composed & solved hafiz salman majeed vu askari … · it neglects cash flows after the payback...

Composed & SolvedHafiz Salman Majeed

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Note: Solve these papers by yourselfThis VU Group is not responsible for any solved content

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MGT201 Online Quiz#4….12 Quizzes Solved...By Hafiz Salman Majeed

Question # 1 of 15 ( Start time: 06:25:29 PM ) Total Marks: 1Which of the following is related to the use Lower financial leverage?Select correct option:

Fixed costsVariable costsDebt financingCommon equity financing

Question # 2 of 15 ( Start time: 06:25:48 PM ) Total Marks: 1Which of the following statements is true?Select correct option:

The financial risk of a firm decreases when it takes on a risky projectThe financial risk of a firm increases when it takes on more equityThe business risk of a firm increases when it takes on a risky projectThe business risk of a firm increases when it takes on more debt

Question # 3 of 15 ( Start time: 06:26:08 PM ) Total Marks: 1In efficient market the stock price depends upon the required return which depends upon_________.Select correct option:

Market riskTotal riskDiversified riskNon- systematic risk

Question # 4 of 15 ( Start time: 06:26:23 PM ) Total Marks: 1Which of the following is related to the use of higher operating leverage?Select correct option:


Question # 5 of 15 ( Start time: 06:26:46 PM ) Total Marks: 1Which of the following can not be the drawback of using payback period technique ofcapital budgeting?




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Select correct option:

It does not account for time value of moneyIt neglects cash flows after the payback periodIt does not use interest rate while making calculationsIt is a tricky and complicated method

Question # 6 of 15 ( Start time: 06:27:14 PM ) Total Marks: 1Which of the following are the approaches used to make two projects with different lifespans comparable?Select correct option:

Modified internal rate of return and equivalent annual annuityCommon life and equivalent annual annuityCommon life and modified internal rate of returnNone of the given options

Question # 7 of 15 ( Start time: 06:28:40 PM ) Total Marks: 1Which of the following risk can be diversified away?Select correct option:

Systematic riskBetaFirm specific riskMarket risk

Question # 8 of 15 ( Start time: 06:28:57 PM ) Total Marks: 1If Net Present Value technique is used, what is the ranking criterion for projects?Select correct option:

Choose the highest NPVChoose the lowest NPVChoose the project with longest termChoose the project with shortest term

Question # 9 of 15 ( Start time: 06:29:57 PM ) Total Marks: 1Calculate the break-even point for sales revenues given the following information. Thefirm has Rs.1, 000,000 in fixed costs. The firm anticipates that variable costs will be Rs.1for every Rs.5 in sales.Select correct option:

Rs.1, 250,000Rs.1, 000,000




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Rs.250, 000Rs.200, 000

Question # 10 of 15 ( Start time: 06:30:20 PM ) Total Marks: 1Above the breakeven EBIT, increased financial leverage will __________ EPS, all elsethe same. Assume there are no taxesSelect correct option:

IncreaseDecreaseEither increase or decreaseNone of the given options

Question # 11 of 15 ( Start time: 06:30:36 PM ) Total Marks: 1Which of the following equation is NOT correct?Select correct option:

Gross Revenue – Admin & Operating Expenses = Operating RevenueOther Expenses + Other Revenue = EBITEBIT – Financial Charges & Interest = EBTNet Income – Dividends = Retained Earning

Question # 12 of 15 ( Start time: 06:30:51 PM ) Total Marks: 1An investment proposal should be judged in whether or not it provides:Select correct option:

A return equal to the return require by the investorA return more than required by investorA return less than required by investorA return equal to or more than required by investor

Question # 13 of 15 ( Start time: 06:31:07 PM ) Total Marks: 1Which of the following is NOT the type of Hybrid organizations?Select correct option:

S-Type CorporationLimited Liability PartnershipSole ProprietorshipProfessional Corporation

Question # 14 of 15 ( Start time: 06:31:24 PM ) Total Marks: 1Companies and individuals running different types of businesses have to make thechoices of the asset according to which of the following?




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Life span of the projectCost of the capitalReturn on assetNone of the given options

Question # 15 of 15 ( Start time: 06:31:41 PM ) Total Marks: 1Which of the following is correct regarding the opportunity cost of capital for a project?Select correct option:

The opportunity cost of capital is the return that investors give up by investing in theproject rather than in securities of equivalent risk.Financial managers use the capital asset pricing model to estimate the opportunity cost of

capitalThe company cost of capital is the expected rate of return demanded by investors in a

companyAll of the given options

Question # 1 of 15 ( Start time: 09:22:25 PM ) Total Marks: 1__________ is the variability of return on stocks or portfolios not explained by generalmarket movements. It is avoidable through diversification.Select correct option:

Systematic riskStandard deviationUnsystematic riskCoefficient of variation

Question # 2 of 15 ( Start time: 09:22:41 PM ) Total Marks: 1The logic behind _________ is that instead of looking at net cash flows you look at cashinflows and outflows separately for each point in time.Select correct option:

IRRMIRRPVNPV

Question # 3 of 15 ( Start time: 09:22:53 PM ) Total Marks: 1If all things equal, when diversification is most effective?Select correct option:




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Securities' returns are positively correlatedSecurities' returns are uncorrelatedSecurities' returns are highSecurities' returns are negatively correlated

Question # 4 of 15 ( Start time: 09:23:08 PM ) Total Marks: 1Which of the following formula relates beta of the stock to the standard deviation?Select correct option:

Covariance of stock with market * variance of the marketCovariance of stock with market / variance of the marketVariance of the market / Covariance of stock with marketSlope of the regression line

Question # 5 of 15 ( Start time: 09:23:26 PM ) Total Marks: 1Which of the following is NOT a cash outflow for the firm?Select correct option:

DepreciationDividendsInterestTaxes


Rs.1, 250,000Rs.1, 000,000Rs.250, 000Rs.200, 000

Question # 7 of 15 ( Start time: 09:23:55 PM ) Total Marks: 1In which of the following approach you need to bring all the projects to the same lengthin time?Select correct option:

MIRR approachGoing concern approachCommon life approachEquivalent annual approach




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Question # 8 of 15 ( Start time: 09:24:10 PM ) Total Marks: 1Which of the following statements is TRUE regarding Permanent Accounts?Select correct option:

Accounts that are found on Income StatementAccounts that are found on Statement of Retained EarningsAccounts that are found on Balance SheetAll of the given options

Question # 9 of 15 ( Start time: 09:24:17 PM ) Total Marks: 1You are considering two investment proposals, project A and project B. B's expected netpresent value is Rs. 1,000 greater than that for A and A's dispersion of net present valueis less than that for B. On the basis of risk and return, what would be your conclusion?Select correct option:

Project A dominates project BProject B dominates project ANeither project dominates the other in terms of risk and returnIncomplete information

Question # 10 of 15 ( Start time: 09:24:36 PM ) Total Marks: 1At the termination of project, which of the following needs to be considered relating toproject assets?Select correct option:

Salvage valueBook valueIntrinsic valueFair value

Question # 11 of 15 ( Start time: 09:24:52 PM ) Total Marks: 1Total portfolio risk is __________.Select correct option:

Equal to systematic risk plus non-diversifiable riskEqual to avoidable risk plus diversifiable riskEqual to systematic risk plus unavoidable riskEqual to systematic risk plus diversifiable risk

Question # 12 of 15 ( Start time: 09:25:11 PM ) Total Marks: 1Which of the following would be considered a cash-flow item from an "operating"activity?




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Cash outflow to the government for taxesCash outflow to shareholders as dividendsCash inflow to the firm from selling new common equity sharesCash outflow to purchase bonds issued by another company

Question # 13 of 15 ( Start time: 09:25:26 PM ) Total Marks: 1Which of the following includes the planning, directing, monitoring, organizing, andcontrolling of the monetary resources of an organization?Select correct option:

Financial accountingFinancial managementFinancial engineeringFinancial budgeting

Question # 14 of 15 ( Start time: 09:25:33 PM ) Total Marks: 1The explicit costs associated with corporate default, such as legal expenses, are the___________ of the firm.Select correct option:

Flotation costsDefault beta coefficientsDirect bankruptcy costsIndirect bankruptcy costs

Question # 15 of 15 ( Start time: 09:25:47 PM ) Total Marks: 1Which of the following value of the shares changes with investor’s perception about thecompany’s future and supply and demand situation?Select correct option:

Par valueMarket valueIntrinsic valueFace value

Question # 1 of 15 ( Start time: 09:31:27 PM ) Total Marks: 1What is the most important criteria in capital budgeting?Select correct option:

Return on investmentProfitability index




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Net present valuePay back period



Question # 3 of 15 ( Start time: 09:31:49 PM ) Total Marks: 1Total portfolio risk is a combination of:Select correct option:

Systematic risk plus non-diversifiable riskAvoidable risk plus diversifiable riskSystematic risk plus unavoidable riskSystematic risk plus diversifiable risk

Question # 4 of 15 ( Start time: 09:31:57 PM ) Total Marks: 1Which of the following affects price of the bond?Select correct option:

Market interest rateRequired rate of returnInterest rate riskAll of the given options

Question # 5 of 15 ( Start time: 09:32:24 PM ) Total Marks: 1For Company A, plow back ratio is 30%. What will be its Pay-out ratio?Select correct option:

3.33%30%31%70%





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Covariance of stock with market * variance of the marketCovariance of stock with market / variance of the marketVariance of the market / Covariance of stock with marketSlope of the regression line

Question # 7 of 15 ( Start time: 09:32:48 PM ) Total Marks: 1Which of the following statements is true?Select correct option:

The financial risk of a firm decreases when it takes on a risky projectThe financial risk of a firm increases when it takes on more equityThe business risk of a firm increases when it takes on a risky projectThe business risk of a firm increases when it takes on more debt

Question # 8 of 15 ( Start time: 09:33:07 PM ) Total Marks: 1Which of the following formulas represents a correct calculation of the degree ofoperating leverage?Select correct option:

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



Question # 10 of 15 ( Start time: 09:33:25 PM ) Total Marks: 1Which of the following stipulate a relationship between expected return and risk?Select correct option:

APT stipulatesCAPM stipulatesBoth CAPM and APT stipulateNeither CAPM nor APT stipulate




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Question # 12 of 15 ( Start time: 09:33:49 PM ) Total Marks: 1Which of the following are known as Discretionary Financing?Select correct option:

Current liabilitiesCurrent assetsFixed assetsLong-term liabilities

Question # 13 of 15 ( Start time: 09:34:11 PM ) Total Marks: 1Which type of responsibilities are primarily assigned to Controller and Treasurerrespectively?Select correct option:

Operational; financial managementFinancial management; accountingAccounting; financial managementFinancial management; operations

