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FIN622 Solved Final Term Papers All Past Solved MCQs & Papers in One File

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PAPER # 1

 

FINALTERM EXAMINATION

Fall 2009

FIN622- Corporate Finance (Session - 1)

 

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

A project would be financially feasible in which of the following situations?

► If Internal Rate of Return of a project is greater than zero

► If Net Present Value of a project is less than zero

► If the project has Profitability Index less than one

If the project has Profitability Index greater than one

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

Which one of the following statements applies to Dividend Growth Model?

It is difficult to understand and use

► It is used for non-listed companies

► It is used for debt securities also

► It do not consider risk level of a security

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

Which of the following statements is true regarding Weighted Average Cost of Capital  (WACC)?

► WACC of a levered firm is greater than that of an un-levered firm

► WACC of a levered firm is lesser than that of an un-levered firm

WACC of a levered firm is equal to that of an un-levered firm

► An Un-levered firm has zero WACC.

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

Which of the following risks is independent of capital structure of a firm?

► Financial risk

Systematic risk

► Business risk

► Total risk

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

Which of the following is a dividend that is paid in the form of additional shares, rather than a cash payout?

► Stock Dividend

► Cum Dividend

► Ex Dividend

► Extra Dividend

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

In the formula Q = , “I” denotes which of the following?

       ► Initial cash out flow

       Interest cost of holding cash

       ► Investment required

       ► Initial investment

Page#95

Q = √ 2 FS / i

Where:

S = is the amount of cash to be used in each period

F = fixed cost of obtaining new funds

i = interest cost of holding cash

Q = quantity of cash to be held per period.

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

Keeping all other things constant, an increase in storage cost will result ________ in the EOQ (Economic Order Quantity).

A decrease

► No change

► An increase

► Cannot be told without additional information

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

All of the following could be an outcome of financial distress of a firm EXCEPT:

► Employees are leaving the firm

► Suppliers refuse to supply on credit

► Banks do not provide loans

Financial markets become instable

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

A firm can fix effective interest rate on short-term borrowings by doing which of the following?

► Buying a forward rate agreement

► Selling a forward rate agreement

► Borrowing local currency

Borrowing base currency

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

In the long run, a successful acquisition is one that:

► Enables the acquirer to make an all-equity purchase, thereby avoiding additional financial leverage

► Enables the acquirer to diversify its asset base

► Increases the market price of the acquirer's stock over what it would have been without the acquisition

► Increases the financial leverage of the firm

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

Which of the following formulas can be used to calculate the value of the firm while considering merger/acquisition?

► Value of all-equity financed firm + FV of tax benefits + Expected Bankruptcy Costs

Value of all-equity financed firm + PV of tax benefits + Expected Bankruptcy Costs

► Value of all-equity financed firm + tax benefits + Expected Bankruptcy Costs

► Value of all-equity financed firm + Expected Bankruptcy Costs

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

Which of the following effects should be considered by a firm if it allows credit to its customers?

► Cost of discount

► Arrange loans to finance short term operations

► Prices of goods

► All of the given options

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

Which of the following is generally the objective of the firms behind offering discount to customers?

To improve the cash flow

► To increase the bad debts

► To improve return on equity

► To improve the PE ratio

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

How much debt financing is used by a firm whose beta is un-geared?

► 100% debt financed

100% equity financed

► 50% equity and 50% debt financed

► 60% equity and 40% debt financed

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

Which of the following shows the reward to risk ratio of a Security A?

► Expected return of A (rA) – risk free return / beta of A

► Expected return of A (rA) – risk free return / required return of A

► Expected return of A (rA) – beta of A / risk free return

► Risk free return - expected return of A (rA)/ beta of A

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

Which of the following transactions affects the acid-test ratio?

► Receivables are collected

► Inventory is liquidated for cash

► New common stock is sold and used to retire a debt issue

► New common stock issue is sold and equipment purchased

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

If you deposit Rs. 12,000 per year for 16 years (each deposit is made at the beginning of each year) in an account that pays an annual interest rate of 15%, what will your account be worth at the end of 16 years?

► Rs. 82,168.44

► Rs. 71,450.82

► Rs. 768,901.12

► Rs. 668,609.67

FVA = PMT [(1+i) n-1/i]

= 12000[(1+0.15)16-1/0.15] =668,609.67

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

A 30-year corporate bond issued in 1985 would now be traded in which of the following markets?

► Primary capital market

► Primary money market

Secondary money market

► Secondary capital market

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

Which of the following is reflected by the price of a share of common stock?

► Earnings after tax divided by the number of shares outstanding

The board of directors' assessment of the intrinsic value of the firm

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

► The market's evaluation of a firm's present and future performance

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

You are considering buying common stock in Sumi Inc. The firm yesterday paid a dividend of Rs.7.80. You have projected that dividends will grow at a rate of 9% per year indefinitely. If you want an annual return of 24, what should you pay for the stock now?

► Rs.52.00

Rs.56.68

► Rs.32.50

► Rs.35.43

Po = D1 / (r –g)

Po = 7.80 / (0.24 –0.09) = 7.80 /0 .15 = 52

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

Which of the following capital budgeting methods focuses on firm's liquidity?

► Internal Rate of Return

► Payback method

► Net Present Value

None of the given options

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

In deciding the optimal level of current assets for the firm, management is confronted with __________.

A trade-off between profitability and risk

► A trade-off between liquidity and risk

► A trade-off between equity and debt

► A trade-off between short-term versus long-term borrowing

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

Mr. Joseph Steve has changed the working capital policy of his company recently. As a result, the liquidity for the company has decreased but an increase in profitability has been observed alongside. From this information we can conclude that the company must have changed his

working capital policy from ________ to ________.

► Conservative; Aggressive

► Aggressive; Moderate

► Aggressive; Conservative

► None of the given options

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

When the firm considers working capital management, the trade-off between risk and return is affected by all of the following EXCEPT:

► The pattern of cash borrowing needs of the firm

► The difference between long-term and short-term interest rates

The ratio of cash to marketable securities

► The debt maturity schedule

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

Cash management involves all of the following EXCEPT:

Efficient disbursement of cash

► Efficient collection of cash

► Wise investment of temporarily surplus cash

► Raising cash through the sale of new stock and bonds

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

Which of the following type of customers enjoy comparatively longer credit periods?

Corporate customers

► Individual customers

► Both corporate and individual customers

► Neither corporate nor individual customers

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

Total credit cost curve consists of which of the following?

► Total of ordering cost and the opportunity cost of credit policy

Total of carrying cost and the opportunity cost of credit policy

► Total of opportunity cost of credit policy and the bad debts

► Total of production cost and the cost of credit policy

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

Which of the following statement is CORRECT regarding Conglomerate mergers?

► A firm acquires another firm that is in the same industry but at another stage in the production cycle.

► It occurs when one firm purchases other firms that produce similar or competing products.

It occurs when unrelated businesses merge.

► None of the given options

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

Which of the following is(are) reason(s) for determining shares value in mergers and acquisitions?

► To set up the terms of takeovers

► To value the company for stock exchange listing

► To value shares – for establishing value of share of retiring directors

All of the given options

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

Value of firm = ___________________________________________

Value of all equity financed firm + PV of tax benefits + Expected Bankruptcy Costs

► Value of all equity financed firm – PV of tax benefits + Expected Bankruptcy Costs

► Value of all equity financed firm + PV of tax benefits – Expected Bankruptcy Costs

► Value of all equity financed firm – PV of tax benefits – Expected Bankruptcy Costs

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

Which of the following statements is TRUE regarding the LBO (Leverage Buyout)?

