1.   In the formula rCE = (D1V1/Po) + g, what does g represent?
a)   The expected dividend yield from a common stock.
b)   The expected price appreciation yield from a common stock
c)   The dividend yield from a preferred stock
d)   The interest payment from a bond



     The benefit we expect from a project is expressed in terms of:
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       a.   Cash in flows
       b.   Cash out flows
       c.   Cash flows
       d.   Returns

A plant space is allocated to a project. If this space can be used for some other
project then, for project evaluation we must consider its:

       e.   Opportunity cost
       f.   Sunk cost
       g.   Recoverable past cost
       h.   Irrecoverable past costs.


In case of project evaluation, when capital investments contain Current asset
component, it is treated as part of:

       i.   Working capital
       j.   Operating cash inflows
       k.   Capital investment
       l.   Additional cash inflow

If the cash flow stream for a project is NOT a uniform series of inflows. Initial
outflow occur at time 0. 15% discount rate produces a resulting present value of
Rs. 104,000 (approximately) that is greater than the initial cash outflow of Rs.
100,000. Now if we want to calculate the best discount rate:

       m.   We need to try a higher discount rate
       n.   We need to try a lower discount rate
       o.   15% is the best discount rate
       p.   Interpolation is not required here


Which of the following technique would be used for a project that has non –
normal cash flows?

       q.   Internal rate of return
       r.   Multiple internal rate of return
       s.   Modified internal arte of return
       t.   Net present value

A capital budgeting technique that is NOT considered as a discounted cash flow
method is:
       u. Payback period
       v. Internal rate of return
       w. Net present value
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            x. Profitability index

     To select the combination of investment proposals that will provide the greatest
     increase in the value of the firm within the budget ceiling constraint is:

            y. Cash budgeting
            z. Capital budgeting
            aa. Capital rationing
            bb. Capital expenditure

     For issuance of bond, the discount or capitalization rate, applied to the cash flow
     stream will differ among bonds depending upon the:

            cc. Risk and return
            dd. Risk structure
            ee. Risk free rate
            ff. Premium for risk

     AT & T and General Electric Company have exceptionally strong credit
     positions. They are such strong that they don‟t have to put up property as
     security for debt issue. The debt instrument they would use to borrow money is:

            gg. Mortgage bonds
            hh. Indentures
            ii. Debentures
            jj. T-bills

     If a bond‟s
         Market required rate of return                   13%
         Stated coupon rate                               12%

         In case of bond discount, price for this bond:

            kk. Will be less then its face value
            ll. Will be more than its face value
            mm.        Depends upon the market conditions
            nn. Cannot be determined


 Which of the followings states that the cost of equity is a positive linear function?
of capital structure?

a.   The Capital Asset Pricing Model
b.   M&M Proposition I
c.   M&M Proposition II
d.   The Law of One Price
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Which of the following is called the tax savings of the firm derived from the
deductibility of interest expense?

a.   Interest tax shield
b.   Depreciable basis
c.   Financing umbrella
d.   Current yield


Above the breakeven EBIT, increased financial leverage will __________ EPS,
all else the same. Assume there are no taxes.

a.   Increase
b.   Decrease
c.   Either increase or decrease
d.   Increase EBIT but decrease


 A firm has a DOL of 3.5 at Q units. What does this tell us about the firm?


a.   If sales rise by 3.5% at the firm, then EBIT will rise by 1%
b.   If EBIT rises by 3.5% at the firm, then EPS will rise by 1%
c.   If EBIT rises by 1% at the firm, then EPS will rise by 3.5%
d.   If sales rise by 1% at the firm, then EBIT will rise by 3.5%



A firm has a DFL of 3.5 at X dollars. What does this tell us about the firm?

a.   If sales rise by 3.5% at the firm, then EBIT will rise by 1%
b.   If EBIT rises by 3.5% at the firm, then EPS will rise by 1%
c.   If EBIT rises by 1% at the firm, then EPS will rise by 3.5%
d.   If sales rise by 1% at the firm, then EBIT will rise by 3.5%


. Which of the following is an example of restructuring strategy?
a. Dividends are increased from Rs.1 to Rs.2 per share
b. A new investment increases the firm's business risk
c. New equity is issued and the proceeds repay debt
d. A new Board of Directors is elected to the firm

 The stability of a firm's operating income is the focus of:
a. Financial leverage
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b. Weighted-average cost of capital
c. Capital structure
d. Business risk

