MGT201 Financial Management Solved MCQs

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 ) Total Marks: 1

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 ) Total Marks: 1

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 ( Start time: 04:07:25 PM ) Total Marks: 1
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

Question # 5 of 10 ( Start time: 04:08:40 PM ) Total Marks: 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 ) Total Marks: 1

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 ) Total Marks: 1

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

Question # 8 of 10 ( Start time: 04:10:16 PM ) Total Marks: 1

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 ) Total Marks: 1

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 ) Total Marks: 1

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:
Select correct option:
Payback period
Internal rate of return
Net present value
Profitability index
\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 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
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 project’s expected cash flows is:

Select correct option:

Pay back period

Internal rate of return

Net present value

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

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

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

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:

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

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

{ [ 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?

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
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.

Select correct option:

Less than

More than

Equal to

Can not be found from the given information

Question # 2 of 10 ( Start time: 04:11:40 PM ) Total Marks: 1

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 ) Total Marks: 1

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

Question # 4 of 10 ( Start time: 04:13:54 PM ) Total Marks: 1

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

Question # 5 of 10 ( Start time: 04:15:07 PM ) Total Marks: 1

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

Question # 6 of 10 ( Start time: 04:16:37 PM ) Total Marks: 1

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 ) Total Marks: 1

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 ) Total Marks: 1

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
Question # 9 of 10 ( Start time: 04:19:01 PM ) Total Marks: 1

A project that tells us the number of years required to recover our initial
cash investment based on the project’s 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:

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:

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:

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
-1

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

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

Business cycle

Interest rate fluctuations

Inflation rates

All of the above

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

Variable costs

Debt financing

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 project’s expected cash flows is:
Select correct option:

Pay back period

Internal rate of return

Net present value

 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

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

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:
 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 stock’s required
return. II. A decrease in the dividend growth rate will increase a stock’s
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.
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?
Select correct option:

(Q - QBE)/Q

(EBIT) / (EBIT - FC)

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

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
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?
Select correct option:
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

Total Marks: 1
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

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

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:

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 ) Total Marks: 1

________ 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
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
Closeness to its operating break-even point
Debt-to-equity ratio

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
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
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

Total Marks: 1
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 project’s expected cash flows is:
Select correct option:
Pay back period
Internal rate of return
Net present value
Profitability index

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:

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
non–normal cash flows?
Select correct option:
Internal rate of return
Multiple internal rate of return
Modified internal rate of return
Net present value

Which of the following is NOT a cash outflow for the firm?

Select correct option:
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 stock’s
required return. II. A decrease in the dividend growth rate will increase
a stock’s 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

hich of the following statements regarding covariance is correct?

Select correct option:
Covariance always lies in the range -1 to +1
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

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.

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

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
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

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?

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

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

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:

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

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

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

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

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

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

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

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

All of the given options

Which of the following is a payment of additional shares to shareholders in

lieu of cash?
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)

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?
Select correct option:

Debt capacity

Debt-service burden

Adequacy capacity

Fixed-charge burden

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?

Select correct option:

Discount basis interest rate

Long-term bond rate

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:

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

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:

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:

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

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:

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

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

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

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

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

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

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

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

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

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
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

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

Limited liability of shareholders

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

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?

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

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

Profitability moves together with risk

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:

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

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

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

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

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.mcgraw-
hill.com/sites/0073012386/student_view0/chapter15/multiple_choice_quiz.h
tml
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:

Both represent how much each security’s price will increase in a year

Both represent the security’s 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
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:

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

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

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:

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

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
c. Cannot be determined without more information
d. Face value
4. Which of the following statements best describe the ‘Balance
Sheet’?
a. Summarizes the firm’s revenues and expenses over an accounting
period
b. Reports how much of the firm’s earnings were retained in the business
rather
than paid out in dividends
c. Reports the impact of a firm’s operating, investing, and financing
activities on
cash flows over an accounting period
d. States the firm’s 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 firm’s 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.
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 bond’s 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
b. Increases when the required rate of return increases, if the dividend is
held
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