Question
No: 1 ( Marks: 1 ) - Please choose one
What are the earnings per share (EPS)
for a company that earned Rs.100, 000 last year in after-tax profits, has
200,000 common shares outstanding and Rs.1.2 million in retained earning at the
year end?
►
Rs.1.00
► Rs. 6.00
► Rs. 0.50 (repeated)
► Rs. 6.50
Question No: 2 ( Marks: 1 ) - Please
choose one
Among the pairs given below select
a(n) example of a principal and a(n) example of an agent respectively.
► Shareholder; manager
(repeated)
► Manager;
owner
► Accountant; bondholder
► Shareholder;
bondholder
Question
No: 3 ( Marks: 1 ) - Please choose one
Which of the following is equal to the
average tax rate?
► Total tax liability divided by taxable income
► Rate that will be paid on the next dollar of taxable income
► Median marginal tax rate
► Percentage increase in taxable income from the previous period
Question No: 4 ( Marks: 1 ) - Please
choose one
Which of the following would be
deductible as an expense on the corporation's income statement?
► Interest paid on outstanding
bonds
► Cash dividends paid on outstanding common stock
► Cash dividends paid on outstanding preferred stock
► All of the given options
Question No: 5 ( Marks: 1 ) - Please
choose one
In conducting an index analysis every
balance sheet item is divided by __________ and every income statement is
divided by __________ respectively.
► Its corresponding base year balance sheet item;
its corresponding base year income statement item (repeated)
► Its corresponding base year income statement item; its corresponding base year
balance sheet item
► Net sales or revenues; total assets
► Total assets; net sales or revenues
Question No: 6 ( Marks: 1 ) - Please
choose one
Which group of ratios measures a
firm's ability to meet short-term obligations?
► Liquidity ratios (repeated)
► Debt ratios
► Coverage ratios
► Profitability ratios
Question No: 7 ( Marks: 1 ) - Please
choose one
Which group of ratios relates profits
to sales and investment?
► Liquidity ratios
► Debt ratios
► Coverage ratios
► Profitability ratios (repeated)
Question No: 8 ( Marks: 1 ) - Please
choose one
Interest paid on the original
principal borrowed is often referred to as __________.
► Compound interest
► Present value
► Simple interest (P # 22)
► Future value
Question No: 9 ( Marks: 1 ) - Please
choose one
If the following are the balance sheet
changes, which one of them would represent use of funds by a company?
► Rs. 8,950 decrease in net fixed assets
► Rs. 5,005 decrease in accounts
receivable
► Rs. 10,001 increase in accounts
payable
► Rs.
12,012 decrease in notes payable
Question No: 10 ( Marks: 1 ) - Please
choose one
In preparing a forecast balance sheet,
it is likely that either cash or __________ will serve as a "plug
figure" or balancing factor to ensure that assets equal liabilities plus
shareholders' equity.
► Retained earnings
► Accounts receivable
► Shareholders' equity
► Notes payable (short-term borrowings)
Question No: 11 ( Marks: 1 ) - Please
choose one
What is the present value of Rs.8,000
to be paid at the end of three years if the interest rate is 11%?
► Rs.5,850
► Rs.4,872
► Rs.6,725
► Rs.1,842
PV = 8000/(1+.11)^3
Question
No: 12 ( Marks: 1 ) - Please choose one
What is the present value of Rs.1,000
to be paid at the end of 5 years if the interest rate is 8%.
► Rs.680.58
► Rs.1,462.23
► Rs.322.69
► Rs.401.98
PV= 1000/(1+.08)^5
Question No: 13 ( Marks: 1 ) - Please
choose one
As interest rates go up, the present
value of a stream of fixed cash flows _____.
► Goes down (repeated)
► Goes up
► Stays the same
► Can not be found
Question No: 14 ( Marks: 1 ) - Please
choose one
The benefit we expect from a project
is expressed in terms of:
► Cash in flows
► Cash out flows
► Cash flows
► None of the given options
Question No: 15 ( Marks: 1 ) - Please
choose one
A proposal is accepted if payback
period falls within the time period of 3 years. According to the given criteria
which of the following project will be accepted?
 |
Payback
period
|
|
Project
A
|
1.66
|
|
Project
B
|
2.66
|
|
Project
C
|
3.66
|
► Project A
► Project B
► Project C
► Project A & B (repeated)
Question No: 16 ( Marks: 1 ) - Please
choose one
If a project’s initial cash outflow of
Rs. 100,000 is followed by four annual receipts of 36,000 we can get the
nearest discount factor by:
► Interpolation
► Dividing 100,000 by 36,000
► Dividing 36,000 by 100,000
► Insufficient information
Question
No: 17 ( Marks: 1 ) - Please choose one
In which of the following situations
you can expect multiple answers of IRR?
