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FINALTERM EXAMINATIONFINALTERM EXAMINATION

FALL 2006FALL 2006ACC501 - BUSINESS FINANCE (Session - 1 )ACC501 - BUSINESS FINANCE (Session - 1 )

Marks: 60Marks: 60Time: 120minTime: 120min

StudentID/LoginID:

Student Name:

Center Name/Code:

Exam Date: Saturday, February 03, 2007

Please read the following instructions carefully before attempting any question:

All questions are compulsory.

This exam consists of15 Multiple Choice Questions (MCQs), 5 True/False Questions, 5 Fill in the

Blanks,5 Short Questions and 2 Numerical Questions.

Question No.1-15 are MCQs carrying 1 Mark each, Question No.16-20 are True/False Questions

carrying 1 Mark each, Question No.21-25 are fill in the blanks carrying 1 Mark each, Question

No.26-30 are short questions carrying 3 Marks each and Question No.31-32 are numerical

questions carrying 10 Marks each.

For each MCQ, read the choices available carefully and select the choice which you consider is the

most suitable, by clicking on the appropriate check box.

You are required to show all the working of short questions as well as Numerical questions.

This examination is closed book, closed notes and closed neighbour.

Do not ask questions about the contents of this examination from anyone.

The use of calculator and financial tables is allowed.

You may wish to pace yourself with your own watch, but the Supervisor will be the official time-keeper of the test.

Failure to comply with the supervisors directions will result in your test being cancelled. Please

comply with supervisors directions to avoid any unpleasant event.
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For Teacher's use only

Question 1 2 3 4 5 6 7 8 9 10 TotalMarks

Question 11 12 13 14 15 16 17 18 19 20Marks

Question 21 22 23 24 25 26 27 28 29 30Marks

Question 31 32Marks

Question No: 1 ( Marks: 1 ) - Please choose one

A series of constant, or level, cash flows that occur at the end of each period for some fixed

number of periods is called a/an:

Present Value

Future Value

Ordinary Annuity

Ordinary Share


The Ratios showing the ability of a firm to pay its bills in short-run are called:

Leverage Ratios

Liquidity Ratios

Profitability Ratios

Market Value Ratios


GAAP stands for:

Generally Accepted Accounting Principles

Generally All-rounder Accounting Principles

General Accepting Accounts Principles

None of the given options



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A contract between the bond issuer and bond holder is called:

Bond Indenture

Bond Debenture

Bond Value



Suppose you have a portfolio comprised of two securities X and Y. In the portfolio, 60 shares areof stock X valued at Rs.10 per share and 40 shares are of stock Y valued at Rs.3 per share. What is

the approximate weight of stock X in the portfolio?

23 %

40 %

60 %

83 %


In which market, previously issued securities are traded among investors?

Primary Market

Secondary Market

Tertiary Market



Which of the following is the present value of a series of future net cash flows that will result froman investment, minus the amount of the original investment?

Present Value

Future Value

Net Present Value

Terminal Value


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Years Cash flows

1 Rs. 15,000

2 Rs. 20,000

3 Rs. 25,000

4 Rs. 15,000

5 Rs. 5,000


You earn a 5 percent real return. If the inflation rate is 4 percent, what is your nominal return?

8.96 %

9.05 %

9.20 %

9.92 %


Fee paid to the consultant for evaluating the option of launching a new product will be consideredas:

Sunk Cost

Opportunity Cost

Financing Cost

Operating Cost


A risk that affects a single or at most a small number of assets is called:

Unsystematic Risk

Unique Risk

Diversifiable Risk

All of the given options


What will be the payback period of a Rs.70,000 investment with the following cash inflows?


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3.57 years

3.67 years

4.57 years

4.67 years


Which of the following is the required return on a firm's debt by its creditors?

Cost of Equity

Cost of Debt

Cost of Preferred Stock

Cost of Capital


Which one of the followings is the overall required return the firm must earn on its existing assets

to maintain the value of the stock?

