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Financial Management Solved MCQs (500)

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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 ) .
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 ) .
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 ..
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?

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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 ) .

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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 ) .
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 ) .
What is potentially the biggest advantage of a small partnership over a sole proprietorship?
Select correct option:
Unlimited liability

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Single tax filing

Difficult ownership resale
Raising capital
Question # 8 of 10 ( Start time: 04:10:16 PM ) .
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 ) .

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 ) .
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2
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

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Net present value

Profitability index

group of ratios measures a firm's ability to meet short-term obligations?

Select correct option:
Liquidity ratios
Debt ratios
Coverage ratios
Profitability ratios
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
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3
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
Amount = P*(1+i/n)^n
Its not multiple compounding otherwise use this forumal
P*(i+i/m/n)^m*n

A project that tells us the number of years required to recover our initial cash investment based on the
projects expected cash flows is:

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Select correct option:
Pay back period
Internal rate of return
Net present value
Profitability index
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4
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
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5
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

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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:
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6
Rs.154.73
Rs.147.36
Rs.109.39
Rs.104.72
FV = PMT* ((1+i)^n 1)/i (formula use to calc fv of annuity)
PV= PMT *((1+i)^-n -1)/i (formula use to calc PV of annuity)
Try to remember above two formulas for calc of annuity
1000 = pmt * ((1.05)^-8 -1)/.05
1000 = PMT *6.46
PMT = 1000/6.46 = 154.73
Now from above two ann
MGT201 Solved MCQ3 from Quiz

The objective of financial management is to maximize _________ wealth.

Select correct option:
Stakeholders
Shareholders
Bondholders
.

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Directors
Where there is single period capital rationing, what 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
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
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 option:
Rs.840
Rs.858
Rs.1,032
Rs.1,121
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{ [ 1 + (.056/360) ] ^ [270] - 1 } = .042891 or 4.2891%. Thus, $20,000 (.042891) =
$857.82.

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
At the termination of project, which of the following needs to be considered relating to project assets?

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Select correct option:
Salvage value
Book value
Intrinsic value
Fair value

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
.
9
Amount = P*(1+i/n)^n

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
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?
Select correct option:
Indenture
Debenture
Bond
Bond trustee
MGT201 Solved MCQ4 from Quiz

Question # 1 of 10
An annuity due is always worth _____ a comparable annuity.

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Select correct option:
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10

Less than
More than
Equal to
Can not be found from the given information
Question # 2 of 10 ( Start time: 04:11:40 PM ) .
Which of the following would be considered a cash-flow item from an "investing"
activity?
Select correct 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
Question # 3 of 10 ( Start time: 04:13:04 PM ) .
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
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Question # 4 of 10 ( Start time: 04:13:54 PM ) .
Where there is single period capital rationing, what 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

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Question # 5 of 10 ( Start time: 04:15:07 PM ) .
Which of the following statements is correct in distinguishing between serial bonds and sinking-fund
bonds?
Select correct option:
Serial bonds mature at a variety of dates, but sinking-fund bonds mature at a single date.
Serial bonds provide for the deliberate retirement of bonds prior to maturity, but sinking-fund bonds
do not provide for the deliberate retirement of bonds prior to maturity
Serial bonds do not provide for the deliberate retirement of bonds prior to maturity, but sinking-fund
bonds do provide for the deliberate retirement of bonds prior to maturity.
None of the above are correct since
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Question # 6 of 10 ( Start time: 04:16:37 PM ) .
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
Debt ratios show the extent to which the firm is financed with debt.
Question # 7 of 10 ( Start time: 04:17:10 PM ) .
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 # 8 of 10 ( Start time: 04:18:03 PM ) .
Which of the following needs to be excluded while we calculate the incremental cash flows?
Select correct option:
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Depreciation
Sunk cost

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Opportunity cost
Non-cash item
Question # 9 of 10 ( Start time: 04:19:01 PM ) .
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
MGT201 Current Quiz # 3

A company whose stock is selling at a P/E ratio greater than the P/E ratio of a market index most
likely has _________.
Select correct option:
An anticipated earnings growth rate which is less than that of the average firm A dividend yield
which is less than that of the average firm
Less predictable earnings growth than that of the average firm
Greater cyclicality of earnings growth than that of the average firm Which of the following is called
the tax savings of the firm derived from the deductibility of interest expense?
Select correct option:
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Interest tax shield

Depreciable basis
Financing umbrella
Current yield
The reduction in income taxes that results from the tax-deductibility of interest payments.
Tax benefits derived from creative structuring of a financing arrangement. For example, usingloan
capital instead of equity capital because interest paid on the loans is generally tax deductible whereas the
dividend paid on equity is not Upon which of the following a firm's degree of operating leverage (DOL)
depends primarily?
Select correct option:

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Sales variability
Level of fixed operating costs
Closeness to its operating break-even point
Debt-to-equity ratio
Discounted cash flow methods provide a more objective basis for evaluating and selecting an
investment project. These methods take into account:
Select correct option:
Magnitude of expected cash flows
Timing of expected cash flows
Both timing and magnitude of cash flows
None of the given options
Ref It discounts the cash flow to take into the account the time value of money.
Reference

Expected Portfolio Return = ___________.

