01 MIDTERM
EXAMINATION
Spring 2010
MGT201- Financial
Management (Session - 5)
Question
No: 1 ( Marks: 1 ) - Please choose one
Which of
the following statements is correct for a sole proprietorship?
►
The sole proprietor has limited liability
►
The sole proprietor can easily dispose of their ownership position relative to
a shareholder in a corporation
► The sole proprietorship can be created
more quickly than a corporation
►
The owner of a sole proprietorship faces double taxation unlike the partners in
a partnership
Question
No: 2 ( Marks: 1 ) - Please choose one
Which of
the following market refers to the market for relatively long-term financial
instruments?
►
Secondary market
►
Primary market
►
Money market
► Capital market
Question
No: 3 ( Marks: 1 ) - Please choose one
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?
►
750,0Rs.3, 750,000
► Rs.48Rs.480, 000 (correct)
► Rs.30Rs.300, 000
►
Rs.1, Rs.1, 500,000
Reference:
Since
ROI=8% on $300,000 of assets,
then
net profit is $24,000 (8% × $300,000).
Using
the net profit and given that the NPM=5%, sales equals $480,000 ($24,000 / 5%).
Question
No: 4 ( Marks: 1 ) - Please choose one
An
investment proposal should be judged in whether or not it provides:
► 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
No: 5 ( Marks: 1 ) - Please choose one
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:
► Payback
period
► Internal rate of return
► Net
present value
►
Profitability index
Reference:
Page 43 & 44
Question
No: 6 ( Marks: 1 ) - Please choose one
A capital
budgeting technique that is NOT considered as discounted cash flow
method is:
► Payback period
►
Internal rate of return
► Net
present value
►
Profitability index
Question
No: 7 ( Marks: 1 ) - Please choose one
Why net
present value is the most important criteria for selecting the project in
capital budgeting?
►
Because it has a direct link with the shareholders dividends maximization
► Because it has direct link with
shareholders wealth maximization
►
Because it helps in quick judgment regarding the investment in real assets
►
Because we have a simple formula to calculate the cash flows
Question
No: 8 ( Marks: 1 ) - Please choose one
You are
selecting a project from a mix of projects, what would be your first selection
in descending order to give yourself the best chance to add most to the firm
value, when operating under a single-period capital-rationing constraint?
► Profitability index (PI)
► Net present value (NPV)
► Internal rate of return (IRR)
► Payback period (PBP)
Reference:
1. Pay back period (ascending order)
2. Return on investment (ROI)
3. Net Present Value (NPV)
4. Profitability Index (PI) (Descending
order)
5. Internal Rate of Return (IRR)
Question
No: 9 ( Marks: 1 ) - Please choose one
Bond is a
type of Direct Claim Security whose value is NOT secured by __________.
►
Tangible assets
► Intangible assets
► Fixed
assets
► Real
assets
Question
No: 10 ( Marks: 1 ) - Please choose one
If a 7%
coupon bond is trading for Rs. 975 it has a current yield of _________ percent.
► 7.00
► 6.53
► 8.53
► 7.18
Reference:
Current Yield = Coupon / Market Price
Current Yield = 7%*1000/ 975
Current Yield = 70/ 975
Current Yield = 0.071*100
Current Yield = 7.18
Question
No: 11 ( Marks: 1 ) - Please choose one
Which of
the following is designated by the individual investor's optimal portfolio?
►
The point of tangency with the opportunity set and the capital allocation line
► The point of highest reward to
variability ratio in the opportunity set
►
The point of tangency with the indifference curve and the capital allocation
line
►
The point of the highest reward to variability ratio in the indifference curve
Question
No: 12 ( Marks: 1 ) - Please choose one
Assume
that the expected returns of the portfolios are the same but their standard
deviations are given in the options given below, which of the option represent
the most risky portfolio according to standard deviation?
►
1.5%
►
2.0%
►
3.0%
► 4.0%
Question
No: 13 ( Marks: 1 ) - Please choose one
Which of
the following is a drawback of percentage of sales method?
► It is a
rough approximation
► There
is change in fixed asset during the forecasted period
► Lumpy
assets are not taken into account
► All of the given options
Question
No: 14 ( Marks: 1 ) - Please choose one
Which of
the following need to be excluded while we calculate the incremental cash
flows?