Question # 14 of 15 ( Start time: 09:34:28 PM ) Total Marks: 1Which of the following costs would be considered a fixed cost?Select correct option:

Raw materialsDepreciationBad-debt lossesProduction labor

Question # 15 of 15 ( Start time: 09:34:47 PM ) Total Marks: 1The value of direct claim security is derived from which of the following?Select correct option:




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Fundamental analysisUnderlying real assetSupply and demand of securities in the marketAll of the given options

Question # 1 of 15 ( Start time: 09:40:55 PM ) Total Marks: 1If 2 stocks move in the same direction together then what will be the correlationcoefficient?Select correct option:

01.0-1.01.5

Question # 2 of 15 ( Start time: 09:41:10 PM ) Total Marks: 1Which of the following is a limitation of a Corporation?Select correct option:

Easy to set upDouble-taxationInexpensive to maintainUnlimited liability

Question # 3 of 15 ( Start time: 09:41:39 PM ) Total Marks: 1Which of the following is NOT true regarding an ordinary annuity?Select correct option:

It is a series of equal cash flowsCash flows occur for a specific time periodPayments are made at the start of each periodIt is also known as deferred annuity

Question # 4 of 15 ( Start time: 09:41:55 PM ) Total Marks: 1Which of the following is/are the characteristic(s) of Perpetuity?Select correct option:

It is an annuityIt has no definite endIt is a constant stream of identical cash flowsAll of the given options

Question # 5 of 15 ( Start time: 09:42:09 PM ) Total Marks: 1




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Which of the following formulas represents a correct calculation of the degree ofoperating leverage?Select correct option:


Question # 6 of 15 ( Start time: 09:42:15 PM ) Total Marks: 1When Investors want high plowback ratios?Select correct option:

Whenever ROE > kWhenever k > ROEOnly when they are in low tax bracketsWhenever bank interest rates are high

Question # 7 of 15 ( Start time: 09:42:29 PM ) Total Marks: 1Upon which of the following a firm's degree of operating leverage (DOL) dependsprimarily?Select correct option:

Sales variabilityLevel of fixed operating costsCloseness to its operating break-even pointDebt-to-equity ratio

Question # 8 of 15 ( Start time: 09:42:45 PM ) Total Marks: 1Which of the following is not the present value of the bond?Select correct option:

Intrinsic valueMarket priceFair priceTheoretical price

Question # 9 of 15 ( Start time: 09:44:06 PM ) Total Marks: 1Which of the following includes the planning, directing, monitoring, organizing, andcontrolling of the monetary resources of an organization?Select correct option:

Financial accounting




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Financial managementFinancial engineeringFinancial budgeting

Question # 10 of 15 ( Start time: 09:44:12 PM ) Total Marks: 1The presence of which of the following costs is not used as a major argument against theM&M arbitrage process?Select correct option:

Bankruptcy costsAgency costsTransactions costsInsurance costs

Question # 11 of 15 ( Start time: 09:44:29 PM ) Total Marks: 1Which of the following is the percentage of interest charged at each compounding time?Select correct option:

Nominal interest RateEffective interest RateAnnual percentage ratePeriodic interest rate

Question # 12 of 15 ( Start time: 09:44:46 PM ) Total Marks: 1An implicit cost of adding debt to the capital structure is that it:Select correct option:

Adds interest expense to the operating statementIncreases the required return on equityReduces the expected return on assetsDecreases the firm's beta







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Which of the following is NOT true regarding an annuity due?Select correct option:

It is a series of equal cash flowsIt is also known as deferred annuityCash flows occur for a specific time periodPayments are made at the start of each period

Question # 15 of 15 ( Start time: 09:45:23 PM ) Total Marks: 1Above the breakeven EBIT, increased financial leverage will __________ EPS, all elsethe same. Assume there are no taxesSelect correct option:

IncreaseDecreaseEither increase or decreaseNone of the given options

Question # 1 of 15 ( Start time: 10:29:23 PM ) Total Marks: 1Why we need Capital rationing? (Select correct option:

Because, there are not enough positive NPV projectsBecause, companies do not always have access to all of the funds they could make use ofBecause, managers find it difficult to decide how to fund projectsBecause, banks require very high returns on projects

Question # 2 of 15 ( Start time: 10:29:49 PM ) Total Marks: 1What is the most important criteria in capital budgeting?Select correct option:

Return on investmentProfitability indexNet present valuePay back period

Question # 3 of 15 ( Start time: 10:30:00 PM ) Total Marks: 1Which of the following would express the negative net worth of a firm?Select correct option:

Experiencing a business failureIn legal bankruptcyExperiencing technical insolvency




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Experiencing accounting insolvency

Question # 4 of 15 ( Start time: 10:30:21 PM ) Total Marks: 1Which of the following are known as Discretionary Financing?Select correct option:

Current liabilitiesCurrent assetsFixed assetsLong-term liabilities

Question # 5 of 15 ( Start time: 10:30:39 PM ) Total Marks: 1Which of the following is the cash required during a specific period to meet interestexpenses and principal payments?Select correct option:

Debt capacityDebt-service burdenAdequacy capacityFixed-charge burden

Question # 6 of 15 ( Start time: 10:30:47 PM ) Total Marks: 1Which one of the following selects the combination of investment proposals that willprovide the greatest increase in the value of the firm within the budget ceiling constraint?Select correct option:

Cash budgetingCapital budgetingCapital rationingCapital expenditure

Question # 7 of 15 ( Start time: 10:31:05 PM ) Total Marks: 1Security market line gives the relationship between _______ and _________.Select correct option:

Market risk and the required returnSystematic risk and the required returnNon-diversified risk and the required returnAll of the given options

Question # 8 of 15 ( Start time: 10:31:25 PM ) Total Marks: 1In calculating the costs of the individual components of a firm's financing, the corporatetax rate is important to which of the following component cost formulas?