Select correct option:
rP * = xA rA + xB rB
rP * = xA rA - xB rB
rP * = xA rA / xB rB
rP * = xA rA * xB rB
What is the most important criteria in capital budgeting?
Select correct option:
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Return on investment
Profitability index
Net present value
Pay back period
If stock is a part of totally diversified portfolio then its company risk must be equal to:
Select correct option:
0
0.5
1

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For most firms, P/E ratios and risk_________.
Select correct option:
Will be directly related
Will have an inverse relationship
Will be unrelated
None of the above.
Which of the following is the cash required during a specific period to meet interest expenses and
principal payments?
Select correct option:
Debt capacity
Debt-service burden
Adequacy capacity
Fixed-charge burden
Which of the following stipulate a relationship between expected return and risk?
Select correct option:
APT stipulates
CAPM stipulates
Both CAPM and APT stipulate
Neither CAPM nor APT stipulate

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Which of the following factors might affect stock returns?
Select correct option:

Business cycle
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Interest rate fluctuations
Inflation rates
All of the above

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If all things equal, when diversification is most effective?

Select correct option:

Securities' returns are positively correlated

Securities' returns are uncorrelated
Securities' returns are high
Securities' returns are negatively correlated
Which of the followings expressed the proposition that the value of the firm is independent of its
capital structure?
Select correct option:

The Capital Asset Pricing Model

M&M Proposition I
M&M Proposition II
The Law of One Price
Which of the following will NOT equate the future value of cash inflows to the present value of cash
outflows?
Select correct option:

Discount rate
Profitability index
Internal rate of return
Multiple Internal rate of return
Which of the following is related to the use Lower financial leverage?
Select correct option:

Fixed costs

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Variable costs
Debt financing
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Common equity financing
Why markets and market returns fluctuate?
Select correct option:

Because of political factors

Because of social factors
Because of socio-political factors
Because of macro systematic factors
Which of the following is NOT an example of hybrid equity
Select correct option:

Convertible Bonds
Convertible Debenture
Common shares
Preferred shares
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

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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
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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
Which of the following is NOT the form of cash flow generated by the investments of the
shareholders?
Select correct option:

Income
Capital loss
Capital gain
Operating income

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According to the Capital Asset Pricing Model (CAPM), a well-diversified portfolio's rate of return is
a function of which of the following: Select correct option:

Unique risk
Reinvestment risk
Market risk
Unsystematic risk
What is the most important criteria in capital budgeting?
Select correct option:

Return on investment
Profitability index
Net present value
Pay back period
If all things equal, when diversification is most effective?
Select correct option:
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Securities' returns are positively correlated

Securities' returns are uncorrelated
Securities' returns are high
Securities' returns are negatively correlated
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.

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Select correct option:

I, II, and III

I only
III only
II and III only
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
Which of the following could be taken same as minimizing the weighted average cost of capital?
Select correct option:

Maximizing the market value of the firm

Maximizing the market value of the firm only if MM's Proposition I Minimizing the market value of
the firm only if MM's Proposition I holds Maximizing the profits of the firm
Which of the following formulas represents a correct calculation of the degree of operating leverage?
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20
Select correct option:

(Q - QBE)/Q
(EBIT) / (EBIT - FC)
[Q(P-V) + FC] /[Q(P-V)]

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Q(P-V) / [Q(P-V) - FC]

The value of a bond is directly derived from which of the following?
Select correct option: .

Cash flows
Coupon receipts
Par recovery at maturity
All of the given options
Which statement is NOT true regarding the market portfolio?
Select correct option:

It includes all publicly traded financial assets

It is the tangency point between the capital market line and the indifference curve
All securities in the market portfolio are held in proportion to their market values
It lies on the efficient frontier
In the dividend discount model, _____ which of the following are not incorporated into the discount
rate?
Select correct option:
Real risk-free rate
Risk premium for stocks
Return on assets
Expected inflation rate
Which of the following is NOT an example of hybrid equity
Select correct option:
Convertible Bonds
Convertible Debenture
Common shares
Preferred shares
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For which of the following costs is it generally necessary to apply a tax adjustment to a yield
measure?
Select correct option:
Cost of debt
Cost of preferred stock
Cost of common equity
Cost of retained earnings
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

What are two major areas of capital budgeting?

Select correct option:
Net present value, profitability index
Net present value; internal rate of return
Net present value; payback period
Pay back period; profitability index
Which of the followings are the propositions of Modigliani and Miller's?
Select correct option:
The market value of a firm's common stock is independent of its capital structure The market value of
a firm's debt is independent of its capital structure The market value of any firm is independent of its
capital structure None of the given options
The weighted average of possible returns, with the weights being the probabilities of occurrence is
referred to as ________.
Select correct option:
Probability distribution
Expected return
Standard deviation
Coefficient of variation
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?
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Select correct option:

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Common stock
Debt
Preferred stock
None of the above
A statistical measure of the variability of a distribution around its mean is referred to as ________.
Select correct option:
Probability distribution
Expected return
Standard deviation
Coefficient of variation
How "Shareholder wealth" is represented in a firm?
Select correct 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
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

.
The benefit we expect from a project is expressed in terms of:
Select correct option:
Cash in flows
Cash out flows
Cash flows
None of the given option
Upon which of the following a firm's degree of operating leverage (DOL) depends primarily?
Select correct option:
Sales variability
Level of fixed operating costs
Closeness to its operating break-even point
Debt-to-equity ratio
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Which of the following is the value of beta for the market portfolio?
Select correct option:
0.25
-1.0
1.0
0.5
Which of the following is related to the use Lower financial leverage?
Select correct option:
Fixed costs
Variable costs
Debt financing
Common equity financing
Why common stock of a company must provide a higher expected return than the debt of the same
company?
Select correct option:
There is less demand for stock than for bonds
There is greater demand for stock than for bonds
There is more systematic risk involved for the common stock
There is a market premium required for bonds
_______ is equal to (common shareholders' equity/common shares outstanding).
Select correct option:
Book value per share
Liquidation value per share
Market value per share
None of the above

When a bond will sell at a discount?