► New common stocks are issued to acquire the firm

► Shareholders’ dividend is used to acquire the firm

► Company’s reserves are used to acquire the firm

► Borrowed money is used to acquire the firm

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

Which of the following terms refer to the acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition?

► Management Buyout

► Management Buy-In

Leverage Buyout

► None of the given options

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

Which of the following statements is INCORRECT regarding currency future?

► Reversal of currency future is simple.

► Parties have to put an initial margin in currency future.

► The size is pre-determined or fixed in currency future.

► Reversing of currency future requires original parties.

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

Short-term Interest Futures (STIRs) are settled through which of the following?

► Cash

► Physical delivery

Both cash and physical delivery

► Neither cash nor physical delivery

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

An option is termed as “at the money” if:

► The strike price and current market price are equal

► The strike price is higher than current market price

► The strike price is lower than current market price

► None of the given options

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

“Companies may be stretching to other countries in search and import to the home country cheap raw materials.” This statement depicts which of the following strategic motives of multinational companies for foreign investment?

► Market development

Backward integration

► Political safety

► None of the given options

Question No: 43 ( Marks: 1 ) - Please choose one

Which of the following is a mutually controlled entity by two or more business enterprisers having a shared motive?

► Subsidiary

► Branch

Joint Venture

► Licensing branch

Question No: 44 ( Marks: 1 ) - Please choose one

Between 1870 and 1914, the globally fixed exchange rate was accepted in which the currencies were linked to which of the following?

► Any commodity

► Diamond

► Gold

► Wheat

PAPER # 2

 

FINALTERM EXAMINATION

Fall 2009

FIN622- Corporate Finance (Session - 3)

 

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

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

Lowering direct cost

► Increasing variable cost

► Increasing direct cost

► Lowering sales price

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

Which of the following refers to a stock issuance process where a company offers its shares to a limited number of investor?

► Initial Public Offering

Private Placement

► Direct Public Offering

► Primary Offering

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

Which of the following is the principal advantage of high debt financing?

Tax savings

► Low Bankruptcy costs

► Minimum financial risk

► Low financial leverage

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

Which of the following firms would have the highest financial leverage?

► A firm having debt-to-equity ratio of 30:70

► A firm having debt-to-equity ratio of 40:60

► A firm having debt-to-equity ratio of 50:50

► A firm having debt-to-equity ratio of 60:40

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

In which of the following dividend policies, the amount of dividend is relatively fixed?

Constant payout ratio policy

► Hybrid dividend policy

► Residual dividend policy

► Stable dividend policy

In the stable dividend policy, management maintains a fixed dividend per share each year

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

Which of the following serves as a starting point for preparing functional budgets of a firm?

Sales budget

► Master budget

► Production cost budget

► Cash budget

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

A company is holding cash as a buffer in case of an unexpected need with operations. This is an example of the ________ motive for holding cash.

► Precautionary

► Speculative

► Transactions

► Capital needs

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

Which of the following is an "income based method" for share valuation of a target firm?

► Replacement cost method

► Break up value method

Dividend valuation method

► Accumulated depreciation method

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

All of the following could be the reasons for a subsidiary buyout EXCEPT:

► The parent company is in financial distress

► The parent company needs cash

► The parent company prefers to sell the firm rather that liquidation

► The parent company wants liquidation

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

A firm has to pay $10,000 to an American company after three months. The firm enters into a contract with a foreign exchange dealer to buy $10,000 after three months at Rs.61/US$. This contract would be beneficial for the firm if:

► After three months the exchange rate is Rs.60/US$

► After three months the exchange rate is Rs.61/US$

► After three months the exchange rate is Rs.62/US$

► After three months the exchange rate is Rs.59/US$

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

A firm can fix effective interest rate on its short-term investment to be made at some future date

by doing which of the following?

► Borrowing local currency

► Borrowing base currency

► Selling a forward rate agreement

► Buying an forward rate agreement

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

A company may create a hedge through interest rate futures if it intends to make some investment for a short-term at some future date, because of:

► Fall in short-term interest rates

► Fall in short-term deposit rates

► Increase in short-term interest rates www.vustudents.ning.com

► Increase in short-term deposit rates

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

Which one of the following statements is CORRECT regarding Option?

► An option creates an obligation for the holder

An option creates a right and not the obligation for the holder

► Option seller is the option holder

► Option writer is the option holder

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

The credit policy of a public company is 1/10, net 30. At present 25% of the customers take the discount. What would accounts receivable be if all customers took the cash discount?

► Account receivable would be lower than the present level

► No change from the present level

► Account receivable would be higher than the present level

► Unable to determine without more information

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

The efficiency enhancing effect resulting from a strategic merger is called which of the following?

► Merger effect

► Acquisition effect

Synergy effect

► Efficiency effect

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

Which of the following is more appropriate to use while comparing investment alternatives with different compounding periods?

► Quoted Interest Rate

► Annual Percentage Rate

► Effective Annual Interest Rate

► Nominal Interest Rate

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

An investor would be exposed to which of the following risks, if he may have to sell a bond prior to maturity and interest rates have risen since the bond was purchased?

► The coupon effect risk

Interest rate risk

► Inflation risk

► Unique risk

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

Which of the following focuses on long-term investment decision-making process?

► Working Capital Management

Capital Budgeting

► Cash Budgeting

► None of the

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

According to the reinvestment rate assumption, which method of capital budgeting assumes that the cash flows are reinvested at the project's rate of return?

► Payback period

► Net present value

► Internal rate of return

► None of the given options

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

Which of the following statements is correct for a project with a positive Net Present Value  (NPV)?

► Internal rate of return (IRR) exceeds the cost of capital

► Accepting the project has an indeterminate effect on shareholders

► The discount rate exceeds the cost of capital

► The profitability index equals one

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

While calculating cash flow from operating activities through indirect method, an increase in current assets is __________ whereas an increase in current liabilities is ___________ net income?

► added to; added to

► added to; deducted from

► deducted from; added to

► deducted from; deducted from

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

Which of the following holds true regarding aggressive working capital policy?

► High liquidity; high profitability; high risk

► High liquidity; low profitability; low risk

► Low liquidity; low profitability; high risk

► Low liquidity; high profitability; high risk

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

Which of the following holds TRUE regarding conservative working capital policy?

► High liquidity; high profitability; high risk

High liquidity; low profitability; low risk

► Low liquidity; low profitability; high risk

► Low liquidity; high profitability; high risk

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

Which of the following is equal to Stock out cost?

► Carrying cost Safety stock

► Holding cost Carrying cost

► Reordering cost Safety stock

► Carrying cost Reordering cost

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

Which of the following statement is INCORRECT regarding Just-In-Time (JIT)?

► The inventories are kept near zero level.

► The inventory is acquired in such quantity on daily basis that can support the daily production level.

► The entire inventory acquired move to the production hall.

► Inventory level is necessarily kept at zero level.

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

Which of the following type of mergers occurs when one firm purchases other firms that produce similar or competing products? www.vustudents.ning.com

 

Horizontal

► Vertical

► Financial

► Conglomerate

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

Which of the following valuation approach allows for specific and direct estimation of future benefits to the owners, which is consistent with the theory of value?

► Asset-based method

► Income-based method

► Hybrid method

► None of the given

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

Recession in economy is related to which of the following levels of financial distress of a firm?

► Firm Level

► Industry Level

► Macro-Level

► All of the given options

Question No: 43 ( Marks: 1 ) - Please choose one

If the strike price and current market price are equal, an option would be termed as:

► In the money

► Out of money

At the money

► None of the given options

Question No: 44 ( Marks: 1 ) - Please choose one

Which of the following theories states that exchange rates between currencies are in equilibrium when their purchasing power is the same in each of the two countries?