AAR (Average Accounting Return)

IRR (Internal Rate of Return)

MIRR (Modified Internal Rate of Return)

WACC (Weighted Average Cost of Capital)


The costs to store and finance the assets are known as:

Carrying Costs

Shortage Costs

Manufacturing Costs



The minimum level of inventory that a firm keeps on hand is called:


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Common stock

Safety Stock

Preferred Stock

Dangerous Stock


Realization Principle is one of the basic principles of GAAP.

True

False


Whenever the word Dividend is used, it always refers to a long-term loan.

True

False


A preferred dividend is exactly like interest on bond.

True

False


By IRR rule, take a project when its IRR exceeds the required return.

True

False


Diversification is the group of assets such as stocks and bonds held by investor.

True

False

Question No: 21 ( Marks: 1 )


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is a special case of Annuity, where the stream of cash flows continues

forever.


is the value of a present amount at a certain date in the future based on a

determined rate of return.


The amount of time required for an investment to generate cash flows sufficient to recover itsinitial cost is called its .


refers to the extent to which a firm relies on its debt.


The difference between the return on a risky investment and that on a risk free investment is called.


What is the difference between Flexible Policy and Restrictive Policy regarding size of investmentin current assets while making short-term financial policy?


Differentiate between Systematic Risk and Unsystematic Risk. Which of them can be eliminatedby diversification?


Suppose common stocks of a company are currently selling for Rs.30 per share. Stock market

analysts estimated a dividend of Rs.2 per share for the next year and it is expected that the dividend

will grow by 10% more or less indefinitely. What return does this stock offer?


A bank is offering 12% interest rate compounded quarterly on its saving account. What would bethe Effective Annual Rate (EAR) ?


An investment is acceptable if the IRR exceeds the required return. It should be rejectedotherwise. Explain.



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Sumi Inc. has outstanding Rs.1, 000- face value bond with a 16 percent coupon rate and 6 yearsremaining until final maturity. Interest payments are made quarterly. What would be the value of

this bond if your nominal annual required rate of return is : (i) 13 %, (ii) 19 %.


S&T Company just paid a dividend of Rs.2 per share and has a share price of Rs.30. The dividends

are expected to grow @ 10% forever. S&T Company has Rs.75 million in equity and Rs.75 millionin debt in its total capital. The tax rate for the firm is 35% and the Cost of debt is 8%. What will bethe Weighted Average Cost of Capital (WACC) for S&T Company ?


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Business finance Virtual University

ACC501-Business FinanceFinal Term Special 2006

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Special Thanks to vujannat for providing this paper

1. What is effective annual rate of 9% compounded monthly?

9.53% 9.38% 9.32% 9.00%

1. An investment is acceptable if its calculated is less than some

specified number of years.

2. The net credit period for a company with terms of 3/10 net 60 is : ?

3. The main difference between a positive and negative covenant is (are): ?

4. Assume that Younas Corporation, which operates a fleet of ships, is considering

replacing them with a new model. The data in table below are available for the old

and new ships.

Items Old ships New ships

1. cash inflows Rs 120 million p.a Rs 135 millions2. cash outflows 55 millions p.a 60 millions

3. estimated life 5 years 8 years

Disposal value:a) at present

b) in 8 years time

Rs 20 millions

Nill 8 millions

Cost of new ships 175 millions

Required rate of return 15% pa 15% pa

Management is considering two proposals:

A. Replace the old ships now and assume that the new ships are operated for 8 yearsand replaced in perpetuity.

B. Replace the old ships in 5 years time and assume that the new ships are operated

for 8 years and replaced in perpetuity.

Which of these proposals should management accept?

Created by


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5. The difference between the return on a risky investment and that on a risk free

investment is called..