Select correct 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 .
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In order for the investor to earn more than the current yield the bond must be selling for a discount.
Yield to maturity will be greater than current yield as investor will have purchased the bond at discount
and will be receiving the coupon payments over the life of the bond.
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
Upon which of the following a firm's degree of operating leverage (DOL) depends primarily?
Select correct option:
Sales variability
Level of fixed operating costs
Closeness to its operating break-even point
Debt-to-equity ratio

Which of the following is simply the weighted average of the possible returns, with the weights being
the probabilities of occurrence?
Select correct option:
Probability distribution
Expected return
Standard deviation
Coefficient of variation

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
Cash budgets are prepared from past:
Select correct option:
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Balance sheets
Income statements
Income tax and depreciation data
None of the given options
The cash budget is prepared from forecasted cash collections and disbursements rather 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
Which of the followings expressed the proposition that the cost of equity is a positive linear function
of capital structure?
Select correct option:
The Capital Asset Pricing Model
M&M Proposition I
M&M Proposition II
The Law of One Price
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
Question # 2 of 20 ( Start time: 04:01:59 PM ) .
________ is the variability of return on stocks or portfolios not explained by general market
movements. It is avoidable through diversification.
Select correct option:
Systematic risk
Standard deviation
Unsystematic risk
Coefficient of variation
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Unsystematic risk is the diversifiable portion of total risk and not a measure of total risk like standard
deviation.
The presence of which of the following costs is not used as a major argument against the M&M
arbitrage process?
Select correct option:
Bankruptcy costs
Agency costs
Transactions costs
Insurance costs
The presence of these costs is used as major argument against the M&M arbitrage process 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
According to timing difference problem a good project might suffer from ___ IRR even though its
NPV is ______.
Select correct option:
Higher; lower
Lower; Lower
Lower; higher
Higher; higher

Expected Portfolio Return = _________.

Select correct option:
rP * = xA rA + xB rB
rP * = xA rA - xB rB
rP * = xA rA / xB rB
rP * = xA rA * xB rB
Upon which of the following a firm's degree of operating leverage (DOL) depends primarily?
Select correct option:
Sales variability
Level of fixed operating costs
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Closeness to its operating break-even point
Debt-to-equity ratio

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For most firms, P/E ratios and risk_ ______.

Select correct option: .
Will be directly related
Will have an inverse relationship
Will be unrelated
None of the above.
The ________ the coefficient of variation ______ the relative risk of the investment.
Select correct option:
Larger; Larger
Larger; Smaller
Smaller; Larger
Smaller; Smaller
You are considering two investment proposals, project A and project B. B's expected net present
value is Rs. 1,000 greater than that for A and A's dispersion of net present value is less than that for B. On
the basis of risk and return, what would be your conclusion?
Select correct option:
Project A dominates project B
Project B dominates project A
Neither project dominates the other in terms of risk and return Incomplete information

The expected net present value of B is greater than the expected net present value of A and the risk of
B exceeds the risk of A, so neither dominates the other.
______ means expanding the number of investments which cover different kinds of stocks.
Select correct option:
Diversification
Standard deviation
Variance
Covariance
What should be used to calculate the proportional amount of equity financing employed by a firm?
Select correct option:
The common stock equity account on the firm's balance sheet
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28
The sum of common stock and preferred stock on the balance sheet
The book value of the firm
The current market price per share of common stock times the number of shares Outstanding

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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
__________are analysts who use information concerning current and prospective profitability of
firms to assess the firm's fair market value.
Select correct option:
Credit analysts
Fundamental analysts
Systems analysts
Technical analysts
.
Which of the followings expressed the proposition that the value of the firm is independent of its
capital structure?
Select correct option:
The Capital Asset Pricing Model
M&M Proposition I
M&M Proposition II
The Law of One Price
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
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
.
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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)
If 2 stocks move in the same direction together then what will be the correlation coefficient?
Select correct option:

0
1.0
-1.0
1.5
which of the following needs to be excluded while we calculate the incremental cash flows?
Select correct option:
Depreciation
Sunk cost
Opportunity cost
Non-cash item
If risk and return combination of any stock is above the SML, what does it mean?
Select correct option:
It is offering lower rate of return as compared to the efficient stock It is offering higher rate of
return as compared to the efficient stock Its rate of return is zero as compared to the efficient stock
It is offering rate of return equal to the efficient stock
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
.
30
Which of the following is NOT a cash outflow for the firm?
Select correct option:

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Depreciation
Dividends
Interest
Taxes

