corporate finance 1

Which of the following is correct?
There is no need of comparing the cash flows arising at different points of

time in decision-making.
Individuals generally prefer current consumption to future consumption.
In an inflationary economy the money received today has less purchasing

power than the money to be received in the future.
An investor can unprofitably employ a rupee received today to give him a

lower value to be received tomorrow or after a certain period.
Which of the following is typically not considered a financial

manager in a large corporation?
Chief Financial Officer
Treasurer
Controller
Auditor
What is the expected YTM on a bond that pays a $15 coupon

annually has a $1,000 par value, and matures in 6 years if the
current price of the bond is $978?
0.0189
0.0367
0.0978
0.15
The debentures and bonds carry a …………… interest rate.

Par value
Fixed
Variable
Systematic
Knight Inc. is expected to pay a $1.80 dividend next year. The
dividend in year 2 is expected to be $2.10. The dividend in year 3
is expected to be $2.50. After that, the dividend is expected to
grow at a constant rate of 2%. The cost of capital is 10%. What is
Knight's stock price?
$27.02
á$29.20
$31.88
$32.12
22.95
Which method takes into account savings over the economic life
of the asset?
Reject criterion
Average rate of return
Accounting rate of return
Cash flow method
Which of the following types of projects is likely to have the

lowest risk?
Speculation ventures
New products
Expansion of existing business
Cost improvement
A project has an expected cash flow of $300 in year 3. The risk-

free rate is 5%, the market risk premium is 8% and the project's
beta is 1.25. Calculate the certainty equivalent cash flow for year
3.
$228.35
$197.25
$300
None of the above
A __________ sale is resorted to by a firm to push up its sales which

ultimately results in pushing up the profits earned by the firm
Credit
Market
Direct
Capital
What is gross working capital?

It is the firm’s investment in total current or circulating assets
It is the length of time required to convert cash into raw materials
It is the conversion of accounts receivable into cash
It is the firm’s current assets financed by long-term funds.
A "factor" in APT is a variable that:

Affects the return of risky assets in a systematic manner
Correlates with risky asset returns in an unsystematic manner
Is purely "noise"
Affects the return of a risky asset in a random manner
The security market line (SML) is the graph of:

Expected return on investment (Y-axis) vs. variance of return.
Expected return on investment vs. standard deviation of return.
Expected rate of return on investment vs. beta.
A and B.
Diversification works because?
Market risk is eliminated
Correlation coefficients
All of the above
None of the above
In case of which method, are weights assigned to each source of

funds in proportion to the financing inputs the firm intends to
employ?
Historical weights method
Fixed weights method
Marginal weights method
Cash flow method
Which type of financing includes financing through retained

earnings?
Security financing
Internal financing
Loan financing
Asset-based financing
2 assesment
What is the fundamental principle behind the concept of time
value of money?
The value of a debenture is equivalent to the present value of the animal
interest payments plus the present value of principal repayable at the time of
maturity.
A sum of money received today is worth more than if the same is received
after time
The value of a debenture is affected by the actual payable on the bond and
the desired return by the debenture holder
Preference shares carry a fixed dividend rate and hence their valuation can
be done on the same basis as that of debentures or bonds
Financial management helps in monitoring the __________ of funds

in fixed assets and in working capital.
systematic allocation
effective arrangement
satisfactory division
effective deployment
Financial markets serve which of the following functions?

Provide liquidity for investors
Allow investors to adjust risk exposure
Allow firms to manage risk
All of the above
Dividend growth rate for a stable firm can be estimated as:

Plow back rate * the return on equity (ROE)
Plow back rate / the return on equity (ROE)
Plow back rate + the return on equity (ROE)
Plow back rate - the return on equity (ROE)

The ……………. approach is more appropriate for capital budgeting
decisions
Cash flow
Cut-off
Change in sales
Conventional
The constant dividend growth formula P0á= DIV1/(r-g) assumes:

The dividends are growing rate at a constant rate g forever.
r>g
g is never negative.
Both A and B
The hurdle rate for capital budgeting decisions is:

The cost of capital
The cost of debt
The cost of equity
All of the above
A project has an expected risky cash flow of $1,000 in Year 1. The

risk-free rate is 4%, the market rate of return is 12%, and the
project's beta is 1.5. Calculate the certainty equivalent cash flow
for Year 1.
$896.55
$862.07
$828.91
None of the above
A firm’s cost of capital represents the ………….rate of return that

will result in at least maintaining (if not increasing) the value of
its ………….shares.
Maximum; income
Maximum; capital
Minimum; equity
Minimum; tax
The drawback of the CAPM is that it:

Ignores the return on the market portfolio
Requires a single measure of systematic risk
Ignores the risk-free return
Utilizes too many factors
If the average annual rate of return for common stocks is 13%,

and treasury bills is 3.8%, what is the average market risk
premium?
0.13
0.038
0.092
None of the above
A __________ sale is resorted to by a firm to push up its sales which

ultimately results in pushing up the profits earned by the firm
Credit
Market
Direct
Capital
The term ‘short cost’ refers to the costs incurred as a result of

shortage of _______.
Assets
Income
Expenditure
None of the Above
The ________cost is incurred at the time of commencement of each

production run.
Carrying
Set-up
Inventory
Delivery

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Which of the following is correct?

There is no need of comparing the cash flows arising at different points of

Individuals generally prefer current consumption to future consumption.

In an inflationary economy the money received today has less purchasing

An investor can unprofitably employ a rupee received today to give him a

Which of the following is typically not considered a financial

What is the expected YTM on a bond that pays a $15 coupon

The debentures and bonds carry a …………… interest rate.

Average rate of return

Accounting rate of return

Cash flow method

Which of the following types of projects is likely to have the

Expansion of existing business

A project has an expected cash flow of $300 in year 3. The risk-

None of the above

A __________ sale is resorted to by a firm to push up its sales which

What is gross working capital?

It is the length of time required to convert cash into raw materials

It is the conversion of accounts receivable into cash

It is the firm’s current assets financed by long-term funds.

A "factor" in APT is a variable that:

Correlates with risky asset returns in an unsystematic manner

Affects the return of a risky asset in a random manner

The security market line (SML) is the graph of:

Expected return on investment vs. standard deviation of return.

Expected rate of return on investment vs. beta.

All of the above

None of the above

In case of which method, are weights assigned to each source of

Fixed weights method

Marginal weights method

Cash flow method

Which type of financing includes financing through retained

Financial management helps in monitoring the __________ of funds

Financial markets serve which of the following functions?

Allow investors to adjust risk exposure

Allow firms to manage risk

All of the above

Dividend growth rate for a stable firm can be estimated as:

Plow back rate / the return on equity (ROE)

Plow back rate + the return on equity (ROE)

Plow back rate - the return on equity (ROE)

The constant dividend growth formula P0á= DIV1/(r-g) assumes:

The hurdle rate for capital budgeting decisions is:

The cost of debt

The cost of equity

All of the above

A project has an expected risky cash flow of $1,000 in Year 1. The

None of the above

A firm’s cost of capital represents the ………….rate of return that

The drawback of the CAPM is that it:

Requires a single measure of systematic risk

Ignores the risk-free return

Utilizes too many factors

If the average annual rate of return for common stocks is 13%,

None of the above

A __________ sale is resorted to by a firm to push up its sales which

The term ‘short cost’ refers to the costs incurred as a result of

None of the Above

The ________cost is incurred at the time of commencement of each