►
Depreciation
► Sunk cost
►
Opportunity cost
►
Non-cash item
Question
No: 15 ( Marks: 1 ) - Please choose one
Which of
the following is NOT an example of a financial intermediary?
►
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
No: 16 ( Marks: 1 ) - Please choose one
An 8% coupon Treasury note pays interest on
May 30 and November 30 and is traded for settlement on August 15. What is the accrued interest on Rs. 100,000
face value of this note?
► Rs. 491.80
► Rs. 800.00
► Rs. 983.61
► Rs. 1,661.20
Reference:
76/183(4,000) = 1,661.20. Approximation:
.08/12*100,000=666.67 per month. 666.67/month * 2.5 months = 1.666.67.
Question
No: 17 ( Marks: 1 ) - Please choose one
A
preferred stock will pay a dividend of Rs. 3.50 in the upcoming year, and every
year thereafter, i.e., dividends are not expected to grow. You require a return
of 11% on this stock. Use the constant growth model to calculate the intrinsic
value of this preferred stock.
►
Rs. 0.39
►
Rs. 0.56
► Rs. 31.82
►
Rs. 56.25
Reference:
PV = DIV1/ rPE = 3.5 / 11% = 3.5/0.11
= Rs 31.82
Question
No: 18 ( Marks: 1 ) - Please choose one
Information
that goes into __________ can be used to prepare __________.
► A
forecast balance sheet; a forecast income statement
►
Forecast financial statements; a cash budget
► Cash budget; forecast financial statements
► A
forecast income statement; a cash budget
Question
No: 19 ( Marks: 1 ) - Please choose one
What is
the present value of Rs.8,000 to be paid at the end of three years if the
interest rate is 11% compounded annually?
► Rs.5,850
►
Rs.4,872
►
Rs.6,725
►
Rs.1,842
Question
No: 20 ( Marks: 1 ) - Please choose one
“Do not compare apples with oranges” is the
concept in:
► Discounting and Net present value
► Risk
& return
►
Insurance management
► Time
value of money
Question
No: 21 ( Marks: 1 ) - Please choose one
Which of
the following is NOT the interest rate used for discounting calculation?
► Benchmark interest rate
►
Effective interest rate
►
Periodic interest rate
► Nominal
interest rate
Question
No: 22 ( Marks: 1 ) - Please choose one
Which of
the following is the formula to calculate the future value of perpetuity?
►
Constant cash flows × interest rate
► Constant cash flows / interest rate
►
Constant cash flows + Constant cash flows × interest rate
►
Constant cash flows - Constant cash flows/ interest rate
Question
No: 23 ( Marks: 1 ) - Please choose one
Which of
the following interest rate keeps on moving and changing on daily basis?
► Book
value
► Market value
► Salvage
value
► Face
value
Question
No: 24 ( Marks: 1 ) - Please choose one
From
which of the following formula we can calculate coupon rate?
► Coupon
receipt / market value
► Coupon
receipt / present value
► Coupon
receipt / salvage value
► Coupon receipt / book value
Question
No: 25 ( Marks: 1 ) - Please choose one
Value of
“g” in the formula of constant growth rate can be calculated from which of the
following formula?
► g = plowback ratio × ROE
► g =
plowback ratio × ROA
► g =
payout ratio + ROE
► g =
payout ratio + ROA
Question
No: 26 ( Marks: 1 ) - Please choose one
In
Gordon’s formula (rCE = DIV1 / Po + g), rCE is
considered as __________ and “g” is considered as __________.
►
Dividend yield, operating expenses
►
Dividend yield, operating income
►
Dividend yield, capital loss
► Dividend yield, capital gain
Question
No: 27 ( Marks: 1 ) - Please choose one
To
calculate the annual rate of return for an investment, we require which of the
following(s)?
► The
income created
► The
gain or loss in value
► The
original value at the beginning of the year
► All of the given options
Question
No: 28 ( Marks: 1 ) - Please choose one
This is
an example of which of the following?
Real
estate prices fell across the board because the market was glutted with surplus
pre-owned homes for sale.
►
Economic risk
►
Industry risk
► Company
risk
► Market risk
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