► M&M theory

► Purchasing Power Parity theory

► Fisher effect theory

► Interest rate risk theory

PAPER # 3

 

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

Which of the following statements is TRUE regarding Profitability Index?

► It ignores time value of money

► It ignores future cash flows

► It ignores the scale of investment

► It ignores return on investment

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

Which of the following is a tool that identifies the strengths, weaknesses, opportunities and threats of an organization?

► SWOT Analysis

► Trend Analysis

► Fundamental Analysis

► Technical Analysis

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

The employment of fixed costs associated with the actual production of goods or services is known as:

► Financial leverage

► Volume discounting

► Operating leverage

► Covariance

SLIDE 13

Due to operating fixed cost is operating leverage

Due to financial fixed cost is financial leverage

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

What will be the taxable income of an Un-levered firm, if it has Earning Before Interest and Tax (EBIT) equal to Rs.50,000, and its tax rate is 35%?

► Rs.25,000

► Rs.45,000

► Rs.50,000

► Rs.60,000

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

Which of the following describes the hedging approach to financing?

► Maturity dates of financing instruments are spread over a period of time so that they mature

in a steady, predictable fashion.

► Each asset is offset with a financing instrument of the same approximate maturity.

► Each asset is offset with a put or call option.

► The firm takes out insurance to protect itself against uneven cash flows.

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

Suppose that the sale (usage rate) on an item gets doubled. The EOQ (Economic Order Quantity) for that item should be:

► Halved

► Unaffected

► Decreased

► Increased

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

A firm wants to acquire another firm by purchasing its assets. Which of the following methods firm can use to evaluate the financial aspects of this deal?

► Replacement cost method

► Dividend valuation method

► Present value method

► Price earning ratio method

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

Which one of the following statements is CORRECT regarding exercise price?

► Exercise price is the price mentioned in the option at which the holder exercises his right

► Exercise price is the price mentioned in the option at which the holder exercises his obligation

► Exercise price is the price mentioned in the option at which the option seller exercises his right

► Exercise price is the price mentioned in the option at which the option writer exercises his right

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

If market interest rate increases above the agreed rate in an interest rate option, the effective

interest rate for the option holder would be:

► Less than the market rate

► Greater than market rate

► Equal to the market rate

► Zero

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

Which of the following statements would be CORRECT regarding nominal interest rate when inflations

is expected to occur over the foreseeable future?

► Nonimal interest rate would be equal to real interest rate

► Nonimal interest rate would be more than real interest rate

► Nonimal interest rate would be half of real interest rate

► Nonimal interest rate would be less than the real interest rate

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

Which of the following statements best describes the term Market Correction?

► Market Correction refers to the situation where equilibrium of supply & demand of shares occurs in the market

► Market correction refers to the situation where shares’ intrinsic values becomes equal to face values

► Market Correction refers to the situation when there is a boom in the economy

► Market Correction refers to the situation where inflation rate is above the market interest rate

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

Which of the following could be used to calculate the cost of common equity?

► Interpolation method

► Dividend discount model

YTM (Yield-to-Maturity) method

Capital structure valuation

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

The amount of current assets that varies with seasonal requirements is referred to as __________ working capital.

► Permanent

► Net

► Temporary

► Gross

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

Under which of the following concepts, each asset is offset with a financing instrument of the same maturity?

► M&M proposition

► Clientele effect

► Hedging approach

► Baumol Model

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

Which of the following is NOT one of the common motives of holding cash?

► Personal Motives

► Safety Motives

► Transactions Motives

► Speculative Motives

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

Which of the following is NOT an objective of Just-In-Time (JIT)?

► To increase the productivity

► To increase the inventories

► To increase the quality

► To increase the flexibility

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

“If the people are not able to work together, the merger will not succeed.” Which of the following cause(s) of failure is(are) being depicted in this statement?

► Lack of planning

► Corporate culture

► Talent departure

► All of the given options

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

Corporate restructuring involves the restructuring of:

► All of the given options

► The assets and liabilities of the company

► The debt to equity structures of the company

► Cost minimization by the company

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

Which of the following is NOT among the categories of foreign risk?

► Transaction exposure

► Translation exposure

► Local exposure

► Economic exposure

Question No: 43 ( Marks: 1 ) - Please choose one

Which of the following is the purpose of a Forward Interest Rate Agreement?

► To fix the interest rate

► To estimate the exchange rate

► To estimate the interest rate

► To fix the foreign exchange rate

Question No: 44 ( Marks: 1 ) - Please choose one

Which of the following statements is INCORRECT regarding forward contracts?

► Reversing forward contract is difficult.

► Parties have to put an initial margin in forward contracts.

► No size restriction is placed in forward contract.

► Forward contract is made between parties and each party needs to confirm the credit

 

Question No: 46 ( Marks: 1 ) - Please choose one

An investor buys 5 options on shares of at a price of Rs 50 per share. Each option consists of 100 shares and premium paid is Rs. 2 per share. What would be the total option cost for investor if the share price is Rs. 55 at the expiry of option?

► Rs. 1,000

► Rs. 1,500

► Rs. 2,500

► Rs. 2,5000

Total shares= 5 *100 =500

Total cost of option is 500*2=1,000

Question No: 47 ( Marks: 1 ) - Please choose one

An investor buys 5 options on shares at a price of Rs 50 per share. Each option consists of 100 shares and premium paid is Rs. 2 per share. What would be the net gain for investor if the share price is Rs. 55 at the expiry of option?

► Rs. 1,500

► Rs. 2,500

► Rs. 1,000

► Rs. 25,000

Total share is 5 *100 =500

Total cost of option is 500*52=26,000

Total Sale Value = 500 * 55 = 27500

Net Gain = 27500 – 26000= 1500

PAPER # 4

FINALTERM EXAMINATION

Fall 2009

FIN622- Corporate Finance (Session - 1)

 

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

In 3 years you are to receive Rs.5,000. What will be the effect on the present value of that future amount to you if the interest rates increase suddenly?

► Remain unchanged

► Rise

► Fall

► Can not be determined

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

If you invest Rs.400 today in a savings account paying 8 percent interest per year, how much will you have in the account at the end of three years if the interest is compounded annually?

► Rs.325

► Rs.1,299

► Rs.504

► Rs.609

= 400 *(1+0.08)^3 =504

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

Which of the following conditions, if exist, will make the diversification of stocks more effective?

► Securities contained in a portfolio are positively correlated

► Securities contained in a portfolio are negatively correlated

► Securities contained in a portfolio have high market values

► Securities contained in a portfolio have low market values

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

Which of the following is considered as a risk free financial asset?

► Government T-bills

► Junk bonds

► Preferred stock

► Secured bonds

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

If the common stocks of a company have beta value more than 1, then such stocks refer to which of the following?

► Normal stocks

► Aggressive stocks

► Defensive stocks

► Income stocks

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

The National Co. is holding cash to meet the cash needs on a day-to-day basis for normal operations.This is an example of the ________ motive for holding cash.

► Capital needs

► Transactions

► Precautionary

► Speculative

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

Currency futures do not provide a clean hedge because:

► Contract size is standardized

► Settlement date is fixed

► Currency futures are cash settled

► Currency futures are available in US$

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

Which of the following is a potential risk associated with a SWAP?

The parties involved n a SWAP may default

► SWAP may change floating rates into fixed rates

► SWAP provide access to the market

► SWAP may change fixed rates into floating rates

page #144

However, there are some risks associated with swaps as well. There may be some probability of default by either party before the swap expiry.

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

Which of the following is the basis of Purchasing Power Parity Theory?

► The Law of one price

► The Law of demand & supply

► Efficient market theory

► Efficient portfolio theory

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

Which of the following will improve a company's working capital management position?