6. Which one is an inventory control method?

7. Ntu Corporation has just paid a dividend of Rs 5 per share. The dividend of thiscompany grows at a steady rate of 12 % per share. Based on the above

information what would be the amount of dividend in 4 years?

8. Cheques written by a firm generates , causing a decrease in the

firms book balance but no change in its available balance.

9. Working capital management includes, in part, the administration of cash,

marketable securities, receivables and inventories.(true , false)

10. An agent who arranges securities transaction among investors (matching investors

wishing to buy securities with investors wishing to sell securities) is a: ?

11. Briefly describe the role of finance manager?

12. When analyzing a project one should include sunk costs in the analysis.(true ,

false)

13. Suppose project A has average net income of Rs 150,000 where as its averagebook value is Rs 500,000. The average accounting return would be .

14. the project cash flows from a proposed investment are:

Year Cash flow

1 20,000

2 30,000

3 70,000

The project costs Rs 80,000. What is the payback period for this investment?

15. Short term financing is oftenly called the networking capital management.

16. Suppose Mehran Corporation is running a project whos EBIT are rs 300,000

where as depreciation expense for the year is rs 150,000. Net operating cash flowfrom the project is rs 330,000. The total amount of taxes paid during the year

is ?

17. Suppose Mr. Imran khan buy some stock for Rs35 per share. At the end of the

year, the price is Rs 40 per share. During the year, Mr. Imran khan gets an Rs 6

dividend per share. What would be the dividend and capital gains yield and alsothe total %age return?

Created by


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18. the expression 3/10, net 55 means that customers receive a 10% discount if theypay within 3 days; otherwise they must pay in full in 55 days.(true , false)

19. Suppose Aslam corporation stock has a dividend yield of 13% whereas its total

income return is 28%. The capital gain yield would be ?

20. Rahim Inc. paid Rs 30,000 as tax in 2006. If the tax rate was 40%, what was the

taxable income of the corporation during 2005?

21. consider the following choronological events

Day Activity Cash effect

0 Acquired inventory on credit .

30 Pay for inventory Rs 25000

45 Sell inventory on credit ..

70 Collect on sale Rs 33000

What would be the operating and cash cycle for the organization?

22. Concentration banking is a method of slowing up the collection of checks written

by a firm.(true, false)

23. Suppose you have a portfolio compromised of two securities. You have 60 sharesof the stock X valued at Rs 10 per share and 40 shares of stock Y valued at Rs 3

per share. What is the approximate weight of stock X in the portfolio?

24. Ammar is running a company Ammar and Co. he has asked you to evaluate his

companys ability to pay bills over the short run without undue stress. For thispurpose you will study which category of ratios of the company?

25. Briefly describe the components of credit policy?26. are competing projects among which only one can be selected.

27. Suppose BT Corporation has issued preferred stock which paid Rs 25 annuallyand sold for RS 200 per share. The cost of preferred stock would be ?

28. You will receive Rs 150,000 after 13 years. What would be the present value of

this amount if the discount rate is 5.75% compounded semi annually?29. A firm sells 9000 units per month is trying to determine how many units to keep

in inventory. The finance manger has determined that its costs Rs 280 to replace a

new order. The cost of holding inventory is 6 cents per average unit.

Determine the optimal quantity to be ordered. Calculate the total cost, total carrying cost and total restocking cost.

30. is a grant of authority by a shareholder to someone else to vote the

shareholders share.

31. Suppose Mt Corporation has a weighted average cost of capital of 18%. The

financial institutions are ready to lend it a loan at 12%. It has a target capitalstructure of 70% equity and 30%debt. The cost of equity would be ?

Created by


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FINALTERM EXAMINATIONFINALTERM EXAMINATION

SPRING 2007SPRING 2007

ACC501 - BUSINESS FINANCE (Session - 3 )ACC501 - BUSINESS FINANCE (Session - 3 )

Marks: 60Marks: 60

Time: 150minTime: 150min

StudentID/LoginID:StudentID/LoginID:

Student Name:

Center Name/Code:

Exam Date: Wednesday, July 11, 2007



This exam consists of 10 Multiple Choice Questions (MCQs), 5 True/False Questions, 3 Short

Questions and 3 Numerical Questions.

