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MGT201 Solved MCQs - MGT201 Solved Online Quizzes - MGT201 Solved MCQs Bank - MGT201 MCQs Collection from Online Quizzes – MGT201 Mega Solved MCQs – MGT201 Mid Term Final Term Papers Solved MCQs

MGT201 Solved MCQs - MGT201 Solved Online Quizzes - MGT201 Solved MCQs Bank - MGT201 MCQs Collection from Online Quizzes – MGT201 Mega Solved MCQs – MGT201 Mid Term Final Term Papers Solved MCQs

MGT201 Virtual University MCQs BANK - MCQs Collection from Online Quizzes

Which of the following is likely to be correct for a company which invests in projects with Positive NPV?
Select correct option:

Company’s EVA (Economic Value Added) rises by the same value
Company’s MVA (Market Value Added) or market value rises
Company Shareholders’ Wealth rises
All of the given options

Market Value Added (MVA), Net Present Value (NPV), and Economic Value Added (EVA)
We use a measure called MVA in our assessment of a company’s net present value (NPV). In turn, we use a metric called EVA in our assessment of prospective  economic earnings. We begin with EVA, as it naturally leads to MVA, the market’s  efficient market assessment of NPV.
From a finance perspective, EVA is defined in terms of how it relates to the firm’s “market value added.”
In theory (market efficiency), MVA is equal to the net present value (NPV) of the firm’s expected future EVA.
If the marginal reduction in order costs exceeds the marginal carrying cost of inventory, then what should be done by the firm?
Select correct Option:
The firm has minimized its total carrying costs
The firm should increase its order size
The firm should decrease its order size
The firm has maximized its order costs

When marginal benefit (e.g., marginal reduction in order costs) exceeds marginal cost (e.g., marginal carrying cost of inventory) of increasing the order size, it worth doing it.

Which of the following is as EBIT?
Select correct option:
Funds provided by operations
Earnings before taxes
Net income
Operating profit

EBIT is also referred to as "operating earnings", "operating profit" and "operating income", as you can re-arrange the formula to be calculated as follows:

 EBIT = Revenue - Operating  Expenses

Also known as Profit Before Interest & Taxes (PBIT), and equals Net Income with interest and taxes added back to it

Security market line gives the relationship between _______ and _________.

Select correct option:
Market risk and the required return
Systematic risk and the required return
Non-diversified risk and the required return
All of the given options
 security market line A straight line that shows the equilibrium relationship between systematic risk and expected rates of return for individual securities. According to the SML, the excess return on a risky asset is equal to the excess return on the market portfolio multiplied by the beta coefficient.
In finance, systematic risk, sometimes called market risk, aggregate risk, or undiversifiable risk, is the risk associated with aggregate market returns

All of the following are the reasons for Uncertain NPV calculations EXCEPT:

Select correct option:
Estimated discount rate does not change with the markets
Estimated Life of project is doubtful
Annual after-tax cash flows are difficult to estimate
Timing of cash flows is not exactly predictable
Limitation of NPV analysis in Uncertain settings

1. Requires information about cash flow that may often not be known Characterizing the level of risk and uncertainty associated with a new and innovative strategy is itself an uncertain and risky undertaking
2. Assumes uncertainty and risk associated with a strategy remain constant over the life of that strategy Risk level differs over different periods, and is itself affected by strategic actions
3.Fails to incorporate value of future strategies that are enabled by current strategy Path dependent nature of capability acquisition

Views: 1929

Replies to This Discussion

How can a company improve (lower) its debt-to-total asset ratio?

By borrowing more
By shifting short-term to long-term debt
By shifting long-term to short-term debt
By selling common stock

Which of the following are known as Discretionary Financing?

Current liabilities
Current assets
Fixed assets
Long-term liabilities

Which of the following value of the shares changes with investor’s perception about the company’s future and supply and demand situation?

Par value
Market value
Intrinsic value
Face value

According to timing difference problem a good project might suffer from ___ IRR even though its NPV is ______

Higher; lower
Lower; Lower
Lower; higher
Higher; higher

Which of the following statements is TRUE regarding Permanent Accounts?
Select correct MGT201 option:
Accounts that are found on Income Statement
Accounts that are found on Statement of Retained Earnings
Accounts that are found on Balance Sheet
All of the given MGT201 options

Which group of ratios shows the extent to which the firm is financed with debt? Select correct MGT201 option:

Liquidity ratios
Debt ratios
Coverage ratios
Profitability ratios

Which of the following is NOT the type of Hybrid organizations. Select correct MGT201 option:

S-Type Corporation
Limited Liability Partnership
Sole Proprietorship
Professional Corporation

When bonds are issued, under which of the following category the value of the bond appears. Select correct MGT201 option:

Equity
Fixed assets
Short term loan
Long term loan

In 2 years you are to receive Rs.10,000. If the interest rate were to suddenly decrease, the present value of that future amount to you would ________. Select correct MGT201 option:

Fall
Rise
Remain unchanged
Incomplete information

Which of the following refers to bringing the future cash flow to the present timeSelect correct MGT201 option:

Net present value
Discounting
Opportunity cost
Internal rate of return

Discounted cash flow methods provide a more objective basis for evaluating and selecting an investment project. These methods take into account: Select correct MGT201 option:

Magnitude of expected cash flows
Timing of expected cash flows
Both timing and magnitude of cash flows
None of the given MGT201 options

Effective interest rate is different from nominal rate of interest because. Select correct MGT201 option:

Nominal interest rate ignores compounding
Nominal interest rate includes frequency of compounding
Periodic interest rate ignores the effect of inflation
All of the given MGT201 options