► An increase in the credit period allowed by suppliers

► An increased level of bad debts

► An increased debtor collection period

► An increase in the length of the production process

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

How should a successful acquisition be evaluated in the long-run?

► The acquisition is successful if the acquirer is able to increase its earnings per share (EPS), relative to what it would have been without the acquisition

► The acquisition is successful if the acquirer is able to reduce its debt-to-total asset ratio, and hence risk, relative to what it would have been without the acquisition

► The acquisition is successful if the acquirer is able to diversify its asset base and reduce its overall risk

► The acquisition is successful if the market price of the acquirer's stock increases over what it would have been without the acquisition

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

According to the __________ theory of dividends, if the available retained earnings are in excess of the need, the surplus should be distributed as dividends.

► "Bird-in-the hand"

► Residual

► Clientele effect

► Dividend irrelevancy

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

Which of the following methods would be most suitable for calculating the return on stocks of a no listed company?

► Dividend Growth Model

► Capital Asset Pricing Model

► Security Market Line

► Characteristics Line

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

Which of the following reasons justifies the need for Financial Statement Analysis ?

► It improves capital budgeting process of the company

► It helps improve future planning

► It helps improve accounting policies of the company

► It helps improve purchasing polices of the company

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

The long-term creditors are likely to be least interested in which of the following ratios of a firm?

► Liquidity ratios

► Profitability ratios

► Coverage ratios

► Debt ratios

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

How much should you pay for a bond with Rs.1,000 face value, a 10 percent coupon rate, and seven years to maturity if your appropriate discount rate is 8 percent and interest is paid annually?

(Answers are rounded to the nearest dollar)

► Rs.560

► Rs.1,000

► Rs.903

► Rs.1,104

= 100*{1-[1/ (1+0.08)7]}/0.08+1000/ (1+0.08)7

= 100* 5.2063 + 583.50

= 1,104

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

When the market's required rate of return for a particular bond is much less than its coupon rate, the bond will be selling at which one of the following?

► At premium

► At discount

► At par

► Cannot be determined without more information

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

If a bond sells at a high premium, then which of the following relationships holds true? (P represents the price of a bond and YTM is the bond's yield to maturity.)

► P < par and YTM < the coupon rate.

► P < par and YTM > the coupon rate.

► P > par and YTM > the coupon rate.

► P > par and YTM < the coupon rate.

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

Which of the following techniques of stock evaluation considers quantitative factors as well as qualitative factors for valuation?

► Technical Analysis

► Fundamental Analysis

► Constant Growth Model

► No Growth Model

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

The term “Valuation” covers which of the following tasks?

► Estimating the worth of an asset

► Estimating the value of a security

► Estimating the worth of a business

► All of the given options

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

In which of the following stage of financial planning process, the financial planner should clearly explain or document the services to be provided ?

► Establishing and defining the client-planner relationship

► Gathering client data, including goals

► Analyzing and evaluating financial data

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

Which of the following illustrates the use of a hedging (maturity matching) approach to financing?

► Permanent working capital financed with long-term liabilities

► Short-term assets financed with equity

► All assets financed with 50 percent equity, 50 percent long-term debt mixture

► Short-term assets financed with long-term liabilities

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

Which of the following is the correct definition for "spread" in cash management?

► The difference between upper limit and lower limit of cash balances

► The difference between optimal cash balance and Nominal Cash balance

► The difference between opening cash balance and ending cash balance

► The difference between optimal cash balance and ending cash balance

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

If the EOQ (Economic Order Quantity) for an item decreases, the average level of inventory will:

► Increase

► Remain the same

► There is no relationship between the EOQ and inventory levels

► Decrease

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

According to Miller-Orr Model for cash management, the upper limits and lower limits of cash balances depends upon:

► Variance of cash flow

► Transaction cost

► Interest rate

► All of the given options

Page #96

Spread = 3(0.75 x transaction cost x variance of daily cash flows / daily interest rate) ^ (1/3)

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

Which of the following is(are) the way(s) to evaluate the credit worthiness of customer?

► Financial statement

► Market reputation

► Previous payment record

► All of the given options

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

In which of the following type of mergers, one firm acquires another firm that is in the same industry but at another stage in the production cycle?

► Horizontal

► Vertical

► Financial

► Conglomerate

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

A merger between two companies that sell the same products in different markets, would be known as:

► Market-extension merger

► Product-extension merger

► Conglomeration

► None of the given options

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

Who among the following can perform as a “white knight” in an ant takeover measure?

► A corporation

► A private company

► A person

► All of the given options

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

Which of the following type of exposures can be safeguarded by using hedging instruments?

► Transaction exposure

► Translation exposure

► Economic exposure

► None of the given options

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

Which of the following statement is INCORRECT regarding Interest Rate Futures?

► These contracts are similar to currency futures.

► These are traded in standardized form on future exchanges.

► Short Term Interest Rate futures are settled through physical delivery.

► Interest rate future, like currency futures may be settled before the maturity date.

 

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

An investor buys 10 options on shares of at a price of Rs 100 per share. Each option consists of 100 shares and premium paid is Rs. 5 per share. What would be the total gain for investor if the share price is Rs. 110 at the expiry of option?

► Rs. 5,000

► Rs. 8,000

► Rs. 10,000

► Rs. 100,000

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

In the calculations of Interest Rate Option, effective interest is computed by:

► Adding net interest expense and loan amount

► Subtracting loan amount from net interest expense

► Multiplying loan amount from net interest expense

► Dividing net interest expense by the loan amount

Question No: 43 ( Marks: 1 ) - Please choose one

Which of the following is the risk of loss of control, business may be taken over by the local government or intervention and interference by the local authorities?

► Interest rate risk

► Financial risk

► Confiscation risk

► Commercial risk

Question No: 44 ( Marks: 1 ) - Please choose one

Countries with ______ interest rate register capital inflow and result in appreciation in exchange rate.

► High

► Low

► Moderate

► None of the given options

Page# 146

Countries with high interest rate will register capital inflow and will result in appreciation in

exchange rate.

PAPER # 5

FINALTERM EXAMINATION

Fall 2008

FIN622- Corporate Finance (Session - 1)

 

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

The gross profit margin is unchanged, but the net profit margin declined over same period. This could have happened due to which one of the following reasons?

Cost of goods sold increased relative to sales

Sales increased relative to expenses

The tax rate has been increased

Dividends were decreased

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

A Company's common stock is currently selling at Rs.3.00 per share, its quarterly dividend is Rs.0.07, and the stock is expected to rise to Rs.3.30 in a year. What is its expected rate of return?

9.3%

19.3%

10.0%

11.0%

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

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?

14%

13%

12%

10%

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

Since the capital budgeting techniques use cash flows instead of accounting flows, therefore, the financial manager must add back which one of the following to the analysis?

The cost of fixed assets

The cost of accounts payable

Investments

Depreciation

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

Which of the following statements is correct for a project with a positive Net Present Value (NPV)?

Internal rate of return (IRR) exceeds the cost of capital.

Accepting the project has an indeterminate effect on shareholders.

The discount rate exceeds the cost of capital.

The profitability index equals one.

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

A firm with 60% of sales going to variable costs, $1.5 million fixed costs, and $500,000 depreciation would show what accounting profit with sales of $3 million? (Ignore taxes)

Zero loss

$370,000 loss

$666,667 loss

$800,000 loss

Sales – (Variable cost 60% of sales + fixed cost + Deprecation)

3,000,000 – (1,800,000+1,500,000+500,000)

Loss= 800,000

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

Suppose a stock is selling today for Rs.35 per share. At the end of the year, it pays a dividend of Rs.2.00 per share and sells for Rs.39.00. What is the dividend yield on this

stock?

