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1 to 62mcqs                    =62 marks

63 to 65 subjective=3*3 =9marks

66to 69 subjective=5*4 =20marks

Total paper 91 marks

 

 

 

1.The time between sale of inventory and collection of receivable.

a account receivable

b operation cycle

c inventory period

d none of above

 

2. allow a bank to substitute its creditworthiness for the customer, for a fee is called___________-

 

a open bank account

b commercial draft

c promisory note

d  banker accetptance

 

3.Standard deviations for Investment A and Investment B are 25% and 12% respectively. This indicates that :
Select correct option:
Investment A is less volatile than Investment B
Investment B is equally volatile to Investment A
Investment A is more volatile than Investment B
Investment B is more volatile than Investment A

 

4. find the average 2%,5%,6%,8%

a 5%

b 5.25 %

c 6%

d 8%

 

5 what is standard deviation of thise averages 2%,5%, 7%

6.As the dividend is always same for a zero growth stock, so the stock can also be viewed as

7.Which of the following statement shows revenue, expense, and net worth as of a specific date?

a balance sheet

b income statement

c cashflow

d none of above

8. which of the following character is not a systematic risk

market risk

interest risk

inflation risk

strike call in a company

9.  A company has a two director and 1 shareholder which hav 25 power of share the voter for director is

a 100

b150

c50

d25

 

10.An investment will be _________ if the IRR doesn’t exceeds the required return and _________ otherwise.
Select correct option:
Accepted; rejected
Accepted; accepted
Rejected; rejected
Rejected; accepted

 

11. Which of the following is the overall return the firm must earn on its existing assets to maintain the value of the stock?
Select correct option:
IRR (Internal Rate of Return)
MIRR (Modified Internal Rate of Return)
WACC (Weighted Average Cost of Capital)
AAR (Average Accounting Return)

 

12. Which of the following is the return that firm’s creditors demand on new borrowings ?
Select correct option:
Cost of debt
Cost of preferred stock
Cost of common equity
Cost of retained earnings

 

13.In which type of projects, the unequal lives of the projects do affect the analysis ?
Select correct option:
Mutually exclusive
Dependent
Independent
Correlated

 

14.Mr. Naveed has bought 100 shares of a corporation one year ago at Rs. 23 per share. Over the last year, he received a dividend of Rs. 1.50 per share. At the end of the year, the stock sells for Rs. 31. As per given information, what will be his total percentage return ?
Select correct option:
10.63%
20.20%
35.12%
41.30%

 

15.Which of the following is known as the group of assets such as stocks and bonds held by an investor ?
Select correct option:
Stock Bundle
Portfolio
Capital Structure
None of the given options

 

16. Suppose the initial investment for a project is Rs. 16 million and the cash flows are Rs. 4 million in the first year and Rs. 9 million in the second and Rs. 5 million in the third. The project will have a payback period of:
Select correct option:
2.6 Years
3.1 Years
3.7 Years
4.1 Years

 

17. find the cash cycle  inventory period is 38 days account payabel period is 50 days and average accoun receivable period is 30 days

a.68

b 18

c 80

d 118

 

 

 

 

 

 

 

 

 

 

Question 63= operating cash flow of Rs. 200,000. Net working capital has

decreased by Rs. 50,000 and there is a net capital spending of Rs. 0 during the year. Calculate total cash flow. (3marks)

Solution:

Total cash flow=200000-(-50000)

toal cash flow =250,000

 

Question 64= snk company find the profitability index  dividend 2 and price= 200 (3marks)

solution= 2/200=0.01=1answer

 

question 65=3marks

 

question 66= define systematic risk and unsystematic risk and also define which risk is eliminated by diversification 5 marks

 

Quesion 67= which issue cover in finance and investment area 5marks

questin 68= credit policy and its component 5makrs

question 69= define optimal policy 5marks

 

 

 

          

 

 

   FINALTERM  EXAMINATION   

Fall 2008

ACC501- Business Finance (Session - 1) 

 Marks: 81 

 

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

 

 Which of the following is the difference between current assets and current

liabilities?  

 

 Surplus Asset           

 Short-term Ratio           

 

 Working Capital           

 Current Ratio            

 

Question No: 2      ( Marks: 1 ) - Please choose one

 

 Which of the following statement is considered as the summary of the effect of

revenues and expenses over a period of time?  

 

 Income Statement           

 Balance Sheet           

 

 Cash Flow Statement           

 Retained Earning Statement            

 

Question No: 3      ( Marks: 1 ) - Please choose one

 

 If  sales  r even u e  was  Rs.  10 0 , 0 0 0 ,  acco un ts  r eceivab le  d ecr eased  b y  R s.  4 ,0 0 0,

and inventory increased by Rs. 3,000, cash received from customers would be:  

 

 Rs. 107,000           

 

 Rs. 104,000           

 Rs. 101,000           

 

 Rs. 93,000          

 

          

 

 

 

Question No: 4      ( Marks: 1 ) - Please choose one

 

 Which of the following statement is the best representative of vertical analysis?  

 

 Vertical analysis in the income statement causes all accounts to be related          

as a percentage of net income. 

 

 Vertical analysis in the balance sheet causes all accounts to be related as a          

percentage of total assets. 

 Percentages used in vertical analysis make identifying trends difficult.           

 

 Percentages can be used in the balance sheet without being associated with          

the numbers they represent.  

 

Question No: 5      ( Marks: 1 ) - Please choose one

 

 Kamr an  ju st  wo n  a  lotter y and  wan t  to  p ut  some  mo ney away so th at  h e  will  have

Rs.  75,0 0 0  for  h is  ch ild s  sch o ol  ed ucation  18  year s  fro m  n o w.  He  can  earn  7. 5

percent compounded annually. How much does he need to invest today?  

 

 Rs. 15,763           

 

 Rs. 17,271           

 Rs. 18,980           

 

 Rs. 20,404            

 

Question No: 6      ( Marks: 1 ) - Please choose one

 

 You  n eed  Rs.  2,0 0 0  to b u y  a  new DVD p layer  fo r  yo ur  car.  If you  h ave R s. 8 0 0  to

in vest  at  5  per cent  co mp ou n ded  an n u ally,  h ow  lon g will  you  h ave  to  wait  to  bu y

the DVD player?  

 

 8.42 years           

 14.58 years           

 

 15.75 years           

 18.78 years          

 

 

 

 

 

 

Question No: 7      ( Marks: 1 ) - Please choose one

 

 How much must be deposited at 15% each of the next 7 years to have Rs. 4,565?  

 

 Rs. 452.75           

 Rs. 570.50           

 

 Rs. 350.20           

 Rs. 412.50            

 

Question No: 8      ( Marks: 1 ) - Please choose one

 

 Wh at  amou n t  a  bo rr ower  wo uld  p ay at  the  en d  o f seco n d  year  with  a 4 -year,  12%,

interest- only loan of Rs. 3,000?  

 

 Rs. 360           

 

 Rs. 2,000           

 Rs. 3,000           

 

 Rs. 3,360            

 

Question No: 9      ( Marks: 1 ) - Please choose one

 

 Wh ich  of  th e  followin g  is  th e  exp ected  r ate  of  r etur n  o n  a  bo nd  if  bou gh t  at  its

current market price and held to maturity?  

 

 Current Yield           

 

 Yield To Maturity           

 Coupon Yield           

 

 Capital Gains Yield            

 

Question No: 10      ( Marks: 1 ) - Please choose one

 

 

Th e  p r ice  o f  a  R s.  1,0 0 0 -face  value  b on d  is  Rs.  1,0 0 0 .  Wh at  will  be  th e  yield  to

maturity if there is a coupon payment of Rs. 80 for 6 years?  

 

 Greater than 8%           

 Lower than 8%           

 

 Equal to 8%           

 

 Cannot be determined without more information            

 

Question No: 11      ( Marks: 1 ) - Please choose one

 

 Wh ich  of  th e  followin g  sh or t- ter m  r atin g  b y  PACRA  den otes  an  in adequ ate

capacity to ensure timely repayment?  

 

 A           

 

 B           

 C           

 

 D            

 

Question No: 12      ( Marks: 1 ) - Please choose one

 

 Wh ich  o ne  of  th e  fo llo win g  st atemen ts  is  I NCORRECT  r egar din g  zero  cou po n

bonds?  

 

 Zero coupon bonds pay no interest at all.           

 

 Zero coupon bonds are offered at a price that is much lower than its stated          

value. 