Which of the following statements is correct for a firm that currently has total costs of carrying and
ordering inventory that is 50% higher than total carrying costs?
Select correct option:
Current order size is greater than optimal
Current order size is less than optimal
Per unit carrying costs are too high
The optimal order size is currently being used
When a firm needs guaranteed, short-term funds available for a variety purposes, the bank loan will
likely be a ________.
Select correct option:
Compensating balance arrangement
Revolving credit agreement
Transaction loan
Line of credit

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 I, II, and III not sure
I only
III only
II and III only
An implicit cost of adding debt to the capital structure is that it: Select correct option:
Adds interest expense to the operating statement
Increases the required return on equity
Reduces the expected return on assets
Decreases the firm's beta
.
31
hich of the following statements regarding covariance is correct?
Select correct option:
Covariance always lies in the range -1 to +1

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Covariance, because it involves a squared value, must always be a positive number (or zero) Low
covariances among returns for different securities leads to high portfolio risk Covariances can take on
positive, negative, or zero values Which of the following is not a form of short-term, spontaneous
credit?
Select correct option:
Accrued wages
Trade credit
Commercial paper
Accrued taxes
Which of the following has the same meaning as the working capital to financial analyst?
Select correct option:
Total assets
Fixed assets
Current assets
Current assets minus current liabilities
Above the breakeven EBIT, increased financial leverage will ________ EPS, all else the same.
Assume there are no taxes
Select correct option:
Increase
Decrease
Either increase or decrease
None of the given options
Which of the following is NOT an example of hybrid equity
Select correct option:
Convertible Bonds
Convertible Debenture
Common shares
Preferred shares
.
32
If we invest in many securities which are ________to each other then it is possible to reduce overall
risk for your investment.
Select correct option:
Comparable
Correlated
Highly correlated
Negatively correlated
The objective of financial management is to maximize _______ wealth.

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Select correct option:
Stakeholders
Shareholders
Bondholders
Directors

A company whose stock is selling at a P/E ratio greater than the P/E ratio of a market index most
likely has _______.
Select correct option:
An anticipated earnings growth rate which is less than that of the average firm
A dividend yield which is less than that of the average firm Less predictable earnings growth than
that of the average firm
Greater cyclicality of earnings growth than that of the average firm The stock in your portfolio was
selling for Rs.40 per share yesterday, but has today declared a three for two split. Which of the following
statements seems to be true?
Select correct option:
There will be two-thirds as many shares outstanding, and they will sell for Rs.60.00 each
There will be four times as many shares outstanding, and they will sell for Rs.160.00 each
There will be 50 percent more shares outstanding and they will sell for Rs.26.67 each
There will be one-and-one-half times as many shares outstanding, and they will sell for Rs.60.00 each
.
33
Under the idealized conditions of MM, which statement is correct when a firm issues new stock in
order to pay a cash dividend on existing shares?
Select correct option:
The new shares are worth less than the old shares
The old shares drop in value to equal the new price
The value of the firm is reduced by the amount of the dividend
The value of the firm is unaffected
________ is the variability of return on stocks or portfolios not explained by general market
movements. It is avoidable through diversification.
Select correct option:
Systematic risk
Standard deviation
Unsystematic risk
Coefficient of variation
When taxes are considered, the value of a levered firm equals the value of the_ _____.
Select correct option:
Unlevered firm
Unlevered firm plus the value of the debt
Unlevered firm plus the present value of the tax shield

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Unlevered firm plus the value of the debt plus the value of the tax shield Which of the following
would be consistent with an aggressive approach to financing working capital?
Select correct option:
Financing short-term needs with short-term funds
Financing permanent inventory buildup with long-term debt
Financing seasonal needs with short-term funds
Financing some long-term needs with short-term funds
Which of the following is the maximum amount of debt (and other fixed-charge financing) that a firm
can adequately service?
Select correct option:
Debt capacity
Debt-service burden
Adequacy capacity
Fixed-charge burden
.
34
Which of the following terms best applies to the short-term interest rate charged by banks to large,
creditworthy customers?
Select correct option:
Discount basis interest rate
Long-term bond rate
Prime rate
Fed funds rate
According to _________, the firm's cost of equity increases with greater debt financing, but the
WACC remains unchanged.
Select correct option:
M&M Proposition I with taxes
M&M Proposition I without taxes
M&M Proposition II without taxes
M&M Proposition II with taxes
Which of the following is the cash required during a specific period to meet interest expenses and
principal payments?
Select correct option:
Debt capacity
Debt-service burden
Adequacy capacity
Fixed-charge burden
What are two major areas of capital budgeting?