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Common stockDebtPreferred stockNone of the above



Question # 10 of 15 ( Start time: 10:32:01 PM ) Total Marks: 1Which of the following would generally have unlimited liability?Select correct option:

A limited partner in a partnershipA shareholder in a corporationThe owner of a sole proprietorshipA member in a limited liability company (LLC)

Question # 11 of 15 ( Start time: 10:32:18 PM ) Total Marks: 1Which of the following is the main objective of ‘Economics’?Select correct option:

Profit maximizationMaximization of shareholders wealthCollection of accurate, systematic, and timely financial dataAll of the given options

Question # 12 of 15 ( Start time: 10:32:34 PM ) Total Marks: 1Total portfolio risk is a combination of:Select correct option:

Systematic risk plus non-diversifiable riskAvoidable risk plus diversifiable riskSystematic risk plus unavoidable riskSystematic risk plus diversifiable risk




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Question # 13 of 15 ( Start time: 10:32:41 PM ) Total Marks: 1The return in excess to risk free rate that investors require for bearing the market risk isknown as:Select correct option:

Default risk premiumSovereign Risk PremiumMarket risk premiumMaturity risk premium

Question # 14 of 15 ( Start time: 10:33:34 PM ) Total Marks: 1The weighted average of possible returns, with the weights being the probabilities ofoccurrence is referred to as __________.Select correct option:

Probability distributionExpected returnStandard deviationCoefficient of variation

Question # 15 of 15 ( Start time: 10:33:51 PM ) Total Marks: 1What is the traditional approach towards the valuation of a company?Select correct option:

The cost of capital is independent of the capital structure of the firmThe firm maintains constant risk regardless of the type of financing employedThere exists no optimal capital structureThat management can increase the total value of the firm through the judicious use of

financial leverage

Question # 1 of 15 ( Start time: 10:41:44 PM ) Total Marks: 1The logic behind _________ is that instead of looking at net cash flows you look at cashinflows and outflows separately for each point in time.Select correct option:

IRRMIRRPVNPV

Question # 2 of 15 ( Start time: 10:41:53 PM ) Total Marks: 1Which of the following can be used to calculate the risk of the larger portfolio?Select correct option:




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Standard deviationEPS approachMatrix approachGordon’s Approach

Question # 3 of 15 ( Start time: 10:42:11 PM ) Total Marks: 1Which of the following allows to graphically depicting the timing of the cash flows aswell as their nature as either inflows or outflows?Select correct option:

Cash flow diagramCash budgetCash flow statementNone of the given options

Question # 4 of 15 ( Start time: 10:42:21 PM ) Total Marks: 1In the dividend discount model, _______ which of the following are not incorporated intothe discount rate?Select correct option:

Real risk-free rateRisk premium for stocksReturn on assetsExpected inflation rate

Question # 5 of 15 ( Start time: 10:42:42 PM ) Total Marks: 1Effective interest rate is different from nominal rate of interest because:Select correct option:

Nominal interest rate ignores compoundingNominal interest rate includes frequency of compoundingPeriodic interest rate ignores the effect of inflationAll of the given options

Question # 6 of 15 ( Start time: 10:43:06 PM ) Total Marks: 1Which of the following market in finance is referred to the market for short-termgovernment and corporate debt securities?Select correct option:

Money marketCapital marketPrimary market




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Secondary market

Question # 7 of 15 ( Start time: 10:43:30 PM ) Total Marks: 1As interest rates go up, the present value of a stream of fixed cash flows _____.Select correct option:

Goes downGoes upStays the sameCan not be found from the given information

Question # 8 of 15 ( Start time: 10:43:56 PM ) Total Marks: 1Which of the following refers to financial risk?Select correct option:

Risk of owning equity securitiesRisk faced by equity holders when debt is usedGeneral business risk of the firmPossibility that interest rates will increase

Question # 9 of 15 ( Start time: 10:44:20 PM ) Total Marks: 1Which of the following term may be defined as incidental cash flows that arise becauseof the effect of new project on the running business?Select correct option:

Sunk costOpportunity costExternalitiesContingencies

Question # 10 of 15 ( Start time: 10:44:37 PM ) Total Marks: 1According to ___________, the firm's cost of equity increases with greater debtfinancing, but the WACC remains unchanged.Select correct option:

M&M Proposition I with taxesM&M Proposition I without taxesM&M Proposition II without taxesM&M Proposition II with taxes

Question # 11 of 15 ( Start time: 10:44:58 PM ) Total Marks: 1Which of the following is the percentage of interest charged at each compounding time?Select correct option:




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Question # 12 of 15 ( Start time: 10:45:17 PM ) Total Marks: 1When taxes are considered, the value of a levered firm equals the value of the________.Select correct option:

Unlevered firmUnlevered firm plus the value of the debtUnlevered firm plus the present value of the tax shieldUnlevered firm plus the value of the debt plus the value of the tax shield