Question No. 1-10 are MCQs carrying 1 Mark each, Question No. 11-15 are True/False

Questions carrying 1 Mark each, Question No.16-18 are short questions carrying 5 Marks each

and Question No . 19-21 are numerical questions carrying 10 Marks each.

For each MCQ, read the choices available carefully and select the choice which you consider is the

correct one.

You are required to show all the working of short questions as well as Numerical questions.


The use of mobile phones in exam center is strictly prohibited.

A clock has been given in the exam software. Software will automatically be closed after 150

minutes.

Remember do not spend too much time on any one MCQ. Since all MCQs carry equal marks, it is

important to manage your time and responses to test questions effectively.

This Examination is closed book, closed notes and closed neighbours.

Failure to comply with the supervisors directions will result in your test being cancelled. Please

comply with supervisors directions to avoid any unpleasant event.

For Teacher's use only

Question 1 2 3 4 5 6 7 8 9 10 TotalMarks

Question 11 12 13 14 15 16 17 18 19 20Marks
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Question 21

Marks


The process of planning and managing a firms long-term investments is called :

Planning Process

Capital Structure

Capital Budgeting

Managing Process


Return on Equity (ROE) = x Total Assets Turnover x Equity Multiplier

Profit Margin

Total Sales

Net Income

Total Equity


If a bank loans out Rs. 10,000 for 90 days at 8% simple interest, the Present Value (PV) willbe :

Rs. 9,105

Rs. 9,807

Rs. 10,325

Rs. 10,765


The is the rate where NPV (Net Present Value) equals to zero.

WACC (Weighted Average Cost of Capital)

IRR (Internal Rate of Return)

MIRR (Modified Internal Rate of Return)


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AAR (Average Accounting Return)


is adopted to permit minority participation.

Cumulative Voting

Straight Voting

Proxy Voting

Staggering


Which one of the following statements projects future years operations in a summarizedformat ?

Income Statement

Cash Flow Statement

Pro Forma Financial Statement



The direct and indirect costs associated with going bankrupt or experiencing financialdistress, are known as :

Direct Bankruptcy Costs

Indirect Bankruptcy Costs

Financial Distress Costs

All of the given options


Suppose you bought 1,500 shares of a corporation at Rs. 25 each. After a year, youreceived Rs. 3,000 (Rs. 2 per share) in dividends. The dividend yield will be :

5.00 %

8.00%

10.00%


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Years Cash flows

1 Rs. 100

2 Rs. 300

3 Rs. 600

4 Rs. 800

12.00%


You earn a 7% real return. If the inflation rate is 5 percent, what is your nominal return ?

8.96 %

9.05 %

11.65 %

12.35%


The projected cash flows from a project are :

The project costs Rs. 1,000. What would be the payback period for the project ?

2.00 Years

2.67 Years

3.00 Years

3.67 Years


Sole Proprietorship is a business created as a distinct legal entity owned by one or moreindividuals or entities.

True

False


The term discounting is associated with Future Value concept whereas the term

compounding is associated with Present Value concept.


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Period Cash Flows

1 Rs.10,000

2 Rs.15,000

3 Rs.20,000

4 Rs.30,000

5 Rs.35,000

True

False


Constant Growth Stock is a share of common stock in a company with a constant rate ofdividend.

True

False


Portfolio is the group of assets (stocks and bonds) held by an investor.

True

False


The difference between bank cash and book cash, representing the net effect of cheques in

the process of clearing is called float.

True

False


Following are given cash inflows of a project. Assume that all cash flows are received at

the end of the period.

Calculate the future value of cash flows stream at the end of year 5 with a compoundannual interest rate of 10%.