What are the Indirect securities? Select correct MGT201 option:

The securities whose value depends on the cash flows generated by the underlying assets
The securities whose value depends on the value of the underlying assets
The securities that indirectly generate returns for its investors
All of the given MGT201 options

A 5-year annuity due has periodic cash flows of Rs.100 each year. If the interest rate is 8 percent, the future value of this annuity is closest to which of the following equations? Select correct MGT201 option:

(Rs.100)(FVIFA at 8% for 5 periods)
(Rs.100)(FVIFA at 8% for 4 periods)(1.08)
(Rs.100) (FVIFA at 8% for 5 periods)(1.08)
(Rs.100)(FVIFA at 8% for 4 periods) + Rs.100

Given no change in required returns, the price of a stock whose dividend is constant will__________Select correct MGT201 option:

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

Companies and individuals running different types of businesses have to make the choices of the asset according to which of the following. Select correct MGT201 option:

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Life span of the project
Cost of the capital
Return on asset
None of the given MGT201 options

When a bond will sell at a discount. Select correct MGT201 option:

The coupon rate is greater than the current yield and the current yield is greater than yield to maturity
The coupon rate is greater than yield to maturity
The coupon rate is less than the current yield and the current yield is greater than the yield to maturity
The coupon rate is less than the current yield and the current yield is less than yield to maturity

Which of the following allows to graphically depicting the timing of the cash flows as well as their nature as either inflows or outflows. Select correct MGT201 option:

Cash flow diagram
Cash budget
Cash flow statement
None of the given MGT201 options

Which of the following is NOT the step of Percentage of sales to be used in Financial Forecasting. Select correct MGT201 option:

Estimate year-by-year Sales Revenue and Expenses
Estimate Levels of Investment Needs required to Meet Estimated Sales
Estimate the Financing Needs
Estimate the retained earnings

Percentage of sales:

Step 1: Estimate year-by-year Sales Revenue and Expenses

Step 2: Estimate Levels of Investment Needs (in Assets) required meeting estimated sales (using

Financial Ratios). That how the Assets of the company changes with the change in

Step 3: Estimate the Financing Needs (Liabilities)

Which of the following is NOT true regarding an annuity due?
Select correct MGT201 option:

It is a series of equal cash flows
It is also known as deferred annuity
Cash flows occur for a specific time period
Payments are made at the start of each period

When coupon bonds are issued, they are typically sold at which of the following value?
Select correct MGT201 option:

Above par value
Below par
At or near par value
At a value unrelated to par

Where there is single period capital rationing, what is the most sensible way of making investment decisions?
Select correct MGT201 option:

Choose all projects with a positive NPV
Group projects together to allocate the funds available and select the group of projects with the highest NPV
Choose the project with the highest NPV
Calculate IRR and select the projects with the highest IRRs

Which of the following is not the present value of the bond?

Intrinsic value
Market price
Fair price
Theoretical price

Which is the present value of Rs.1,000 to be paid at the end of 5 years if the correct risk adjusted interest rate is 8%?

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

PV=1000*(1.08)^5

Which one of the following selects the combination of investment proposals that will provide the greatest increase in the value of the firm within the budget ceiling constraint?

Cash budgeting
Capital budgeting
Capital rationing
Capital expenditure

Which of the following is a capital budgeting technique that is NOT considered as discounted cash flow method?
Select correct MGT201 option:

Payback period
Internal rate of return
Net present value
Profitability index

Which of the following is a major disadvantage of the corporate form of organization?
Select correct MGT201 option:

Double taxation of dividends
Inability of the firm to raise large sums of additional capital
Limited liability of shareholders
Limited life of the corporate form

Which of the following is the risk of investing funds in another country?
Select correct MGT201 option:

Which of the following is NOT an example of hybrid equity
Select correct MGT201 option:

Convertible Bonds
Convertible Debenture
Common shares
Preferred shares

Which of the following needs to be excluded while we calculate the incremental cash flows?
Select correct MGT201 option:

Depreciation
Sunk cost
Opportunity cost
Non-cash item

Sunk costs need to be excluded while calculating the incremental cash flows.

Which of the following affects price of the bond?
Select correct MGT201 option:

Market interest rate
Required rate of return
Interest rate risk
All of the given MGT201 options

Which of the following is/are the characteristic(s) of Perpetuity?
Select correct MGT201 option:

It is an annuity
It has no definite end
It is a constant stream of identical cash flows
All of the given MGT201 options

With continuous compounding at 8 percent for 20 years, what is the approximate future value of a Rs. 20,000 initial investment?
Select correct MGT201 option:

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

F V = PV x e i x n

=20000*(2.718)^1.6

Which of the following is a limitation of a Corporation?
Select correct MGT201 option:

Easy to set up
Double-taxation
Inexpensive to maintain
Unlimited liability

Which of the following affects price of the bond?
Select correct MGT201 option:

Market interest rate
Required rate of return
Interest rate risk
All of the given MGT201 options

Which of the following is NOT true regarding an ordinary annuity?
Select correct MGT201 option:

It is a series of equal cash flows
Cash flows occur for a specific time period
Payments are made at the start of each period
It is also known as deferred annuity

An ordinary annuity, also known as deferred annuity, consists of a series of equal payments at the end of each period.

The return in excess to risk free rate that investors require for bearing the market risk is known as:

Select correct MGT201 option:

When the bond approaches its maturity, the market value of the bond approaches to which of the following?
Select correct MGT201 option:

Intrinsic value
Book value
Par value
Historic cost

Study the time line and accompanying 5-period cash-flow pattern below. 0 1 2 3 4 5 6 Time line |--------|--------|--------|--------|--------|--------| Rs.10 Rs.10 Rs.10 Rs.10 Rs.10 Cash flows ¦ ¦ A B The present value of the 5-period annuity shown above as of Point A is the present value of a 5-period ____________ , whereas the future value of the same annuity as of Point B is the future value of a 5-period ____________ .