► More than one sign
change taking place in cash flow diagram
► There are two adjacent arrows one of them is downward pointing & the
other one is upward pointing
► During the life of project if you have any net cash outflow
► All of the given options (P # 55)
Question No: 18 ( Marks: 1 ) - Please
choose one
Which of the following technique would
be used for a project that has non-normal
cash flows?
► Internal rate of return
► Multiple internal rate of
return (P # 55 -- repeated)
► Modified internal rate of return
► Net present value
Question No: 19 ( Marks: 1 ) - Please
choose one
What is the advantage of a longer life of the asset?
► Cash flows from the asset becomes non-predictable
► Cash flows from the asset becomes more
predictable (P # 58 – repeated)
► Cash inflows from the asset becomes more predictable
► Cash outflows from the asset becomes more predictable
Question No: 20 ( Marks: 1 ) - Please
choose one
Which one of the following is NOT
the disadvantage of the asset with very short life?
►
Money has to be reinvested in some other project with uncertain NPV
► Money has to be reinvested in some
other project with certain NPV (doubted
– P # 58)
► Money has to be reinvested in some other project with
return so risky
► None of the given options
Question
No: 21 ( Marks: 1 ) - Please choose one
You
are selecting a project from a mix of projects, what would be your first selection
in descending order to give yourself the best chance to add most to the firm
value, when operating under a single-period capital-rationing constraint?
► Profitability index (PI)
► Net present value (NPV)
► Internal rate of return (IRR) (doubted
– P # 40)
► Payback period (PBP)
Question No: 22 ( Marks: 1 ) - Please
choose one
Which one of the following is the
right of the issuer to call back or retire the bond by paying off the
bondholders before the maturity date?
► Call in
► Call option
► Call provision (repeated – P # 65)
► Put option
Question
No: 23 ( Marks: 1 ) - Please choose one
Which of the following is a
characteristic of a coupon bond?
► Pays interest on a regular
basis (typically every six months)
► Does not pay interest on a regular basis but pays a lump sum at maturity
► Can always be converted into a specific number of shares of common stock in
the issuing company
► Always sells at par
Question
No: 24 ( Marks: 1 ) - Please choose one
When a bond will sell at a discount?
►
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
Question
No: 25 ( Marks: 1 ) - Please choose one
An investment opportunity
set formed with two securities that are perfectly
negatively correlated. What will be standard deviation in the global
minimum variance portfolio?
► Equal to zero
► Greater than zero
► Equal to the sum of the securities' standard
deviations
► Equal to -1
Question No: 26 ( Marks: 1 ) - Please
choose one
How efficient portfolios of
"N" risky securities are formed?
►
These are formed with the securities that have the highest rates of return
regardless of their standard deviations
►
They have the highest risk and rates of return and the highest standard
deviations
►
They are selected from those securities with the lowest standard deviations
regardless of their returns
► They have the highest rates of return for a given level of
risk
Question No: 27 ( Marks: 1 ) - Please
choose one
Which of the following is NOT
an example of hybrid equity?
► Convertible bonds
► Convertible debenture
► Common shares
► Preferred shares
Question No: 28 ( Marks: 1 ) - Please
choose one
The value of dividend is derived from
which of the following?
► Cash flow streams
► Capital gain /loss
► Difference between buying & selling price
► All of the given options (repeated – P # 76)
Question No: 29 ( Marks: 1 ) - Please
choose one
How dividend yield on a stock is
similar to the current yield on a bond?
► Both represent how much each
security’s price will increase in a year
► Both represent the security’s annual
income divided by its price (repeated)
► Both are an accurate representation of
the total annual return an investor can expect to earn by owning the security
► Both incorporate the par value in their
calculation
Question No: 30 ( Marks: 1 ) - Please
choose one
The market capitalization rate on the
stock of Fast Growing Company is 20%. The expected ROE is 22% and the
expected EPS is Rs.6.10. If the firm's plowback ratio is 90%, the P/E
ratio will be ________.
