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