2%

3%

4%

5%

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

Suppose a stock is selling today for Rs.60 per share. At the end of the year, it pays a dividend of Rs.2.00 per share and sells for Rs.66.00. what is the capital gain yield on the

stock?

7%

8%

9%

10%

Capital gain yield = 66-60 / 60= 10%

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

Which of the following transactions would occur in a primary financial market?

Initial Public Offering

Buying Mutual Funds Certificates

Selling old shares

Buying Bonds issued in previous year

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

With respect to a Cash flow statement, Decrease in current assets would be considered as a:

Cash outflow

Cash inflow

Sometimes considered as cash outflow and sometime as cash inflow

Can not be determined

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

According to the Miller Model, upper limit for cash balance is equal to which of the following?

Lower limit + Spread

Spread Lower limit

Optimal limit + Lower limit

Lower limit Spread

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

A merger results in a reduction of average production costs. In this case, which of the following is CORRECT?

The merger must have been conglomerate

Economies of scale exist

The merger must have been vertical

The acquired firm had net operating losses

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

Employees buyout occurs through which of the following?

Employee stock ownership plan

Employees dividend scheme

Employee empowerment scheme

Employee long-term benefit scheme

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

Which of the following is an example of a management Buy In?

Management of a Firm-A purchases majority shares from the shareholders

Management of a Firm-A acquires majority shares in another Firm-B

Management sale out some assets of the firm

Management buy some new plants and machinery

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

Which of the following could be a major reason of financial distress for a firm?

High dividend payout to shareholders

Majority shares are being controlled by management

Majority shares are being controlled by employees

Rivalry from competing firms

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

An option is termed as in the money if:

The exercise price mentioned in the option is favorable than the market price of the underlying commodity

The exercise price mentioned in the option is not favorable than the market price of the underlying commodity

The exercise price mentioned in the option is equal to the market price of the underlying commodity

 The exercise price mentioned in the option is above the option cost

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

Which of the following would be the net gain for the investor if the market price of underlying shares in an equity option is greater than the strike price and the investor exercise the option?

The difference between the market price on underlying shares and the strike price less option cost

The difference between exercise price and the market price of the underlying shares plus option cost

The difference between option cost and strike price

The difference between exercise price and market price

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

Which one of the following statements is CORRECT regarding currency options?

In a currency option, the seller has the right to sell currency

In a currency option, the holder has the right to sell/buy currency

In a currency option, the seller has the right to buy currency

In a currency option, the holder has the obligation to buy

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

A currency option will NOT be exercised if:

The exchange rate is above the agreed rate

The exchange rate is below the agreed rate

The exchange rate is equal to the agreed rate

The exchange rate is equal to the option cost

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

Which one of the following statements is CORRECT regarding option cost?

Option cost is paid by the option writer to option seller

Option cost is paid by the option writer to option holder

Option cost is paid by the option holder to option seller

Option cost is paid by the option seller to option writer

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

Which of the following situations would result in weakening the local currency against a foreign currency?

Demand for foreign currency decreases

Supply of local currency decreases

Demand & Supply are in balance

Demand for foreign currency increases

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

Which of the following would be consistent with an aggressive approach to financing working capital?

Financing short-term needs with short-term funds

Financing permanent inventory buildup with long-term debt

Financing seasonal needs with short-term funds

Financing some long-term needs with short-term funds

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

Identify the INCORRECT statement in connection with working capital management.

The objectives of working capital management are profitability and liquidity

Long-term funds are more expensive than short-term funds but also riskier

Aggressive financing policies increase profitability at the cost of higher risk

Conservative financing policies use short-term funds to finance only part of fluctuating current assets

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

All of the following are TRUE regarding the investing activity section of the cash flow statement EXCEPT:

Investing activities include the purchase and sale of income-producing assets

Selling off capital assets may be good news if the company is getting rid of unprofitable divisions

Large purchases of capital assets may signal an emergency

Investing activities require analysis of long-term asset accounts

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

Which of the following is a reason for high P/E ratio of a company?

Low profit & losses mix in recent past

Expected future losses

Low security

High Share prices due to a takeover bid.

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

Suppose that a firm sells goods on terms of 2/10, net 20. On March 1, 2008 you buy goods from the company with an invoice value of Rs.50, 000. How much discount would you get, if you took the cash discount?

Rs. 1,000

Rs. 2,000

Rs. 4,000

Rs. 5,000

50,000 *2/100 = 1000

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

All of the following are the methods to evaluate the credit worthiness in business EXCEPT:

Market reputation

Previous payment record

Production plant capacity

Financial strength

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

Which of the following is the most common reason for a capital expenditure?

Safety device installation

Expansion

Renewal

Replacement

PAPER # 6

FINALTERM EXAMINATION

Fall 2009

FIN622- Corporate Finance (Session - 1)

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

Which one of the following is an offering in which the shares of a company are offered to a limited number of investors?

► Initial Public Offering

► Private Placement

► Direct Public Offering

► Primary Offering

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

Which of the following is a main purpose of the Sensitivity Analysis?

► 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

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

Which of the following refers to the budgetary constraint placed by a firm on its investment projects?

► Capital rationing

► Working capital management

► Cash budgeting

► None of the given options

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

The percentage change in a firm's operating profit (EBIT) resulting from a 1% change in

output (sales) is known as the ________.

► Degree of operating leverage

► Degree of profit leverage

► Degree of total leverage

► Degree of financial leverage

DOL (Degree of Operating Leverage) is a quantitative measure of the “sensitivity” of a firm’s operating profit to a change in the firm’s sales. The closer that a firm operates to its break-even point, the higher is the absolute value of its DOL. When comparing firms, the firm with the highest DOL is the firm that will be most “sensitive” to a change in sales. The DOL percentage in change in a firm’s EBIT resulting form a 1 percent change in quantity (sales):

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

What will be the risk premium if the market portfolio has an expected return of 10% and the risk free rate is 4%?

► 4%

► 5%

► 6%

► 7%

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

A firm had an interest expense of Rs.400,000 on its outstanding debt during the financial year 2006-2007. If the firm marginal tax rate is 40%, what was the total tax savings of the firm during the period 2006-2007?

► Rs.150,000

► Rs.160,000 =400,000 X 40/100

► Rs.170,000

► Rs.180,000

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

All of the following factors must be considered while making short-term investments EXCEPT:

► Liquidity

► Safety

► Profitability

► Inventory

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

All of the following can be used as hedging tool against interest rate risk EXCEPT:

► Forward rate agreements

► Interest rate futures

► Interest rate options

► Currency futures

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

The restructuring of a firm should be undertaken if :

► The restructuring is expected to increase earnings per share (EPS) next year

► The restructuring is expected to create value for shareholders

► The restructuring is expected to increase the firm's market share power within the industry

► The current employees will receive additional stock options to align employee

interest

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

Which of the following is NOT a reason for determining shares value in mergers and acquisitions?

► To impede the anti takeover bid of the predator company

► To set up the terms of takeovers

► To value the company for stock exchange listing

► To value shares – for establishing value of share of retiring directors

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

Expansion of credit period by a firm involves which of the following types of risk?

► Additional cost of production

► Additional cost of funds and bad debts [page 106]

► Additional cost of advertising

► Additional cost of business

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

The present value of Rs.100 per year received for 10 years discounted at 8 percent is closest to which of the following amounts?

► Rs.177

► Rs.362

► Rs.425

► Rs.671

Reference:

PVoa = PMT [(1 - (1 / (1 + i)n)) / i]

PVoa = 100 [(1 - (1 / (1 + 0.08)10)) / 0.08]

PVoa = 100 [(1 - (1 / (1.08)10)) / 0.08]

PVoa = 100 [(1 - (1 / (2.158924997)) / 0.08]

PVoa = 100 [(1 – 0.463193488/ 0.08]

PVoa = 100 [0.536806512/ 0.08]

PVoa = 100 [6.7100]

Pvoa = 671

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

Which of the following is a long-term source of financing for a firm?