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Select correct option:
Net present value, profitability index
Net present value; internal rate of return
Net present value; payback period
Pay back period; profitability index
A statistical measure of the variability of a distribution around its mean is referred to as ________.
Select correct option:
Probability distribution
.
35
Expected return
Standard deviation
Coefficient of variation
The benefit we expect from a project is expressed in terms of:
Select correct option:
Cash in flows
Cash out flows
Cash flows
None of the given option
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
What is the economic order quantity for the following situation? A firm sells 32,000 cases of
microwave popcorn per year. The cost per order is Rs.20 per case and the firm experiences a carrying cost
of 8.0%.
Select correct option:
2,000 cases
.
36
4,000 cases

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8,000 cases
16,000 cases

Which of the following has the same meaning as the working capital to financial analyst?
Select correct option:
Total assets
Fixed assets
Current assets
Current assets minus current liabilities
Which of the followings are the propositions of Modigliani and Miller's?
Select correct option:
The market value of a firm's common stock is independent of its capital structure The market value of
a firm's debt is independent of its capital structure The market value of any firm is independent of its
capital structure None of the given options
How "Shareholder wealth" is represented in a firm?
Select correct option:
The number of people employed in the firm
.
37
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 direct claim security is derived from which of the following?
Select correct option: .
Fundamental analysis
Underlying real asset
Supply and demand of securities in the market
All of the given options
Upon which of the following a firm's degree of operating leverage (DOL) depends primarily?
Select correct option:
Sales variability
Level of fixed operating costs
Closeness to its operating break-even point

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Debt-to-equity ratio
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
.
38
Remain unchanged
Incomplete information
Which of the following is an example of restructuring the firm?
Select correct option:
Dividends are increased from Rs.1 to Rs.2 per share
A new investment increases the firm's business risk
New equity is issued and the proceeds repay debt
A new Board of Directors is elected to the firm
Which of the following refers to financial risk?
Select correct option:
Risk of owning equity securities
Risk faced by equity holders when debt is used
General business risk of the firm
Possibility that interest rates will increase
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
.
39
All of the given options
Which of the following is called the tax savings of the firm derived from the deductibility of interest
expense?

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Select correct option:
Interest tax shield
Depreciable basis
Financing umbrella
Current yield
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
Which of the following would be consistent with an aggressive approach to financing working
capital?
Select correct option:
Financing short-term needs with short-term funds
Financing permanent inventory buildup with long-term debt
Financing seasonal needs with short-term funds
Financing some long-term needs with short-term funds
.
40
According to the Capital Asset Pricing Model (CAPM), a well-diversified portfolio's rate of return is
a function of which of the following:
Select correct option:
Unique risk
Reinvestment risk
Market risk
Unsystematic risk
How can a company improve (lower) its debt-to-total asset ratio?
Select correct option:
By borrowing more
By shifting short-term to long-term debt
By shifting long-term to short-term debt
By selling common stock

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Who or what is a person or institution designated by a bond issuer as the official representative of the
bondholders?
Select correct option:

Indenture
Debenture
Bond
Bond trustee
.
41
If the marginal reduction in order costs exceeds the marginal carrying cost of inventory, then what
should be done by the firm?
Select correct option:

The firm has minimized its total carrying costs

The firm should increase its order size
The firm should decrease its order size
The firm has maximized
Which of the following will NOT equate the future value of cash inflows to the present value of cash
outflows?
Select correct option:
Discount rate
Profitability index
Internal rate of return
Multiple Internal rate of return
How the beta of the stock could be calculated?
Select correct option:
By monitoring price of the stock
By monitoring rate of return of the stock
By comparing the changes in the stock market price to the changes in the stock market index
.
42
All of the given options
Which of the following is a payment of additional shares to shareholders in lieu of cash?

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Select correct option:
Stock split
Stock dividend
Extra dividend
Regular dividend
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
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)
.
43
Which of the following is related to the use Lower financial leverage?
Select correct option:
Fixed costs
Variable costs
Debt financing
Common equity financing
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
Which of the following is the cash required during a specific period to meet interest expenses and
principal payments?

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Select correct option:
Debt capacity
Debt-service burden
Adequacy capacity
Fixed-charge burden
.
44
What is the most important criteria in capital budgeting?
Select correct option:
Return on investment
Profitability index
Net present value
Pay back period
Which of the following is related to the use Lower financial leverage?
Select correct option:
Fixed costs
Variable costs
Debt financing
Common equity financing
When a firm needs guaranteed, short-term funds available for a variety purposes, the bank loan will
likely be a ________.
Select correct option:
Compensating balance arrangement
Revolving credit agreement
Transaction loan
Line of credit
Which of the following terms best applies to the short-term interest rate charged by banks to large,
creditworthy customers?
.
45
Select correct option:
Discount basis interest rate
Long-term bond rate

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Prime rate
Fed funds rate
The explicit costs associated with corporate default, such as legal expenses, are the _________
of the firm.
Select correct option:
Flotation costs
Default beta coefficients
Direct bankruptcy costs
Indirect bankruptcy costs
According to MM II, what happens when a firm's debt-to-equity ratio increases?
Select correct option:
Its financial risk increases
Its operating risk increases
The expected return on equity increases
The expected return on equity decreases
Which statement is NOT true regarding the market portfolio?
Select correct option:
.
46
It includes all publicly traded financial assets
It is the tangency point between the capital market line and the indifference curve All securities
in the market portfolio are held in proportion to their market values It lies on the efficient frontier
Which of the following factor(s) do NOT affects the movements in the market index?
Select correct option:
Macroeconomic factors
Socio political factors
Social factors
All of the given options
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

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Remain unchanged
Incomplete information
Discounted cash flow methods provide a more objective basis for evaluating and selecting an
investment project. These methods take into account:
Select correct option:
.
47
Magnitude of expected cash flows
Timing of expected cash flows
Both timing and magnitude of cash flows
None of the given options