Select correct MGT201 option:
Ordinary annuity; ordinary annuity
Ordinary annuity; annuity due
Annuity due; annuity due
Annuity due; ordinary annuity

The value of direct claim security is derived from which of the following?
Select correct MGT201 option:

Fundamental analysis
Underlying real asset
Supply and demand of securities in the market
All of the given MGT201 options

Who determine the market price of a share of common stock?
Select correct MGT201 option:

The board of directors of the firm
The stock exchange on which the stock is listed
The president of the company
Individuals buying and selling the stock

The value of the bond is NOT directly tied to the value of which of the following assets?
Select correct MGT201 option:

Long term assets of the business

Why we need Capital rationing?
Select correct MGT201 option:

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

When the zero coupon bond approaches to its maturity, the market value of the bond approaches to which of the following?
Select correct MGT201 option:

Intrinsic value
Book value
Par value
Historic cost

What is the additional amount a borrower must pay to lender to compensate for assuming the risk associated with non-payment?
Select correct MGT201 option:

Which of the following equation is NOT correct?
Select correct MGT201 option:

Gross Revenue – Admin & Operating Expenses = Operating Revenue
Other Expenses + Other Revenue = EBIT
EBIT – Financial Charges & Interest = EBT
Net Income – Dividends = Retained Earning

Operating Revenue – Other Expenses + Other Revenue = EBIT

Which of the following will NOT equate the future value of cash inflows to the present value of cash outflows?
Select correct MGT201 option:

Discount rate
Profitability index
Internal rate of return
Multiple Internal rate of return

When a bond will sell at a discount?
Select correct MGT201 option:

The coupon rate is greater than the current yield and the current yield is greater than yield to maturity
The coupon rate is greater than yield to maturity
The coupon rate is less than the current yield and the current yield is greater than the yield to maturity
The coupon rate is less than the current yield and the current yield is less than yield to maturity

What type of long-term financing most likely has the following features: 1) it has an infinite life, 2) it pays dividends, and 3) its cash flows are expected to be a constant annuity stream?
Select correct MGT201 option:

Long-term debt
Preferred stock
Common stock
None of the given MGT201 options

Which of the following is type a Temporary Account?
Select correct MGT201 option:

Asset
Liability
Reserves
Revenue

What are the Direct claim securities?
Select correct MGT201 option:

The securities whose value depends on the cash flows generated by the underlying assets
The securities whose value depends on the value of the underlying assets
The securities that do not directly generate any returns for its investors
All of the given MGT201 options

Hand outs, page 121

Which of the following term may be defined as incidental cash flows that arise because of the effect of new project on the running business?
Select correct MGT201 option:

Sunk cost
Opportunity cost
Externalities
Contingencies

Externalities in financial terms may be defined as incidental cash flows that arise because of the effect of new project on the existing or running business.

Which of the following allows to graphically depicting the timing of the cash flows as well as their nature as either inflows or outflows?
Select correct MGT201 option:

Cash flow diagram
Cash budget
Cash flow statement
None of the given MGT201 options

As interest rates go up, the present value of a stream of fixed cash flows ___.
Select correct MGT201 option:
Goes down
Goes up
Stays the same
Can not be found from the given information

______ are also known as Spontaneous Financing.
Select correct MGT201 option:

Current liabilities
Current assets
Fixed assets
Long-term liabilities

Spontaneous Financing is Trade credit, and other payables and accruals, that arise spontaneously in the firm’s day-to-day operations.

How dividend yield on a stock is similar to the current yield on a bond?
Select correct MGT201 option:

Both represent how much each security’s price will increase in a year
Both represent the security’s annual income divided by its price
Both are an accurate representation of the total annual return an investor can expect to earn    by owning the security
Both are quarterly yields that must be annualized

Who or what is a person or institution designated by a bond issuer as the official representative of the bondholders?
Select correct MGT201 option:

Indenture
Debenture
Bond
Bond trustee

The objective of financial management is to maximize _______ wealth.
Select correct MGT201 option:

Stakeholders
Shareholders
Bondholders
Directors

What are the Indirect securities?
Select correct MGT201 option:

The securities whose value depends on the cash flows generated by the underlying assets
The securities whose value depends on the value of the underlying assets
The securities that indirectly generate returns for its investors
All of the given MGT201 options

Which of the following is NOT an example of a financial intermediary?
Select correct MGT201 option:

Wisconsin S&L, a savings and loan association
Strong Capital Appreciation, a mutual fund
Microsoft Corporation, a software firm
College Credit, a credit union

Which of the following refers to the risk associated with interest rate uncertainty?
Select correct MGT201 option:

______ is equal to (common shareholders' equity/common shares outstanding).
Select correct MGT201 option:
Book value per share
Liquidation value per share
Market value per share
None of the above

Which of the following can not be the drawback of using payback period technique of capital budgeting?
Select correct MGT201 option:

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

Which if the following is (are) true?