 

 The issuer of a zero coupon bond deducts interest every year because          

interest is actually paid every year. 

 

 The issuer of a zero coupon bond deducts interest every year even though          

interest is not actually paid every year.  

 

Question No: 13      ( Marks: 1 ) - Please choose one

 

          

 

 

An investment should be accepted if the net present value is __________ and

rejected if it is ________.  

 

 Positive; positive           

 

 Positive; negative           

 

 Negative; negative           

 

 Negative; positive            

 

Question No: 14      ( Marks: 1 ) - Please choose one

 

 An investment is acceptable if its calculated payback period is _________ than/to

some specified number of years.  

 

 

 More           

 

 Less           

 

 Equal           

 

 None of the given options            

 

Question No: 15      ( Marks: 1 ) - Please choose one

 

 The rate at which NPV equals to zero is called :  

 

 Average Accounting Return (AAR)           

 

 Internal Rate of Return (IRR)           

 

 Required Rate of Return (RRR)           

 

 Weighted Average Cost of Capital (WACC)            

 

Question No: 16      ( Marks: 1 ) - Please choose one

 

 A project whose acceptance prevents the acceptance of one or more alternative

projects is referred to as: 

 

          

 A mutually exclusive project           

 

 An independent project           

 

 A dependent project           

 

 A contingent project            

 

Question No: 17      ( Marks: 1 ) - Please choose one

 

 ___________ Cost is an outlay that has already occurred and hence is not affected

by the decision under consideration.  

 

 Sunk           

 

 Opportunity           

 

 Fixed           

 

 Variable            

 

Question No: 18      ( Marks: 1 ) - Please choose one

 

 ___________ Cost refers to the cash flows that could be generated from an asset

the firm already owns provided it is not used for the project in question.  

 

 Sunk           

 

 Opportunity           

 

 Fixed           

 

 Variable            

 

Question No: 19      ( Marks: 1 ) - Please choose one

 

 If two projects are _______________, the fact that they have unequal lives will not

affect the analysis.  

 

 Mutually exclusive          

 

          

 Dependent           

 

 Independent           

 

 Correlated            

 

Question No: 20      ( Marks: 1 ) - Please choose one

 

 Mr. A, as a financial consultant, has prepared a feasibility report of a project for

XYZ Company that the company is planning to undertake. He has suggested that

the project is feasible. The consultancy fee paid to Mr. A will be considered as:  

 

 Sunk cost           

 

 Opportunity cost           

 

 Both sunk cost and opportunity cost           

 

 Neither sunk cost nor opportunity cost            

 

Question No: 21      ( Marks: 1 ) - Please choose one

 

 Which one of the following is TRUE about the difference between debt and

common stock?  

 

 Debt is ownership but equity is not           

 

 Creditors have voting power while stockholders do not           

 

 Interest payments are promised while dividend payments are not           

 

 Both stockholders and bondholders have voting privileges            

 

Question No: 22      ( Marks: 1 ) - Please choose one

 

 Which one of the following typically applies to preferred stock but not to

common stock?  

 

 Dividend yield           

 

 Cumulative dividends           

 

 Voting rights           

 

 Tax deductible dividends            

 

Question No: 23      ( Marks: 1 ) - Please choose one

 

 Which of the following statement is INCORRECT regarding Average Accounting

Return?  

 

 AAR is a rate that makes the NPV equal to zero           

 

 AAR is a measure of accounting profit relative to book value           

 

 An investment is acceptable if its AAR is greater than a benchmark AAR           

 

 None of the given options            

 

Question No: 24      ( Marks: 1 ) - Please choose one

 

 According to 2  M&M proposition, cost of equity does NOT depend upon  nd

which of the following ?  

 

 Th e r eq u ir ed  r etu rn  of fir m s assets           

 

 Th e fir m s cost  of d eb t           

 

 Th e fir m s stockh old er s           

 

 Th e fir m s d eb t-equity ratio            

 

Question No: 25      ( Marks: 1 ) - Please choose one

 

 Which of the following terms refer to the difference between the current assets

and the current liabilities ?  

 

 

 Net difference           

 

 Net working capital           

 

 Current ratio           

 

 Net available capital            

 

Question No: 26      ( Marks: 1 ) - Please choose one

 

 Which of the following statement is NOT correct regarding EDI (Electronic Data

Interchange) ?  

 

 EDI electronically transfers financial information and funds between          

parties 

 

 EDI shortens the length of time required to initiate and complete a          

business transaction 

 

 EDI works best with paper invoices and paper cheques           

 

 EDI reduces or even eliminates the float             

 

Question No: 27      ( Marks: 1 ) - Please choose one

 

 Which of the following model is considered as the best approach to explicitly

establish an optimal inventory level ?  

 

 Dividend growth model           

 

 Capital asset pricing model           

 

 Economic order quantity model           

 

 None of the given options            

 

Question No: 28      ( Marks: 1 ) - Please choose one

 

 Unsystematic Risk is also known as :  

 

 Diversifiable Risk           

 

 Market Risk           

 

 Non-diversifiable Risk          

 

 None of the given options            

 

Question No: 29      ( Marks: 1 ) - Please choose one

 

 Which of the following is an example of unsystematic risk ?  

 

 Increasing Recession           

 

 Rise in Interest Rate           

 

 Rise in Inflation           

 

 Strike call in a company            

 

Question No: 30      ( Marks: 1 ) - Please choose one

 

 Total portfolio risk is equal to :  

 

 Systematic risk plus diversifiable risk           

 

 Unsystematic risk plus non-diversifiable risk           

 

 Market risk plus unsystematic risk           

 

 All of the given options            

 

Question No: 31      ( Marks: 1 ) - Please choose one

 

 Which of the following type of risk is essentially eliminated by diversification ?  

 

 Systematic Risk           

 

 Market Risk           

 

 Unsystematic Risk           

 

 None of the given options            

 

Question No: 32      ( Marks: 1 ) - Please choose one

 

          

 

What will be the risk premium for a stock that has an expected return rate of 15%

and a risk-free rate of 9% ?  

 

 6 %           

 

 9 %           

 

 15 %           

 

 24 %            

 

Question No: 33      ( Marks: 1 ) - Please choose one

 

 Which of the following is referred as a statistical measure of the variability of a

distribution around its mean ?  

 

 

 Probability distribution           

 

 The expected return           

 

 The standard deviation           

 

 Coefficient of variation            

 

Question No: 34      ( Marks: 1 ) - Please choose one

 

 The MC Inc. purchased a share of common stock exactly one year ago for Rs. 45.

During the past year the common stock paid an annual dividend of Rs. 2.40. The

firm sold the stock today for Rs. 80. What is the rate of return the firm has

earned?  

 

 5.3%           

 

 194.2%           

 

 83.11%           

 

 94.2%            

 

Question No: 35      ( Marks: 1 ) - Please choose one

 

Th e to tal mar ket  v alu e  of a  comp an y s  stock s  is  calcu lated  as  Rs.  250  millio n  an d

th e  total  mar ket  v alu e  of  th e  co mp an y s  d eb t  ar e  calcu lated  as  Rs.  150  million .

Wh at  p er cent of th e firm s  fin ancin g is d eb t ?  

 

 37.50%           

 

 50.00%           

 

 62.50%           

 

 70.00%            

 

Question No: 36      ( Marks: 1 ) - Please choose one

 

 If  th e  bo ok  v alu e  exceed s  th e  mar ket  v alu e,  th en  th e  d iffer en ce  is  tr eated  as  a

_________ for tax purposes.  

 

 Profit           

 

 Loss           

 

 Surplus            

 

 None of the given options           

 

Question No: 37      ( Marks: 1 ) - Please choose one

 

 Mark et  v alu e  exceed s  b ook  valu e  b y  Rs.  150,000.  Wh at  will  b e  th e  after-tax

proceeds if there is a tax rate of 35 percent ?  