Question # 13 of 15 ( Start time: 10:45:37 PM ) Total Marks: 1Study the time line and accompanying 5-period cash-flow pattern below. 0 1 2 3 4 5 6Time line |--------|--------|--------|--------|--------|--------| Rs.10 Rs.10 Rs.10 Rs.10 Rs.10Cash flows ¦ ¦ A B The present value of the 5-period annuity shown above as of Point A isthe present value of a 5-period ______________ , whereas the future value of the sameannuity as of Point B is the future value of a 5-period ______________ .Select correct option:

Ordinary annuity; ordinary annuityOrdinary annuity; annuity dueAnnuity due; annuity dueAnnuity due; ordinary annuity

Question # 14 of 15 ( Start time: 10:45:45 PM ) Total Marks: 1Which of the following is the Double Entry Principle?Select correct option:

Assets + Liabilities = Shareholders’ EquityAssets = Liabilities + Shareholders’ EquityLiabilities = Assets + Shareholders’ EquityNone of the given options

Question # 15 of 15 ( Start time: 10:46:34 PM ) Total Marks: 1Which 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 theindividual securities comprising the portfolio.




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A portfolio's standard deviation of return is a simple weighted average of individualsecurity 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.

Question # 1 of 15 ( Start time: 10:51:28 PM ) Total Marks: 1In the dividend discount model, _______ which of the following are not incorporated intothe discount rate?Select correct option:

Real risk-free rateRisk premium for stocksReturn on assetsExpected inflation rate

Question # 2 of 15 ( Start time: 10:51:37 PM ) Total Marks: 1Which of the following is a capital budgeting technique that is NOT considered asdiscounted cash flow method?Select correct option:

Payback periodInternal rate of returnNet present valueProfitability index

Question # 3 of 15 ( Start time: 10:51:53 PM ) Total Marks: 1When taxes are considered, the value of a levered firm equals the value of the________.Select correct option:

Unlevered firmUnlevered firm plus the value of the debtUnlevered firm plus the present value of the tax shieldUnlevered firm plus the value of the debt plus the value of the tax shield

Question # 4 of 15 ( Start time: 10:52:09 PM ) Total Marks: 1Which of the following is NOT an example of hybrid equitySelect correct option:

Convertible BondsConvertible DebentureCommon sharesPreferred shares




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Question # 5 of 15 ( Start time: 10:52:26 PM ) Total Marks: 1________ is paid by companies with lower grade bonds like CC or C ratings.Select correct option:


Question # 6 of 15 ( Start time: 10:52:42 PM ) Total Marks: 1Coefficient of variation is NOT the measure of __________.Select correct option:

RiskProbabilityRelative dispersionRisk per unit of expected return

Question # 7 of 15 ( Start time: 10:53:06 PM ) Total Marks: 1For which of the following costs is it generally necessary to apply a tax adjustment to ayield measure?Select correct option:

Cost of debtCost of preferred stockCost of common equityCost of retained earnings

Question # 8 of 15 ( Start time: 10:53:29 PM ) Total Marks: 1Which of the following is the value of beta for the market portfolio?Select correct option:

0.25-1.01.00.5


Covariance of stock with market * variance of the market




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Covariance of stock with market / variance of the marketVariance of the market / Covariance of stock with marketSlope of the regression line

Question # 10 of 15 ( Start time: 10:54:09 PM ) Total Marks: 1Which of the following is the general assumption of Percent of Sales Forecasting?Select correct option:

Current Assets usually grow in proportion to RevenuesCurrent Assets usually grow in proportion to ExpensesCurrent Assets usually grow in proportion to LiabilitiesCurrent Assets usually grow in proportion to Sales

Question # 11 of 15 ( Start time: 10:54:27 PM ) Total Marks: 1Which of the following is a limitation of a Corporation?Select correct option:

Easy to set upDouble-taxationInexpensive to maintainUnlimited liability

Question # 12 of 15 ( Start time: 10:54:52 PM ) Total Marks: 1An arbitrage opportunity exists if an investor can construct a __________ investmentportfolio that will yield a sure profit.Select correct option:

PositiveNegativeZeroAll of the above

Question # 13 of 15 ( Start time: 10:55:07 PM ) Total Marks: 1Which of the following is the maximum amount of debt (and other fixed-chargefinancing) that a firm can adequately service?Select correct option:






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Which of the following is the percentage of interest charged at each compounding time?Select correct option:


Question # 15 of 15 ( Start time: 10:55:37 PM ) Total Marks: 1Security market line gives the relationship between _______ and _________.Select correct option:

Market risk and the required returnSystematic risk and the required returnNon-diversified risk and the required returnAll of the given options


Rs.1, 250,000Rs.1, 000,000Rs.250, 000Rs.200, 000

Question # 2 of 15 ( Start time: 11:02:32 PM ) Total Marks: 1Where the stock points will lie, if a stock is a part of totally diversified portfolio?Select correct option:

It will lie below the regression lineIt will line above the regression lineIt will line exactly on the regression lineIt will be tangent to the regression line

Question # 3 of 15 ( Start time: 11:02:50 PM ) Total Marks: 1Which of the following is the Double Entry Principle?Select correct option:

Assets + Liabilities = Shareholders’ EquityAssets = Liabilities + Shareholders’ Equity




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Liabilities = Assets + Shareholders’ EquityNone of the given options

Question # 4 of 15 ( Start time: 11:02:57 PM ) Total Marks: 1An investment proposal should be judged in whether or not it provides:Select correct option:

A return equal to the return require by the investorA return more than required by investorA return less than required by investorA return equal to or more than required by investor

