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Thursday, 18 April 2013

MGT201 solved Quizs


Question No: 1    ( Marks: 1 )    - Please choose one
What is the long-run objective of financial management?
        ► Maximize earnings per share (P # 12)
        ► Maximize the value of the firm's common stock
        Maximize return on investment
        ► Maximize market share
Question No: 2    ( Marks: 1 )    - Please choose one
  Which of the following statement (in general) is correct?
       ► A low receivables turnover is desirable
       ► The lower the total debt-to-equity ratio, the lower the financial risk for a firm
       ►  An increase in net profit margin with no change in sales or assets means a weaker ROI
       ► The higher the tax rate for a firm, the lower the interest coverage ratio
    Question No: 3    ( Marks: 1 )    - Please choose one
 What is the present value of a Rs.1,000 ordinary annuity that earns 8% annually for an infinite number of periods?
       ► Rs.80
        ► Rs.800 
       ► Rs.1,000 
       ► Rs.12,500
    Question No: 4    ( Marks: 1 )    - Please choose one
 Companies and individuals running different types of businesses have to make the choices of the asset according to which of the following?
        ► Life span of the project (P # 57)
       ► Validity of the project 
       ► Cost of the capital 
       ► Return on asset
  Question No: 5    ( 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)
       ► Cash inflows from the asset becomes more predictable
       ► Cash outflows from the asset becomes more predictable
    Question No: 6    ( Marks: 1 )    - Please choose one
 Consider two bonds, A and B.  Both bonds presently are selling at their par value of Rs. 1,000.  Each pays interest of Rs. 120 annually.  Bond A will mature in 5 years while bond B will mature in 6 years. If the yields to maturity on the two bonds change from 12% to 10%, ____________.
        ► Both bonds will increase in value, but bond A will increase more than bond B
       ► Both bonds will increase in value, but bond B will increase more than bond A
       ► Both bonds will decrease in value, but bond A will decrease more than bond B
       ► Both bonds will decrease in value, but bond B will decrease more than bond A
    Question No: 7    ( Marks: 1 )    - Please choose one
 Given no change in required returns, the price of a stock whose dividend is constant will__________.
        ► Remain unchanged
       ► Decrease over time at a rate of r%
       ► Increase over time at a rate of r%
       ► Decrease over time at a rate equal to the dividend growth rate
    Question No: 8    ( Marks: 1 )    - Please choose one
 For most firms, P/E ratios and risk_________.
        ► Will be directly related
       ► Will have an inverse relationship
       ► Will be unrelated
       ► Will both increase as inflation increases
Question No: 9    ( Marks: 1 )    - Please choose one
 Which of the following statement about portfolio statistics is CORRECT?
       ► A portfolio's expected return is a simple weighted average of expected returns of the individual securities comprising the portfolio. (P # 92)
► A portfolio's standard deviation of return is a simple weighted average of individual security return standard deviations.
► The square root of a portfolio's standard deviation of return equals its variance.
► The square root of a portfolio's standard deviation of return equals its coefficient of variation.
 Question No: 10    ( Marks: 1 )    - Please choose one
 Which of the following is simply the weighted average of the possible returns, with the weights being the probabilities of occurrence?
        ► A probability distribution
       ► The expected return (P # 92 – repeated)
       ► The standard deviation
       ► Coefficient of variation
    Question No: 11    ( Marks: 1 )    - Please choose one
 The square of the standard deviation is known as the ________.
        ► Beta
       ► Expected return
       ► Coefficient of variation
       ► Variance (P # 86 & 98)
 Question No: 12    ( Marks: 1 )    - Please choose one
 Why companies invest in projects with negative NPV?
        ► Because there is hidden value in each project (P # 52 -- repeated)
       ► Because they have chance of rapid growth
       ► Because they have invested a lot
       ► All of the given options
    Question No: 13    ( Marks: 1 )    - Please choose one
 An investor was expecting a 18% return on his portfolio with beta of 1.25 before the market risk premium increased from 8% to 10%. Based on this change, what return will now be expected on the portfolio? 
       ► 22.5% (not sure -- 18 x 1.25)
       ► 20.0%
       ► 20.5%
       ► 26.0%
    Question No: 14    ( Marks: 1 )    - Please choose one
 Which of the following is the characteristic of a well diversified portfolio?
       ► Its market risk is negligible
       ► Its unsystematic risk is negligible
       ► Its systematic risk is negligible
       ► All of the given options
    Question No: 15    ( Marks: 1 )    - Please choose one
 How the beta of a stock can be calculated?
       ► 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 (P # 102 --- It is a tendency of a Stock to move with the Market)
       ► All of the given options
    Question No: 16    ( Marks: 1 )    - Please choose one
 Which of the following formula relates beta of the stock to the standard deviation?
       ► Covariance of stock with market * variance of the market
       ► Covariance of stock with market / variance of the market (P # 108)
       ► Variance of the market / Covariance of stock with market
       ► Slope of the regression line
   