 

 Rs. 97,500           

 

 Rs. 105,600           

 

 Rs. 115,000           

 

 Rs. 150,000            

 

Question No: 38      ( Marks: 1 ) - Please choose one

 

 The cost of common equity for a firm is:

 

 The required rate of return on the company's stock           

 

 The yield to maturity on the bond            

 

 The risk-free rate          

 

 The market risk premium            

 

Question No: 39      ( Marks: 1 ) - Please choose one

 

 Th e b oo k  valu e  of a  sy stem  is  Rs.  30,220 at  th e  en d  of y ear  4  of its  life. Wh at  will

be  th e  total  after-tax  cash  flo w  from  sale  if  w e  sell  th is  system  for  Rs.  15,000  at

this time? (Tax rate is 35%)  

 

 Rs. 15,000           

 

 Rs. 15,220           

 

 Rs. 20,327           

 

 Rs. 45,220            

 

Question No: 40      ( Marks: 1 ) - Please choose one

 

 Fou r  years  ago,  Mr.  Ajmal  p u rchased  a  car  for  Rs. 300,000.  N ow  h e  w ants  to  sell

his  car .  Based  o n  histor ical  av erages, h is car  w or th  25% o f  th e  p u r chase p r ice an d

he  sells  h is  car  at  th is  p rice.  Wh at  w ou ld  b e  h is  tax  liability  if  th e  d ep reciation

schedule shows a book value of Rs. 27,250 for the car ? (Tax rate is 35%)  

 

 Rs. 14,875.75           

 

 Rs. 16,712.50           

 

 Rs. 25,000.00           

 

 Rs. 62,500.25            

 

Question No: 41      ( Marks: 1 ) - Please choose one

 

 

Miss N ad ia  p u r ch ased  a  car  for  Rs. 500,000. Based  on  h isto rical av er ages, this  car

is w or th  30%  of th e  p u r ch ase p r ice  no w  and  it is  b eing  so ld  at  th is  p r ice. What is

th e  car s m ark et  v alu e ?  

 

 Rs. 51,875           

 

 Rs. 112,500           

 

 Rs. 150,000           

 

 Rs. 350,000            

 

Question No: 42      ( Marks: 1 ) - Please choose one

 

 Lever age  is  co nsid er ed  b en eficial  w hen  co mp an y s  EBIT  is  r elatively

_____________.  

 

 High           

 

 Low           

 

 Zero           

 

 None of the given options            

 

Question No: 43      ( Marks: 3 )

 

 Write down the property classes for MACRS method of depreciation.  

 

 

Question No: 44      ( Marks: 3 )

 

 Write down the primary shortcomings of payback period rule.  

 

 

Question No: 45      ( Marks: 3 )

 

 Define EDI (Electronic Data Interchange) and write down its advantages briefly. 

 

Question No: 46      ( Marks: 5 )

 

 What is the difference between temporary current assets and permanent current

assets?

 

 

Question No: 47      ( Marks: 5 )

 

 If  yo u  h ave  a  p or tfolio  th at  is  wo rth  Rs. 200,000 con sistin g  of th ree  stock s  A, B, C

an d  D.  Assu me  y ou  hav e  d iv id ed  y ou  in vestment  eq u ally  in  these  fou r  stock s.

Exp ected  r etu r n s  on  Stock s  A,  B,  C  an d  D  ar e  20%,  25%,  15%  an d  12%

respectively. Calculate the portfolio expected return. 

 

Question No: 48      ( Marks: 10 )

 

 SNT & Co. has the following Target capital structure : 

 

Debentures   =   Rs. 5.00 Billion

Preferred shares   =   Rs. 2.65 Billion

Common shares   =  Rs. 9.35 Billion 

 

Total     =   Rs. 17 Billion       

 

Bonds carry an interest rate of 11.5%. Common stocks and Preferred stocks have

a return of 15.50 % and 12% respectively and corporate tax rate is 40%. Compute

the present Weighted Average Cost of Capital (WACC) for SNT & Co.  

 

 

Question No: 49      ( Marks: 10 )

 

 Stan d ar d  Man u factu r in g  Com pan y  (SMC)  need s  on e  o f  tw o  m achin es.  Mach in e

X costs Rs.  25,000 an d  h as  cash  flow s  o f Rs. 8,000  a  y ear  for  six  y ear s. Mach in e  Y

costs  Rs.  30,000  and  h as  cash  flow s  Rs.  7,000  a  y ear  fo r  six  years.  SMC  has  12%

cost  of  cap ital.  Calcu late  each  mach in e s  Payb ack  Period  an d  N PV  (N et  Pr esen t

Value) and evaluate the results. 

 

 

 

 

FINALTERM  EXAMINATION

Fall 2008

ACC501- Business Finance (Session - 1)

Marks: 81

 

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

 

The accounting definition of income is:

 

Income = Current Assets   Current Liabilities

 

Income = Fixed Assets   Current Assets

Income = Revenues   Current Liabilities

 

Income = Revenues   Expenses

 

Question No: 2      ( Marks: 1 ) - Please choose one

 

Wh at  wou ld  be th e  cap ital  sp en d in g for  an  o r gan ization  wh o  has  pu r ch ased  fixed

assets of Rs. 200,000 and sold fixed assets of Rs. 45,000?

 

Rs. 245,000

Rs. 200,000

 

Rs. 155,000

Rs. 45,000

 

Question No: 3      ( Marks: 1 ) - Please choose one

 

Selected information from SNT Company's accounting records is as follows:

o   Cash paid to retired common shares Rs. 15,000

o   Proceeds from issuance of preferred shares Rs. 20,000

o   Cash dividends paid Rs. 8,000

o   Proceeds from sale of equipment Rs. 25,000

On its cash flow statement for the year, SNT Company should report net cash

flow from financing activities as:

 

Rs. 3,000 net cash inflow

 

Rs. 3,000 net cash outflow

 

Rs. 8,000 net cash inflow

Rs. 8,000 net cash inflow

 

Question No: 4      ( Marks: 1 ) - Please choose one

 

SNT  Co mp any  h as  a  cu rr en t  r atio  o f  3 :2 .  Cu rr en t  Liabilities  r epo rted  b y  th e

com pan y  ar e  Rs.  3 0 ,0 0 0 .  Wh at  wo uld  b e  the  Net  Wo rk in g  Cap ital  for  th e

company?

 

Rs. 45,000

 

Rs. 15,000

( Rs. 45,000)

 

( Rs. 15,000)

 

Question No: 5      ( Marks: 1 ) - Please choose one

 

Which of the following would not improve the current ratio?

 

Borrow short-term to finance additional fixed assets

 

Issue long-term debt to buy inventory

Sell common stock to reduce current liabilities

 

Sell fixed assets to reduce accounts payable

 

Question No: 6      ( Marks: 1 ) - Please choose one

 

Which of the following are incorporated into the calculation of the Du- Pont

Identity?

I.     Return on assets

II.   Equity Multiplier

III. Total Assets Turnover

IV.  Profit Margin

 

I, II, and III only

 

I, III, and IV only

II, III and IV only

I, II, III, and IV

 

Question No: 7      ( Marks: 1 ) - Please choose one

 

The concepts of present value and future value are:

 

Directly related to each other

Not related to each other

 

Proportionately related to each other

Inversely related to each other

 

Question No: 8      ( Marks: 1 ) - Please choose one

 

Which of the following is a special case of annuity, where the stream of cash flows

continues forever?

 

Special Annuity

Ordinary Annuity

 

Annuity Due

 

Perpetuity

 

Question No: 9      ( Marks: 1 ) - Please choose one

 

Wh ich  of  th e  followin g  is  an  u n secur ed  bo nd  fo r  wh ich  n o  s pecific  p led ge  of

property is made?

 

Mortgage

 

Debenture

Collateral

 

Note Payable

 

Question No: 10      ( Marks: 1 ) - Please choose one

 

Wh ich  of  th e  followin g  typ e  of  retu r n  r efer s  to  th e  per cen tage  ch ange  in  th e

amount of money you have?

 

Nominal return

 

Real return

 

Inflation return

None of the given option

 

Question No: 11      ( Marks: 1 ) - Please choose one

 

When real rate is _____, all interest rates will tend to be _____.

 

Low; higher

 

High; lower

 

High; higher

None of the given options

 

Question No: 12      ( Marks: 1 ) - Please choose one

 

Wh ich  o f the followin g is  th e extr a  yield  th at in vesto rs  deman d  on  a  taxable b on d

as a compensation for the unfavorable tax treatment?

 

Interest rate risk premium

Inflation risk premium

 

Default risk premium

Taxability premium

 

Question No: 13      ( Marks: 1 ) - Please choose one

 

In which type of the market, previously issued securities are traded among

investors ?

 

Primary Market

 

Secondary Market

 

Tertiary Market

 

None of the given options

 

Question No: 14      ( Marks: 1 ) - Please choose one

 

Place the following items in the proper order of completion regarding the capital

budgeting process.

(I)    Perform a post-audit for completed projects;

(II)   Generate project proposals;

(III) Estimate appropriate cash flows;

(IV) Select value-maximizing projects;

(V)  Evaluate projects.