► Corporate bonds

► Money market instruments

► Trade credit

► Accounts payables

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

Which of the following is not one of the kinds of dividend policies in practice?

► Residual dividend policy

► Dividend growth policy

► Premium dividend policy

► Discount dividend policy

 residual dividend policy;

 stable or dividend growth policy;

 stable net profit/dividend payment ratio dividend policy;

 Premium dividend policy.

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

Which of the following functions behind budget activity refers to monitoring, comparing

information to a standard and taking corrective action?

► Planning

► Control

► Management

► None of the given options

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

Which of the following methods show(s) each major class of gross cash receipts and

gross cash payments?

► Direct method

► Indirect method

► Both direct and indirect method

► Neither direct nor indirect method

The direct method shows each major class of gross cash receipts and gross cash payments

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

Which of the following method adjust(s) accrual basis net profit or loss for the effects of non-cash transactions?

► Direct method

► Indirect method

► Both direct and indirect method

► Neither direct nor indirect method

The indirect method adjusts accrual basis net profit or loss for the effects of non-cash transactions.

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

Mr. Saleem buys inventory on credit on Jan. 01, 2009 worth Rs.10,000 settle the creditor on Mar. 01, 2009. After a month (on Apr. 01, 2009), a debtor buys finished goods Rs.14,000 and pays for that on May 15, 2009. What is the operating cycle in the given scenario?

► 60 days

► 90 days

► 120 days

► 135 days

Operating Cycle = age of inventory + collection period.

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

Mr. John Smith has changed the working capital policy of his company recently. As a result, the liquidity for the company has increased but a decrease in profitability has been observed alongside. From this information, we can conclude that the company must have changed his working capital policy from ________ to ________.

► Conservative; Aggressive

► Conservative; Moderate

► Aggressive; Conservative

► Moderate; Aggressive

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

Which of the following are properly managed by a good Cash Management System?

► Collections, disbursements, cash balances, and capital investment

► Collections, disbursements, cash balances, and marketable securities investment

► Only collections, disbursements, and cash balances

► Only collections and disbursements

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

Suppose you have made a purchase of Rs. 50,000 today on terms of 2/10, net 30. How much would you need to pay if you pay after seven days of purchase?

► Rs. 49,000

► Rs. 5,000

► Rs. 10,000

► Rs. 35,000

50,000x.02=1000

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

“Two companies A & B have been acquired by a brand new company C.” This information refers to which of the following terms?

► Purchase mergers

► Consolidation mergers

► New mergers

► Brand mergers

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

Which of the following is(are) required to be decided while considering acquisition?

► Whether shares or assets to be purchased

► Type of consideration

► Share valuation issues

► All of the given options

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

Which of the following is an "asset based method" for share valuation of a target firm?

► Replacement cost method

► Dividend valuation method

► Present value method

► Price earning ration method

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

“The managers of ABC Company are going to buy majority shares of the XYZ Company.” This practice demonstrates which of the following acquisition types?

► Management Buyout

► Management Buy-In

► Leverage Buyout

► None of the given options

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

Which of the following is(are) the type(s) of re-organization?

► Conversion of debt to equity or vice versa

► Conversion of equity from one class to other

► Conversion of debt from one class to another

► All of the given options

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

Which of the following statements is CORRECT regarding currency futures?

► Currency futures are forward contracts traded on future and option exchanges

► Currency future is a money market hedging techniques

► Currency futures are traded in the stock market

► Currency futures are regularized by mutual funds

Question No: 43 ( Marks: 1 ) - Please choose one

If the exercise price mentioned in the option is favorable than the market price of the underlying commodity, an option would be termed as:

► In the money

► Out of money

► At the money

► None of the given options

PAPER # 7

 

FINALTERM EXAMINATION

Fall 2009

FIN622- Corporate Finance (Session - 5)

 

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

Last year ABC Company had a 9.00% net profit margin based on Rs.22,000,000 in sales and Rs.15,000,000 of total assets. During the coming year, the president has set a goal of attaining a 14% return on total assets. How much must firm sales equal, other things being the same, for the goal to be achieved?

► Rs.22,000,000

► Rs.26,722,967

► Rs.25,603,667

► Rs.23,333,333

ROA = NI/TA

0.14 = (NI)/(15,000,000)

(0.14)(15,000,000) = NI

NI = 2,100,000

NPM = NI/Sales

0.09 = (2,100,000)/Sales

0.09Sales = 2,100,000

Sales = (2,100,000)/(0.09) = 23,333,333

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

Felton Farm Supplies, Inc., has an 8 percent return on total assets of Rs.300,000 and a net profit margin of 5%. What are its sales?

► Rs.3,750,000

► Rs.480,000

► Rs.300,000

► Rs.1,500,000

ROI / NPM = TAT

.08 / .05 = 1.6

TAT * TA = SALES

1.6 * 300,000 = 480,000

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

Which of the following is determined by variance of an investment's returns?

► Volatility of the rates of return.

► Probability of a negative return.

► Historic return over long periods.

► Average value of the investment.

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

Which one of the following will precede “FEEDBACK” in the financial planning process?

► Choosing a strategy

► Implementation of the plan

► Comparing budgeted and actual results

► Taking corrective measures

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

Which of the following is prepared by combining all the functional budgets?

► A cash budget

► A sales budget

► A master budget

► A production budget

Master budget is a consolidated budget prepared by combining the summaries of all the functional budgets.

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

Which of the following is closely related to a sales budget?

► Miscellaneous income

► Future profits

► Cash outflow

► Cash inflow

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

The merger of the two computer manufacturing firms, Compaq and Dell Corporation, would be classified as which of the following types of merger?

► Horizontal merger

► Monopolistic merger

► Conglomerate merger

► Vertical merger

Horizontal merger - Two companies that are in direct competition and share the same product lines and markets

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

Which of the following statements applies to employees’ buyout?

► Employees are promoted to the higher positions

► Employees are given more responsibilities

► Employees buy majority shares in the firm

► Employees buy shares of a competing firm

A restructuring strategy in which employees buy a majority stake in their own firms. This form of buyout is often done by firms looking for an alternative to a leveraged buyout

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

Which of the following is a firm level cause of financial distress?

► Bargaining power of suppliers

► Difficulty in producing quality products

► Intensive market competition

► Difficulty in cash flow generation

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

The amount of current assets required to meet a firm's long-term minimum needs is referred to as __________ working capital.

► Permanent

► Temporary

► Net

► Gross

Permanent working capital is the minimum investment in current assets that is required support long-term minimum need.

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

Which of the following best represents the optimal economic order quantity (EOQ), where total usage of the inventory item is 100,000 units for the planning period, the cost per order is Rs.180 and the carrying costs per unit for each period is Rs.1?

► 6,000 units

► 4,243 units

► 556 units

► 4,000 units

SQR 2xRUxOC/CC

SQR 2x100,000x180/1 = 6000

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

The total return on a share of common stock is comprised of which of the following?

► Capital gains yield and a dividend growth rate

► Capital gains growth rate and a dividend growth rate

► Dividend yield and a required rate of return

► Dividend yield and a capital gains yield

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

A decrease in the firm's receivable turnover ratio means that __________.

► It is collecting credit sales more quickly than before

► It is collecting credit sales more slowly than before

► Sales have gone down

► Inventories have gone up

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

Which of the following companies may be considered as a Pure Play in the beverages industry in Pakistan?