A statistical measure of the variability of a distribution around its mean is referred to as ________.
Select correct option:
Probability distribution
Expected return
Standard deviation
Coefficient of variation
The benefit we expect from a project is expressed in terms of:
Select correct option:
Cash in flows
Cash out flows
Cash flows
None of the given option
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:
.
48
Long-term debt
Preferred stock
Common stock
None of the given options

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What is the economic order quantity for the following situation? A firm sells 32,000 cases of
microwave popcorn per year. The cost per order is Rs.20 per case and the firm experiences a carrying cost
of 8.0%.
Select correct option:
2,000 cases
4,000 cases
8,000 cases
16,000 cases

Which of the following has the same meaning as the working capital to financial analyst?
Select correct option:
Total assets
Fixed assets
Current assets
Current assets minus current liabilities
Which of the followings are the propositions of Modigliani and Miller's?
Select correct option:
.
49
The market value of a firm's common stock is independent of its capital structure The market value of
a firm's debt is independent of its capital structure The market value of any firm is independent of its
capital structure None of the given options
How "Shareholder wealth" is represented in a firm?
Select correct 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 direct claim security is derived from which of the following?
Select correct option:
Fundamental analysis
Underlying real asset
Supply and demand of securities in the market

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All of the given options
Upon which of the following a firm's degree of operating leverage (DOL) depends primarily?
Select correct option:
Sales variability
.
50
Level of fixed operating costs
Closeness to its operating break-even point
Debt-to-equity ratio

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
Which of the following is an example of restructuring the firm?
Select correct option:
Dividends are increased from Rs.1 to Rs.2 per share
A new investment increases the firm's business risk
New equity is issued and the proceeds repay debt
A new Board of Directors is elected to the firm
Which of the following refers to financial risk?
Select correct option:
Risk of owning equity securities
.
51
Risk faced by equity holders when debt is used
General business risk of the firm
Possibility that interest rates will increase
Why companies invest in projects with negative NPV?
Select correct option:

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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
Which of the following is called the tax savings of the firm derived from the deductibility of interest
expense?
Select correct option:
Interest tax shield
Depreciable basis
Financing umbrella
Current yield
An annuity due is always worth ___ a comparable annuity.
Select correct option:
Less than
More than
.
52
Equal to
Can not be found from the given information
Which of the following would be consistent with an aggressive approach to financing working
capital?
Select correct option:
Financing short-term needs with short-term funds
Financing permanent inventory buildup with long-term debt
Financing seasonal needs with short-term funds
Financing some long-term needs with short-term funds
According to the Capital Asset Pricing Model (CAPM), a well-diversified portfolio's rate of return is
a function of which of the following:
Select correct option:
Unique risk
Reinvestment risk
Market risk
Unsystematic risk

www.freepdfpost.blogspot.com
How can a company improve (lower) its debt-to-total asset ratio?
Select correct option:
By borrowing more
By shifting short-term to long-term debt
By shifting long-term to short-term debt
.
53
By selling common stock

When Investors want high plowback ratios?

Select correct option:
Whenever ROE > k
Whenever k > ROE
Only when they are in low tax brackets
Whenever bank interest rates are high]
According to MM II, what happens when a firm's debt-to-equity ratio increases?
Select correct option:
Its financial risk increases
Its operating risk increases
The expected return on equity increases
The expected return on equity decreases

Which of the following would NOT improve the current ratio?

Select correct 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 option:
Equity
Fixed assets
Short term loan
Long term loan
For which of the following costs is it generally necessary to apply a tax adjustment to a yield
measure?
Select correct option:

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Cost of debt
Cost of preferred stock
Cost of common equity
Cost of retained earnings

.
54
Which of the following could be taken same as minimizing the weighted average cost of capital?
Select correct option:
Maximizing the market value of the firm
Maximizing the market value of the firm only if MM's Proposition I Minimizing the market value of
the firm only if MM's Proposition I holds Maximizing the profits of the firm
Which of the following has the same meaning as the working capital to financial analyst?
Select correct option:
Total assets
Fixed assets
Current assets
Current assets minus current liabilities
Which of the followings are the propositions of Modigliani and Miller's?
Select correct option:
The market value of a firm's common stock is independent of its capital structure The market value of
a firm's debt is independent of its capital structure The market value of any firm is independent of its
capital structure None of the given options
How "Shareholder wealth" is represented in a firm?
Select correct 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 direct claim security is derived from which of the following?
Select correct option:
Fundamental analysis
Underlying real asset
Supply and demand of securities in the market
All of the given options

www.freepdfpost.blogspot.com

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
.
55
Rise
Remain unchanged
Incomplete information
Which of the following is an example of restructuring the firm?
Select correct option:
Dividends are increased from Rs.1 to Rs.2 per share
A new investment increases the firm's business risk
New equity is issued and the proceeds repay debt
A new Board of Directors is elected to the firm
Which of the following refers to financial risk?
Select correct option:
Risk of owning equity securities
Risk faced by equity holders when debt is used
General business risk of the firm
Possibility that interest rates will increase
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
Which of the following is called the tax savings of the firm derived from the deductibility of interest
expense?
Select correct option:
Interest tax shield
Depreciable basis
Financing umbrella