 

II, V, III, IV, and I

 

III, II, V, IV, and I

 

II, III, V, IV, and I

 

II, III, IV, V, and I

 

Question No: 15      ( Marks: 1 ) - Please choose one

 

An in vestmen t  w ill be  ___________ if th e IRR d oesn t exceed s th e r equ ired return

and ___________ otherwise.

 

Accepted; rejected

 

Accepted; accepted

 

Rejected; rejected

 

Rejected; accepted

 

Question No: 16      ( Marks: 1 ) - Please choose one

 

IRR and NPV rules always lead to identical decisions as long as :

 

Cash flows are conventional

 

Cash flows are independent

 

Cash flows are both conventional and independent

 

None of the given options

 

Question No: 17      ( Marks: 1 ) - Please choose one

 

A project whose acceptance does not prevent or require the acceptance of one or

more alternative projects is referred to as :

 

A mutually exclusive project

 

An independent project

 

A dependent project

 

A contingent project

 

Question No: 18      ( Marks: 1 ) - Please choose one

 

Finding Net Present Value comes under which type of capital budgeting criteria

?

 

Discounted Cash Flow Criteria

 

Accounting Criteria

 

Payback Criteria

 

None of the given options

 

Question No: 19      ( Marks: 1 ) - Please choose one

 

___________ Cost is an outlay that has already occurred and hence is not affected

by the decision under consideration.

 

Sunk

 

Opportunity

 

Fixed

 

Variable

 

Question No: 20      ( Marks: 1 ) - Please choose one

 

Which of the following is the overall return the firm must earn on its existing

assets to maintain the value of the stock ?

 

WACC (Weighted Average Cost of Capital)

 

AAR (Average Accounting Return)

 

IRR (Internal Rate of Return)

 

MIRR (Modified Internal Rate of Return)

 

Question No: 21      ( Marks: 1 ) - Please choose one

 

Mr. A, as a financial consultant, has prepared a feasibility report of a project for

XYZ Company that the company is planning to undertake. He has suggested that

the project is feasible. The consultancy fee paid to Mr. A will be considered as:

 

Sunk cost

 

Opportunity cost

 

Both sunk cost and opportunity cost

 

Neither sunk cost nor opportunity cost

 

Question No: 22      ( Marks: 1 ) - Please choose one

 

The current price of SNT stock is Rs. 50. Dividends are expected to grow at 7

percent indefinitely and the most current dividend was Rs. 1.00. What is the

required rate of return on SNT stock?

 

9.00 percent

 

9.14 percent

 

9.33 percent

 

10.65 percent

 

Question No: 23      ( Marks: 1 ) - Please choose one

 

Which of the following are rights of an owner of a share of common stock for

firm which has no preferred share?

 

The right to vote for directors

 

The right to share proportionately in dividend paid

 

The right to vote on stockholder matters of great importance

 

All of the given options

 

Question No: 24      ( Marks: 1 ) - Please choose one

 

Which one of the following typically applies to preferred stock but not to

common stock?

 

Dividend yield

 

Cumulative dividends

 

Voting rights

 

Tax deductible dividends

 

Question No: 25      ( Marks: 1 ) - Please choose one

 

You must own which of the following to vote against a merger proposal from

another corporation?

 

Preferred share

 

A debenture

 

Common stock

 

Cumulative dividend stock

 

Question No: 26      ( Marks: 1 ) - Please choose one

 

Which of the following strategy belongs to flexible policy regarding size of

investments in current assets ?

 

To maintain a high ratio of current assets to sales

 

To maintain a low ratio of current assets to sales

 

To maintain less short-term debt and more long-term debt

 

To maintain more short-term debt and less long-term debt

 

Question No: 27      ( Marks: 1 ) - Please choose one

 

Which of the following strategy belongs to flexible policy regarding financing of

current assets ?

 

To maintain a high ratio of current assets to sales

 

To maintain a low ratio of current assets to sales

 

To maintain less short-term debt and more long-term debt

 

To maintain more short-term debt and less long-term debt

 

Question No: 28      ( Marks: 1 ) - Please choose one

 

Suppose you have Rs. 10,000 on deposit. One day, you write a cheque for Rs.

2,000 and deposit Rs. 4,000. What is your collection float ?

 

Rs. 4,000

 

+ Rs. 2,000

Rs. 2,000

 

+ Rs. 4,000

 

Question No: 29      ( Marks: 1 ) - Please choose one

 

Suppose you have Rs. 10,000 on deposit. One day, you write a cheque for Rs.

2,000 and deposit Rs. 4,000. What is your net float ?

 

Rs. 4,000

 

+ Rs. 2,000

 

Rs. 2,000

 

+ Rs. 4,000

 

Question No: 30      ( Marks: 1 ) - Please choose one

 

Which of the following is known as the group of assets such as stocks and bonds

held by an investor ?

 

Stock Bundle

 

Portfolio

 

Capital Structure

 

None of the given options

 

Question No: 31      ( Marks: 1 ) - Please choose one

 

Which of the following is referred as the ratio of the standard deviation of a

distribution to the mean of that distribution ?

 

Probability distribution

 

The expected return

 

The standard deviation

 

Coefficient of variation

 

Question No: 32      ( Marks: 1 ) - Please choose one

 

The MC Inc. purchased a share of common stock exactly one year ago for Rs. 45.

During the past year the common stock paid an annual dividend of Rs. 2.40. The

firm sold the stock today for Rs. 80. What is the rate of return the firm has

earned?

 

5.3%

 

194.2%

 

83.11%

 

94.2%

 

Question No: 33      ( Marks: 1 ) - Please choose one

 

Mr. Sami has bought 50 shares of a corporation one year ago at Rs. 20 per share.

Over the last year, he received a dividend of Rs. 2 per share. At the end of the

year, the stock sells for Rs. 25. As per given information, what will be his total

percentage return ?

 

10 %

 

20 %

 

35 %

 

45 %

 

Question No: 34      ( Marks: 1 ) - Please choose one

 

Wh ile  p erfo rm in g  the  feasib ility  an alysis  fo r  a  p r oject, an  o p er atin g  cash  flow  of

Rs.  225,000  h as  b een  calcu lated .  N et  w ork in g  cap ital  h as  d eclin ed  b y  Rs.  40,000.

Th er e  was a  n et  cap ital sp en d in g  of Rs. 100,000 d u r in g  the y ear . What  w ill b e  th e

total cash flow for the project?

 

Rs. 85,000

 

Rs. 165,000

 

Rs. 285,000

 

Rs. 365,000

 

Question No: 35      ( Marks: 1 ) - Please choose one

 

Th e to tal mar ket  v alu e  of a  comp an y s  stock s  is  calcu lated  as  Rs.  250  millio n  an d

th e  total  mar ket  v alu e  of  th e  co mp an y s  d eb t  ar e  calcu lated  as  Rs.  150  million .

Wh at  p er cent of th e firm s  fin ancin g is d eb t ?

 

37.50%

 

50.00%

 

62.50%

 

70.00%

 

Question No: 36      ( Marks: 1 ) - Please choose one

 

Su p p ose  a  fir m  b or ro w s  Rs.  800,000 at  7%. Wh at  w ill be th e  after-tax interest  r ate

if tax rate is 34%?

 

3 . 0 0 %

 

4 . 6 2 %

 

5 . 2 0 %

 

8 . 0 0 %

 

Question No: 37      ( Marks: 1 ) - Please choose one

 

Opportunity losses from having inadequate inventory are termed as:

 

Carrying costs

 

Opportunity costs

 

Restocking costs

 

Safety reserve costs

 

Question No: 38      ( Marks: 1 ) - Please choose one

 

What  w ill  be  th e  Eco n omic  O rd er  Qu an tity  (EOQ)  if  to tal  u n it  sales  (T)  =  400,

fixed costs (F) = Rs. 30 and carrying costs (CC) = Rs. 5 ?

 

65 units

 

79 units

 

89 units

 

95 units

 

Question No: 39      ( Marks: 1 ) - Please choose one

 

The cost of common equity for a firm is:

 

The required rate of return on the company's stock

 

The yield to maturity on the bond

 

The risk-free rate

 

The market risk premium

 

Question No: 40      ( Marks: 1 ) - Please choose one

 

A  firm  h as  3 million  in  co mmo n  stock , 1  millio n  in  p refer r ed  stock  an d  2  million

in  d eb t. Wh at  is  the p ercen tag e o f firm s  fin ancin g th at is  d eb t  ?