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Quarters * 1 2 3 4 1 (next year)

Sales (Rs.) 500,000 600,000 650,000 800,000 550,000


Write down the statements for the followings:a. NPV (Net Present Value) Ruleb. IRR (Internal Rate of Return) Rulec. Payback Ruled. PI (Profitability Index) Rulee. AAR (Average Accounting Return) Rule


What do M&M Proposition I and Proposition II state ?


Mr. Jamil has Rs. 70,000 that he can deposit in savings accounts of any of three banks A, Bor C for a three years period. Bank A compounds interest on annual basis; Bank Bcompounds interest semi-annually (twice each year); and Bank C compounds interest

quarterly (four times each year). All three banks have a stated annual interest rate of 12%.1. How much Mr. Jamil will have in his account after three years if he depositshis money in Bank A ?

2. How much He will have in his account after three years if he deposits hismoney in Bank B ?

3. How much He will have in his account after three years if he deposits hismoney in Bank C ?

4. On the basis of your findings in above parts, describe which bank shouldMr. Jamil deal with and why ?


SNT Company presently paid a dividend of Rs.1.5 per share and has a share price ofRs.25. The dividends are expected to grow @ 15% forever. SNT Company has Rs.100million in equity and Rs.75 million in debt in its total capital. The tax rate for the firm is35% and the Cost of debt is 12%. Calculate the Weighted Average Cost of Capital(WACC) for SNT Company?


Magi Inc. specializes in toys and receives all income from sales.

* Each quarter consists of 3 months (90 days)

Accounts Receivable:

o Beginning receivables = Rs. 250,000o Average Collection Period = 30 days

Accounts Payable:o Purchases = 50 % of next quarters sales


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o Beginning payables = Rs. 125,000o Accounts Payable Period is 45 days

Other expenses:

o Wages, taxes and other expenses are 25% of saleso Interest and dividend payments are Rs. 50,000o A major capital expenditure of Rs. 200,000 is expected in the second quarter

You are just required to calculate the Cash Collections (Receipts) and Cash Disbursements(Payments) for four Quarters.


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MIDTERM EXAMINATION

FALL 2006

ACC501 - BUSINESS FINANCE (Session - 3 )

Marks: 40

Time: 60min

StudentID/LoginID:

Student Name:

Center Name/Code:

Exam Date: Wednesday, December 06, 2006



This exam consists of 10 Multiple Choice Questions (MCQs), 5 Fill in the Blanks, 5

Short Questions and 1 Numerical Question.

You should try to complete MCQs in 10 - 15 minutes in order to avail 75 - 80

minutes for the Numerical question.

For each MCQ, read the choices available carefully and select the choice which you

consider is the most suitable, by clicking on the appropriate circle.

Save your answer before proceeding to the next question.

Do not click the Finish button while solving your paper. Once you clicked the

Finish button, you will not be able to access your paper again. Click it only at

the end after attempting the whole paper, which will be an indication that you

have submitted your complete paper.

You are required to show all the working of short questions as well as numericalquestion in your answers.



20/36

A clock has been given in the exam software. Software will automatically be closed

after 90 minutes.

It is your responsibility to manage time and responses to test questions effectively.

Failure to comply with the supervisors directions will result in your test being

cancelled. Please comply with supervisors directions to avoid any unpleasant

event.

For Teacher's use onlyQuestion 1 2 3 4 5 6 7 8 9 10 Total

Marks

Question 11 12 13 14 15 16 17 18 19 20Marks

Question 21Marks


A major disadvantage of the corporate form of organization is the .

Inability of the firm to raise large sums of additional capital

Double taxation of dividends

Limited liability of shareholders

Limited life of the corporate firm


Which one of the following current asset is not treated as a cash flow from operating activities?

Trade receivable


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Cash and cash equivalent

Inventory

Short term investment


Suppose you can earn a 7.2 percent interest rate per year. According to the rule of 72, it will take

approximately years to double your money.