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Current yield
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
.
56
Which of the following would be consistent with an aggressive approach to financing working
capital?
Select correct option:
Financing short-term needs with short-term funds
Financing permanent inventory buildup with long-term debt
Financing seasonal needs with short-term funds
Financing some long-term needs with short-term funds
How can a company improve (lower) its debt-to-total asset ratio?
Select correct option:
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 factor(s) do NOT affects the movements in the market index?
Select correct option:
Macroeconomic factors
Socio political factors
Social factors
All of the given options
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

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Limited liability of shareholders
.
57
Limited life of the corporate form
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
Investors may be willing to pay a premium for stable dividends because of the informational content
of __________, the desire of investors for __________, and certain __________.
Select correct option: .
Institutional considerations; dividends; current income
Dividends; current income; institutional considerations
Current income; dividends; institutional considerations
Institutional considerations; current income; dividends
Which of the following is the stability of a firm's operating income?
Select correct option:
Financial leverage
Weighted-average cost of capital
Capital structure
Business risk
.
58
Which of the following refers to financial risk?
Select correct option:
Risk of owning equity securities
Risk faced by equity holders when debt is used
General business risk of the firm
Possibility that interest rates will increase
Which of the following is simply the weighted average of the possible returns, with the weights being
the probabilities of occurrence?

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Select correct option:
Probability distribution
Expected return
Standard deviation
Coefficient of variation
Coefficient of variation is NOT the measure of __________.
Select correct option:
Risk
Probability
Relative dispersion
Risk per unit of expected return
.
59
becuase its dispersion of probability
If Deen Muhammad Suppliers receive an invoice for purchases dated 12/12/2002 subject to credit
terms of "2/10, net 30", what is the last possible day the discount can be taken?
Select correct option:
January 11
January 22
January 30
December 30
The term "2/10" refers to a firm that can take the discount for only 10 days from the date of the
invoice. Thus, goods shipped on the 12th are due no later than the 22nd if the discount is taken
Which of the following is related to the use Lower financial leverage?
Select correct option:
Fixed costs
Variable costs
Debt financing
Common equity financing
Which of the following is a basic principle of finance as it relates to the management of working
capital?
Select correct option:
Profitability varies inversely with risk
Liquidity moves together with risk

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Profitability moves together with risk
.
60
Profitability moves together with liquidity
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
__________ is the variability of return on stocks or portfolios not explained by general market
movements. It is avoidable through diversification.
Select correct option:
Systematic risk
Standard deviation
Unsystematic risk
Coefficient of variation
Which of the following will NOT equate the future value of cash inflows to the present value of cash
outflows?
Select correct option:
Discount rate
Profitability index
Internal rate of return
Multiple Internal rate of return
What does the law of conservation of value implies?
Select correct option:
.
61
The mix of senior and subordinated debt does not affect the value of the firm The mix of convertible
and non-convertible debt does not affect the value of the firm The mix of common stock and preferred
stock does not affect the value of the firm All of the given options
If the marginal reduction in order costs exceeds the marginal carrying cost of inventory, then what
should be done by the firm?
Select correct option:
The firm has minimized its total carrying costs
The firm should increase its order size
The firm should decrease its order size

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The firm has maximized its order costs
What is the present value of Rs.8,000 to be paid at the end of three years if the correct risk adjusted
interest rate is 11%?
Select correct option:
Rs.5,850
Rs.4,872
Rs.6,725
Rs.1,842
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
.
62
Profitability index
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
Which of the following market in finance is referred to the market for short-term government and
corporate debt securities?
Select correct option:
Money market
Capital market
Primary market
Secondary market
How economic value is added (EVA) calculated?
Select correct option:
It is the difference between the market value of the firm and the book value of equity It is the firm's
net operating profit after tax (NOPAT) less a dollar cost of capital charge It is the net income of the
firm less a dollar cost that equals WAAC multiplied by the book value of liabilities and equities
None of the given option

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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 __________.
.
63
Select correct option:
Fall
Rise
Remain unchanged
Incomplete information
According to MM II, what happens when a firm's debt-to-equity ratio increases?
Select correct option:
Its financial risk increases
Its operating risk increases
The expected return on equity increases
The expected return on equity decreases

http://highered.mcgrawhill.com/sites/0073012386/student_view0/chapter15/multiple_choice_quiz.html 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
How dividend yield on a stock is similar to the current yield on a bond?
Select correct option:
.
64
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

Which group of ratios shows the extent to which the firm is financed with debt?
Select correct option:
Liquidity ratios

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Debt ratios
Coverage ratios
Profitability ratios
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
Which of the following would be considered a cash-flow item from an "operating" activity?
Select correct option:
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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
Which of the following could be defined as the capital structure of the Company?
Select correct option:
The firm's mix of different securities
The firm's debt-equity ratio
The market imperfection that the firm's manager can exploit
All of the above
Which statement is NOT true regarding the market portfolio?
Select correct option:
It includes all publicly traded financial assets
It is the tangency point between the capital market line and the indifference curve All securities
in the market portfolio are held in proportion to their market values It lies on the efficient frontier
Which of the following could NOT be defined as the capital structure of the Company?
Select correct option:
The firm's mix of Assets and liabilities