 

 

20%

 

33%

 

40%

 

67%

 

Question No: 41      ( Marks: 1 ) - Please choose one

 

Th e b oo k  valu e  of a  sy stem  is  Rs.  50,350 at  th e  en d  of y ear  3  of its  life. Wh at  will

be  th e  total  after-tax  cash  flo w  from  sale  if  w e  sell  th is  system  for  Rs.  30,000  at

this time? (Tax rate is 34%)

 

Rs. 20,350

 

Rs. 30,919

 

Rs. 36,919

 

Rs. 80,350

 

Question No: 42      ( Marks: 1 ) - Please choose one

 

Wh at  w ill  b e  th e  v ar ian ce  if  stan d ar d  d ev iatio n  for  the  retu rn s  of  an  inv estm en t

is 0.2829 ?

 

0.0800

 

0.0892

 

0.5319

 

Cannot be estimated without more information

 

Question No: 43      ( Marks: 3 )

 

Write down the components of total return in terms of dividend growth model.

 

 

Question No: 44      ( Marks: 3 )

 

What is the difference between operating cycle and cash cycle?

 

 

Question No: 45      ( Marks: 3 )

 

 

Ho w  a fir m s o ver all co st o f cap ital is calcu lated ?

 

 

Question No: 46      ( Marks: 5 )

 

Define the following terms:

(i)  Dealer

(ii)  Broker

(iii)  Bid Price

(iv)  Strike Price

(v)  Spread

 

Question No: 47      ( Marks: 5 )

 

A firm has a total value of Rs. 1 million and debt valued at Rs. 400,000. What is

the after-tax weighted average cost of capital if the cost of debt is 12%, the cost of

equity is 15% and tax rate is 35% ?

 

 

Question No: 48      ( Marks: 10 )

 

SNT & Co. has the following Target capital structure :

 

Debentures   =   Rs. 5.00 Billion

Preferred shares   =   Rs. 2.65 Billion

Common shares   =  Rs. 9.35 Billion

 

Total     =   Rs. 17 Billion

 

Bonds carry an interest rate of 11.5%. Common stocks and Preferred stocks have

a return of 15.50 % and 12% respectively and corporate tax rate is 40%. Compute

the present Weighted Average Cost of Capital (WACC) for SNT & Co.

 

 

Question No: 49      ( Marks: 10 )

 

Stan d ar d  Man u factu r in g  Com pan y  (SMC)  need s  on e  o f  tw o  m achin es.  Mach in e

X costs Rs.  25,000 an d  h as  cash  flow s  o f Rs. 8,000  a  y ear  for  six  y ear s. Mach in e  Y

costs  Rs.  30,000  and  h as  cash  flow s  Rs.  7,000  a  y ear  fo r  six  years.  SMC  has  12%

cost  of  cap ital.  Calcu late  each  mach in e s  Payb ack  Period  an d  N PV  (N et  Pr esen t

Value) and evaluate the results.

 

 

 

 

 

FINALTERM  EXAMINATION

Fall 2008

ACC501- Business Finance (Session - 1) 

Marks: 81

 

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

 

Which of the following is the difference between current assets and current

liabilities?

 

 

Surplus Asset

 

Short-term Ratio

 

Working Capital

 

Current Ratio

 

 

Question No: 2      ( Marks: 1 ) - Please choose one

 

A business owned by a single person is known as:

 

 

Sole-proprietorship

 

General partnership

 

Limited partnership

 

Corporation

 

 

Question No: 3      ( Marks: 1 ) - Please choose one

 

In a common-size balance sheet, all items are shown as a percentage of:

 

 

Total Assets

 

Total Liabilities

 

Total Own er s Equity

 

None of the given options

 

 

Question No: 4      ( Marks: 1 ) - Please choose one

 

 

A  com pany's  ability  to  m eet  lon g-term  obligations  can  be  estim ated  by  usin g

which of the following set of ratios?

 

 

Liquidity Ratio

 

Solvency Ratios

 

Asset Management Ratios

 

Market Value Ratios

 

 

Question No: 5      ( Marks: 1 ) - Please choose one

 

According to Du Pont Identity, ROE is affected by which of the following?

 

 

Operating efficiency

 

Asset use efficiency

 

Financial Leverage

 

All of the given options

 

 

Question No: 6      ( Marks: 1 ) - Please choose one

 

Which  of the  following is  a  series  of con stan t  cash  flows  that  occur  at  the  en d  of

each period for some fixed number of periods?

 

 

Ordinary annuity

 

Annuity due

 

Perpetuity

 

None of the given options

 

 

Question No: 7      ( Marks: 1 ) - Please choose one

 

A portion of profits, which a company distributes among its shareholders, is

known as:

 

 

Dividends

 

Retained Earnings

 

Capital Gain

 

Interest

 

 

Question No: 8      ( Marks: 1 ) - Please choose one

 

What  am ount  a  borrower  would  pay at  the en d  of fourth  year  with  a 4-year, 12%,

interest-only loan of Rs. 3,000?

 

 

Rs. 360

 

Rs. 2,000

 

Rs. 3,000

 

Rs. 3,360

 

 

Question No: 9      ( Marks: 1 ) - Please choose one

 

A com pany issues  bon ds  with  a  Rs.  1,0 0 0  face  value.  What  is  the  coupon  rate  if

the coupon payments of Rs. 45 are paid every 6 months?

 

 

3 percent

 

6 percent

 

9 percent

 

12 percent

 

 

Question No: 10      ( Marks: 1 ) - Please choose one

 

Given two bonds identical but for maturity, the price of the longer-term bond will

change  _ _ _ _ _ _ _ _  that  of  the  shorter-term  bond,  for  a  given  chan ge  in  m arket

interest rates.

 

 

More than

 

Less than

 

 

Equal to

 

None of the given options

 

 

Question No: 11      ( Marks: 1 ) - Please choose one

 

When corporations borrow, they generally promise to:

I.         Make regular scheduled interest payments

II.        Give the right of voting to bondholders

III.       Repay the original amount borrowed (principal)

IV.       Give an ownership interest in the firm

 

 

 

I and II

 

I and III

 

II and IV

 

I, III, and IV

 

 

Question No: 12      ( Marks: 1 ) - Please choose one

 

Which of the following allows a company to repurchase part or all of the bond

issue at a stated price?

 

 

Repayment

 

Seniority

 

Call provision

 

Protective covenants

 

 

Question No: 13      ( Marks: 1 ) - Please choose one

 

Sumi Inc. has policy of paying a Rs. 9 per share dividend every year. If this

policy is to continue indefinitely, what will be the value of a share of stock at a

12% required rate of return?

 

 

Rs. 30

 

 

Rs. 45

 

Rs. 60

 

Rs. 75

 

 

Question No: 14      ( Marks: 1 ) - Please choose one

 

In which type of the market, previously issued securities are traded among

investors ?

 

 

Primary Market

 

Secondary Market

 

Tertiary Market

 

None of the given options

 

 

Question No: 15      ( Marks: 1 ) - Please choose one

 

An investment should be accepted if the net present value is __________ and

rejected if it is ________.

 

 

Positive; positive

 

Positive; negative

 

Negative; negative

 

Negative; positive

 

 

Question No: 16      ( Marks: 1 ) - Please choose one

 

The XYZ Corporation is considering an investment that will cost Rs. 80,000 and

have a useful life of 4 years. During the first 2 years, the net incremental after-tax

cash flows are Rs. 25,000 per year and for the last two years they are Rs. 20,000

per year. What is the payback period for this investment ?