The presence of which one of the following costs is not used as a major argume
against the M&M arbitrage process?
a. Bankruptcy costs
b. Agency costs
c. Transactions costs
d. Insurance costs

 When a firm declares a special cash dividend of $1 per share, shareholders reali
that the:

a.   Annual dividend will be $4 per share
b.   Dividends are considered regular
c.   Dividend is not likely to be repeated
d.   Stock must be owned prior to the declaration date to receive the dividend

. What would you expect to happen to the price of a share of stock on the day it
goes ex-dividend?
a. The price should increase by the amount of the dividend
b. The price should decrease by the amount of the dividend
c. The price should decrease by one-half the amount of the dividend
d. The price should remain constant



 Who determine the market price of a share of common stock?
a. The board of directors of the firm
b. The stock exchange on which the stock is listed
c. The president of the company
d. Individuals buying and selling the stock

 What should be the focal point of financial management in a firm?
a. The number and types of products or services provided by the firm
b. The minimization of the amount of taxes paid by the firm
c. The creation of value for shareholders
d. The dollars profits earned by the firm

 Which of the following would generally have unlimited liability?
a. A limited partner in a partnership
b. A shareholder in a corporation
c. The owner of a sole proprietorship
d. A member in a limited liability company (LLC)
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 Which of the following is equal to the average tax rate?
a. Total tax liability divided by taxable income
b. Rate that will be paid on the next dollar of taxable income
c. Median marginal tax rate
d. Percentage increase in taxable income from the previous period



Felton Farm Supplies, Inc., has an 8 percent return on total assets of Rs.300,000 and
a net profit margin of 5 percent. What are its sales?


a. Rs.3, 750,000
b. Rs.480, 000
c. Rs.300, 000
d. Rs.1, 500,000
Since ROI=8% on $300,000 of assets, then net profit is Rs.24,000 (8% ×
Rs.300,000). Using the net profit and given that the NPM=5%, sales equals
Rs.480,000 (Rs.24,000 / 5%).




Which of the following would not improve the current ratio?


a. Borrow short term to finance additional fixed assets
b. Issue long-term debt to buy inventory
c. Sell common stock to reduce current liabilities
d. Sell fixed assets to reduce accounts payable


With continuous compounding at 8 percent for 20 years, what is the approximate
future value of a Rs.20,000 initial investment?
a. Rs.52,000
b. Rs.93,219
c. Rs.99,061
d. Rs.915,240
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(.08 × 20)
Rs.20,000[ e ] = Rs.20,000(4.9530324) = Rs.99,061.




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 __________.
a. Fall
b. Rise
c. Remain unchanged
d. Incomplete information




 Cash budgets are prepared from past:
a. Balance sheets
b. Income statements
c. Income tax and depreciation data
d. None of the given options


Which of the following is part of an examination of the sources and uses of funds?
a. A forecasting technique
b. A funds flow analysis
c. A ratio analysis
d. Calculations for preparing the balance sheet


An annuity due is always worth _____ a comparable annuity.
a. Less than
b. More than
c. Equal to
d. Can not be found
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As interest rates go up, the present value of a stream of fixed cash flows _____.
a. Goes down
b. Goes up
c. Stays the same
d. Can not be found


ABC company is expected to generate Rs.125 million per year over the next three
years in free cash flow. Assuming a discount rate of 10%, what is the present value
of that cash flow stream?


a. Rs.375 million
b. Rs.338 million
c. Rs.311 million
d. Rs. 211 million


$311 million. The cash flow stream would look like this: 125.00 x 0.9090 =
113.63; 125.00 x 0.8264 = 103.30; 125.00 x 0.7513 = 93.91. The sum of the three is
$310.84, or $311 million.