Question No: 17    ( Marks: 1 )    - Please choose one
 A beta greater than 1 for a stock shows:
       ► Stock is relatively more risky than the market
       ► If the market moves up by 10% the stock will move up by 12%
       ► As the market moves the stock will move in the same direction
       ► All of the given options (P # 109)
    Question No: 18    ( Marks: 1 )    - Please choose one
 If stock is a part of totally diversified portfolio then its company risk must be equal to:
       ► 0  (P # 109)
       ► 0.5
       ► 1
       ► -1
    Question No: 19    ( Marks: 1 )    - Please choose one
 If risk and return combination of any stock is above the SML, what does it mean?
       ► 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 (P # 113)
       ► Its rate of return is zero as compared to the efficient stock
       ► It is offering rate of return equal to the efficient stock
    Question No: 20    ( Marks: 1 )    - Please choose one
 An arbitrage opportunity exists if an investor can construct a __________ investment portfolio that will yield a sure profit.
       ► Positive
       ► Negative
       ► Zero
       ► All of the given options
    Question No: 21    ( Marks: 1 )    - Please choose one
 Which of the following factors might affect stock returns?
       ► The business cycle
       ► Interest rate fluctuations
       ► Inflation rates
       ► All of the given options (P # 68 -- investment for long term period there are more chances of fluctuation in interest rate and the inflation rate.)
    Question No: 22    ( Marks: 1 )    - Please choose one
 If arbitrage opportunities are to be ruled out, what would be the expected excess return of each well-diversified portfolio?
       ► Inversely proportional to the risk-free rate
       ► Inversely proportional to its standard deviation
       ► Proportional to its standard deviation
       ► Proportional to its beta coefficient
    Question No: 23    ( Marks: 1 )    - Please choose one
 Which of the following represent all Risk –Return Combinations for the efficient portfolios in the capital market?
       ► Parachute graph (P # 117)
       ► CML straight line equation
       ► Security market line
       ► All of the given options
 
