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# FIN622 - Corporate Finance Quiz No.01 25 to Apr 28, 2014

FIN622 - Corporate Finance

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If you invest Rs.400 today in a savings account paying 8 percent interest per year, how much will you have in the

Rs.325

Rs.1,299

Rs.504

Rs.609

If the Net Present Values of two, mutually exclusive options are both greater than zero, which option should b

The one with the largest Net Present Value.

The one with the smallgest Net Present Value.

Either one. Both are greater than the cost of capital.

None of the given options

Which one of the following statements describe "Shareholders’ wealth" in a firm?

The number of people employed in the firm

The book value of the firm's assets less the book value of its liabilities

The market price per share of the firm's common stock

The amount of salary paid to its employees

Virgo Airlines will pay Rs.4.00 dividend next year on its common stock, which is currently selling at Rs.100 per share. What is the market's required return on this investment if the dividend is expected to grow at 5% forever?

4 percent.

5 percent.

7 percent.

9 percent

Which one of the following statements describes the relationship between Interest rates and bond prices?

Move in the same direction.

Move in opposite directions

Sometimes move in the same direction, sometimes in opposite directions

Have no relationship with each other (i.e., they are independent).

A firm can lower its breakeven level by doing which of the following actions?

Lowering direct cost

Increasing variable cost

Increasing variable cost

Lowering sales price

If an investor buys a non-zero coupon bond and holds it to maturity, then the rate of return she will receive depends on:

The bond's maturity value.

The price paid for the bond

The interest payments to be received.

All of the given options

Suppose you need the present value interest factor for 12 percent compounded quarterly for 10 years. If all you have is a PVIF table, you would use the ________ period row and the ________ percent rate column.

40, 12

20.12

40,3

20,6

If two projects offer the same, positive NPV, then which of the following would be a reasonable conclusion?

Select correct option:

The projects would have the same IRR.

The projects would have the same payback period.

The projects are mutually exclusive.

The projects would add the same amount to the value of the firmBottom of Form

19. Since preferred stock dividends are fixedvaluing preferred stock is roughly equivalent to valuing:

a. a zero growth common stock.

b. a positive growth common stock

c. a short-term bond

d. an option.

Determine a firm's total asset turnover (TAT) if its net profit margin (NPM) is 5 percent, total assets are \$8 million, and ROI is 8 percent.

Select correct option:

1.60
2.05
2.50
4.00

Ref: (ROI) / (NPM) = TAT

(.08) / (.05) = 1.6

If the Net Present Values of two, mutually exclusive options are both greater than zero, which option should be selected if the firm uses the Net Present Value method?
Select correct option:

The one with the largest Net Present Value.
The one with the smallest Net Present Value.
Either one. Both are greater than the cost of capital.
None of the given options

A company has a dividend yield of 8%. If its dividend is expected to grow at a constant rate of 5%, what must be the expected rate of return on the company’s stock?
Select correct option:

14%
13%
12%
10%

• Ref: r = DIV1/P0 + g =
• 8% + 5% =
• 13%

When a firm places a budgetary constraint on the projects it invests in, this is called:
Select correct option:

Capital rationing

Working capital management
Cash budgeting
None of the above

The decision rule for net present value is to:
Select correct option:

Accept all projects with cash inflows exceeding initial cost.
Reject all projects with rates of return exceeding the opportunity cost of capital.
Accept all projects with positive net present values.
Reject all projects lasting longer than 10 years

In the formula rE = (D1/P0) + g, what does the symbol "g" represent?
Select correct option:

The expected price appreciation yield from a common stock.
The expected dividend yield from a common stock.
The dividend yield from a preferred stock.
The interest payment from a bond.

Which of the following reason justifies the need for financial statement analysis?
Select correct option:

It will help improve capital budgeting process of the company
It will help improve future planning
It will help improve accounting policies of the company
It will help improve purchasing polices of the company

\

Which of the following is a necessary condition for issuing shares through IPO’s?
Select correct option:

The firm must have a stable dividend policy
The firm must have a low cost of capital
The firm must have l low level of debt
The firm must be listed on the stock exchange   page  61

Dividend discount Model states that today’s price of a stock is equal to:
Select correct option:

The Present Value of all future dividends of the stock    page 115
The Present Value of the face value of the stock
The Present Value of the Sales price of the stock
The Present Value of the book value of the stock

Which of the following is a main purpose of the Sensitivity Analysis?
Select correct option:

To find out the optimal level of capital budget.
To find out that how price changes affect break-even volume.
To find out the seasonal variation in product demand.
To find out that how variables in a project affect profitability

Which one of the following is a major limitation of Linear Programming Technique of capital projects selection?
Select correct option:

Ignores the relative size of the Investment slide  14
Time value of money is not considered
Project cash flows are ignored
Project profitability is ignore

.

Which of the following statement best describe the term Market Correction?
Select correct option:

Market Correction refers to the situation where equilibrium of supply & demand of shares occurs in the market
Market correction occurs when shares’ intrinsic values becomes equal to face values
Market Correction occurs when there is a boom in the economy
Market Correction occurs when inflation rate is above the market interest rate

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