 

 

3.2 Years

 


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

 

Question No: 2    ( Marks: 1 )     -  Please choose one

 

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

 

Question No: 3    ( Marks: 1 )     -  Please choose one

 

GAAP stands for:

 

 

 

 

 

Generally Accepted Accounting Principles

 

 

 

Generally All-rounder Accounting Principles

 

 

 

General Accepting Accounts Principles

 

 

 

None of the given options

 

Question No: 4    ( Marks: 1 )     -  Please choose one

 

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

 

 

 

 

 

Bond Indenture

 

 

 

Bond Debenture

 

 

 

Bond Value

 

 

 

None of the given options

 

Question No: 5    ( Marks: 1 )     -  Please choose one

 

Suppose you have a portfolio comprised of two securities X and Y. In the portfolio, 60 shares are of 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 %

 

Question No: 6    ( Marks: 1 )     -  Please choose one

 

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

 

 

 

 

 

Primary Market

 

 

 

Secondary Market

 

 

 

Tertiary Market

 

 

 

None of the given options

 

Question No: 7    ( Marks: 1 )     -  Please choose one

 

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

 

 

 

 

 

Present Value

 

 

 

Future Value

 

 

 

Net Present Value

 

 

 

Terminal Value

 

Question No: 8    ( Marks: 1 )     -  Please choose one

 

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 %

 

Question No: 9    ( Marks: 1 )     -  Please choose one

 

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

 

 

 

 

 

Sunk Cost

 

 

 

Opportunity Cost

 

 

 

Financing Cost

 

 

 

Operating Cost

 

Question No: 10    ( Marks: 1 )     -  Please choose one

 

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

 

Question No: 11    ( Marks: 1 )     -  Please choose one

 

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

Years

Cash flows

1

Rs. 15,000

2

Rs. 20,000

3

Rs. 25,000

4

Rs. 15,000

5

     Rs.  5,000

 

 

 

 

 

 

3.57 years

 

 

 

3.67 years

 

 

 

4.57 years

 

 

 

4.67 years

 

Question No: 12    ( Marks: 1 )     -  Please choose one

 

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

 

Question No: 13    ( Marks: 1 )     -  Please choose one

 

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)

 

Question No: 14    ( Marks: 1 )     -  Please choose one

 

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

 

 

 

 

 

Carrying Costs

 

 

 

Shortage Costs

 

 

 

Manufacturing Costs

 

 

 

None of the given options

 

Question No: 15    ( Marks: 1 )     -  Please choose one

 

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

 

 

 

 

 

Common stock

 

 

 

Safety Stock

 

 

 

Preferred Stock

 

 

 

Dangerous Stock

 

Question No: 16    ( Marks: 1 )     -  Please choose one

 

Realization Principle is one of the basic principles of GAAP.

 

 

 

 

 

True

 

 

 

False

 

Question No: 17    ( Marks: 1 )     -  Please choose one

 

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

 

 

 

 

 

True

 

 

 

False

 

Question No: 18    ( Marks: 1 )     -  Please choose one

 

A preferred dividend is exactly like interest on bond.

 

 

 

 

 

True

 

 

 

False

 

Question No: 19    ( Marks: 1 )     -  Please choose one

 

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

 

 

 

 

 

True

 

 

 

False

 

Question No: 20    ( Marks: 1 )     -  Please choose one

 

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

 

 

 

 

 

True

 

 

 

False

 

Question No: 21    ( Marks: 1 )

 

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

 

Question No: 22    ( Marks: 1 )

 

________________ is the value of a present amount at a certain date in the future based on a determined rate of return.

 

Question No: 23    ( Marks: 1 )

 

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

 

Question No: 24    ( Marks: 1 )

 

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

 

Question No: 25    ( Marks: 1 )

 

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

 

Question No: 26    ( Marks: 3 )

 

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

 

Question No: 27    ( Marks: 3 )

 

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

 

Question No: 28    ( Marks: 3 )

 

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?

 

Question No: 29    ( Marks: 3 )

 

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

 

Question No: 30    ( Marks: 3 )

 

“An investment is acceptable if the IRR exceeds the required return. It should be rejected otherwise.” Explain.

 

Question No: 31    ( Marks: 10 )

 

Sumi Inc. has outstanding Rs.1, 000- face –value bond with a 16 percent coupon rate and 6 years remaining 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 %.

 

Question No: 32    ( Marks: 10 )

 

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 million in debt in its total capital. The tax rate for the firm is 35% and the Cost of debt is 8%. What will be the Weighted Average Cost of Capital (WACC) for S&T Company ?

 

 

 

FINALTERM EXAMINATION
Spring 2009
ACC501- Business Finance


Question No: 1 ( Marks: 1 ) - Please choose one
Which of the following refers to a conflict of interest between principal and
agent?

  • Management Conflict
  • Interest Conflict
  • Agency Problem
  • None of the given options


Question No: 2 ( Marks: 1 ) - Please choose one
Which of the following term refers to the ease and quickness with which assets
can be converted to cash?

  • Analysis
  • Structuring
  • Budgeting
  • Liquidity


Question No: 3 ( Marks: 1 ) - Please choose one
Product costs do NOT include which of the following?

  • Raw material
  • Direct labor
  • Manufacturing overhead
  • Administrative expenses


Question No: 4 ( Marks: 1 ) - Please choose one
Which of the following can be computed by using the information only from
balance sheet?

  • Equity multiplier
  • Inventory turnover
  • Receivable turnover
  • Return on equity


Question No: 5 ( Marks: 1 ) - Please choose one
Which of the following is CORRECT regarding the present value discount factor?

  • It is always greater than 1.0
  • It decreases as the discount rate increases
  • It is equal to zero when discount rate is zero
  • It increases as the time period increases


Question No: 6 ( Marks: 1 ) - Please choose one
How much must be deposited at 8% each of the next 20 years to have Rs.

10,296.44?

  • Rs. 225
  • Rs. 341
  • Rs. 410
  • Rs. 452


Question No: 7 ( Marks: 1 ) - Please choose one
In order to compare different investment opportunities (each with the same risk)
with interest rates reported in different manners you should:

  • Convert each interest rate to an effective annual rate
  • Convert each interest rate to a monthly nominal rate
  • Convert each interest rate to an annual nominal rate
  • Compare the published annual rates


Question No: 8 ( Marks: 1 ) - Please choose one
You have Rs. 1,000 to invest. You have 2 choices; first is the savings account A,
which earns 8.75 percent compounded annually and second is the savings
account B, which earns 8.50 percent compounded monthly. Which account
should you choose and why?

  • Account A; because it has a higher effective annual rate
  • Account B; because it has a higher effective annual rate
  • Account A; because it has the higher quoted rate
  • Account B; because the quoted rate is higher


Question No: 9 ( Marks: 1 ) - Please choose one
What will be the value of a Rs. 1,000 face-value bond with an 8% coupon rate at
8% required rate of return?

  • More than its face value
  • Less than its face value
  • Equal to its face value
  • Cannot be determined without more information


Question No: 10 ( Marks: 1 ) - Please choose one
Which of the following statement is FALSE regarding debt?

  • Debt is not an ownership interest in the firm.
  • Unpaid debt can result in bankruptcy or financial failure.
  • Debt provides the voting rights to the bondholders.
  • Corporation s payment of interest on debt is fully tax deductible.


Question No: 11 ( Marks: 1 ) - Please choose one
The relationship between real and nominal returns is described by the:

  • M&M Proposition
  • Capital Asset Pricing Model
  • Fisher s Effect
  • BCG Matrix


Question No: 12 ( Marks: 1 ) - Please choose one
Investors demand a higher yield as compensation to the risk of possible default.
This extra premium is called:

  • Default risk premium
  • Taxability premium
  • Interest rate risk premium
  • Inflation risk premium


Question No: 13 ( Marks: 1 ) - Please choose one
For which type of stocks, the dividends grow at a constant rate?

  • Zero Growth Stocks
  • Constant Growth Stocks
  • Non-Constant Growth Stocks
  • None of the given options


Question No: 14 ( Marks: 1 ) - Please choose one
In which type of voting, each shareholder is entitled one vote per share times the
number of directors to be elected?

  • Straight Voting
  • Statutory Voting
  • Cumulative Voting
  • None of the given options


Question No: 15 ( Marks: 1 ) - Please choose one
In which of the following procedure of voting for a company's directors, each
shareholder is entitled to one vote per share ?

  • Straight Voting
  • Proportional Voting
  • Cumulative Voting
  • None of the given options


Question No: 16 ( Marks: 1 ) - Please choose one
Which of the following is the price that the dealer wishes to pay for a share ?

  • Simple Price
  • Bid Price
  • Strike Price
  • Complex Price


Question No: 17 ( Marks: 1 ) - Please choose one
Suppose the initial investment for a project is Rs. 160,000 and the cash flows are
Rs. 40,000 in the first year and Rs. 90,000 in the second and Rs. 50,000 in the third.
The project will have a payback period of:

  • 2.6 Years
  • 3.1 Years
  • 3.6 Years
  • 4.1 Years


Question No: 18 ( Marks: 1 ) - Please choose one
The XYZ Corporation is considering an investment that will cost Rs. 80,000 and
have a useful life of 4 years. During the first 2 years, the net incremental after-tax
cash flows are Rs. 25,000 per year and for the last two years they are Rs. 20,000
per year. What is the payback period for this investment ?