5.00

7.20

10.00

100.0


Rahim Corporation has a cash coverage ratio of 7 times. Its earning before interest and tax isRs.900 million. It has total assets of Rs.3 billion. The company has a policy of charging 5 % annualdepreciation. By using the above information, what would be the interest expense for the year?

90 million

120 million

140 million

150 million


Suppose ZM Corporation has a debt to equity ratio of 1.50 times. It has the return on assets of

14%. The return on equity would be .

25%


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30%

35%

40%


Lets Tulips Corporation has return on assets for the year is 14 % .The Corporation has a policy to

retain 40 percent of their income. Then the Corporations internal growth rate would be

.

5.246 %

5.754 %

5.932 %

6.589 %


If the interest rate is 24 % compounded quarterly, what would be the 5-year discount factor?

3.10585

3.20714

3.50152

3.80153


Suppose you expect to receive Rs.3,000 per year forever. The opportunity rate is 12 %.The presentvalue of this would be .


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Rs.20,000

Rs.23,000

Rs.25,000

Rs.28,000


The bonds are classified as if the maturity of the bond is less than 10 years whenissued.

Term finance certificate

Debentures

Notes



is a kind of bond that allows the holder to force the issuer to buy the bond back at a

stated price.

Convertible bond

Floating rate bond

Income bond

Put bond


24/36


A is responsible for managing cash and raising finances for the business.


Current ratio and quick ratio of a firm will be equal if its current assets do not contain.


Coupon rate has a floor and a ceiling. These upper and lower rates are also called

.


is that part of the indenture or loan agreement that limits certain actions which acompany might wish to take during the term of the loan.


The relationship between the real and nominal returns is described by the .


Discuss the significance of financial statements.


What is underwriting contract? Discuss in detail.


How much an investor has to invest a lump sum amount in order to have Rs.3 million in 20 yearsfrom now if the rate of interest is 16 % compounded quarterly?


Draw a time line for the annuity due of Rs.900 for 6 years. Also, describe the relationship betweenan ordinary annuity and annuity due with the help of equation.


Mr. Martin is considering the purchase of land for Rs.650, 000, which may be sold for Rs.850, 000

in 7 years. If the discount rate is 16% compounded quarterly, will this be a good investment?


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Mr. Imran has Rs.150, 000 in cash that he can deposit in any of four savings accounts in four

different banks for a 7 year period. Bank A compounds interest on an annual basis; Bank B

compounds interest twice each year; Bank C compounds interest each quarter and Bank Dcompounds interest on daily basis. All four banks have a stated annual interest rate of 12%.

Required:

a. What amount would Mr. Imran have at the end of 7th

year in each bank?b. What effective annual interest rate would he earn in each of the four banks?

c. On the basis of your findings in a and b, which bank should Mr. Imran deal with? and

Why?


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ACC501 Business FinanceMid Term Examination Spring 2006

Time Allowed: 90 Minutes

Please read the following instructions carefully before attempting anyquestion:


This exam consists of10 Multiple Choice Questions (MCQs), 5 Fill in the Blanks, 5 Short

Questions and 1 Descriptive Question.

You should try to complete MCQs in 10 - 15 minutes in order to avail 75 - 80 minutes for

the descriptive questions.

For each MCQ, read the choices available carefully and select the choice which you

consider is the most suitable, by clicking on the appropriate circle.

Save your answer before proceeding to the next question.

Do not click the Finish button while solving your paper. Once you clicked the Finish

button, you will not be able to access your paper again. Click it only at the end after

attempting the whole paper, which will be an indication that you have submitted your

complete paper.

You are required to show all the working of short questions as well as descriptive question

in your answers.


A clock has been given in the exam software. Software will automatically be closedafter

90 minutes.

It is your responsibility to manage time and responses to test questions effectively.