I. The dividend growth model holds if, at some point in time, the dividend growth rate exceeds the stock’s required return. II. A decrease in the dividend growth rate will increase a stock’s market value, all else the same. III. An increase in the required return on a stock will decrease its market value, all else the same.
Select correct MGT201 option:

I, II, and III
I only
III only
II and III only

Which group of ratios shows the extent to which the firm is financed with debt?
Select correct MGT201 option:

Liquidity ratios
Debt ratios
Coverage ratios
Profitability ratios

What is the present value of Rs.8,000 to be paid at the end of three years if interest rate is 11%?
Select correct MGT201 option:

Rs. 5,850
Rs.4,872
Rs.6,725
Rs.1,842

Which type of responsibilities are primarily assigned to Controller and Treasurer respectively? Select correct MGT201 option:

Operational; financial management
Financial management; accounting
Accounting; financial management
Financial management; operations

Nominal Interest Rate is also known as:
Select correct MGT201 option:

Effective interest Rate
Annual percentage rate
Periodic interest rate
Required interest rate

The nominal interest rate is the periodic interest rate times the number of periods per year.

An annuity due is always worth ___ a comparable annuity.
Less than
More than
Equal to
Can not be found from the given information

Which of the following refers to bringing the future cash flow to the present time?
Select correct MGT201 option:

Net present value
Discounting
Opportunity cost
Internal rate of return

Which of the following market in finance is referred to the market for short-term government and corporate debt securities?
Select correct MGT201 option:

Money market
Capital market
Primary market
Secondary market

Which of the following is NOT true regarding the capital market?
Select correct MGT201 option:

Where long-term funds can be raised
Money is invested for periods longer than a year
Where TFCs and NIT are exchanged and traded
Where overnight lending & borrowing takes place

What is difference between shares and bonds?
Select correct MGT201 option:

Bonds are representing ownership whereas shares are not
Shares are representing ownership whereas bonds are not
Shares and bonds both represent equity
Shares and bond both represent liabilities

Which of the following would NOT improve the current ratio?
Select correct MGT201 option:

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

When bonds are issued, under which of the following category the value of the bond appears?
Select correct MGT201 option:

Equity
Fixed assets
Short term loan
Long term loan

How can a company improve (lower) its debt-to-total asset ratio?
Select correct MGT201 option:

By borrowing more
By shifting short-term to long-term debt
By shifting long-term to short-term debt
By selling common stock

A 5-year ordinary annuity has a present value of Rs.1,000. If the interest rate is 8 percent, the amount of each annuity payment is closest to which of the following?
Select correct MGT201 option:

Rs. 250.44
Rs. 231.91
Rs.181.62
Rs.184.08

A 5-year ordinary annuity has a future value of Rs.1,000. If the interest rate is 8 percent, the amount of each annuity payment is closest to which of the following?
► Rs.231.91
► Rs.184.08
► Rs.181.62
► Rs.170.44

FV= PV/( 1+ i )^n -1 / i
= (1.08)^5-1
=5.867
=1000/5.867=170.44

The logic behind _______ is that instead of looking at net cash flows you look at cash inflows and outflows separately for each point in time.
Select correct MGT201 option:

IRR
MIRR
PV
NPV

Handouts Lecture 11

Which of the following refers to a highly competitive market where good business ideas are taken up immediately?
Select correct MGT201 option:

Capital market
Efficient market
Money market
Real asset market

Handouts Lecture 08

For Company A, plow back ratio is 30%. What will be its Pay-out ratio?
Select correct MGT201 option:

3.33%
30%
31%
70%

What is a legal agreement, also called the deed of trust, between the corporation issuing bonds and the bondholders that establish the terms of the bond issue?

Indenture
Debenture
Bond
Bond trustee

MIRR (discount rate) equates which of the following?
Select correct MGT201 option:

Future value of cash inflows to the present value of cash outflows
Future value of cash flows to the present value of cash flows
Future value of all cash flows to zero
Present value of all cash flows to zero

Which of the following needs to be excluded while we calculate the incremental cash flows?
Select correct MGT201 option:

Depreciation
Sunk cost
Opportunity cost
Non-cash item

Which of the following would generally have unlimited liability?
Select correct MGT201 option:
A limited partner in a partnership
A shareholder in a corporation
The owner of a sole proprietorship
A member in a limited liability company (LLC)

Which of the following would be considered a cash-flow item from an "investing" activity?
Select correct MGT201 option:

Cash outflow to the government for taxes
Cash outflow to shareholders as dividends
Cash outflow to lenders as interest
Cash outflow to purchase bonds issued by another company

An investment proposal should be judged in whether or not it provides:
Select correct MGT201 option:

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

A 5-year annuity due has periodic cash flows of Rs.100 each year. If the interest rate is 8 percent, the future value of this annuity is closest to which of the following equations?
Select correct MGT201 option:

(Rs.100)(FVIFA at 8% for 5 periods)
(Rs.100)(FVIFA at 8% for 4 periods)(1.08)
(Rs.100) (FVIFA at 8% for 5 periods)(1.08)
(Rs.100)(FVIFA at 8% for 4 periods) + Rs.100

The RBS pays 5.60%, compounded daily (based on 360 days), on a 9-month certificate of deposit, if you deposit Rs.20, 000 you would expect to earn around ________ in interest.
Select correct MGT201 option:
Rs.840
Rs.858
Rs.1,032
Rs.1,121

{ [ 1 + (.056/360) ] ^ [270] - 1 } = .042891 or 4.2891%. Thus, \$20,000 (.042891) =\$857.82.

Which of the following is similar between Return on investment and Payback period techniques of Capital budgeting?

Involvement of interest rate while making calculations

Do not account for time value of money
Tricky and complicated methods
All of the given MGT201 options

Which of the following would be considered a cash-flow item from an "operating" activity?
Select correct MGT201 option:

Cash outflow to the government for taxes
Cash outflow to shareholders as dividends
Cash inflow to the firm from selling new common equity shares
Cash outflow to purchase bonds issued by another company

MGT201 MCQs Collection from Online Quizzes

The value of the bond is NOT directly tied to the value of which of the following assets?
Select correct MGT201 Option:
Lon term assets of the business

Question # 2  of 20 ( Start time: 04:01:59 PM  )           Total M -  1
________ is the variability of return on stocks or portfolios not explained by general market movements. It is avoidable through diversification.
Select correct MGT201 Option:
Systematic risk
Standard deviation
Unsystematic risk
Coefficient of variation

Unsystematic risk is the diversifiable portion of total risk and not a measure of total risk like standard deviation.