  • 3.2 Years
  • 3.5 Years
  • 4.0 Years
  • Cannot be determined from the given information


Question No: 19 ( Marks: 1 ) - Please choose one
Which of the following measures the present value of an investment per dollar
invested ?

  • Net Present Value (NPV)
  • Average Accounting Return (AAR)
  • Internal Rate of Return (IRR)
  • Profitability Index (PI)


Question No: 20 ( Marks: 1 ) - Please choose one
Which of the following set of cash flows should be considered in the decision at
hand?

  • Relevant Cash Flows
  • Incremental Cash Flows
  • Negative Cash Flows
  • All of the given options


Question No: 21 ( Marks: 1 ) - Please choose one
___________ Cost is an outlay that has already occurred and hence is not affected
by the decision under consideration.

  • Sunk
  • Opportunity
  • Fixed
  • Variable


Question No: 22 ( Marks: 1 ) - Please choose one
The overall (weighted average) cost of capital is composed of a weighted average
of :

  • The cost of common equity and the cost of debt
  • The cost of common equity and the cost of preferred stock
  • The cost of preferred stock and the cost of debt
  • The cost of common equity, the cost of preferred stock, and the cost of debt


Question No: 23 ( Marks: 1 ) - Please choose one
Over the past four years, a company has paid dividends of Rs. 1.00, Rs. 1.10, Rs.
1.20 and Rs. 1.30 respectively. This pattern is expected to continue into the future.
This is an example of a company pay a dividend that grows:

  • By 10 percent each year
  • At a constant rate
  • By a decreasing amount
  • At a decreasing rate


Question No: 24 ( Marks: 1 ) - Please choose one
Which of the following statement is INCORRECT regarding Average Accounting
Return?

  • AAR is a rate that makes the NPV equal to zero
  • AAR is a measure of accounting profit relative to book value
  • An investment is acceptable if its AAR is greater than a benchmark AAR
  • None of the given options


Question No: 25 ( Marks: 1 ) - Please choose one
Which of the following M&M propositions states that it is completely irrelevant
how a firm chooses to arrange its finances ?

  • 1st proposition
  • 2nd proposition
  • 3rd proposition
  • None of the given options


Question No: 26 ( Marks: 1 ) - Please choose one
SNT Corporation has a WACC of 16% (ignoring taxes). It can borrow at 9% .
Assuming that SNT has a target capital structure of 75% equity and 25% debt,
what will be its cost of equity ?

  • 1 3 . 0 0 %
  • 1 5 . 2 3 %
  • 1 8 . 3 3 %
  • 2 0 . 9 8 %


Question No: 27 ( Marks: 1 ) - Please choose one
Which of the following activities decreases cash ?

  • Increasing current liabilities
  • Decreasing long term debt
  • Decreasing fixed assets
  • Increasing equity


Question No: 28 ( Marks: 1 ) - Please choose one
Which of the following describes how a product moves through the current asset
accounts ?

  • Cash Cycle
  • Operating Cycle
  • Current Cycle
  • None of the given options


Question No: 29 ( Marks: 1 ) - Please choose one
Which of the following is the time between sale of inventory and collection of
receivables ?

  • Inventory period
  • Accounts receivable period
  • Collection period
  • Accounts payable period


Question No: 30 ( Marks: 1 ) - Please choose one
Suppose you have Rs. 10,000 on deposit. One day, you write a cheque for Rs.
2,000 and deposit Rs. 4,000. What is your disbursement float ?

  • Rs. 4,000
  • + Rs. 2,000
  • Rs. 2,000
  • + Rs. 4,000


Question No: 31 ( Marks: 1 ) - Please choose one
Suppose you have Rs. 70 in stock A and Rs. 120 in another stock B in your
portfolio. Stock A has an expected return of 25% and stock B has an expected
return of 20%. What will be the portfolio expected return ?

  • 18.27%
  • 21.84%
  • 22.50%
  • 25.13%


Question No: 32 ( Marks: 1 ) - Please choose one
Which of the following statement(s) is (are) true regarding Return on
Investment?

  • One of the responsibilities of the financial manager is to assess the value of the proposed investment
  • The return consists of income earned and capital gain
  • The dollar returns are the sum of the cash received and the change in dollar value of the asset
  • All of the given options


Question No: 33 ( Marks: 1 ) - Please choose one
The MC Inc. purchased a share of common stock exactly one year ago for Rs. 45.
During the past year the common stock paid an annual dividend of Rs. 2.40. The
firm sold the stock today for Rs. 80. What is the rate of return the firm has
earned?

  • 5.3%
  • 194.2%
  • 83.11%
  • 94.2%


Question No: 34 ( Marks: 1 ) - Please choose one
What will be the cash inflow if we have sales of Rs. 400,000 and accounts
receivable are increased by Rs. 70,000?

  • Rs. 70,000
  • Rs. 230,000
  • Rs. 330,000
  • Rs. 470,000


Question No: 35 ( Marks: 1 ) - Please choose one
What will be the cash inflow if we have sales of Rs. 300,000 and accounts
receivable are decreased by Rs. 70,000?

  • Rs. 70,000
  • Rs. 230,000
  • Rs. 370,000
  • Rs. 470,000


Question No: 36 ( Marks: 1 ) - Please choose one
Suppose a firm borrows Rs. 800,000 at 7%. What will be the total interest bill per
year if tax rate is 34% ?

  • Rs. 19,040
  • Rs. 36,960
  • Rs. 56,000
  • Rs. 800,000


Question No: 37 ( Marks: 1 ) - Please choose one
Which one of the following motives refers to the need for holding cash as a safety
margin to act as a financial reserve?

S

  • peculative motive
  • Transaction motive
  • Precautionary motive
  • Personal motive


Question No: 38 ( Marks: 1 ) - Please choose one
Suppose market value exceeds book value by Rs. 225,000. What will be the aftertax
proceeds if there is a tax rate of 34 percent?

  • Rs. 105,600
  • Rs. 148,500
  • Rs. 191,000
  • Rs. 225,000


Question No: 39 ( Marks: 1 ) - Please choose one
Suppose you have bought 100 shares of a corporation one year ago at Rs. 18 per
share. Over the last year, you have received a dividend of Rs. 2 per share. At the
end of the year, the stock sells for Rs. 27. As per given information, what will be
the capital gains yield?

  • 15%
  • 25%
  • 35%
  • 50%


Question No: 40 ( Marks: 1 ) - Please choose one
SNT Company purchased a vehicle for Rs. 450,000. Based on historical averages,
this vehicle is worth 25% of the purchase price now and it is being sold at this
price. What is the vehicle s market value ?

  • Rs. 14,875
  • Rs. 112,500
  • Rs. 337,500
  • Rs. 230,000


Question No: 41 ( Marks: 1 ) - Please choose one
Standard deviations for Investment A and Investment B are 19% and 28%
respectively. This indicates that:

  • Investment A is more volatile than Investment B
  • Investment A is equally volatile to Investment B
  • Investment B is less volatile than Investment A
  • Investment B is more volatile than Investment A


Question No: 42 ( Marks: 1 ) - Please choose one
Which of the following statement is INCORRECT regarding financial leverage ?

  • Financial leverage can dramatically alter the payoffs to the shareholders.
  • Financial leverage refers to the extent to which a firm relies on the debt.
  • Financial leverage must affect the overall cost of capital in any condition.
  • Financial leverage may not affect the overall cost of capital.



Question No: 43 ( Marks: 3 )
What is the difference between dealer and broker ?

Question No: 44 ( Marks: 3 )
What does Static Theory of Capital Structure state?

Question No: 45 ( Marks: 3 )
Suppose there is an expected rate of 20%. What will be the risk premium if risk
free rate is (i) 8% and (ii) 12% ?

Question No: 46 ( Marks: 5 )
What is the difference between Leverage and Un-levering?