► 8.33
► 50.0
► 9.09
► 7.69
market capitalization
rate A rate of return on investment
based on the expected income.
P/E The most
common measure of how expensive a stock is. The P/E ratio is equal to a stock's
market capitalization divided by its after-tax earnings
K = Capitalization Rate = 20%
Price over earning ratio:
Here is formula for {P/E}
P/E = (1-b) / K-G
G = growth Rate
where G = ROE * b
b = ploy back ratio. Or retained earning
(money which is reinvested in company)
g = ROE * b = .22 * .9 = .198
by plugging the values
in p/e formula
(1 - .9) / (.20 - .198) = 50
Question No: 31 ( Marks: 1 ) - Please
choose one
In the dividend discount model, which
of the following is (are) NOT incorporated into the discount rate?
►
Real risk-free rate
► Risk premium for stocks
► Return on assets (repeated)
► Expected inflation rate
Question
No: 32 ( Marks: 1 ) - Please choose one
A company whose stock is selling at a
P/E ratio greater than the P/E ratio of a market index, most likely has
_________.
► 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 (repeated)
► Less predictable earnings growth than that of the average firm
► Greater cyclicality of earnings growth than that of the average firm
Question
No: 33 ( Marks: 1 ) - Please choose one
Which of the following is the
variability of return on stocks or portfolios not explained by general market
movements. It is avoidable through diversification?
► Systematic risk
► Standard deviation
► Unsystematic risk
► Financial risk
Question
No: 34 ( Marks: 1 ) - Please choose one
When Return is being estimated in % terms, the units of Standard Deviation will be
mention in __________.
► % (P # 87)
► Times
► Number of days
► All of the given options
Question
No: 35 ( Marks: 1 ) - Please choose one
A well-diversified portfolio is
defined as:
► One that is diversified
over a large enough number of securities that the nonsystematic variance is
essentially zero (repeated)
► One that contains securities from at least three different industry sectors
► A portfolio whose factor beta equals 1.0
► A portfolio that is equally weighted
Question No: 36 ( Marks: 1 ) - Please
choose one
Which of the following is NOT a
major cause of` unsystematic risk.
► New competitors
► New product management
► Worldwide inflation (P # 91)
► Strikes
Question No: 37 ( Marks: 1 ) - Please
choose one
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?
►
Project A dominates project B
► Project B dominates project A
► Neither project dominates the other in terms
of risk and return
► Incomplete information
Question
No: 38 ( Marks: 1 ) - Please choose one
Which of the following is a drawback of percentage of sales method?
► It is a rough approximation
► There is change in fixed asset during the forecasted period
► Lumpy assets are not taken into account
► All of the given options (P
# 27)
Question No: 39 ( Marks: 1 ) - Please
choose one
Which of the following need to be
excluded while we calculate the incremental
cash flows?
► Depreciation
► Sunk cost (repeated – P #
51)
► Opportunity cost
► Non-cash item
Question
No: 40 ( Marks: 1 ) - Please choose one
Why companies invest in projects with
negative NPV?
► Because there is hidden value in each project
(repeated – P # 52)
► Because they have chance of rapid growth
► Because they have invested a lot
► All of the given options
Question No: 41 ( Marks: 10 )
ICO
Company must decide between two mutually exclusive projects. The following
information describes the cash flows of each project.
Year
Project "A"
Project "B"
0
Rs. (20,000)
Rs. 24,000
1
10,000
10,000
2
8,000
10,000
3
6,000
10,000
a.
Assume that 15% is the appropriate required rate of return. What decision
should the firm make about these two projects?
b.
If the firm
reevaluated these projects at 10%, what decision should the firm make about
these two projects?
Part a:
Calculate the NPVs
Project A: -$20,000 + $10,000/(1.15)^1 +
$8,000/(1.15)2 + $6,000/(1.15)3 =
-$1,310.10.
Project B: -$24,000 + $10,000/(1.15)1 +
$10,000/(1.15)2 + $10,000/(1.15)3 =
-$1,167.75.
Reject BOTH projects as decreasing shareholder wealth.
Part b: Calculate the NPVs
Project A: -$20,000 + $10,000/(1.1)1 + $8,000/(1.1)2 +
$6,000/(1.1)3 = $210.37.
Project B: -$24,000 + $10,000/(1.1)1 +
$10,000/(1.1)2 + $10,000/(1.1)3 =
$868.52.
Accept
project "B" as it increases shareholder wealth the greatest
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