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The firm's common stocks only
The firm's debt-equity ratio
All of the given options
Which of the following refers to a policy of dividend "smoothing"?
Select correct option:
Maintaining a constant dividend payout ratio
Keeping the regular dividend at the same level indefinitely
Maintaining a steady progression of dividend increases over time Alternating cash dividends with
stock dividends
Where the stock points will lie, if a stock is a part of totally diversified portfolio?
Select correct option:
It will lie below the regression line
It will line above the regression line
It will line exactly on the regression line not sure
It will be tangent to the regression line
Where the stock points will lie, if a stock is a part of totally diversified portfolio?
Select correct option:
It will lie below the regression line
It will line above the regression line
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It will line exactly on the regression line
It will be tangent to the regression line
Which of the following is the characteristic of a well diversified portfolio?
Select correct option:
Its market risk is negligible
Its unsystematic risk is negligible
Its systematic risk is negligible
All of the given options
Which of the following portfolio statistics statements is correct?
Select correct option:

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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 What
should be used to calculate the proportional amount of equity financing employed by a firm?
Select correct option:
The common stock equity account on the firm's balance sheet
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The sum of common stock and preferred stock on the balance sheet
The book value of the firm
The current market price per share of common stock times the number of shares Outstanding
The value of a bond is directly derived from which of the following?
Select correct option:
Cash flows
Coupon receipts
Par recovery at maturity
All of the given options
1. Juan is starting a software writing company. He is the owner and has only 3
employees. He wants a simple inexpensive form of ownership that leaves him in
control and that he can quickly dissolve if he decides to change to another business.
His best choice of form of ownership would be:
a. S-corporation
b. Partnership
c. Corporation
d. Sole proprietorship
2. A tool that identifies the strengths, weaknesses, opportunities and threats of an
organization is know as:
a. SWOT Analysis
b. Trend Analysis
c. Fundamental Analysis
d. Technical Analysis
3. When the market's required rate of return for a particular bond is much less than
its coupon rate, the bond is selling at:
a. A premium
b. A discount

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c. Cannot be determined without more information
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d. Face value
4. Which of the following statements best describe the Balance Sheet?
a. Summarizes the firms revenues and expenses over an accounting period b. Reports how much of
the firms earnings were retained in the business rather than paid out in dividends
c. Reports the impact of a firms operating, investing, and financing activities on cash flows over an
accounting period
d. States the firms financial position at a specific point in time 5. Which of the following is the
purpose of the Debt management ratios?
a. They measure the amount of debt the firm uses
b. They measure how effectively a firm is managing its assets
c. They show the relationship of a firms cash and other current assets to its current
liabilities
d. They show the combined effects of all areas of the firm on operating results 6. In which of the
following situations a project is acceptable?
a. When a project has conventional cash flows patterns
b. When a project has a non-conventional cash flow pattern
c. When a project has a discounted rate higher than the inflation rate d. When a project has a
positive net present value
7. The gross profit margin is unchanged, but the net profit margin declined over the
same period. This could have happened if:
a. Cost of goods sold increased relative to sales.
b. Sales increased relative to expenses.
c. The tax rate has been increased
d. Dividends were decreased.
8. Alto Industries has a debt-to-equity ratio of 1.6 compared with the industry average
of 1.4. This means that the company
a. Will not experience any difficulty with its creditors.
b. Has less liquidity than other firms in the industry.
c. Will be viewed as having high creditworthiness.
d. Has greater than average financial risk when compared to other firms in its
industry.
9. For purposes of financial statements, the accounting value of fixed assets is:
a. Based on their estimated liquidation value
b. Based on their relative importance to the company
c. Based on their actual purchase price
d. Based on their current market price
10. Which of the following transactions affects the acid-test ratio?
a. Receivables are collected.
b. Inventory is liquidated for cash.
c. New common stock is sold and used to retire a debt issue.

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d. A new common stock issue is sold and equipment purchased
11. The rate of return on the best available investment of equal risk is called:
a. Discounting
b. Compounding
c. The opportunity cost rate
d. Time lines
12. An annuity whose payments occur at the end of each period is called: a. An opportunity cost
annuity.
b. An ordinary annuity
c. An annuity due
d. An outflow annuity
13. Which of the following is the rate of return earned on a bond if it is held until
maturity?
a. Yield-to-call
b. Coupon payment
c. Yield-to-maturity
d. Sinking fund yield
14. Keeping other things constant, if a bonds yield-to-maturity increases: a. Its price will rise
b. Its price will remain unchanged
c. Its price will fall.
d. Can not be determined
15. A 30-year corporate bond issued in year 1985 would now trade in which of the
following markets?
a. Primary capital market
b. Primary money market
c. Secondary money market
d. Secondary capital market
16. When the market's nominal annual required rate of return for a particular bond is
less than its coupon rate, the bond will be selling at ________.
a. A discount
b. A premium
c. Par value
d. An indeterminate price
17. 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.
18. The intrinsic value of a share of common stock:
a. Is the discounted value of all future cash dividends

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b. Increases when the required rate of return increases, if the dividend is held .
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constant.
c. Is zero if the company pays no dividends
d. Is the discounted capital gain expected on the stock
19. ABC Company will pay a dividend of Rs.2.40 per share at the end of this year. Its
dividend yield is 8%. At what price is the stock selling?
a. Rs.40
b. Rs.35
c. Rs.30
d. Rs.25
20. Which of the following stock would provide a regular income to the investor?
a. Growth stock
b. Income stock
c. Aggressive stock
d. Defensive stock

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