From the given information, find out:
(i) inventory period
(ii) Accounts receivable period
(iii) Accounts payable period
(iv) Operating cycle
(v) Cash cycle

1 to 62mcqs                             =62 marks

63 to 65 subjective=3*3           =9marks

66to 69 subjective=5*4            =20marks

Total paper 91 marks

 

 

mcqs

1.The time between sale of inventory and collection of receivable.

a account receivable

b operation cycle

c inventory period

d none of above

 

2. allow a bank to substitute its creditworthiness for the customer, for a fee is called___________-

 

a open bank account

b commercial draft

c promisory note

d  banker accetptance

 

3.Standard deviations for Investment A and Investment B are 25% and 12% respectively. This indicates that :
Select correct option:
Investment A is less volatile than Investment B
Investment B is equally volatile to Investment A
Investment A is more volatile than Investment B
Investment B is more volatile than Investment A

 

4. find the average 2%,5%,6%,8%

a 5%

b 5.25 %

c 6%

d 8%

 

5 what is standard deviation of thise averages 2%,5%, 7%

6.As the dividend is always same for a zero growth stock, so the stock can also be viewed as

7.Which of the following statement shows revenue, expense, and net worth as of a specific date?

a balance sheet

b income statement

c cashflow

d none of above

8. which of the following character is not a systematic risk

  market risk

interest risk

inflation risk

strike call in a company

9.  A company has a two director and 1 shareholder which hav 25 power of share the voter for director is

a 100

b150

c50

d25

 

10.An investment will be _________ if the IRR doesn’t exceeds the required return and _________ otherwise.
Select correct option:
Accepted; rejected
Accepted; accepted
Rejected; rejected
Rejected; accepted

 

11. Which of the following is the overall return the firm must earn on its existing assets to maintain the value of the stock?
Select correct option:
IRR (Internal Rate of Return)
MIRR (Modified Internal Rate of Return)
WACC (Weighted Average Cost of Capital) 146
AAR (Average Accounting Return)

 

12. Which of the following is the return that firm’s creditors demand on new borrowings ?
Select correct option:
Cost of debt pg 143
Cost of preferred stock
Cost of common equity
Cost of retained earnings

 

13.In which type of projects, the unequal lives of the projects do affect the analysis ?
Select correct option:
Mutually exclusive
Dependent
Independent
Correlated

 

14.Mr. Naveed has bought 100 shares of a corporation one year ago at Rs. 23 per share. Over the last year, he received a dividend of Rs. 1.50 per share. At the end of the year, the stock sells for Rs. 31. As per given information, what will be his total percentage return ?
Select correct option:
10.63%
20.20%
35.12%
41.30%

 

15.Which of the following is known as the group of assets such as stocks and bonds held by an investor ?
Select correct option:
Stock Bundle
Portfolio
Capital Structure
None of the given options

 

16. Suppose the initial investment for a project is Rs. 16 million and the cash flows are Rs. 4 million in the first year and Rs. 9 million in the second and Rs. 5 million in the third. The project will have a payback period of:
Select correct option:
2.6 Years
3.1 Years
3.7 Years
4.1 Years

 

17. find the cash cycle  inventory period is 38 days account payabel period is 50 days and average accoun receivable period is 30 days

a.68

b 18

c 80

d 118

 

 

 

 

 

 

 

 

 

 

Question 63= operating cash flow of Rs. 200,000. Net working capital has

decreased by Rs. 50,000 and there is a net capital spending of Rs. 0 during the year. Calculate total cash flow. (3marks)

Solution:

Total cash flow=200000-(-50000)

toal cash flow =250,000

 

Question 64= snk company find the profitability index  dividend 2 and price= 200 (3marks)

 solution= 2/200=0.01=1answer

 

question 65=3marks

 

question 66= define systematic risk and unsystematic risk and also define which risk is eliminated by diversification 5 marks

 

Quesion 67= which issue cover in finance and investment area 5marks

questin 68= credit policy and its component 5makrs

question 69= define optimal policy 5marks

 

 

 

 

 

 

 

FINALTERM  EXAMINATION

Fall 2008

ACC501- Business Finance (Session - 1) 

 

 

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

 

Which of the following refers to a conflict of interest between principal and

agent?

 

 

Management Conflict

 

Interest Conflict

 

Agency Problem

 

None of the given options

 

 

Question No: 2      ( Marks: 1 ) - Please choose one

 

Which of the following term refers to the ease and quickness with which assets

can be converted to cash?

 

 

Analysis

 

Structuring

 

Budgeting

 

Liquidity

 

 

Question No: 3      ( Marks: 1 ) - Please choose one

 

Product costs do NOT include which of the following?

 

 

Raw material

 

Direct labor

 

Manufacturing overhead

 

Administrative expenses

 

 

 

 

 

Question No: 4      ( Marks: 1 ) - Please choose one

 

Which  of  the  followin g  can  be  com puted  by  using  the  in form ation  on ly  from

balance sheet?

 

 

Equity multiplier

 

Inventory turnover

 

Receivable turnover

 

Return on equity

 

 

Question No: 5      ( Marks: 1 ) - Please choose one

 

Which of the following is CORRECT regarding the present value discount factor?

 

 

It is always greater than 1.0

 

It decreases as the discount rate increases

 

It is equal to zero when discount rate is zero

 

It increases as the time period increases

 

 

Question No: 6      ( Marks: 1 ) - Please choose one

 

H ow  m uch  m ust  be  deposited  at  8 %  each  of  the  n ext  20  years  to  have  Rs.

10,296.44?

 

 

Rs. 225

 

Rs. 341

 

Rs. 410

 

Rs. 452

 

 

Question No: 7      ( Marks: 1 ) - Please choose one

 

In  order  to com pare different  investm en t opportun ities (each  with  the sam e risk)

with interest rates reported in different manners you should:

 

 

 

 

 

Convert each interest rate to an effective annual rate

 

Convert each interest rate to a monthly nominal rate

 

Convert each interest rate to an annual nominal rate

 

Compare the published annual rates

 

 

Question No: 8      ( Marks: 1 ) - Please choose one

 

You  have  Rs.  1,0 0 0  to  in vest.  You  have  2  choices;  first  is  the  savings  accoun t  A,

which  earns  8 .75  percen t  com poun ded  ann ually  an d  secon d  is  the  savings

accoun t  B,  which  earns  8 .50  percen t  com pounded  m on thly.  Which  accoun t

should you choose and why?

 

 

Account A; because it has a higher effective annual rate

 

Account B; because it has a higher effective annual rate

 

Account A; because it has the higher quoted rate

 

Account B; because the quoted rate is higher

 

 

Question No: 9      ( Marks: 1 ) - Please choose one

 

What  will be the  value  of a  Rs. 1,0 0 0  face-value bon d  with  an  8 % coupon  rate  at

8% required rate of return?

 

 

More than its face value

 

Less than its face value

 

Equal to its face value

 

Cannot be determined without more information

 

 

Question No: 10      ( Marks: 1 ) - Please choose one

 

Which of the following statement is FALSE regarding debt?

 

 

Debt is not an ownership interest in the firm.

 

 

 

 

 

Unpaid debt can result in bankruptcy or financial failure.

 

Debt provides the voting rights to the bondholders.

 

Corporation s paym en t of in terest on debt is fully tax deductible.

 

 

Question No: 11      ( Marks: 1 ) - Please choose one

 

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

 

 

M&M Proposition

 

Capital Asset Pricing Model

 

Fisher s Effect

 

BCG Matrix

 

 

Question No: 12      ( Marks: 1 ) - Please choose one

 

In vestors  dem an d  a  higher  yield  as  com pensation  to  the  risk  of possible  default.

This extra premium is called:

 

 

Default risk premium

 

Taxability premium

 

Interest rate risk premium

 

Inflation risk premium

 

 

Question No: 13      ( Marks: 1 ) - Please choose one

 

For which type of stocks, the dividends grow at a constant rate?

 

 

Zero Growth Stocks

 

Constant Growth Stocks

 

Non-Constant Growth Stocks

 

None of the given options

 

 

 

 

 

 

Question No: 14      ( Marks: 1 ) - Please choose one

 

In which type of voting, each shareholder is entitled one vote per share times the

number of directors to be elected?

 

 

Straight Voting

 

Statutory Voting

 

Cumulative Voting

 

None of the given options

 

 

Question No: 15      ( Marks: 1 ) - Please choose one

 

In which of the following procedure of voting for a company's directors, each

shareholder is entitled to one vote per share ?

 

 

Straight Voting

 

Proportional Voting

 

Cumulative Voting

 

None of the given options

 

 

Question No: 16      ( Marks: 1 ) - Please choose one

 

Which of the following is the price that the dealer wishes to pay for a share ?

 

 

Simple Price

 

Bid Price

 

Strike Price

 

Complex Price

 

 

thanks for sharing

plz mojy koi btay ga k acc501 k mid k papers main jo 2,3 r 5 marks k question any hain wo deffinitions hun gi ya pher solve krny waly hun ge????plz plz plzzzzz rply me fast

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