27/36

Failure to comply with the supervisors directions will result in your test being cancelled.

Please comply with supervisors directions to avoid any unpleasant event.

Question No. 1 Marks : 1

The ratio is the same as the ratio

except inventories and "other current assets" are dropped from the numerator.


The growth that can be financed without resorting to any external equity financing is

called the


Financial institutions facilitate individuals and firms in:

Borrowing

Lending

poolingof risks

all of the given options


are issued by state and local governments.

Treasury bonds

Municipal bonds

Corporate bonds

Personal bonds


You are expecting to receive Rs.5000 in 3 years. If the interest rate increases, the

present value of that future amount to you would:

Fall

Rise

remain unchanged

cannot be determined without more information


28/36


is notthe function of the treasurer:

Preparation of financial statements

InvestorrelationshipsCash management

Obtaining finances


Sara is interested in purchasing Tom's factory. Since Sara is a poor negotiator, she

hires Maria to negotiate a purchase price. Identify the parties to this transaction from

the given options, according to agency theory:

Sara is the agent.

Maria is the principal.

Tom is the agent and Maria is the principal

Sara is the principal and Maria is the agent.


Purchasingnew machinery for expanding production capacity by a corporation is


CVP Corporation has a policy of paying a $10 per share dividend every year. This

policy is to continue indefinitely. What is the value of a share of stock if the required

rate of return is 20%?


A constant stream of cash flows for a limited number of years coming at regularintervals is called a (an) .


is notan advantage of separation of ownership and

management of corporations.


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Corporations can exist forever.

Facilitate transfer of ownership without affecting the operations of the firm

Hire professional managers

Incur agency costs


Mr. Martin has $20,000 that he can deposit in savings accounts of any of three banksfor a three year period. Bank A compounds on an annual basis; Bank B compoundsinterest twice each year; Bank C compounds interest each quarter. All three bankshave a stated annual interest rate of 4%.

Required:

a. What amount would Mr. Martin have at the end of 3rd year in each bank?(Marks: 08)

b. On the basis of your findings in part a, describe which bank should Mr. Martindeal with and why? (Marks: 02)


A firm is having difficulty in controlling its operating expenses. Which ratio categoryin given options will most directly reflect this problem?

LiquidityProfitability

Market valueTurnover


A firm's investment decision is also called the:

financing decision

capital budgeting decision

liquidity decision

debt financing


Why would you prefer corporate form of organization over other forms of business

organizations? Discuss giving at least three arguments.



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What is an agency relationship? Describe the reason that results in agency problem.


Suppose a Corporation has a taxable income of Rs.50000 and the tax amountcalculated is as given below:Rs.30000 x 5% = Rs.1500(Rs.40000 30000) x 10% = 1000(Rs.50000 40000) x 15% = 1500

Rs.4000

Total tax amount is Rs.4000. Average tax rate is Rs.4000 / 50000 = 8.0%. Marginal tax

rate will be:

D 39%

D 34%

D 15%

D 25%


What do you understand by seniority in a bond indenture?


What are the three factors that affect Return on Equity, according to Du Pont Identity?


In context of inflation and returns, the relationship between real and nominal returns

is described by:

Fisher Effect

Ricardo EffectRobbinsEffect

Fredrick Effect


Debt securities issued by corporations are called .


31/36

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MIDTERM EXAMINATION

SPRING 2007

ACC501 - BUSINESS FINANCE (Session - 1 )

Marks: 40

Time: 90min

StudentID/LoginID:

Student Name:

Center Name/Code:

Exam Date: Saturday, May 12, 2007



This exam consists of10 Multiple Choice Questions (MCQs) of 1 mark each, 5 True/False of1

mark each, 3 Short questions of5 marks each and 1 comprehensive Numerical of10 marks.

For each Multiple Choice Question, read the options available and select which you consider is the

correct one.

You are required to show all the working of short as well as practical question.

Use of calculator is allowed.