The presence of which of the following costs is not used as a major argument against the M&M arbitrage process?
Select correct MGT201 Option:
Bankruptcy costs
Agency costs
Transactions costs
Insurance costs

The presence of these costs is used as major argument against the M&M arbitrage process

What type of long-term financing most likely has the following features: 1) it has an infinite life, 2) it pays dividends, and 3) its cash flows are expected to be a constant annuity stream?
Select correct MGT201 Option:
Long-term debt
Preferred stock
Common stock
None of the given MGT201 Options

According to timing difference problem a good project might suffer from ___ IRR even though its NPV is ______.
Select correct MGT201 Option:
Higher; lower
Lower; Lower
Lower; higher
Higher; higher

Expected Portfolio Return = _________.
Select correct MGT201 Option:
rP * = xA rA + xB rB
rP * = xA rA - xB rB
rP * = xA rA / xB rB
rP * = xA rA * xB rB

Upon which of the following a firm's degree of operating leverage (DOL) depends primarily?
Select correct MGT201 Option:
Sales variability
Level of fixed operating costs
Closeness to its operating break-even point
Debt-to-equity ratio

For most firms, P/E ratios and risk_______.
Select correct MGT201 Option:
Will be directly related
Will have an inverse relationship
Will be unrelated
None of the above.

The ________ the coefficient of variation ______ the relative risk of the investment.
Select correct MGT201 Option:
Larger; Larger
Larger; Smaller
Smaller; Larger
Smaller; Smaller

You are considering two investment proposals, project A and project B. B's expected net present value is Rs. 1,000 greater than that for A and A's dispersion of net present value is less than that for B. On the basis of risk and return, what would be your conclusion?
Select correct MGT201 Option:
Project A dominates project B
Project B dominates project A
Neither project dominates the other in terms of risk and return
Incomplete information

The expected net present value of B is greater than the expected net present value of A and the risk of B exceeds the risk of A, so neither dominates the other.

______ means expanding the number of investments which cover different kinds of stocks.
Select correct MGT201 Option:
Diversification
Standard deviation
Variance
Covariance

What should be used to calculate the proportional amount of equity financing employed by a firm?
Select correct MGT201 Option:
The common stock equity account on the firm's balance sheet
The sum of common stock and preferred stock on the balance sheet
The book value of the firm
The current market price per share of common stock times the number of shares Outstanding

What is the long-run objective of financial management?
Select correct MGT201 Option:
Maximize earnings per share
Maximize the value of the firm's common stock
Maximize return on investment
Maximize market share

__________are analysts who use information concerning current and prospective profitability of firms to assess the firm's fair market value.
Select correct MGT201 Option:
Credit analysts
Fundamental analysts
Systems analysts
Technical analysts

Total M -  1
Which of the followings expressed the proposition that the value of the firm is independent of its capital structure?
Select correct MGT201 Option:
The Capital Asset Pricing Model
M&M Proposition I
M&M Proposition II
The Law of One Price

The statement of cash flows reports a firm's cash flows segregated into which of the following categorical order?
Select correct MGT201 Option:
Operating, investing, and financing
Investing, operating, and financing
Financing, operating and investing
Financing, investing, and operating

A project that tells us the number of years required to recover our initial cash investment based on the project’s expected cash flows is:
Select correct MGT201 Option:
Pay back period
Internal rate of return
Net present value
Profitability index

Which of the following would generally have unlimited liability?

Select correct MGT201 Option:

A limited partner in a partnership

A shareholder in a corporation

The owner of a sole proprietorship

A member in a limited liability company (LLC)             https://vustudents.ning.com/

If 2 stocks move in the same direction together then what will be the correlation coefficient?

► 0

► 1.0

► -1.0

► 1.5

Rationale:The strength of the correlation between two variables such as two stock prices is measured by the correlation coefficient. If two stock prices have perfect positive correlation, their correlation coefficient will have the value of +1.

which of the following needs to be excluded while we calculate the incremental cash flows?
Select correct MGT201 Option:
Depreciation
Sunk cost
Opportunity cost
Non-cash item

If risk and return combination of any stock is above the SML, what does it mean?
Select correct MGT201 Option:
It is offering lower rate of return as compared to the efficient stock
It is offering higher rate of return as compared to the efficient stock
Its rate of return is zero as compared to the efficient stock
It is offering rate of return equal to the efficient stock

Which of the following techniques would be used for a project that has non–normal cash flows?
Select correct MGT201 Option:
Internal rate of return
Multiple internal rate of return
Modified internal rate of return
Net present value

Which of the following is NOT a cash outflow for the firm?
Select correct MGT201 Option:
Depreciation
Dividends
Interest
Taxes

Which of the following statements is correct for a firm that currently has total costs of carrying and ordering inventory that is 50% higher than total carrying costs?
Select correct MGT201 Option:
Current order size is greater than optimal
Current order size is less than optimal
Per unit carrying costs are too high
The optimal order size is currently being used

When a firm needs guaranteed, short-term funds available for a variety purposes, the bank loan will likely be a ________.
Select correct MGT201 Option:
Compensating balance arrangement
Revolving credit agreement
Transaction loan
Line of credit