► Coca Cola

► Pepsi

► Shezan

► Nestlé

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

Which one of the following types of business enjoys the advantage of 'Limited Liability'?

► Sole-proprietorship

► Partnership

► Company

► None of the given options

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

Which of the following would be a consequence of a high Inventory Turnover Ratio?

► Low level of inventory and frequent stock-outs

► Seasonal elements peculiar to the business

► Efficient inventory management

► Any of the given option

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

Which of the following refers to the value at which an asset is carried on a balance sheet?

► Book Value

► Market Value

► Fair Value

► Liquidation Value

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

An investor buys a bond that will pay the interest amount of Rs.60 annually, forever. Which of the following would be the present value of the bond if there is exactly one year remaining until the next interest payment and the investor's required annual return is 5 percent?

► Rs. 1,200 [60/.05]

► Rs. 800

► Rs. 600

► Rs. 1,000

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

According to IAS 7, which method(s) should be used as benchmark treatment?

► Direct method

► Indirect method

► Both direct and indirect method

► Neither direct nor indirect method

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

Financial data for three firms is presented below. Each differs only with respect to philosophy on an aggressive vs. a conservative approach to current asset management.

                                FIRM A                  FIRM B                       FIRM C

Sales                  Rs.2,000,000         Rs.2,000,000             Rs.2,000,000

EBIT                        200,000               200,000                       200,000

Current Assets        600,000               500,000                       400,000

Fixed Assets           500,000               500,000                       500,000

Total Assets          1,100,000             1,000,000                    900,000

What will be the rate for the firm with the most aggressive philosophy?

► 18.2 percent

► 33.3 percent

► 25.5 percent

► 22.2 percent

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

Which of the following is NOT a way to improve cash flow?

► Liquidating investments

► Deferring payments to creditors

► Increasing the receipt float [page 94]

► Accelerating cash inflows which were set for recovery at a later period

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

Which of the following statement is considered as the special alchemy of merges and acquisitions?

► A bird in hand is better than two in bushes.

► Something is better than nothing.

► One plus one makes three.

► A dollar in your hand is worth more than a dollar to be received next year.

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

In a public take over process, the predator company appoints experts at which stage?

► Evaluation stage

► Direct Bid stage

► Establishing offer stage

► None of the given options

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

Leverage risk is related to which of the following levels of financial distress of a firm?

► Firm Level [page 127]

► Industry Level

► Macro-Level

► All of the given options

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

Which of the following is an internal method to reduce the transaction exposure?

► Forward contract

► Multilateral netting [page 131]

► Money market hedges

► Currency futures

Question No: 43 ( Marks: 1 ) - Please choose one

Which of the following is(are) the way(s) through which a multi-national firm could reduce political risk?

► High gearing

► High local finances

► Share in equity from local resources

► All of the given options [page 150]

Question No: 44 ( Marks: 1 ) - Please choose one

“The exchange rate between two countries should equal the ratio of the two countries' price level of a fixed basket of goods and services.” This statement belongs to which of the following theory?

► M&M theory

► Interest rate risk theory

► Purchasing Power Parity theory [page 145]

► Fisher effect theory

PAPER # 8

FINALTERM EXAMINATION

Fall 2010

FIN622- Corporate Finance (Session - 3)

 

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

Which of the following statements is TRUE regarding Balance Sheet of a firm?

► It reports how much of the firm’s earnings were retained in the business rather

than paid out in dividends.

► It reports the impact of a firm’s operating, investing, and financing activities on

cash flows over an accounting period.

► It shows the firm’s financial position at a specific point in time.

► It summarizes the firm’s revenues and expenses over an accounting period

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

If you want to earn 8 percent, approximately how much should you pay for a security which matures in one year at Rs. 1,000?

► Rs. 1,080

► Rs. 940

► Rs. 920

► Rs. 926

Reference:

PV = FV/(1+i)

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

Which of the following statements applies to Security Market Line (SML)?

► Security Market Line (SML) shows the relationship between expected rate of return and required rate of return of a security.

► Security Market Line (SML) shows the relationship between Beta and market value of a security.

► Security Market Line (SML) shows the relationship between required rate of return and beta coefficient of a security.

► Security Market Line (SML) shows the relationship between Market value and face value of a security.

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

ABC Company will pay a dividend of Rs.2.40 per share at the end of this year. Its

dividend yield is 8%. At what price is the stock selling?

► 40

► 35

► 30

► 25

Reference:

Price per share = Annual dividends per share / dividend yield

= 2.40/ 0.08

= 30

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

Which of the following is tax deductible?

► Dividend on preferred shares

► Dividend on common stocks

► Coupon payments on bonds

► Capital gain on common stocks

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

Which of the following types of bonds pays no annual interest to the holder, but is sold

at discount below the par value?

► An original maturity bond

► A floating rate bond

► A fixed maturity date bond

► A zero coupon bond

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

A public limited Company had sales of Rs.2 million this year. The marketing manager expects sales to grow at a 10 percent compound annual rate over the next 10 years. On this basis, which of the following is the closest amount of sales in 10 years?

Rs.5,187,485.

► Rs.2,593,722.

► Rs.4,622,885.

► Rs.5,081,309

Reference:

Fv = PV(1+i)^n

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

If the intrinsic value of a stock is greater than its market value, then which of the following is a reasonable conclusion?

The stock has a low level of risk.

The stock offers a high dividend payout ratio.

The market is undervaluing the stock.

The market is overvaluing the stock.

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

In which of the following conditions a stock is said to be undervalued?

If the stock has market value less than the expected value

If the stock has market value more than the expected value

If the stock has market value equal to the expect value

If the stock has market value more that intrinsic value

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

Which of the following change will occur if a bond's yield-to-maturity increases, keeping other factors constant?

Its price will rise

Its price will remain unchanged

Its price will fall.

Can not be determined

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

A firm has 30 days collection period and it is offering terms of 2/10, net 30. The estimations shows that around 70% customers will avail this opportunity by paying within 10 days whereas remaining will pay after 30 days. What would be the Average Collection Period (ACP) of the firm?

► 10 days

► 12 days

16 days

► 18 days

70% x 10 days + 30% x 30 days

= 7 + 9 = 16 days

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

Profitability and liquidity move in ________ direction whereas risk and profitability and risk move in _________ direction.

► Same; inverse

► Inverse; same [page 89]

► Inverse; opposite

► Same; opposite

Question No: 45 ( Marks: 1 ) - Please choose one

For financial statement purposes, the accounting value of fixed assets is based upon which of the following?

► Their estimated liquidation value

► Their relative importance to the company

► Their actual purchase price

► Their current market price

Question No: 47 ( Marks: 1 ) - Please choose one

In finance, "working capital" means the same thing as

total assets.

fixed assets.

Current assets

Current assets minus current liabilities.

Question No: 48 ( Marks: 1 ) - Please choose one

Which of the following statement is TRUE regarding a firm adopting a conservative financing policy?

Select correct option:

Firm may have to pay interest on debt at times when the funds are not needed

Firm would be more profitable than a firm adopting an aggressive financing policy.

Firm would have to be a public utility.

Firm would have higher financial risk than if it adopted an aggressive financing policy.

Question No: 50 ( Marks: 1 ) - Please choose one

Which of the following is the first step in the financial planning process?

Select correct option:

Identifying objectives and targets

Evaluating different alternative

Choosing a course of action

Providing feedback

PAPER # 9

FINAL TERM EXAMINATION

Spring 2011

FIN622- Corporate Finance

(Session - 3)

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

Which one of the following terms refers to the variability of return on stocks or portfolios, associated with changes in return on the market as a whole?