Question # 5 of 15 ( Start time: 11:03:07 PM ) Total Marks: 1To increase a given future value, the discount rate should be adjusted __________.Select correct option:

UpwardDownwardFirst upward and then downwardNone of the given options

Question # 6 of 15 ( Start time: 11:03:23 PM ) Total Marks: 1Which of the following is TRUE about IRR (Internal Rate of Return)?Select correct option:

It changes for each and every year over the life of the projectIt remains same for each and every year over the life of the projectIt increases over the life of the projectIt decreases over the life of the project

Question # 7 of 15 ( Start time: 11:04:53 PM ) Total Marks: 1What is the traditional approach towards the valuation of a company?Select correct option:

The cost of capital is independent of the capital structure of the firmThe firm maintains constant risk regardless of the type of financing employedThere exists no optimal capital structureThat management can increase the total value of the firm through the judicious use of

financial leverage

Question # 8 of 15 ( Start time: 11:05:17 PM ) Total Marks: 1An 8-year annuity due has a present value of Rs.1,000. If the interest rate is 5 percent, theamount of each annuity payment is closest to which of the following?




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Rs.154.73Rs.147.36Rs.109.39Rs.104.72

Question # 9 of 15 ( Start time: 11:05:40 PM ) Total Marks: 1How can a company improve (lower) its debt-to-total asset ratio?Select correct option:

By borrowing moreBy shifting short-term to long-term debtBy shifting long-term to short-term debtBy selling common stock

Question # 10 of 15 ( Start time: 11:05:48 PM ) Total Marks: 1All of the following are the financial statements used for the purpose of reporting andanalysis EXCEPT:Select correct option:

Balance SheetIncome StatementCash budgetStatement of Retained Earnings



Question # 12 of 15 ( Start time: 11:06:25 PM ) Total Marks: 1Which of the following refers to the risk associated with interest rate uncertainty?Select correct option:

Default risk premiumSovereign Risk PremiumMarket risk premium




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Maturity risk premium

Question # 13 of 15 ( Start time: 11:06:45 PM ) Total Marks: 1With continuous compounding at 8 percent for 20 years, what is the approximate futurevalue of a Rs. 20,000 initial investment?Select correct option:

Rs.52,000Rs.93,219Rs.99,061Rs.915,240

Question # 14 of 15 ( Start time: 11:06:59 PM ) Total Marks: 1Given no change in required returns, the price of a stock whose dividend is constantwill__________.Select correct option:

Decrease over time at a rate of r%Remain unchangedIncrease over time at a rate of r%Decrease over time at a rate equal to the dividend growth rate

Question # 15 of 15 ( Start time: 11:07:15 PM ) Total Marks: 1Which of the following is called the tax savings of the firm derived from the deductibilityof interest expense?Select correct option:

Interest tax shieldDepreciable basisFinancing umbrellaCurrent yield

Question # 1 of 15 ( Start time: 11:15:26 PM ) Total Marks: 1What is the expected return of a zero-beta security?Select correct option:

The risk-free rateZero rate of returnA negative rate of returnThe market rate of return

Question # 2 of 15 ( Start time: 11:15:44 PM ) Total Marks: 1Which of the following is not the present value of the bond?




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Question # 3 of 15 ( Start time: 11:15:52 PM ) Total Marks: 1Which of the following is the stability of a firm's operating income?Select correct option:

Financial leverageWeighted-average cost of capitalCapital structureBusiness risk

Question # 4 of 15 ( Start time: 11:16:34 PM ) Total Marks: 1For most firms, P/E ratios and risk_________.Select correct option:

Will be directly relatedWill have an inverse relationshipWill be unrelatedNone of the above.



Question # 6 of 15 ( Start time: 11:17:05 PM ) Total Marks: 1Which of the following is called the tax savings of the firm derived from the deductibilityof interest expense?Select correct option:

Interest tax shieldDepreciable basisFinancing umbrella




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Current yield

Question # 7 of 15 ( Start time: 11:17:16 PM ) Total Marks: 1Which of the following refers to a highly competitive market where good business ideasare taken up immediately?Select correct option:

Capital marketEfficient marketMoney marketReal asset market

Question # 8 of 15 ( Start time: 11:17:32 PM ) Total Marks: 1What is the present value of Rs.1,000 to be paid at the end of 5 years if the correct riskadjusted interest rate is 8%?Select correct option:

Rs.714Rs.1,462Rs.322.69Rs.401.98

Question # 9 of 15 ( Start time: 11:17:57 PM ) Total Marks: 1Which of the following needs to be excluded while we calculate the incremental cashflows?Select correct option:

DepreciationSunk costOpportunity costNon-cash item

Question # 10 of 15 ( Start time: 11:18:16 PM ) Total Marks: 1All of the following are the financial statements used for the purpose of reporting andanalysis EXCEPT:Select correct option:

Balance SheetIncome StatementCash budgetStatement of Retained Earnings





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Companies and individuals running different types of businesses have to make thechoices of the asset according to which of the following?Select correct option:

Life span of the projectCost of the capitalReturn on assetNone of the given options

Question # 12 of 15 ( Start time: 11:18:40 PM ) Total Marks: 1Which of the following refers to financial risk?Select correct option:

Risk of owning equity securitiesRisk faced by equity holders when debt is usedGeneral business risk of the firmPossibility that interest rates will increase

Question # 13 of 15 ( Start time: 11:18:58 PM ) Total Marks: 1Which of the following should be included while calculating the cash flows associatedwith a project?Select correct option:

Cash flows at the time of investmentCash flows during the life of projectCash flows at the termination dateAll of the given options

Question # 14 of 15 ( Start time: 11:19:43 PM ) Total Marks: 1Which of the following are the approaches used to make two projects with different lifespans comparable?Select correct option:

Modified internal rate of return and equivalent annual annuityCommon life and equivalent annual annuityCommon life and modified internal rate of returnNone of the given options

Question # 15 of 15 ( Start time: 11:20:08 PM ) Total Marks: 1Which of the following is the cash required during a specific period to meet interestexpenses and principal payments?Select correct option:




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Question # 1 of 15 ( Start time: 11:24:06 PM ) Total Marks: 1What is the present value of Rs. 3,500,000 to be paid at the end of 50 years if the correctrisk adjusted interest rate is 18%?Select correct option:

Rs.105,000Rs.1,500,000Rs.3975,000Rs. 350,000

Question # 2 of 15 ( Start time: 11:24:14 PM ) Total Marks: 1An annuity due is always worth _____ a comparable annuity.Select correct option:

Less thanMore thanEqual toCan not be found from the given information

Question # 3 of 15 ( Start time: 11:24:31 PM ) Total Marks: 1Which of the following is the value of beta for the market portfolio?Select correct option:

0.25-1.01.00.5







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Which of the following is the maximum amount of debt (and other fixed-chargefinancing) that a firm can adequately service?Select correct option:


Question # 6 of 15 ( Start time: 11:24:53 PM ) Total Marks: 1__________ is the variability of return on stocks or portfolios not explained by generalmarket movements. It is avoidable through diversification.Select correct option:

Systematic riskStandard deviationUnsystematic riskCoefficient of variation

Question # 7 of 15 ( Start time: 11:25:09 PM ) Total Marks: 1Which of the following is related to the use Lower financial leverage?Select correct option:


Question # 8 of 15 ( Start time: 11:25:25 PM ) Total Marks: 1Market risk is measured in terms of the ___________ of the market portfolio or index.Select correct option:

VarianceCovarianceStandard deviationCorrelation coefficient

Question # 9 of 15 ( Start time: 11:25:41 PM ) Total Marks: 1Upon which of the following a firm's degree of operating leverage (DOL) dependsprimarily?Select correct option:

Sales variability




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Level of fixed operating costsCloseness to its operating break-even pointDebt-to-equity ratio

Question # 10 of 15 ( Start time: 11:25:49 PM ) Total Marks: 1An implicit cost of adding debt to the capital structure is that it:Select correct option:

Adds interest expense to the operating statementIncreases the required return on equityReduces the expected return on assetsDecreases the firm's beta

Question # 11 of 15 ( Start time: 11:26:06 PM ) Total Marks: 1Which of the following would express the negative net worth of a firm?Select correct option:

Experiencing a business failureIn legal bankruptcyExperiencing technical insolvencyExperiencing accounting insolvency

Question # 12 of 15 ( Start time: 11:26:14 PM ) Total Marks: 1What is potentially the biggest advantage of a small partnership over a soleproprietorship?Select correct option:

Unlimited liabilitySingle tax filingDifficult ownership resaleRaising capital

Question # 13 of 15 ( Start time: 11:26:33 PM ) Total Marks: 1Which 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 structureThe market value of a firm's debt is independent of its capital structureThe market value of any firm is independent of its capital structureNone of the given options

Question # 14 of 15 ( Start time: 11:26:50 PM ) Total Marks: 1Which of the following is the cash required during a specific period to meet interest




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expenses and principal payments?Select correct option:




Question # 1 of 15 ( Start time: 11:30:39 PM ) Total Marks: 1Why a single, overall cost of capital is often used to evaluate projects?Select correct option:

It avoids the problem of computing the required rate of return for each investmentProposalIt is the only way to measure a firm's required returnIt acknowledges that most new investment projects have about the same degree of riskIt acknowledges that most new investment projects offer about the same expected return

Question # 2 of 15 ( Start time: 11:30:54 PM ) Total Marks: 1Which of the followings expressed the proposition that the value of the firm isindependent of its capital structure?Select correct option:

The Capital Asset Pricing ModelM&M Proposition IM&M Proposition IIThe Law of One Price

Question # 3 of 15 ( Start time: 11:31:10 PM ) Total Marks: 1The RBS pays 5.60%, compounded daily (based on 360 days), on a 9-month certificate ofdeposit, if you deposit Rs.20, 000 you would expect to earn around __________ ininterest.Select correct option:




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Rs.840Rs.858Rs.1,032Rs.1,121

Question # 4 of 15 ( Start time: 11:31:28 PM ) Total Marks: 1An annuity due is always worth _____ a comparable annuity.Select correct option:

Less thanMore thanEqual toCan not be found from the given information

Question # 5 of 15 ( Start time: 11:31:35 PM ) Total Marks: 1Which of the following should be included while calculating the cash flows associatedwith a project?Select correct option:

Cash flows at the time of investmentCash flows during the life of projectCash flows at the termination dateAll of the given options

Question # 6 of 15 ( Start time: 11:31:42 PM ) Total Marks: 1A set of possible values that a random variable can assume and their associatedprobabilities of occurrence are referred to as __________.Select correct option:

Probability distributionThe expected returnThe standard deviationCoefficient of variation