Which if the following is (are) true? I.        The dividend growth model holds if, at some point in time, the dividend growth rate exceeds the stock’s required return. II.        A decrease in the dividend growth rate will increase a stock’s market value, all else the same. III.        An increase in the required return on a stock will decrease its market value, all else the same

I, II, and III not sure
I only
III only
II and III only

An implicit cost of adding debt to the capital structure is that it:
Select correct MGT201 Option:
Adds interest expense to the operating statement
Increases the required return on equity
Reduces the expected return on assets
Decreases the firm's beta

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hich of the following statements regarding covariance is correct?
Select correct MGT201 Option:
Covariance always lies in the range -1 to +1
Covariance, because it involves a squared value, must always be a positive number (or zero)
Low covariances among returns for different securities leads to high portfolio risk
Covariances can take on positive, negative, or zero values

Which of the following is not a form of short-term, spontaneous credit?
Select correct MGT201 Option:
Accrued wages
Commercial paper
Accrued taxes

Which of the following has the same meaning as the working capital to financial analyst?
Select correct MGT201 Option:
Total assets
Fixed assets
Current assets
Current assets minus current liabilities

Above the breakeven EBIT, increased financial leverage will ________ EPS, all else the same. Assume there are no taxes
Select correct MGT201 Option:
Increase
Decrease
Either increase or decrease
None of the given MGT201 Options

Which of the following is NOT an example of hybrid equity
Select correct MGT201 Option:
Convertible Bonds
Convertible Debenture
Common shares
Preferred shares

If we invest in many securities which are ________to each other then it is possible to reduce overall risk for your investment.
Select correct MGT201 Option:
Comparable
Correlated
Highly correlated
Negatively correlated

The objective of financial management is to maximize _______ wealth.
Select correct MGT201 Option:
Stakeholders
Shareholders
Bondholders
Directors

A company whose stock is selling at a P/E ratio greater than the P/E ratio of a market index most likely has _______.
Select correct MGT201 Option:
An anticipated earnings growth rate which is less than that of the average firm
A dividend yield which is less than that of the average firm
Less predictable earnings growth than that of the average firm
Greater cyclicality of earnings growth than that of the average firm

The stock in your portfolio was selling for Rs.40 per share yesterday, but has today declared a three for two split. Which of the following statements seems to be true?
Select correct MGT201 Option:
There will be two-thirds as many shares outstanding, and they will sell for Rs.60.00 each
There will be four times as many shares outstanding, and they will sell for Rs.160.00 each
There will be 50 percent more shares outstanding and they will sell for Rs.26.67 each
There will be one-and-one-half times as many shares outstanding, and they will sell for Rs.60.00 each

Under the idealized conditions of MM, which statement is correct when a firm issues new stock in order to pay a cash dividend on existing shares?

Select correct MGT201 Option:
The new shares are worth less than the old shares
The old shares drop in value to equal the new price
The value of the firm is reduced by the amount of the dividend
The value of the firm is unaffected

________ is the variability of return on stocks or portfolios not explained by general market movements. It is avoidable through diversification.
Select correct MGT201 Option:
Systematic risk
Standard deviation
Unsystematic risk
Coefficient of variation

When taxes are considered, the value of a levered firm equals the value of the______.
Select correct MGT201 Option:
Unlevered firm
Unlevered firm plus the value of the debt
Unlevered firm plus the present value of the tax shield
Unlevered firm plus the value of the debt plus the value of the tax shield

Which of the following would be consistent with an aggressive approach to financing working capital?
Select correct MGT201 Option:
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

Which of the following is the maximum amount of debt (and other fixed-charge financing) that a firm can adequately service?
Select correct MGT201 Option:
Debt capacity
Debt-service burden
Fixed-charge burden

Which of the following terms best applies to the short-term interest rate charged by banks to large, creditworthy customers?
Select correct MGT201 Option:
Discount basis interest rate
Long-term bond rate
Prime rate
Fed funds rate

According to _________, the firm's cost of equity increases with greater debt financing, but the WACC remains unchanged.
Select correct MGT201 Option:
M&M Proposition I with taxes
M&M Proposition I without taxes
M&M Proposition II without taxes
M&M Proposition II with taxes

Which of the following is the cash required during a specific period to meet interest expenses and principal payments?
Select correct MGT201 Option:
Debt capacity
Debt-service burden
Fixed-charge burden

What are two major areas of capital budgeting?
Select correct MGT201 Option:
Net present value, profitability index
Net present value; internal rate of return
Net present value; payback period
Pay back period; profitability index

A statistical measure of the variability of a distribution around its mean is referred to as ________.

Select correct MGT201 Option:

Probability distribution

Expected return

Standard deviation

Coefficient of variation

The benefit we expect from a project is expressed in terms of:

Select correct MGT201 Option:

Cash in flows

Cash out flows

Cash flows

None of the given MGT201 Option

What type of long-term financing most likely has the following features: 1) it has an infinite life, 2) it pays dividends, and 3) its cash flows are expected to be a constant annuity stream?

Select correct MGT201 Option:

Long-term debt

Preferred stock

Common stock

None of the given MGT201 Options

What is the economic order quantity for the following situation? A firm sells 32,000 cases of microwave popcorn per year. The cost per order is Rs.20 per case and the firm experiences a carrying cost of 8.0%.

Select correct MGT201 Option:

2,000 cases

4,000 cases

8,000 cases

16,000 cases

Which of the following has the same meaning as the working capital to financial analyst?

Select correct MGT201 Option:

Total assets

Fixed assets

Current assets

Current assets minus current liabilities

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Which of the followings are the propositions of Modigliani and Miller's?