This examination is closed book, closed notes and closed neighbours.

Do not ask question about the contents of this examination from anyone.

You may wish to pace yourself with your own watch, but the Supervisor will be the official

timekeeper of the test.

Failure to comply with the Supervisors directions will result in your test being cancelled. Please

comply with supervisors directions to avoid any unpleasant event

For Teacher's use onlyQuestion 1 2 3 4 5 6 7 8 9 10 Total

Marks

Question 11 12 13 14 15 16 17 18 19Marks

Question

Marks


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The Ratios showing the ability of a firm to pay its bills in short-run are called:

Leverage Ratios

Liquidity Ratios

Profitability Ratios

Market Value Ratios


Evaluating the size, timing and risk of future cash flows is the essence of :

Capital Budgeting

Capital Structure

Inventory Control



Sumi Corporation is dealing in furniture industry. It has an equity multiplier of 1.78

times. The debt to equity ratio would be:

0.38 times

0.58 times

0.78 times

0.98 times


involves the sale of used securities from one investor to another.

Primary Market

Secondary Market

Tertiary Market



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SNT Corporation paid Rs. 28,900 as tax in 2006. If the tax rate was 34%, what was thetaxable income of the corporation during 2006?

Rs. 90,000

Rs. 85,000

Rs. 65,000

Rs. 77,000


pays no coupon at all and is offered at a price that is much lower than its

stated value.

Government Bond

Floating Rate Bond

Zero Growth Bond



Which of the following statement provides a financial summary of the firms operatingresults during a specified period.

Balance Sheet

Income Statement

Cash Flow Statement

Retained Earning Statement


Depreciation expense does not reflect a cash outflow but still shown as an expense on theincome statement to serve as a:

Cash inflow


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Cash outflow

Tax Shield

Interest Shield


Investors demand extra yield on a taxable bond as a compensation for the unfavorable taxtreatment, known as:

Taxability premium

Inflation premium

Interest Rate Risk Premium



If you invest Rs. 150 in a bank on an interest rate of 14%. How much will you have inyour account after 5 years ?

Rs. 78

Rs.163

Rs. 207

Rs. 289


A series of constant, or level, cash flows that occur at the end of each period for somefixed number of periods is called Perpetuity.

True

False


A dollar in hand today is worth more than a dollar promised at some time in future.

True

False


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Period Cash Flows1 Rs.8,0002 Rs.12,0003 Rs.20,0004 Rs.35,0005 Rs.40,000


Profit Margin is calculated by dividing Net Income over Sales.

True

False


While making Common Size Statements, Balance sheet items are shown as a percentageof total liabilities.

True

False


Present value of all the cash inflows can be calculated by compounding each cash flowseparately.

True

False


Cash Flows for a project are given below:

Compute the Future Value of cash flow stream of project at the end of year 5 with acompound annual interest rate of 14%.


Explain the difference between Simple Interest & Compound Interest with the help ofexample.



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Bond Par Value(Rs.)

Coupon Rate(%)

Years to Maturity(Years)

Req. StatedReturn (%)

A 1,000 7 12 8B 500 12 15 10C 100 16 20 12

A company has total annual sales (25% on cash basis) of Rs.3,000,000 and a gross profitmargin of 20 %. Its current assets are Rs. 500,000; current liabilities are Rs. 340,000;inventories are Rs. 260,000; and cash is Rs. 60,000.Calculate:(a) How much average inventory should be carried if management wants the inventoryturnover to be 5 times? and

(b) How rapidly (in how many days) must accounts receivable be collected ifmanagement wants to have an average of Rs.240,000 invested in receivables? (Assume a365-day year.)


ST manufacturing company is offering the following bonds for issue. Calculate the valueof each bond.

Note :>> In case of Bond A, interest payments are made annually>> In case of Bond B, interest payments are made semi-annually>> In case of Bond C, interest payments are made quarterly

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