02MIDTERM EXAMINATION
Spring
2010
MGT201-
Financial Management (Session - 3)
Question
No: 1 ( Marks: 1 ) - Please choose one
Which of
the following is equal to the average tax rate?
►
Total tax liability divided by taxable income
►
Rate that will be paid on the next dollar of taxable income
►
Median marginal tax rate
►
Percentage increase in taxable income from the previous period
Question
No: 2 ( Marks: 1 ) - Please choose one
Which
group of ratios measures a firm's ability to meet short-term obligations?
►
Liquidity ratios
►
Debt ratios
►
Coverage ratios
►
Profitability ratios
Question
No: 3 ( Marks: 1 ) - Please choose one
Assume
that the interest rate is greater than zero. Which of the following cash-inflow
streams totaling Rs.1, 500 would you prefer? The cash flows are listed in order
for Year 1, Year 2, and Year 3 respectively.
►
Rs.700 Rs.500 Rs.300
►
Rs.300 Rs.500 Rs.700
►
Rs.500 Rs.500 Rs.500
► Any of
the above, since they each sum to Rs.1,500
Question
No: 4 ( Marks: 1 ) - Please choose one
Interest
paid (earned) on both the original principal borrowed (lent) and previous
interest earned is often referred to as __________.
►
Present value
►
Simple interest
► Future
value
►
Compound interest
Question
No: 5 ( Marks: 1 ) - Please choose one
You are going
to invest Rs.12,500 into a certificate of deposit (CD) at a 6% annual rate
(compounded annually) with a maturity of 30 months. How much money will you
receive when the CD matures?
►
Rs.14,491
►
Rs.14,518
►
Incomplete information
►
Rs.14,460
Question
No: 6 ( Marks: 1 ) - Please choose one
An 8-year
annuity due has a future 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?
►
Rs.109.39
►
Rs.147.36
►
Rs.154.73
►
Rs.99.74
Question
No: 7 ( Marks: 1 ) - Please choose one
All of
the following influence capital budgeting cash flows EXCEPT__________.
►
Choice of depreciation method for tax purposes
►
Economic length of the project
►
Projected sales (revenues) for the project
► Sunk
costs of the project
Question
No: 8 ( Marks: 1 ) - Please choose one
The basic
capital budgeting principles involved in determining relevant after-tax
incremental operating cash flows require us to __________.
► Include
sunk costs, but ignore opportunity costs
►
Include opportunity costs, but ignore sunk costs
► Ignore
both opportunity costs and sunk costs
► Include
both opportunity and sunk costs
Question
No: 9 ( Marks: 1 ) - Please choose one
From
which of the following category would be the cash flow received from sales
revenue and other income during the life of the project?
► Cash
flow from financing activity
► Cash
flow from operating activity
► Cash
flow from investing activity
► All
of the given options
Question
No: 10 ( Marks: 1 ) - Please choose one
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
Question
No: 11 ( Marks: 1 ) - Please choose one
Who is
responsible for the decisions relating capital budgeting and capital rationing?
►
Chief executive officer
►
Junior management
►
Division heads
►
All of the given option
Question
No: 12 ( Marks: 1 ) - Please choose one
When
coupon bonds are issued, they are typically sold at which of the following
value?
► Below
par
► Above
par value
► At
or near par value
► At a
value unrelated to par
Question
No: 13 ( Marks: 1 ) - Please choose one
Which of
the following is NOT an example of hybrid equity?
►
Convertible bonds
►
Convertible debenture
►
Common shares
►
Preferred shares
Question
No: 14 ( Marks: 1 ) - Please choose one
The value
of dividend is derived from which of the following?
► Cash
flow streams
► Capital
gain /loss
►
Difference between buying & selling price
► All of
the given options
Question
No: 15 ( Marks: 1 ) - Please choose one
Which
of the following is CORRECT, if a firm has a required rate of return
equal to the ROE?
► The firm
can increase market price and P/E by retaining more earnings
► The
firm can increase market price and P/E by increasing the growth rate
► The
amount of earnings retained by the firm does not affect market price or the P/E
►
None of the given options
Question
No: 16 ( Marks: 1 ) - Please choose one
When
Investors want high plowback ratios?
►
Whenever ROE > k
►
Whenever k > ROE
► Only
when they are in low tax brackets
►
Whenever bank interest rates are high
Question
No: 17 ( Marks: 1 ) - Please choose one
Which of
the following statement about portfolio statistics is CORRECT?
► A
portfolio's expected return is a simple weighted average of expected returns of
the individual securities comprising the portfolio.
► A
portfolio's standard deviation of return is a simple weighted average of
individual security return standard deviations.
► The
square root of a portfolio's standard deviation of return equals its variance.
► The
square root of a portfolio's standard deviation of return equals its
coefficient of variation.
Question
No: 18 ( Marks: 1 ) - Please choose one
Which of
the following is the variability of return on stocks or portfolios not
explained by general market movements. It is avoidable through diversification?
►
Systematic risk
►
Standard deviation
►
Unsystematic risk
►
Financial risk
Question
No: 19 ( Marks: 1 ) - Please choose one
Diversification
can reduce risk by spreading your money across many different ------
►
Investments
►
Markets
►
Industries
►
All of the given options
Question
No: 20 ( Marks: 1 ) - Please choose one
Which of the following is NOT a major
cause of unsystematic risk.
►
New competitors
►
New product management
►
Worldwide inflation
► Strikes
Question
No: 21 ( 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: 22 ( Marks: 1 ) - Please choose one
Under
which concept it is said that “do not put all your eggs in one basket”?
► Risk
& return
►
Portfolio diversification
►
Insurance management
► Time
value of money
Question
No: 23 ( Marks: 1 ) - Please choose one
All of
the following are the steps involved in financial planning processEXCEPT:
►
Assumptions are made about future levels of sales, costs, and interest rates
etc.
► Ratios
are projected and analyzed
►
Projected financial statements are developed
►
Comparison with key competitors about the prices to be charged
Question
No: 24 ( 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: 25 ( Marks: 1 ) - Please choose one
Suppose
you are going to sale an old asset and its market value is greater than its
book value it indicates that:
►
Company is going to have capital gain
► Company
will have to bear capital loss
► Company
is going to earn operating revenue
► Company
has to bear revenue expense
Question
No: 26 ( Marks: 1 ) - Please choose one
Which of
the following is not a type of problem in capital rationing?
► Size
difference of projects
► Timing
difference of projects
►
Different lives of different projects
►
Different cash flow streams
Question
No: 27 ( Marks: 1 ) - Please choose one
In
Pakistan which of the following is assigned to bond rating and risk?
► IMF
► Moody’s
►
Standard & poor
►
PACRA
Question
No: 28 ( Marks: 1 ) - Please choose one
Which of
the following statement defines the following events i.e Inflation, recession,
and high interest rates?
►
Systematic risk factors that can be diversified away
►
Company-specific risk factors that can be diversified away
► Among
the factors that are responsible for market risk
►
Irrelevant except to governmental authorities like the Federal Reserve
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