Question No: 24    ( Marks: 1 )    - Please choose one
 What should be used to calculate the proportional amount of equity financing employed by a firm?
► 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
 Question No: 25    ( Marks: 1 )    - Please choose one
 Which of the following is the market for short term debt?
        ► Money market (repeated)
       ► Capital market
       ► Real asset market
       ► Equity market
    Question No: 26    ( Marks: 1 )    - Please choose one
 Bonds are issued in the market at _________.
        ► Premium
       ► Discount
       ► Both premium and discount (P # 124)
       ► None of the given options
    Question No: 27    ( Marks: 1 )    - Please choose one
 Why debt is a less costly source of fund?
        ► Because additional interest creates a new form of tax shield
       ► Because additional money creates a new form of tax shield
       ► Because banks extend loan at lower interest rates
       ► None of the given options 
   Question No: 28    ( Marks: 1 )    - Please choose one
 Which of the following is as EBIT?
        ► Funds provided by operations
       ► Earnings before taxes
       ► Net income
       ► Operating profit
    Question No: 29    ( Marks: 1 )    - Please choose one
 Calculate the degree of operating leverage (DOL) at 400,000 units of quantity sold. The firm has Rs.1, 000,000 in fixed costs. The firm anticipates selling each unit for Rs.25 with variable costs of Rs.5 per unit.
►  3.33
► 1.25
► 1.14
► There is not sufficient information provided to calculate the degree of operating leverage (DOL).
   Question No: 30    ( Marks: 1 )    - Please choose one
 A firm has a DOL of 3.5 at Q units. What does this tell us about the firm?
       ►  If sales rise by 3.5% at the firm, then EBIT will rise by 1%
       ►  If EBIT rises by 3.5% at the firm, then EPS will rise by 1%
       ► If EBIT rises by 1% at the firm, then EPS will rise by 3.5%
       ►  If sales rise by 1% at the firm, then EBIT will rise by 3.5%
    Question No: 31    ( Marks: 1 )    - Please choose one
 Which of the following represents financial leverage?
       ► Use of more debt capital to increase profit
       ► Debt is not used in capital to increase profit
       ► High degree of solvency
       ► Low degree of solvency
    Question No: 32    ( Marks: 1 )    - Please choose one
 Which of the following best describes the statement; “The value of an asset is preserved regardless of the nature of the claims against it”?
       ► Law of diminishing marginal returns
       ► Law of conservation of value
       ► Law of return on equity
       ► Law of return on assets
    Question No: 33    ( Marks: 1 )    - Please choose one
 Firm ABC has Rs.5 million in outstanding debt, currently has 200,000 shares outstanding priced at Rs.60 a share, and has a borrowing rate of 10%. If the firm's return on equity is 15%, what is the firm's WACC?
       ► 5.00%
       ► 3.23%
       ► 4.25%
       ► 2.16%
    Question No: 34    ( Marks: 1 )    - Please choose one
 Which of the following statements regarding the M&M Propositions without taxes is true?
       ► The total value of the firm depends on how cash flows are divided up between stockholders and bondholders, under M&M Proposition I.
       ► The firm's capital structure is relevant under M&M Proposition I.
       ► The cost of equity depends on the firm's business risk but not its financial risk, under M&M Proposition II.
       ► The cost of equity rises as the firm increases its use of debt financing under M&M Proposition II.
    Question No: 35    ( Marks: 1 )    - Please choose one
 Which one of the following is correct for the spot exchange rate? 
       ► This is the rate today for exchanging one currency for another for immediate delivery
       ► This is the rate today for exchanging one currency for another at a specific future date
       ► This is the rate today for exchanging one currency for another at a specific location on a specific future date
       ► This is the rate today for exchanging one currency for another at a specific location for immediate delivery
  Question No: 36    ( Marks: 1 )    - Please choose one
 The restructuring of a firm should be undertaken, when:
       ► The restructuring is expected to create value for shareholders
       ► The restructuring is expected to increase earnings per share next year
       ► The restructuring is expected to increase the firm's market share power in industry
       ► The current employees will receive additional stock options to align employee interest
    Question No: 37    ( Marks: 1 )    - Please choose one
 Which of the following term is used when the firm can independently control considerable assets with a very limited amount of equity?
       ► Joint venture
       ► Leveraged buyout (LBO)
       ► Spin-off
       ► Consolidation
    Question No: 38    ( Marks: 1 )    - Please choose one
 What is the economic order quantity for an automobile dealer selling 2,000 cars per year, at a cost of Rs.750 per order, and a carrying cost of Rs.300 per automobile?
       ► 40 cars
       ► 71 cars
       ► 100 cars
       ► 126 cars
    Question No: 39    ( Marks: 1 )    - Please choose one
 As the amount of __________ increases the present value of net tax-shield benefits of debt increases.
       ► Debt
       ► Common equity
       ► Preffered equity
       ► Assets
    Question No: 40    ( Marks: 1 )    - Please choose one
 Why the present value of the costs of financial distress increases with increases in the debt ratio?
       ► Expected return on assets increases
       ► Present value of the interest tax shield is greater
       ► Equity tax shield is depleted
       ► Probability of default and/or bankruptcy is greater

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