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?


a. An increase
b. A decrease
c. No change
d. Incomplete information




In proper capital budgeting analysis we evaluate incremental __________ cash
flows.
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a. Accounting
b. Operating
c. Before-tax
d. Financing


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:


a. Payback period
b. Internal rate of return
c. Net present value
d. Profitability index


Discounted cash flow methods provide a more objective basis for evaluating and
selecting an investment project. These methods take into account:
a. Magnitude of expected cash flows
b. Timing of expected cash flows
c. Both timing and magnitude of cash flows
d. None of the given options




Which of the followings make the calculation of NPV difficult?
a. Estimated cash flows
b. Discount rate
c. Anticipated life of the business
d. All of the given options




From which of the following category would be the cash flow received from sales
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revenue and other income during the life of the project?
a. Financing activity
b. Operating activity
c. Investing activity
d. All of the given options


Which of the following technique would be used for a project that has non –normal
cash flows?


a. Multiple internal rate of return
b. Modified internal arte of return
c. Net present value
d. Internal rate of return




Why net present value is the most important criteria for selecting the project in
capital budgeting?


a. Because it has a direct link with the shareholders dividends maximization
b. Because it helps in quick judgment regarding the investment in real assets
c. Because we have a simple formula to calculate the cash flows
d. Because it has direct link with shareholders wealth maximization


 In which of the following situations you can expect multiple answers of IRR?


a. More than one sign change taking place in cash flow diagram
b. There are two adjacent arrows one of them is downward pointing & the
other one is upward pointing
c. During the life of project if you have any net cash outflow
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d. All of the given options


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?


a. Cash budgeting
b. Capital budgeting
c. Capital expenditure
d. Capital rationing


Who is responsible for the decisions relating capital budgeting and capital
rationing?


a. Chief executive officer
b. Junior management
c. Division heads
d. All of the given option




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?


a. Indenture
b. Debenture
c. Bond
d. Bond trustee


__________ is a high-risk, high-yield bond rated below investment grade; while
a/ (an) __________ bond has its interest payment contingent on sufficient
earnings of the firm.
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a. A junk bond; income
b. A subordinated debenture; mortgage
c. A debenture; subordinated debenture
d. An income bond; mortgage
__________ is a long-term, unsecured debt instrument with a lower claim on
assets and income than other classes of debt; while a/(an) __________ bond issue
is secured by the issuer's property.


a. A subordinated debenture; mortgage
b. A debenture; subordinated debenture
c. A junk bond; income
d. An income bond; junk


The value of the bond is NOT directly tied to the value of which of the following
assets?


a. Liquid assets of the business
b. Fixed assets of the business
c. Lon term assets of the business
d. Real assets of the business


The value of a bond is directly derived from which of the following?


a. Cash flows
b. Coupon receipts
c. Par recovery at maturity
d. All of the given options


Which of the following is not the present value of the bond?
a. Intrinsic value
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b. Fair price
c. Theoretical price
d. Market price


The current yield on a bond is equal to ________.
a. The yield to maturity
b. Annual interest divided by the par value
c. Annual interest divided by the current market price
d. The internal rate of return


A coupon bond pays annual interest, has a par value of Rs.1,000 matures in 4
years, has a coupon rate of 10%, and has a yield to maturity of 12%. What is the
current yield on this bond is?
a. 10.45%
b. 10.95%
c. 10.65%
d. 10.52%


Which of the following is a characteristic of a coupon bond?


a. Does not pay interest on a regular basis but pays a lump sum at maturity
b. Can always be converted into a specific number of shares of common
stock in the issuing company
c. Pays interest on a regular basis (typically every six months)
d. Always sells at par




Which of the following value of the shares changes with investor‟s perception
about the company‟s future and supply and demand situation? (Comprehension)


a. Par value
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b. Intrinsic value
c. Market value
d. Face value




The value of direct claim security is derived from which of the following?
a. Fundamental analysis
b. Underlying real asset
c. Supply and demand of securities in the market
d. All of the given options




_________ is equal to (common shareholders' equity/common shares
outstanding).


a. Liquidation value per share
b. Book value per share
c. Market value per share
d. None of the above




Low Tech Company has an expected ROE of 10%. The dividend growth rate will
be ________ if the firm follows a policy of paying 40% of earnings in the form of
dividends.


a. 4.8%
b. 6.0%
c. 7.2%
d. 3.0%
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High Tech Chip Company is expected to have EPS in the coming year of R
2.50. The expected ROE is 12.5%. An appropriate required return on the stock
11%. If the firm has a plowback ratio of 70%, what would be the growth rate
dividends?
a. 6.25%
b. 8.75%
c. 6.60%
d. 7.50%




In the dividend discount model, _______ which of the following are n
incorporated into the discount rate?
a. Real risk-free rate
b. Risk premium for stocks
c. Return on assets
d. Expected inflation rate


Bond is a type of Direct Claim Security whose value is NOT secured by
__________.
a. Tangible assets
b. Fixed assets
c. Intangible assets
d. Real assets

				
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