Question # 7 of 15 ( Start time: 11:31:59 PM ) Total Marks: 1Which if the following is (are) true? I. The dividend growth model holds if, at some pointin time, the dividend growth rate exceeds the stock’s required return. II. A decrease in thedividend growth rate will increase a stock’s market value, all else the same. III. Anincrease in the required return on a stock will decrease its market value, all else the same.Select correct option:

I, II, and IIII only




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III onlyII and III only

Question # 8 of 15 ( Start time: 11:32:16 PM ) Total Marks: 1What is difference between shares and bonds?Select correct option:

Bonds are representing ownership whereas shares are notShares are representing ownership whereas bonds are notShares and bonds both represent equityShares and bond both represent liabilities

Question # 9 of 15 ( Start time: 11:32:24 PM ) Total Marks: 1The value of a bond is directly derived from which of the following?Select correct option:

Cash flowsCoupon receiptsPar recovery at maturityAll of the given options

Question # 10 of 15 ( Start time: 11:32:40 PM ) Total Marks: 1You are considering two investment proposals, project A and project B. B's expected netpresent value is Rs. 1,000 greater than that for A and A's dispersion of net present valueis less than that for B. On the basis of risk and return, what would be your conclusion?Select correct option:

Project A dominates project BProject B dominates project ANeither project dominates the other in terms of risk and returnIncomplete information

Question # 11 of 15 ( Start time: 11:32:55 PM ) Total Marks: 1The value of the bond is NOT directly tied to the value of which of the following assets?Select correct option:

Real assets of the businessLiquid assets of the businessFixed assets of the businessLong term assets of the business

Question # 12 of 15 ( Start time: 11:33:12 PM ) Total Marks: 1When the zero coupon bond approaches to its maturity, the market value of the bond




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approaches to which of the following?Select correct option:

Intrinsic valueBook valuePar valueHistoric cost





Question # 15 of 15 ( Start time: 11:33:44 PM ) Total Marks: 1The DuPont Approach breaks down the earning power on shareholders' book value(ROE) as follows: ROE = __________.Select correct option:

Net profit margin × Total asset turnover × Equity multiplierTotal asset turnover × Gross profit margin × Debt ratioTotal asset turnover × Net profit marginTotal asset turnover × Gross profit margin × Equity multiplier

Question # 1 of 15 ( Start time: 11:37:37 PM ) Total Marks: 1How 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




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Both represent the security’s annual income divided by its priceBoth are an accurate representation of the total annual return an investor can expect to

earn by owning the securityBoth are quarterly yields that must be annualized

Question # 2 of 15 ( Start time: 11:37:59 PM ) Total Marks: 1Which of the following shows ALL possible Risk –Return combinations for Allcombinations of the stocks in the portfolio- whether efficient or not.Select correct option:

Parachute graphCapital market lineSecurity market lineAll of the given options

Question # 3 of 15 ( Start time: 11:38:18 PM ) Total Marks: 1Which of the following could NOT be defined as the capital structure of the Company?Select correct option:

The firm's mix of Assets and liabilitiesThe firm's common stocks onlyThe firm's debt-equity ratioAll of the given options

Question # 4 of 15 ( Start time: 11:38:41 PM ) Total Marks: 1When bonds are issued, under which of the following category the value of the bondappears?Select correct option:

EquityFixed assetsShort term loanLong term loan






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Question # 6 of 15 ( Start time: 11:39:20 PM ) Total Marks: 1The overall (weighted average) cost of capital is composed of weighted averages ofwhich of the following?Select correct option:

The cost of common equity and the cost of debtThe cost of common equity and the cost of preferred stockThe cost of preferred stock and the cost of debtThe cost of common equity, the cost of preferred stock, and the cost of debt

Question # 7 of 15 ( Start time: 11:39:44 PM ) Total Marks: 1The stock in your portfolio was selling for Rs.40 per share yesterday, but has todaydeclared 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 eachThere will be four times as many shares outstanding, and they will sell for Rs.160.00

eachThere will be 50 percent more shares outstanding and they will sell for Rs.26.67 eachThere will be one-and-one-half times as many shares outstanding, and they will sell for

Rs.60.00 each

Question # 8 of 15 ( Start time: 11:39:50 PM ) Total Marks: 1Which of the following is the main objective of ‘Financial Accounting’?Select correct option:

Profit maximizationMaximization of shareholders wealthTo collect accurate, systematic, and timely financial dataAll of the given options







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Which of the following can be used to calculate the risk of the larger portfolio?Select correct option:

Standard deviationEPS approachMatrix approachGordon’s Approach

Question # 11 of 15 ( Start time: 11:40:48 PM ) Total Marks: 1An arbitrage opportunity exists if an investor can construct a __________ investmentportfolio that will yield a sure profit.Select correct option:

PositiveNegativeZeroAll of the above

Question # 12 of 15 ( Start time: 11:40:55 PM ) Total Marks: 1Which of the following refers to the risk associated with interest rate uncertainty?Select correct option:


Question # 13 of 15 ( Start time: 11:41:12 PM ) Total Marks: 1For Company A, plow back ratio is 30%. What will be its Pay-out ratio?Select correct option:

3.33%30%31%70%

Question # 14 of 15 ( Start time: 11:41:20 PM ) Total Marks: 1If Net Present Value technique is used, what is the minimum acceptance criterion for aproject?Select correct option:

NPV<0NPV=0




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NPV>0NPV<=0



composed & solved hafiz salman majeed vu askari … · it neglects cash flows after the payback...

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