Select correct MGT201 Option:

The market value of a firm's common stock is independent of its capital structure

The market value of a firm's debt is independent of its capital structure

The market value of any firm is independent of its capital structure

None of the given MGT201 Options

How "Shareholder wealth" is represented in a firm?

Select correct MGT201 Option:

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

The value of direct claim security is derived from which of the following?

Select correct MGT201 Option:

Fundamental analysis

Underlying real asset

Supply and demand of securities in the market

All of the given MGT201 Options

Upon which of the following a firm's degree of operating leverage (DOL) depends primarily?

Select correct MGT201 Option:

Sales variability

Level of fixed operating costs

Closeness to its operating break-even point

Debt-to-equity ratio

In 2 years you are to receive Rs.10,000. If the interest rate were to suddenly decrease, the present value of that future amount to you would ________.

Select correct MGT201 Option:

Fall

Rise

Remain unchanged

Incomplete information

Which of the following is an example of restructuring the firm?

Select correct MGT201 Option:

Dividends are increased from Rs.1 to Rs.2 per share

A new investment increases the firm's business risk

New equity is issued and the proceeds repay debt

A new Board of Directors is elected to the firm

https://vustudents.ning.com/

Which of the following refers to financial risk?

Select correct MGT201 Option:

Risk of owning equity securities

Risk faced by equity holders when debt is used

General business risk of the firm

Possibility that interest rates will increase

Why companies invest in projects with negative NPV?

Select correct MGT201 Option:

Because there is hidden value in each project

Because there may be chance of rapid growth

Because they have invested a lot

All of the given MGT201 Options

Which of the following is called the tax savings of the firm derived from the deductibility of interest expense?

Select correct MGT201 Option:

Interest tax shield

Depreciable basis

Financing umbrella

Current yield

An annuity due is always worth ___ a comparable annuity.

Select correct MGT201 Option:

Less than

More than

Equal to

Can not be found from the given information

https://vustudents.ning.com/

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

Select correct MGT201 Option:

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

According to the Capital Asset Pricing Model (CAPM), a well-diversified portfolio's rate of return is a function of which of the following:

Select correct MGT201 Option:

Unique risk

Reinvestment risk

Market risk

Unsystematic risk

How can a company improve (lower) its debt-to-total asset ratio?

Select correct MGT201 Option:

By borrowing more

By shifting short-term to long-term debt

By shifting long-term to short-term debt

By selling common stock

https://vustudents.ning.com/

Who or what is a person or institution designated by a bond issuer as the official representative of the bondholders?

Select correct MGT201 Option:

Indenture

Debenture

Bond

Bond trustee

Which of the following will NOT equate the future value of cash inflows to the present value of cash outflows?

Select correct MGT201 Option:

Discount rate

Profitability index

Internal rate of return

Multiple Internal rate of return

How the beta of the stock could be calculated?

Select correct MGT201 Option:

By monitoring price of the stock

By monitoring rate of return of the stock

By comparing the changes in the stock market price to the changes in the stock market index

All of the given MGT201 Options

https://vustudents.ning.com/

Which of the following is a payment of additional shares to shareholders in lieu of cash?

Select correct MGT201 Option:

Stock split

Stock dividend

Extra dividend

Regular dividend

What is potentially the biggest advantage of a small partnership over a sole proprietorship?

Select correct MGT201 Option:

Unlimited liability

Single tax filing

Difficult ownership resale

Raising capital

Which of the following would generally have unlimited liability?

Select correct MGT201 Option:

A limited partner in a partnership

A shareholder in a corporation

The owner of a sole proprietorship

A member in a limited liability company (LLC)

Which of the following is related to the use Lower financial leverage?

Select correct MGT201 Option:

Fixed costs

Variable costs

Debt financing

Common equity financing

Which group of ratios measures a firm's ability to meet short-term obligations?

Select correct MGT201 Option:

Liquidity ratios

Debt ratios

Coverage ratios

Profitability ratios

Which of the following is the cash required during a specific period to meet interest expenses and principal payments?

Select correct MGT201 Option:

Debt capacity

Debt-service burden

Fixed-charge burden

What is the most important criteria in capital budgeting?

Select correct MGT201 Option:

Return on investment

Profitability index

Net present value

Pay back period

https://vustudents.ning.com/

Which of the following is related to the use Lower financial leverage?

Select correct MGT201 Option:

Fixed costs

Variable costs

Debt financing

Common equity financing

When a firm needs guaranteed, short-term funds available for a variety purposes, the bank loan will likely be a ________.

Select correct MGT201 Option:

Compensating balance arrangement

Revolving credit agreement

Transaction loan

Line of credit

Which of the following terms best applies to the short-term interest rate charged by banks to large, creditworthy customers?

Select correct MGT201 Option:

Discount basis interest rate

Long-term bond rate

Prime rate

Fed funds rate

The explicit costs associated with corporate default, such as legal expenses, are the _________ of the firm.

Select correct MGT201 Option:

Flotation costs

Default beta coefficients

Direct bankruptcy costs

Indirect bankruptcy costs

According to MM II, what happens when a firm's debt-to-equity ratio increases?

Select correct MGT201 Option:

Its financial risk increases

Its operating risk increases

The expected return on equity increases

The expected return on equity decreases

Which statement is NOT true regarding the market portfolio?

Select correct MGT201 Option:

It includes all publicly traded financial assets

It is the tangency point between the capital market line and the indifference curve

All securities in the market portfolio are held in proportion to their market values

It lies on the efficient frontier

Which of the following factor(s) do NOT affects the movements in the market index?