► Unsystematic risk

► Unique risk

► Systematic risk

► Company specific risk

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

Which of the following is an expected rate of return on a bond if bought at its current market price and held to maturity?

► Yield to maturity

► Current yield

► Coupon yield

► Capital gains yield

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

Which of the following is a re-structuring strategy in which employees buy a majority share in their own firm?

► Employee Dividend Scheme

► Employee Buyout

► Employee Empowerment

► Leverage Buyout

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

Which of the following could be used as a hedging tool against unfavorable movement in interest rate?

► Currency option

► Currency futures

► Interest rate option

► Currency SWAP

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

“The firm has a reasonable amount of net working capital that leads to a low-risk position”.

The above statement belongs to:

► Aggressive working capital policy

► Conservative working capital policy

► Moderate working capital policy

► The statement is not related to any of the working capital

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

The experts hired in evaluation stage of a public take over process DO NOT include which of the following?

► Legal consultants

► Accountants

► Shareholders

► Stock Brokers

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

In which of the following forms of acquisition, a company's existing managers acquire a large part or all of the company?

► Management Buyout

► Management Buy-In

► Leverage Buyout

► None of the given options

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

Which of the following would be the outcome if the fixed rate in the forward rate agreement (FRA) is lower than the reference rate?

► The seller of the FRA makes a cash payment to the buyer.

► Both buyer and seller make payments to each other.

► The buyer of the FRA makes a cash payment to the seller.

► Neither buyer nor seller makes any payment to each other.

Question No: 44 ( Marks: 1 ) - Please choose one

In which of the following situations, a company has the ability to pay off its short-term obligations easily?

► If the company has a positive working capital

► If the company has a negative working capital

► If the company has a zero working capital

► None of the given option

Question No: 60 ( Marks: 1 ) - Please choose one

In which of the following type of mergers, one firm acquires another firm that is in the same industry but at another stage in the production cycle?

► Horizontal

► Vertical

► Financial

► Conglomerate

Question No: 76 ( Marks: 1 ) - Please choose one

Which one of the following statements best describes the relationship between market interest rates and bond prices?

► Sometimes move in the same direction, sometimes in opposite directions

► Market interest rate and bond prices have no relationship with each other

► Market interest rates and bond prices move in the same direction

► Market interest rates and bond prices move in opposite directions

Question No: 80 ( Marks: 1 ) - Please choose one

Which of the following is an economic motive of Multinational Companies for foreign investment?

► Economies of scale

► Market development

► Political safety

► Backward Integration

PAPER # 10

FINAL TERM EXAMINATION

Spring 2010

FIN622- Corporate Finance (Session - 1)

 

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

If sensitivity analysis concludes that the largest impact on profits would come from changes in the sales level, then which of the following recommendations

should be considered?

► Fixed costs should be traded for variable costs

► Variable costs should be traded for fixed costs.

► The project should not be undertaken.

► Additional marketing analysis may be beneficial before proceeding.

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

Which of the following statements is TRUE regarding temporary working capital?

Temporary working capital varies with seasonal requirements.

► Temporary working capital is the constant component of working capital.

► Temporary working capital excludes inventories.

► Temporary working capital should be financed with bonds or common stock

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

In which of the following acquisition strategies, a purchaser has complete knowledge of the acquiring firm?

► Management Buy-In

► Management buyout

► Consolidation

► Amalgamation

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

Which one of the following statements is CORRECT regarding Options Contacts?

► A put option gives the holder a right to sell underlying item at a specified price

► A put option gives its writer the right to sell underlying item at a specified price

► A call option gives its writer a right to sell underlying item

► A call option gives its holder a right to sell underlying item

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

Which one of the following techniques can reduce the risks and disadvantages of share purchase method in mergers and acquisitions?

► Spin-off

► Hive-down

► Hubris

► Off-shoot

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

The financial consideration to be paid to target company in mergers can be classified in to the following categories EXCEPT:

► Cash

► Assets

► Share – ordinary or preference

► Debt

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

Which of the following types of dividend policies results in the most volatile dividend payments and stockholder discomfort?

► Target dividend-payout policy

► Low-regular-and-extra dividend policy

► Regular dividend policy

► Constant payout-ratio dividend policy

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

Suppose you invested Rs. 8,000 in a savings account paying 5 percent interest a year, compounded annually. How much amount your account will have at the end the end of four years?

► Rs.10,208

► Rs.9, 728

► Rs.10,880

► Rs.9,624

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

If you deposit Rs. 12,000 per year for 16 years (each deposit is made at the beginning of each year) in an account that pays an annual interest rate of 15%,what will your account be worth at the end of 16 years?

► Rs. 82,168.44

► Rs. 71,450.82

► Rs. 768,901.12

► Rs. 668,609.67

Fv = p * (((1 + i) ^ n - 1) / i) * (1 + i)

P =12000

i = 15%

n = 16

Fv = p * (1 + 0.15) ^ 16 - 1) / 0.15) * (1 + 0.15)

12000 * (1 .15) ^ 16 - 1) / 0.15) * (1 .15)

12000 * (9.357620873 - 1) / 0.15) * (1 .15)

12000 * (8.357620873) / 0.15) * (1 .15)

12000 * (55.71747249) * (1 .15)

12000 * (64.07509336)

768901

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

Which of the following statements would be CORRECT regarding nominal interest rate when inflations is expected to occur over the foreseeable future?

► Nonimal interest rate would be equal to real interest rate

Nonimal interest rate would be more than real interest rate

► Nonimal interest rate would be half of real interest rate

► Nonimal interest rate would be less than the real interest rate

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

Which of the following is a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume?

► Technical analysis

► Fundamental analysis

► Common size analysis

► Ratio analysis

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

Which of the following statements is CORRECT regarding the fundamental analysis?

► Fundamental analysts use only Economic indicators to evaluate a stock

► Fundamental analysts use only financial information to evaluate a company’s stocks

► Fundamental analysts use financial and non-financial information to evaluate a company’s stocks

► Fundamental analysts use only non-financial information to evaluate a company’s stocks

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

When faced with mutually exclusive options, which project should be accepted under the 'Payback Method'?

► The one with the longest payback period

► The one with the shortest Payback period

► It doesn’t matter because the payback method is not theoretically correct

► None of the given options

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

Which of the following IAS (International Accounting Standard) deals with cash flow statement?

► IAS 1

► IAS 7

► IAS 16

► IAS 28

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

“The firm has very little net working capital sometimes even negative net working capital that can be very risky.” The above statement belongs to:

Aggressive working capital policy

► Conservative working capital policy

► Moderate working capital policy

► The statement is not related to any of the working capital policies

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

Under which of the following concepts, each asset is offset with a financing instrument of the same maturity?

► M&M proposition

► Clientele effect

► Hedging approach

► Baumol Model

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

Which of the following term refers to the minimum inventory amount needed for an item?

► Stock-out

► Buffer Stock

► Holding Stock

► Safety Stock

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

Which of the following is an anti takeover strategy in which the target company make significant efforts to resist a takeover bid e.g. by a major acquisition, issue new shares?

► Shark repellent

► Pac-man

► Poison pill

► Political pressure

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

Which of the following is NOT an external method to reduce the transaction exposure?

► Invoicing in home currency

► Money market hedges

► Currency futures

► Currency swaps

Question No: 45 ( Marks: 1 ) - Please choose one

If the exercise price of an option is not favorable than the market price of the underlying item, an option would be termed as:

► In the money

► Out of money

► At the money

► None of the given options

Question No: 48 ( Marks: 1 ) - Please choose one

Which of the following is the CORRECT statement regarding the Law of One Price?

► The law of one price applies to only tradable goods

► The law of one price applies to all goods

► The law of one price applies to immovable goods

► The law of one price applies to services only

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