Select correct MGT201 Option:

Macroeconomic factors

Socio political factors

Social factors

All of the given MGT201 Options

In 2 years you are to receive Rs.10,000. If the interest rate were to suddenly decrease, the present value of that future amount to you would ________.

Select correct MGT201 Option:

Fall

Rise

Remain unchanged

Incomplete information

Discounted cash flow methods provide a more objective basis for evaluating and selecting an investment project. These methods take into account:

Select correct MGT201 Option:

Magnitude of expected cash flows

Timing of expected cash flows

Both timing and magnitude of cash flows

None of the given MGT201 Options

https://vustudents.ning.com/

A statistical measure of the variability of a distribution around its mean is referred to as ________.

Select correct MGT201 Option:

Probability distribution

Expected return

Standard deviation

Coefficient of variation

The benefit we expect from a project is expressed in terms of:

Select correct MGT201 Option:

Cash in flows

Cash out flows

Cash flows

None of the given MGT201 Option

What type of long-term financing most likely has the following features: 1) it has an infinite life, 2) it pays dividends, and 3) its cash flows are expected to be a constant annuity stream?

Select correct MGT201 Option:

Long-term debt

Preferred stock

Common stock

None of the given MGT201 Options

What is the economic order quantity for the following situation? A firm sells 32,000 cases of microwave popcorn per year. The cost per order is Rs.20 per case and the firm experiences a carrying cost of 8.0%.

Select correct MGT201 Option:

2,000 cases

4,000 cases

8,000 cases

16,000 cases

Which of the following has the same meaning as the working capital to financial analyst?

Select correct MGT201 Option:

Total assets

Fixed assets

Current assets

Current assets minus current liabilities

Which of the followings are the propositions of Modigliani and Miller's?

Select correct MGT201 Option:

The market value of a firm's common stock is independent of its capital structure

The market value of a firm's debt is independent of its capital structure

The market value of any firm is independent of its capital structure

None of the given MGT201 Options

How "Shareholder wealth" is represented in a firm?

Select correct MGT201 Option:

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

The value of direct claim security is derived from which of the following?

Select correct MGT201 Option:

Fundamental analysis

Underlying real asset

Supply and demand of securities in the market

All of the given MGT201 Options

Upon which of the following a firm's degree of operating leverage (DOL) depends primarily?

Select correct MGT201 Option:

Sales variability

Level of fixed operating costs

Closeness to its operating break-even point

Debt-to-equity ratio

In 2 years you are to receive Rs.10,000. If the interest rate were to suddenly decrease, the present value of that future amount to you would ________.

Select correct MGT201 Option:

Fall

Rise

Remain unchanged

Incomplete information

https://vustudents.ning.com/

Which of the following is an example of restructuring the firm?

Select correct MGT201 Option:

Dividends are increased from Rs.1 to Rs.2 per share

A new investment increases the firm's business risk

New equity is issued and the proceeds repay debt

A new Board of Directors is elected to the firm

Which of the following refers to financial risk?

Select correct MGT201 Option:

Risk of owning equity securities

Risk faced by equity holders when debt is used

General business risk of the firm

Possibility that interest rates will increase

Why companies invest in projects with negative NPV?

Select correct MGT201 Option:

Because there is hidden value in each project

Because there may be chance of rapid growth

Because they have invested a lot

All of the given MGT201 Options

Which of the following is called the tax savings of the firm derived from the deductibility of interest expense?

Select correct MGT201 Option:

Interest tax shield

Depreciable basis

Financing umbrella

Current yield

An annuity due is always worth ___ a comparable annuity.

Select correct MGT201 Option:

Less than

More than

Equal to

Can not be found from the given information

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

Select correct MGT201 Option:

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

According to the Capital Asset Pricing Model (CAPM), a well-diversified portfolio's rate of return is a function of which of the following:

Select correct MGT201 Option:

Unique risk

Reinvestment risk

Market risk

Unsystematic risk

How can a company improve (lower) its debt-to-total asset ratio?

Select correct MGT201 Option:

By borrowing more

By shifting short-term to long-term debt

By shifting long-term to short-term debt

By selling common stock

https://vustudents.ning.com/

When Investors want high plowback ratios?
Select correct MGT201 Option:
Whenever ROE > k
Whenever k > ROE
Only when they are in low tax brackets
Whenever bank interest rates are high]

According to MM II, what happens when a firm's debt-to-equity ratio increases?
Select correct MGT201 Option:
Its financial risk increases
Its operating risk increases
The expected return on equity increases
The expected return on equity decreases

Which of the following would NOT improve the current ratio?
Select correct MGT201 Option:
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

When bonds are issued, under which of the following category the value of the bond appears?
Select correct MGT201 Option:
Equity
Fixed assets
Short term loan
Long term loan

For which of the following costs is it generally necessary to apply a tax adjustment to a yield measure?
Select correct MGT201 Option:
Cost of debt
Cost of preferred stock
Cost of common equity
Cost of retained earnings

Which of the following could be taken same as minimizing the weighted average cost of capital?
Select correct MGT201 Option:
Maximizing the market value of the firm
Maximizing the market value of the firm only if MM's Proposition I
Minimizing the market value of the firm only if MM's Proposition I holds
Maximizing the profits of the firm

Which of the following has the same meaning as the working capital to financial analyst?
Select correct MGT201 Option:

Total assets
Fixed assets
Current assets
Current assets minus current liabilities

Which of the followings are the propositions of Modigliani and Miller's?
Select correct MGT201 Option:

The market value of a firm's common stock is independent of its capital structure
The market value of a firm's debt is independent of its capital structure
The market value of any firm is independent of its capital structure
None of the given MGT201 Options

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How "Shareholder wealth" is represented in a firm?
Select correct MGT201 Option:

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

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